Adobe Stock

Apartment market conditions continued to tighten and financing became more costly, according to the National Multifamily Housing Council’s quarterly survey of apartment market conditions for April.

“Demand for apartments continues to exceed supply, resulting in the fifth straight quarter of tightened markets,” said chief economist Mark Obrinsky. “Yet, even as rent growth and occupancy remain elevated, developers are struggling to build more housing due to the increasing cost of materials, a lack of available labor, continued obstructionism from NIMBYs, and, because of rising interest rates, an increasing cost of capital.”

Findings from the survey, which was conducted between April 18 and April 25 and included 120 CEOs and other senior executives of apartment-related firms nationwide, include:

The Market Tightness Index, the only index to surpass the breakeven level of 50 this quarter, came in at 60, indicating market conditions have become tighter. However, there was less agreement among respondents compared with the previous quarter. A majority of respondents, 59%, reported that market conditions remained the same as the prior quarter. However, 30% reported tighter conditions, and only 10% cited looser conditions.

The Sales Volume index was right at the breakeven level, which signals unchanged volume from the three months prior. However, responses were mixed: 28% reported higher sales volume, 29% cited lower sales volume, and 38% said unchanged from the previous quarter.

The Equity Financing index at 35 indicated that equity financing was less available. Over a third of respondents, 35%, reported that equity financing was less available, while only 4% said it was more available. More than half of respondents, 52%, said conditions were unchanged.

The Debt Financing index came in at just 9, with 83% of respondents indicating that now is a worse time to borrow than it was three months ago. No respondents felt conditions have improved, while 9% reported unchanged conditions.

“In fact, this is the third consecutive quarter that debt financing has become less available. It’s also the first time in six quarters that we’ve seen equity financing become less available,” said Obrinsky.

According to the NMHC, over the past decade debt funds have become a growing source of short-term financing, competing with the government-sponsored enterprises and banks. However, 22% of respondents reported that they are relying less on debt funds compared with one year ago. Nearly one-third, 29%, reported no change on their usage of debt funds, while 12% said they are relying on them more, and the remaining 38% said they were not sure or the question didn’t apply to them.

In addition, more than half of the respondents, 55%, indicated that they are somewhat concerned about the combined impact of rising interest rates and inflation, and another 42% said they are very concerned. Only 2% indicated they are not concerned at all.