While headwinds exist for multifamily development, confidence in the market was in positive territory for the second quarter, according to the National Association of Home Builders’ (NAHB) quarterly Multifamily Market Survey.
For the second quarter, the Multifamily Production Index (MPI) had a reading of 56, while the Multifamily Occupancy Index (MOI) came in at 89.
According to the NAHB, the MPI measures builder and developer sentiment about current apartment and condo production conditions on a scale of 0 to 100, with a number above 50 indicating that more respondents report conditions are good rather than poor. The MPI takes the weighted average of four key market segments: three in the build-for-rent market—garden/low-rise, mid/high-rise, and subsidized—and the build-for-sale, or condo, market.
Component readings for the second quarter included:
- Garden/low-rise units at 64;
- Mid/high-rise units at 47;
- Subsidized housing at 55; and
- Build-for-sale units at 45.
“Multifamily housing demand remains solid; however, there are headwinds limiting new development in many parts of the country,” said Lance Swank, president and co-owner of Sterling Group and chairman of NAHB’s Multifamily Council. “Reduced availability of credit for new construction, problems getting projects approved, and significant increases in operating expenses are hampering new multifamily development. Property, casualty, and liability insurance has emerged as a major issue facing the multifamily industry, further constraining new supply.”
The MOI measures the multifamily industry’s perception of occupancies in existing apartments on a scale of 0 to 100, with a number above 50 indicating more respondents report that occupancy is good rather than poor. The MOI is a weighted average of the garden/low-rise, mid/high-rise, and subsidized segments.
Readings for the second quarter, which were significantly over the midpoint level, included:
- Garden/low-rise units at 91;
- Mid/high-rise units at 83; and
- Subsidized housing at 91.
“Demand for multifamily housing is being supported by the low availability and high cost of single-family homes on the market, although multifamily development faces many of the same supply-side challenges as single-family,” added NAHB chief economist Robert Dietz. “On balance, we forecast that multifamily starts will decline during the second half of 2023 due to tight financing conditions and local concerns over supply.”