Confidence in the market for new multifamily housing was mixed in the second quarter of 2022, 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 six points to 42 compared to the previous quarter, dragged down largely by the for-sale condo sector. The Multifamily Occupancy Index (MOI) fell eight points to 60.
The MPI measures builder and developer sentiment about current production conditions in the apartment and condo market on a scale of 0 to 100. The index and all of its components are scaled so that a number above 50 indicates that more respondents report conditions are improving than report conditions are getting worse.
The MPI is a weighted average of three key elements of the multifamily housing market: construction of low-rent units-apartments that are supported by low-income tax credits or other government subsidy programs; market-rate rental units-apartments that are built to be rented at the price the market will hold; and for-sale units—condominiums. Two of the three components saw decreases compared to the first quarter: The component measuring low-rent units fell four points to 45, and the component measuring for-sale units declined 11 points to 33. Meanwhile, the component measuring market rate apartments increased by three points to 52.
The MOI measures the multifamily housing industry's perception of occupancies in existing apartments. It is a weighted average of current occupancy indexes for class A, B, and C multifamily units, and can vary from 0 to 100, with a break-even point at 50, where higher numbers indicate increased occupancy. The MOI fell eight points to 60, but multifamily developers on balance are still reporting improving occupancy.
“Overall, rental demand remains solid. Rising mortgage interest rates mean low vacancy in multifamily rental,” said Sean Kelly, executive vice president, Leon N. Weiner & Associates, Inc., and chairman of NAHB’s Multifamily Council. “Additionally, recent Treasury guidance related to American Rescue Plan funding creates clarity in the production pipeline for apartments supported by the Low Income Housing Tax Credit.”
“With rising interest rates and high construction costs, multifamily developers need to be cautious given recession concerns,” said NAHB chief economist Robert Dietz. “However, the multifamily market is showing growth this year, with 5+ unit permits and starts up 18% on a year-to-date basis.”