NAHB: Multifamily Construction Sentiment Improves in Q3

Article originally posted on Multifamily Executive on November 22, 2021

Demand is keeping occupancy strong; however, headwinds remain

Confidence in the market for new multifamily housing picked back up in the third quarter, according to the National Association of Home Builders’ (NAHB’s) Multifamily Market Survey. The Multifamily Production Index (MPI) increased five points to 53 compared with the second quarter.

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 above 50 indicates more respondents are reporting that conditions are improving than getting worse.

“Strong demand and limited inventory of all types of housing are keeping occupancy strong in multifamily properties across the country,” said Justin MacDonald, president and CEO of The MacDonald Cos. in Kerrville, Texas, and chairman of NAHB’s Multifamily Council. “For that same reason, we have seen robust production of new multifamily properties, although developers continue to deal with very significant supply side challenges, like finding enough labor, materials, and land to build on.”

The MPI is a weighted average of three key multifamily market elements: construction of low-rent units—apartments that are supported by low-income housing tax credits or other government subsidized programs; market-rate rental units; and for-sale units. The component measuring low-rent units increased six points to 55, the component measuring market-rate units increased nine points to 60, and the component measuring for-sale units posted a two-point gain to 47.

The Multifamily Occupancy Index (MOI) also rose five points to 75, the highest reading since the start of the series. The MOI measures the multifamily industry’s perception of occupancies in existing apartments. It is a weighted average of current occupancy indexes for Class A, B, and C units and can vary from 0 to 100, with a break-even point at 50, where higher numbers indicate increased occupancy.

“The record-level MOI is consistent with the strong multifamily occupancy rates reported by the Census Bureau, which are now higher than they’ve been since the 1980s,” said NAHB chief economist Robert Dietz. “And an MPI back above 50 is consistent with multifamily housing starts, which have been running at a 460,000-plus annualized rate through the first three quarters of 2021 and should make 2021 the strongest year for multifamily production that we’ve seen since the tax policy-driven surge of the 1980s. As the economy continues to reopen, housing demand is rising in higher-density markets, supporting both multifamily occupancy and production.”