Confidence in the multifamily housing market weakened in the third quarter, according to results from the Multifamily Market Survey (MMS) released today by the National Association of Home Builders (NAHB). The MMS produces two separate indices: The Multifamily Production Index (MPI), which dropped three points to 48 compared to the previous quarter; and the Multifamily Vacancy Index (MVI), which rose two points to 47 compared to the previous quarter.
The MPI measures builder and developer sentiment about current conditions in the apartment and condo market on a scale of 0 to 100. The index and all of its components are scaled so that a number above 50 indicates that more respondents report conditions are improving than report conditions are getting worse.
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. The component measuring low-rent units increased two points to 59, while the component measuring market rate rental units fell four points to 46 and the component measuring for-sale units dropped seven points to 39.
The MVI measures the multifamily housing industry's perception of vacancies. It is a weighted average of current occupancy indexes for class A, B, and C multifamily units, and can vary from 0 to 100, where any number over 50 indicates more property managers report more vacant apartments. A reading of 47 is the highest since the first quarter of 2010.
“We are starting to see an increase in vacancy rates, which may indicate a saturation in the luxury apartment market” said Steve Lawson, president of The Lawson Companies in Virginia Beach, Va., and chairman of NAHB’s Multifamily Council. “Rising regulatory and construction costs are also affecting developers’ ability to build apartments for the ‘middle-income’ market where housing is greatly needed.”
“The drop in the MPI is consistent with affordability concerns that have emerged in the single-family market. Both sectors of the housing market face similar challenges, such as shortages of labor and increased regulatory costs,” said NAHB Chief Economist Robert Dietz. “This quarter’s MPI is yet another signal to policymakers that they should be paying more attention to housing market conditions as interest rates increase.”
Historically, the MPI and MVI have performed well as leading indicators of U.S. Census figures for multifamily starts and vacancy rates, providing information on likely movement in the Census figures one to three quarters in advance.
For data tables on the MPI and MVI, visit www.nahb.org/mms.
For more information on the NAHB Multifamily program, please visit NAHB Multifamily: https://www.nahb.org/en/members/committees-and-councils/councils/multifamily-council/nahb-multifamily.