Builder and developer confidence in multifamily markets fell in the last quarter of 2020, according to the results of the National Association of Home Builders’ Multifamily Market Survey (MMS). The MMS produces two separate indices: The Multifamily Production Index (MPI), which fell 5 points to 43; and the Multifamily Vacancy Index (MVI), which edged down two points to 42, with lower numbers signifying fewer unit vacancies.
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 (Figure 1).
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 decreased in the fourth quarter: the component measuring low-rent units dropped four points to 42, the component measuring market rate rental units decreased five points to 48 and the component measuring for-sale units declined seven points to 39.
The MVI, on the other hand, improved slightly in the fourth quarter, indicating fewer multifamily vacancies. The MVI 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 rather than increasing. With a reading of 42, the MVI has improved in the past two quarters and is significantly down from a period high of 62 in the second quarter of 2020 (Figure 2).
The decrease in the MPI in the fourth quarter indicates continued uncertainty in the multifamily market. With eviction moratoria and other restrictions in place, developers are delaying new projects. In addition, builders and developers are facing significant challenges with the recent increases in the cost of many input materials, such as lumber.
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.
For data tables on the MPI and MVI, visit www.nahb.org/mms.