From Tolkien Gateway

Originally, the Hobbits' preferred style of dwelling was holes buried into hillsides, downs and banks. By the late Third Age, these had largely been replaced by buildings of wood or brick, but hobbit-holes were still in use by the more established Hobbit families of the Shire, known as smials (for example, at Bag End and Great Smials), or by the poorest who "went on living in burrows of the most primitive kind, mere holes indeed, with only one window or none".[1]

Bree-hobbits burrowed Hobbit-holes in the Bree-hill.