Builders Not Excited About the Multifamily Market

NAHB’s multifamily confidence index for the second quarter found a 10-point increase in builder optimism – but at 37, attitudes still remain below the median score of 50.

WASHINGTON – Builder confidence in the market for new multifamily housing increased 10 points in the second quarter – but even with that boost, the Multifamily Market Survey (MMS) remains in negative territory. The MMS measures builder and developer sentiment about current conditions in the apartment and condo market.

The MMS has two components, with the Multifamily Production Index (MPI) measuring overall optimism about the market. It’s based on a scale form 0 to 100, with a score of 50 representing balance; anything above is optimism territory, and anything below 50 is pessimism. In the second quarter, the MPI rose 10 points quarter-to-quarter, but it was still only 37.

NAHB creates the MPI using a weighted average of three key elements in the multifamily housing market, and all three rose in the second quarter:

• Construction of low-rent units-apartments supported by low-income tax credits or other government subsidies – up 10 points to 42

• Market-rate rental units-apartments built to be rented at the price a market will bear – up five points to 34

• For-sale units-condominiums – up 13 points to 35

A separate index, the Multifamily Vacancy Index (MVI), increased three points to 62 – but for the MVI, higher numbers indicate more vacancies.

The MVI is a weighted average of current occupancy indexes for class A, B, and C multifamily units, and it also ranges from 0 to 100, with any number over 50 indicating that property managers believe vacancies are increasing than decreasing. The 2Q reading of 62 is the highest level since 2009.

“The multifamily market continues to make its way back toward pre-pandemic levels, with recent starts data coming in above forecast,” says NAHB Chief Economist Robert Dietz. “Demand remains subdued due to elevated unemployment rates, while on the supply-side of the market, builders and developers are dealing with a significant increase in lumber prices, which could hinder further recovery of the market.”

Historically, the 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 in the Census figures one to three quarters in advance.

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