NAHB: Multifamily Construction Sentiment Declines in 2Q

According to the results from the National Association of Home Builders (NAHB) Multifamily Market Survey (MMS), confidence in the market for new multifamily housing decreased in the second quarter.

On the two separate indices produced by the MMS, the Multifamily Production Index (MPI) dropped three points to 48 compared to the previous quarter and the Multifamily Occupancy Index (MOI) increased six points to 70, the data shows. 

The MPI measures builder and developer sentiment about current conditions in the apartment and condo market on a scale of 0 to 100, NAHB said.

The index and all of its components are scaled so that a number below 50 indicates that more respondents report conditions are getting worse than report conditions are improving, according to NAHB. 

The MPI is a weighted average of three key elements of the multifamily housing market: Construction of low-rent units-apartments that are supported by low-income tax credits or other government subsidy programs; market-rate rental units-apartments that are built to be rented at the price the market will hold; and for-sale units-condominiums, according to NAHB. 

To generate data for the MPI, the survey asks multifamily builders to rate the production of new apartments for three key market segments (low-rent, market rent, and for-sale) as “stronger”, “about the same”, or “weaker”, compared to the previous quarter, NAHB noted. 

According to the data, the component measuring low-rent units rose three points to 49, the component measuring market-rate rental units fell three points to 51 and the component measuring for-sale units dropped seven points to 45.

The MOI replaces the former Multifamily Vacancy Index, or MVI, and is based on the same underlying data, according to NAHB. 

The MOI measures the multifamily housing industry's perception of occupancies in existing apartments. To generate data for the MOI, the survey asks multifamily builders to rate the occupancy of multifamily units as “higher”, “about the same”, or “lower” for three classes of apartments (class A, class B, and class C apartments), compared to the previous quarter, per NAHB.

According to NAHB, it is a weighted average of current occupancy indexes for class A, B, and C multifamily units, and can vary from 0 to 100, with a break-even point at 50, where higher numbers indicate increased occupancy. 

With the MOI at 70, this is the highest reading since the inception of the series, NAHB pointed out. 

"Demand for rental housing remains strong, but headwinds that have emerged in some parts of the country are slowing the production of new apartments," said Justin MacDonald, president and CEO of The MacDonald Companies in Kerrville, Texas, and chairman of NAHB's Multifamily Council. "The moratorium on evictions is making it difficult to obtain financing in places where rental assistance is inadequate to offset the moratorium. In other places, local governments imposing new regulations and switching to virtual meetings are making it take longer to obtain approvals."

"The MPI softened slightly in the second quarter while multifamily production continued to increase, but it is typical for the MPI to turn one to three quarters before starts," NAHB Economist Robert Dietz added. "Nevertheless, the MPI remains as strong as it was at anpoint in 2020 and NAHB expects more apartments to be started in 2021 than in 2019 or 2020."

For data tables on the MPI and MOI, visit http://www.nahb.org/mms.