According to the National Association of Home Builders’ (NAHB’s) Multifamily Market Survey, confidence in the market for new multifamily housing has increased in the third quarter, but uncertainly remains. The Multifamily Production Index (MPI) rose 11 points to 48 compared with the previous quarter, and the Multifamily Vacancy Index (MVI) decreased 18 points to 44, with the smaller numbers indicating fewer vacancies.
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 below 50 indicates more respondents are reporting that conditions are getting worse than improving.
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. All three saw increases in the third quarter, with the component measuring low-rent units increasing 4 points to 46, the component measuring market-rate units rising 19 points to 53, and the component measuring for-sale units posting an 11-point gain to 46.
The MVI measures the multifamily industry’s perception of vacancies. It is a weighted average of current occupancy indexes for Class A, B, and C units, and can vary from 0 to 100, where a number under 50 indicates more property managers believe vacancies are decreasing rather than increasing. According to the NAHB, with the reading of 44, the MVI improved from the second quarter’s index high of 62.
“Sentiment regarding the multifamily housing market has risen from recent lows, but there are persistent headwinds and ongoing uncertainty,” said Barry Kahn, president of Hettig-Kahn Holdings in Houston and chairman of NAHB’s Multifamily Council. “Nevertheless, lenders see multifamily performing better than most other forms of commercial real estate.”
Historically, the NAHB’s 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 one to three quarters in advance.
“The third-quarter survey results and NAHB’s forecast suggest a rising share of multifamily construction in less dense areas of the nation in need of rental housing,” added NAHB chief economist Robert Dietz. “However, material availability is a near-term concern, with the potential for rising regulatory risk in 2021.”
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