Multi-family development declines in Q3
Washington, DC – The outlook for continued high levels of multifamily development fell significantly in the third quarter, as did the outlook for continued high occupancy rates, according to results of the Multifamily Market Survey (MMS) published by the National Association of Home Builders (NAHB). The MMS produces two separate indexes. The Multifamily Production Index (MPI) fell 10 points to 32 compared to the previous quarter, while the Multifamily Occupancy Index (MOI) fell 15 points to 45.
The MPI measures builders’ and developers’ sentiment about current manufacturing conditions in the apartment and condo market on a scale of 0 to 100. The index and all components are scaled so that a number below 50 indicates that more respondents report that the conditions become worse than reporting conditions improve. While both indices are now below the breakeven point of 50, both multifamily construction and occupancy rates remain quite high by historical standards.
The MPI is a weighted average of three major elements of the multifamily housing market: the construction of low-cost rental units/apartments supported by low-income tax credits or other government subsidy programs; market-based rental units/apartments that are built to be rented out at the market price; and units/apartments for sale. All three components showed declines compared to the second quarter. The component that measures low-rent homes fell by nine points to 36, the component that measures market-standard apartments fell by 13 points to 39 and the component that measures owner-occupied homes fell by 10 points to 23.
The MOI measures the perception of the multi-family housing sector of the occupancy rate of existing apartments. It is a weighted average of current occupancy indices for Class A, B and C multi-family homes, and can range from 0 to 100, with a break-even point at 50, with lower numbers indicating reduced occupancy. The MOI fell 15 points to 45, the lowest level since the first quarter of 2010, excluding the outbreak of the pandemic in the spring of 2020.
“While demand for multifamily housing remains strong in many parts of the country, some multifamily developers are beginning to see signs of slowing down,” said Sean Kelly, executive vice president of LNWA in Wilmington, Del., and chair of NAHB’s Multifamily Council. “The ongoing problems of scarcity and high cost of land and materials make it difficult to proceed with certain projects, especially affordable housing projects.”
Robert Diez, chief economist of the NAHB, added: “Multi-family developers are becoming cautious as supply constraints have led to a large backlog of started but unfinished projects accumulating in the pipeline. An emerging additional constraint is funding for new multi-family homes, which 79% of developers say is slightly or significantly less available than a year ago. NAHB now expects a significant drop in the number of new multi-family homes starting in 2023.”