Multifamily developer confidence was up in the third quarter, according to the National Association of Home Builders’ (NAHB’s) Multifamily Market Survey. The Multifamily Production Index (MPI) had a reading of 45, up six points year over year, while the Multifamily Occupancy Index (MOI), at 74, was down one point year over year.
The MPI measures builder and developer sentiment about conditions in the apartment and condo market on a scale of 0 to 100. According to the NAHB, the index and all of its components are scaled so that a number below 50 indicates more respondents are reporting that conditions are getting worse rather than improving.
The MPI is a weighted average of four key market segments: three in the build-to-rent market—garden/low-rise, mid/high-rise, and subsidized—and the build-for-sale, or condo, units.
- Garden/low-rise: Increased three points to 51;
- Mid/high-rise: Jumped nine points to 37;
- Subsidized: Rose nine points to 55; and
- Build-for-sale: Increased six points to 35.
“We are seeing a degree of bifurcation in the multifamily market, as developers of low-rise market-rate and subsidized rental properties express increased optimism, while developers of mid- and high-rise properties and condominiums remail less confident,” said Debra Guerrero, senior vice president of strategic partnerships and government affairs at The NRP Group and chairman of NAHB’s Multifamily Housing Council. “Significant challenges such as the current regulatory environment, rising construction costs, and difficulties in securing project financing continue to affect the multifamily sector as a whole.”
The MOI’s reading of 74 indicates apartment owners are positive about occupancy; however, this is the lowest reading for this measure over the last 11 quarters. The MOI measures the multifamily industry’s perception of occupancies in existing apartments. It is a weighted average of current occupancy indexes for garden/low-rise, mid/high-rise, and subsidized and can vary from 0 to 100, with a break-even point at 50, where higher numbers indicate occupancy is good. The garden/low-rise component fell one point to 76, the mid/high-rise component remained flat at 66, and the component for subsidized units was down five points to 81.
“The MPI and MOI are giving us a mixed picture of the multifamily market, with strength in some market segments, but weakness concentrated in the mid- to high-rise developments that tend to be common in high-density metro areas,” said NAHB chief economist Robert Dietz. “This is consistent with NAHB’s Home Building Geography Index, which shows multifamily construction activity growing in areas with low population densities but weakening in the larger metros.”
In addition, 10% of respondents in the third quarter said the current market is better, while 22% said it is worse. However, the majority, 68%, cited the market being roughly the same as it was three months ago.