Confidence in the market for new multifamily housing increased in the first quarter of 2021, according to results from the Multifamily Market Survey (MMS) released today by the National Association of Home Builders (NAHB). The MMS produces two major indices: the Multifamily Production Index (MPI) and the Multifamily Occupancy Index (MOI). The MPI increased eight points to 51 in the first quarter, while the MOI increased one point to 59.
The MPI measures builder and developer sentiment about conditions in the market for new apartments and condos. The index and all of its components are scaled to lie between 0 and 100, where a number above 50 indicates that respondents reporting improving conditions outnumber those reporting that conditions are getting worse. The current reading of 51 marks the first time in seven quarters the MPI has been over 50.
Historically, the MPI has functioned as a leading indicator of the Census Bureau’s multifamily starts series. In the second quarter of last year, the MPI reversed trend and started to rise strongly. One quarter later, multifamily starts followed suit. Since then, multifamily starts have mirrored movements in the MPI. The latest surge in the MPI coincides with a similar surge in multifamily starts, to a seasonally adjusted annual rate of more than 450,000, in the first quarter of 2021. Based on these recent numbers, NAHB now expects an overall gain in multifamily starts for 2021.
The MPI is a weighted average of separate sentiment indices for each of three key segments of the multifamily housing market: low-rent apartments supported by low-income tax credits or other government subsidy programs; market-rate rental apartments built to be rented at a price the market will support; and for-sale units (i.e., condominiums). Sentiment in all three segments improved in the first quarter: the MPI component for low-rent apartments increased four points to 46, the component for market rate rental apartments increased six points to 54, and the component capturing sentiment about for-sale units jumped 13 points to 52.
In the first quarter of 2021, the MMS introduced a new index: the Multifamily Occupancy Index, or MOI. The MOI replaces the former Multifamily Vacancy Index, or MVI, and is based on the same underlying data. The MOI measures the multifamily housing industry’s perception of occupancy in existing apartments, with higher numbers indicating greater occupancy. It is a weighted average of component occupancy indices for class A, B, and C rental apartments. Like the MPI, the MOI and its components can vary from 0 to 100 with a key break-even point at 50. After edging up to 59 at the start of 2021, the MOI has posted gains for three consecutive quarters.
In the first quarter of 2021, all three components of the MOI edged upward from the previous quarter: the component for occupancy in class A apartments increased 1 point to 57, the component for class B apartments increased 2 points to 62, and the component for class C apartments increased 2 points to 59. In each case, the MOI component now stands at least 17 points higher than it was in the second quarter of last year.
As the above results help illustrate, demand for rental housing continues to be strong, especially in the suburbs. However, rising prices of building materials and difficulties obtaining approvals remain significant headwinds for the industry.
For more detail, including a complete history of both multifamily indices and their components, see NAHB’s MMS web page.