Confidence in the market for new multifamily housing weakened in the first quarter, according to the National Association of Home Builders’ (NAHB’s) Multifamily Market Survey. The Multifamily Production Index (MPI) decreased six points to 48 compared with the fourth quarter—dropping below the break-even mark of 50 for the first time in three quarters.
The MPI measures builder and developer sentiment about conditions in the apartment and condo market on a scale of 0 to 100. According to the NAHB, the index and all of its components are scaled so that a number below 50 indicates more respondents are reporting that conditions are getting worse rather than improving.
“The decline in the MPI indicates incipient caution on the part of multifamily developers,” said NAHB chief economist Robert Dietz. “This caution has not shown up yet in the multifamily starts rate, which remains quite strong, but the MPI typically leads changes in starts by one to three quarters.”
The MPI is a weighted average of three key multifamily market elements: construction of low-rent units—apartments that are supported by low-income housing tax credits or other government subsidized programs; market-rate rental units; and for-sale units. The component measuring low-rent units increased one point to 49, the component measuring market-rate units dropped 12 points to 49, and the component measuring for-sale units decreased nine points to 44.
The Multifamily Occupancy Index (MOI) inched down one point to 68—consistent with the recent occupancy rate highs. The MOI measures the multifamily industry’s perception of occupancies in existing apartments. It is a weighted average of current occupancy indexes for Class A, B, and C units and can vary from 0 to 100, with a break-even point at 50, where higher numbers indicate increased occupancy.
“Strong demand is still keeping multifamily developers fairly optimistic in many parts of the country, but high construction costs and their impact on affordability are making some developers increasingly cautious,” said Sean Kelly, NAHB Multifamily Council chairman and executive vice president of LNWA, based in in Wilmington, Delaware.