Multifamily Builder and Developer Confidence Weakens Slightly in Fourth Quarter

February 21, 2019

Confidence in the market for new multifamily housing weakened slightly in the fourth 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) dropped one point to 47 compared to the previous quarter, indicating weakening confidence. Meanwhile, the Multifamily Vacancy Index (MVI) moved down two points to 45, representing a slight improvement in confidence about the market for existing apartments.

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 below 50 indicates that more respondents report conditions are getting worse than report conditions are improving. The MPI has been slightly below 50 for two consecutive quarters.

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. All three components were below 50 in the fourth quarter. The component measuring low-rent units fell 11 points to 48, while the component measuring market rate rental units increased three points to 49 and the component measuring for-sale units rose five points to 44.

The MVI measures the multifamily housing industry's perception of vacancies in existing apartments. 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 a number under 50 indicates more property managers believe vacancies are decreasing than increasing. With a reading of 45, the MVI improved two points from the previous quarter, returning to where it had been in the second quarter.

"We saw a big drop in the component for low rent starts, even though that is the segment of the market where demand tends to be the strongest," said Steve Lawson, president of The Lawson Companies in Virginia Beach, Va., and chairman of NAHB’s Multifamily Council. "Rising construction costs and difficulty with getting projects approved have made building particularly challenging in some parts of the country."

"The MPI is down a point and under 50 for the second straight quarter, indicating a slight weakening for multifamily developer sentiment," said NAHB Chief Economist Robert Dietz. "This is in line with our 2019 forecast that multifamily starts will level off and edge down slightly from last year’s very solid rate of production."

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.aspx.