Hardware Retailing The Industry's Source for Insights and Information
Confidence in the market for new multifamily housing weakened year-over-year in the third quarter, according to the Multifamily Market Survey (MMS) recently released by the National Association of Home Builders (NAHB). The MMS produces two separate indices. The Multifamily Production Index (MPI) had a reading of 41, down five points year-over-year, while the Multifamily Occupancy Index (MOI) had a reading of 69, also down five points year-over-year.
The MPI measures builder and developer sentiment about current production conditions in the apartment and condo market on a scale of 0 to 100. The index and all its components are scaled so that a number below 50 indicates that more respondents report conditions are poor than report conditions are good.
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) and one in the built-for-sale (or condominium) market. Each of the MPI’s four components was down year-over-year and in negative territory: The component measuring garden/low-rise units dropped five points to 46, the component measuring mid/high-rise units fell four points to 33, the component measuring subsidized units dropped six points to 49 and the component measuring built-for-sale units fell four points to 31.
The MOI measures the multifamily housing industry’s perception of occupancies in existing apartments on a scale of 0 to 100. The index and all its components are scaled so that a number above 50 indicates more respondents report that occupancy is good than report it is poor. While the reading of 69 indicates existing apartment owners are positive about occupancy overall, it is weaker than it was a year ago.
The MOI is a weighted average of three built-for-rent market segments (garden/low-rise, mid/high-rise and subsidized). Although all three remained above the break-even point of 50: The component measuring garden/low-rise units fell six points to 70, the component measuring mid/high-rise units dropped seven points to 59 and the component measuring subsidized units increased two points to 83.
“Developer sentiment about new multifamily production has definitely softened, due to challenges such as rising interest rates, construction costs that are high relative to rents, and problems getting projects approved and connected to roads and utilities,” says Kip Lewis, director of construction management at OCCH in Columbus, Ohio, and chairman of NAHB’s multifamily council. “As a result, many projects are taking longer to complete.”
“It is not surprising that the MPI is down year-over-year given supply-side headwinds such as high interest rates and a rising rental vacancy rate,” says NAHB chief economist Robert Dietz. “Due to the headwinds still facing the industry, NAHB’s 2027 forecast shows a decline for multifamily starts. And although the administration’s regulatory reform efforts are helping to ease some cost pressures, the multifamily sector would still benefit from an expedited permit process and lower rates on development and construction loans.”
