Confidence in the market for new multifamily housing increased in the second quarter but still remains in negative territory, according to the National Association of Home Builders (NAHB). The Multifamily Production Index (MPI) rose 10 points to 37, but is still below its break even point of 50, which indicates that more builders and developers view conditions as weaker than stronger (Figure 1). Meanwhile, the Multifamily Vacancy Index (MVI) increased three points to 62 (Figure 2), with higher numbers indicating more vacancies.
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 is a weighted average of three key elements of the multifamily housing market: construction of low-rent units (apartments supported by low-income tax credits or other government subsidy programs), market-rate rental units, and for-sale units.
All three components of the MPI posted increases in the second quarter: the component measuring low-rent units rose 10 points to 42, the component measuring market rate rental units increased five points to 34 and the component measuring for-sale units jumped to 35.
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 over 50 indicates more property managers believe vacancies are increasing than decreasing. In the second quarter the MVI rose 3 points to 62, the highest reading since 2009.
This quarter, the Multifamily Market Survey also included a special question asking respondents to identify the percentage of their tenants who missed their last scheduled monthly rent payment. Respondents were asked to provide percentages for their overall property portfolio and by property class (Figure 3). Respondents report that, overall, 7.9 percent of tenants missed their last payment. They also report that 6.7 percent of tenants in Class A apartments missed their last payment, compared to 5.7 percent in Class B, and 10.1 percent in Affordable/LIHTC properties.
The MPI and MVI readings this quarter reflect a multifamily housing market that is continuing its climb back to pre-pandemic levels. The recovery is further evidenced by July multifamily start numbers from the Census Bureau, which show a clear acceleration in starts activity from previous months.
It is important to note, however, that demand remains subdued in the multifamily market due to higher unemployment numbers. Furthermore, builder and developers are still facing challenges with material costs.
For data tables on the MPI and MVI, visit www.nahb.org/mms.—