Builder and developer confidence in the multifamily housing market weakened slightly in the third quarter, according to results from NAHB’s Multifamily Market Survey (MMS). The MMS produces two separate indices: The Multifamily Production Index (MPI) and the Multifamily Vacancy Index (MVI). The MPI dropped seven points to 49 in the third quarter of 2019 (from 56 in the second quarter) (Figure 1).
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 that are supported by low-income tax credits or other government subsidy programs; market-rate rental units, and for-sale units. The low-rent unit component fell five points to 51, while the market-rate rental component dropped 20 points to 44, and the component measuring for-sale units remained even at 50.
It is important to note that the MPI has been in line with movements in Census multifamily starts (Figure 1). Multifamily starts dropped to a seasonally-adjusted annual rate of 381,000 in the third quarter from 409,000 in the second quarter. Despite the drop, starts remain elevated compared to readings prior to the second quarter.
Meanwhile, the MVI was flat at 40 in the third quarter (Figure 2). 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 under 50 indicates more property managers believe vacancies are decreasing than increasing.
The slight reduction in the MPI is consistent with multifamily starts, which were relatively high in the second quarter. The flat MVI reading in the second quarter is also consistent with the Census Bureau’s five-plus vacancy rate, which has moved very little in the last six months.
For data tables on the MPI and MVI, visit www.nahb.org/mms.