The correct option is D difficult: It has been more common for some townhouses and other “attached” homes that are relatively small and old and located in central cities.
The most obvious decision point in this problem is the choice of between a semi-colon and a colon. Interestingly, you could have either here: A semi-colon is used to link together related independent clauses and a colon is used to deliver more information about the clause that precedes it. This meets both conditions, but the colon use is more unusual for most students. (A), (B), (C), all suffer from errors in the series at the end of the sentence. In (A), “that are relatively small and old, located in central cities” is wrong because the “located in central cities” is a dangling modifier that cannot be properly linked to anything. In (B), you cannot have the structure: that are x, y, and that are z. In (C) the incorrect “which” clause would mean that all townhouses and “attached” homes are small and old and the “and located in central cities” is not linked to anything logical in the sentence. (D) is correct: the sentence after the colon is complete so it is capitalized and adds information to what precedes it. It is clear in (D) that the homes have two qualities: they are “relatively small and old” and “located in central cities.” In (E), the “and located in central cities” is improperly separated from a series that begins with “that”. Answer is (D).