Multifamily Developer Confidence Comes in Weak in Third Quarter on Financing Concerns

Confidence in the market for new multifamily housing was in negative territory for the third quarter, according to results from the Multifamily Market Survey (MMS) released today by the National Association of Home Builders (NAHB).  The MMS produces two separate indices. The Multifamily Production Index (MPI) had a reading of 38 – well below the break-even point of 50 – for the third quarter while the Multifamily Occupancy Index (MOI) reading was 82.

The relatively weak MPI is consistent with the declining production levels seen in 2023 so far and NAHB’s projection that they will be somewhat lower still in 2024.  Surveys by both NAHB and the Fed indicate that cost and availability of credit for builders and developers has become a major headwind for new construction.  High operating costs are creating problems for existing properties, especially affordable properties, and the cost and reduced availability of credit is making it difficult to finance new projects

The MPI is a weighted average of four key market segments: three in the built-for-rent market (garden/low-rise, mid/high-rise and subsidized) and the built-for-sale (or condominium) market.  The survey asks multifamily builders to rate the current conditions as “good,” “fair, or “poor” for multifamily starts in markets where they are active.  The index and all its components are scaled so that a number above 50 indicates that more respondents report conditions are good than report conditions are poor.  In the third quarter, sentiment about production of mid/high-rise apartments was weaker than the other market segments. The component measuring garden/low-rise units had a reading of 45, the component measuring mid/high-rise units had a reading of 28, the component measuring subsidized units had a reading of 39 and the component measuring built-for-sale units had a reading of 32 (Figure 1).

The MOI is a weighted average of three built-for-rent market segments (garden/low-rise, mid/high-rise and subsidized).  The survey asks multifamily builders to rate the current conditions for occupancy of existing rental apartments in markets where they are active as “good,” “fair” or “poor”.  Similar in nature to MPI, the index and all its components are scaled so that a number above 50 indicates more respondents report that occupancy is good than report it is poor.  For the third quarter, the component measuring garden/low-rise units had a reading of 84, the component measuring mid/high-rise units had a reading of 74 and the component measuring subsidized units had a reading of 89 (Figure 2).

Because the previous version of the MMS series can no longer be used to compare with this quarter’s results, the redesigned tool asked builders and developers to compare market conditions in their areas to three months earlier, using a “better,” “about the same” or “worse” scale.  In answering that question, 33% of multifamily developers said overall market conditions for multifamily were worse in the third quarter, compared to only 5% who said it was better (Figure 3).

Please visit NAHB’s MMS web page for the full report.