Does buddhism allow for families?

According to Dhammachakka sutta, the first sermon of Buddha, four noble truths are explained in the following sequence:

... 'Now, this dukkha ariyasacca is to be completely known'
...'Now, this dukkha·samudaya ariyasacca is to be abandoned'
....'Now, this dukkha·nirodha ariyasacca is to be personally experienced'
.. 'Now, this dukkha·nirodha·gāminī paṭipadā ariyasacca is to be developed'

So you can not "end attachment" as the first step. That should be the second step. First you should see or know(pariññeyya) the dukkha ariyasacca as it is. When you do so, attachment to dukkha can be abandoned.

How does buddhism allow for the existence of families?

Based on Kaccayanagotta sutta, the Buddha says,

"'Everything exists': That is one extreme. 'Everything doesn't exist': That is a second extreme. Avoiding these two extremes, the Tathagata teaches the Dhamma via the middle

Then he describes the origination and cessation of dukkha based on paticcasamuppada.

what Dhamma does recognize is that being a family person diminishes one's chances to attain nibbana

but Dhamma is not God's Commandments, the Buddha explained what's preferable, the choice is up to us

"There is the case, great king, where a Tathagata appears in the world, worthy and rightly self-awakened. He teaches the Dhamma admirable in its beginning, admirable in its middle, admirable in its end. He proclaims the holy life both in its particulars and in its essence, entirely perfect, surpassingly pure.

"A householder or householder's son, hearing the Dhamma, gains conviction in the Tathagata and reflects: 'Household life is confining, a dusty path. The life gone forth is like the open air. It is not easy living at home to practice the holy life totally perfect, totally pure, like a polished shell. What if I were to shave off my hair and beard, put on the ochre robes, and go forth from the household life into homelessness?'

"So after some time he abandons his mass of wealth, large or small; leaves his circle of relatives, large or small; shaves off his hair and beard, puts on the ochre robes, and goes forth from the household life into homelessness.

"When he has thus gone forth, he lives restrained by the rules of the monastic code, seeing danger in the slightest faults. Consummate in his virtue, he guards the doors of his senses, is possessed of mindfulness and alertness, and is content.

Samannaphala sutta (DN 2)

then again there have been householders who attained noble levels, so it's all not totally foregone

As Thiago's answer says there are many suttas which give advice to lay people.

One of these, for example, is the Sigalovada Sutta, which includes advice about how to spend and save money, how to behave towards your parents, spouse, teachers, friends, workers, etc.

There's a book titled The Buddha's Teachings on Prosperity which references and summarizes some of these suttas, which give specific advice to laypeople; for example, this answer summarizes its advice on how to choose a spouse.

I don't know of any canonical source explicitly and precisely dealing with this question. To start, here's what Bhikkhu Bodhi writes on the Pali Canon¹:

"Within the Pāli Canon, the texts known as the Nikāyas have the special value of being a single cohesive collection of the Buddha’s teachings in his own words. These teachings cover a wide range of topics; they deal not only with renunciation and liberation, but also with the proper relations between husbands and wives, the management of the household, and the way countries should be governed. They explain the path of spiritual development—from generosity and ethics, through mind training and the realization of wisdom, all the way up to the attainment of liberation."

What we know from these discourses and from the general structure of the buddhist communities is that:

• laity (people holding jobs, wealth and family) is an important part of the buddhist community since the Buddha's time: they support monks with food, cloth, medicine, etc. (There's much more to be said here, though)
• The Buddha taught to lay people how to have a proper lay life (instead of restricting himself to ask them to renounce family and wealth and become monks/nuns). That is, one conductive to good destination or Nirvana. One study² found 208 suttas addressed to laity in the pali canon.

Now, what we can infer from the discourses is that Buddhism does not present a teleology, an ideal like "every being should be in Nirvana" as if everything else was essentially wrong (e.g. have a family, have kids, indulge in all kinds of worldly activities, etc).

What it does is recognize aspects of our reality, present an explanation for our essential anxiety, and offer a way to resolve it or diminish it, if one is so inclined to accept it and is willing to do something about it -- under various degrees of interest (from abandoning unwholesome actions of body/speech/mind, through meditation, or finally to deciding to abandon wealth and possessions to become a monk/nun). I'd say this is the character of every sutta.

Since any wholesome action is conductive to Nirvana, any wholesome action is a step forward, regardless if one is a monk or a husband. Thus Buddhism is regarded as a "path": it's a process. Furthermore, it classifies many stages of attainment, according to what kind of attachment has been eliminated.

Hence, some teachings are presented culminating in Nirvana. Other teachings are presented culminating in "a better destination after death" (e.g. some heavens where there's less suffering). If one is unwilling to abandon all attachments, Buddha dhamma still teaches how to ease suffering (and perhaps appear in a better place -- and maybe there, attain Nirvana). In any case, all buddha-dhamma teachings, ultimately, converge to Nirvana.

¹ Bodhi, In the Buddha's words: An Anthology of Discourses from the Pali Canon

² Kumaratne, Manohari Savithri, Buddha's teachings applicable to the laity: Case studies from the Pali Nikayas