Confidence in the multifamily housing market continued to recover from its 1st quarter trough, with the Multifamily Production Index (MPI) rising to 48 in the third quarter (up from 37 in the second quarter and 27 in the first quarter), according to the National Association of Homebuilders’ Multifamily Market Survey (MMS) (Figure 1). Meanwhile, the Multifamily Vacancy Index (MVI) decreased 18 points to 44, with smaller numbers indicating fewer vacancies (Figure 2).
The MPI measures builder and developer sentiment about current conditions in the apartment and condominium 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 supported by low-income tax credits or other government subsidy programs), market-rate rental units, and for-sale units—condominiums. All three components posted increases in the third quarter: the component measuring low-rent units rose four points to 46, the component measuring market rate rental units jumped 19 points to 53 and the component measuring for-sale units increased 11 points to 46.
The MPI continues to be a strong leading indicator of Census multifamily starts. While the MPI has continued to recover after reaching its trough in the first quarter of 2020, Census multifamily starts bottomed out in the second quarter before starting to improve (Figure 1).
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 report vacancies are decreasing rather than increasing. With a reading of 44, the MVI improved from the previous quarter’s index high of 62 (Figure 2). With the ongoing pandemic, most tenants are staying in place. However, it is important to note that this is not unambiguously positive as many are having trouble paying rent.
The MPI and MVI readings in the third quarter indicate that sentiment is rising in the multifamily housing market. NAHB’s Home Building Geography Index also shows that multifamily construction is picking up specifically in less dense areas of the country. It is important to note, however, that uncertainty still exists in the market. Labor, lot, and material availability continue to be a challenge and there are potential regulatory risks on the horizon in 2021.
For data tables on the MPI and MVI, visit www.nahb.org/mms.
For more information on the NAHB Multifamily program, please visit NAHB Multifamily: https://www.nahb.org/NAHB-Community/Community-Home/Multifamily.