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Survey: Builders Pessimistic about Multifamily

NAHB’s 3Q survey of builder attitudes about multifamily development’s short-term future found strong demand amid challenges that could halt some projects.

WASHINGTON – The prospects for continued high levels of multifamily development declined significantly in the third quarter, as did the prospects for continued high occupancy rates, according to results from the Multifamily Market Survey (MMS) released by the National Association of Home Builders (NAHB).

The MMS produces two separate indices. The Multifamily Production Index (MPI) decreased 10 points to 32 compared to the previous quarter, while the Multifamily Occupancy Index (MOI) fell 15 points to 45. Scores fall between 0 and 100. A score of 50 indicates balanced attitudes that are neither optimistic nor pessimistic, and anything below 50 is in negative territory.

Even though both indices fell below the break-even point of 50, both multifamily construction levels and occupancy rates remain quite high compared to historic norms.

Multifamily Production Index

The MPI measures builder and developer sentiment about current production conditions in the apartment and condo market. It’s a weighted average of three key elements of the multifamily housing market:

  • Construction of low-rent units-apartments supported by low-income tax credits or other government subsidy programs
  • Market-rate rental units-apartments built to be rented at the price the market will hold
  • For-sale units – condominiums

All three components decreased compared to the second quarter: The component measuring low-rent units fell nine points to 36, the component measuring market rate apartments dropped 13 points to 39, and the component measuring for-sale units declined 10 points to 23.

Multifamily Occupancy Index

The MOI measures the multifamily housing industry’s perception of occupancies in existing apartments. It’s a weighted average of current occupancy indexes for class A, B and C multifamily units, and can also vary from 0 to 100, with a break-even point at 50.

The MOI fell 15 points to 45, the lowest level since the first quarter of 2010, with the exception of the onset of the pandemic in the spring of 2020.

“Although demand for multifamily housing remains strong in many parts of the country, some multifamily developers are starting to see signs of a slowdown,” says Sean Kelly, chairman of NAHB’s Multifamily Council. “The ongoing problems of scarcity and high cost of land and materials is making it difficult to go forward with certain projects, particularly affordable housing projects.”

“Multifamily developers are becoming cautious as supply constraints have caused a large backlog of projects started but not yet completed to accumulate in the pipeline,” adds NAHB Chief Economist Robert Diez. “An emerging additional constraint is financing for new multifamily development, which 79% of developers say is somewhat or significantly less available than it was a year ago.

“NAHB is now projecting a significant decline in multifamily starts in 2023.”

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