Builders Still Feel Good About Multifamily Market
In NAHB’s multifamily production index, any number above 50 means attitudes are more positive than negative, and in 2Q, it was 56 for the second quarter in a row.
WASHINGTON – Builders’ confidence about the market for new multifamily housing was in positive territory for the second quarter in a row, according to results from the National Association of Home Builders’ (NAHB) Multifamily Market Survey (MMS).
Two indices make up the complete MMS: The Multifamily Production Index (MPI) had a reading of 56 for the second quarter, while the Multifamily Occupancy Index (MOI) reading was 89.
Multifamily Production Index (MPI)
The MPI measures sentiment about current production conditions in the apartment and condo market on a scale of 0 to 100, with 50 the break-even point – anything above means builders lean toward optimism more than pessimism, with the opposite true for any number below 50. At 56 in the second quarter of 2023, builders are notably optimistic.
The MPI is a weighted average of four key market segments: three in the built-for-rent market (garden/low-rise, mid/high-rise and subsidized) plus the built-for-sale (or condominium) market. The survey asks multifamily builders to rate the current conditions as “good,” “fair” or “poor” for multifamily starts in markets where they are active.
For the second quarter, the component measuring:
- garden/low-rise units had a reading of 64
- mid/high-rise units had a reading of 47
- subsidized units had a reading of 55
- built-for-sale units had a reading of 45
Multifamily Occupancy Index (MOI)
The MOI measures the multifamily housing industry’s perception of occupancies in existing apartments, using the same 0 to 100 rating scale with 50 the midpoint.
The MOI is a weighted average of three built-for-rent market segments (garden/low-rise, mid/high-rise and subsidized). The survey asks multifamily builders to rate the current conditions for occupancy of existing rental apartments in markets where they are active as “good,” “fair” or “poor.”
For the second quarter, the component measuring:
- garden/low-rise units had a reading of 91
- mid/high-rise units had a reading of 83
- subsidized units had a reading of 91
NAHB redesigned the MMS in the first quarter of 2023. It’s now easier to interpret and similar to the monthly NAHB/Wells Fargo Housing Market Index for single-family housing. However, the change makes any comparison to previous year’s numbers misleading. Still, the updated version asked builders and developers to compare current local market conditions as “better,” “about the same” or “worse,” and 70% said the market is “about the same” as it was three months earlier.
“Multifamily housing demand remains solid, however, there are headwinds limiting new development in many parts of the country,” says Lance Swank, chairman of NAHB’s Multifamily Council. “Reduced availability of credit for new construction, problems getting projects approved and significant increases in operating expenses are hampering new multifamily development. Property, casualty and liability insurance has emerged as a major issue facing the multifamily industry, further constraining new supply.”
NAHB Chief Economist Robert Dietz says the multifamily market is being supported by tight inventory and high cost of existing single-family homes.
“On balance, we forecast that multifamily starts will decline during the second half of 2023 due to tight financing conditions and local concerns over supply,” Dietz says.
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