Multifamily Construction Sentiment Declines in Second Quarter

Photo by Ioana Cristiana on Unsplash
Published On
Aug 24, 2021

According to the results of the Multifamily Market Survey (MMS) released by the National Association of Home Builders (NAHB), Washington, D.C., confidence in the market for new multifamily housing decreased in the second quarter of 2021.

The MMS produces two separate indices, both on a scale of 0 to 100. One is the Multifamily Production Index (MPI), which went down by three points to 48, compared to the previous quarter.

The MPI measures builder and developer sentiment about current conditions in the apartment and condo market. If the number is below 50, it indicates that more respondents report conditions are getting worse than those who report improving conditions.

In specific, the component of the MPI that measures low-rent units rose three points (to 49), while the component measuring market-rate rental units fell three points (to 51) and the component measuring units for sale dropped seven points, to 45.

While the MPI dropped three points overall, the other index, the Multifamily Occupancy Index (MOI), increased six points from the last quarter, to 70. The MOI measures the perception of the multifamily housing industry of occupancies in already-existing apartments. It is a weighted average of current occupancy indices for different classes of multifamily units. As with the MPI, the MOI’s break-even point is 50, with higher numbers indicating increased occupancy.

And interesting, according to the NAHB, the MOI at 70 is the highest reading for this index since the inception of the series.

“Demand for rental housing remains strong, but headwinds that have emerged in some parts of the country are slowing production of new apartments,” said Justin MacDonald, president and CEO of the MacDonald Companies in Kerrville, Texas, and chairman of NAHB’s Multifamily Council.

MacDonald added that 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 that are imposing new regulations and/or switching to virtual meetings are making it take longer to obtain approvals,” he said.

There is some good news on the horizon, though.

“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,” said NAHB’s chief economist and senior vice president for economics and housing policy, Robert Dietz.

Nevertheless, he added, the MPI remains as strong as it was at any point in 2020, and NAHB expects more apartments to be started in 2021 than in 2019 or 2020.


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