6 BuildersOutlook 2023Issue11
Multifamily Developer Confidence Weak Amid Financing Concerns
Confidence in the market for new multifamily housing was in negative territory for the third quarter , according to results from the Multifamily Market Survey ( MMS ) released today by the National Association of Home Builders ( NAHB ). The MMS produces two separate indices . The Multifamily Production Index ( MPI ) had a reading of 38 — well below the break-even point of 50 — for the third quarter while the Multifamily Occupancy Index ( MOI ) reading was 82 .
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 its components are scaled so that a number below 50 indicates that more respondents report conditions are poor than report conditions are good .
The MPI is a weighted average of four key market segments : three in the built-for-rent market ( garden / low-rise , mid / high-rise and subsidized ) and the built-for-sale ( or condominium ) market . In the third quarter , sentiment about production of mid / high-rise apartments was weaker than the other market segments . The component measuring garden / low-rise units had a reading of 45 , the component measuring mid / high-rise units had a reading of 28 , the component measuring subsidized units had a reading of 39 and the component measuring built-for-sale units had a reading of 32 .
Although the re-designed MPI is too new to compare quarter-to-quarter changes , a separate question on the survey indicates that the multifamily market has deteriorated noticeably since the second quarter . In
answering that question , 33 % of multifamily developers said overall market conditions for multifamily were worse in the third quarter , compared to only 5 % who said it was better .
The MOI measures the multifamily housing industry ’ s perception of occupancies in existing apartments on a scale of 0 to 100 . The index and all its components are scaled so that a number above 50 indicates more respondents report that occupancy is good than report it is poor .
The MOI is a weighted average of three builtfor-rent market segments ( garden / low-rise , mid / high-rise and subsidized ). In the third quarter , sentiment about occupancy in mid / high-rise apartments was weaker than the other market segments . The component measuring garden / low-rise units had a reading of 84 , the component measuring mid / high-rise units had a reading of 74 and the component measuring subsidized units had a reading of 89 .
“ High operating costs are creating problems for existing properties , especially affordable properties , and the cost and reduced availability of credit is making it difficult to finance new projects ,” said Lance Swank , president and CEO of Sterling Group , Inc . in Mishawaka , Ind ., and chairman of NAHB ’ s Multifamily Council . “ It should also be noted that the garden / low-rise market is doing much better than the mid / high-rise market , both in terms of construction and occupancy rates .”
This is consistent with NAHB ’ s tracking of the geography of apartment construction , which finds more construction in lower density markets that are more likely to be garden / lowrise buildings . The NAHB Home Building Geography Index finds that over the last three and half years , the share of apartments built in core counties of large metros has fallen from 41.7 % to 37.4 %. In contrast , the share of apartments built in small metros , exurbs and rural markets has increased from 31.3 % to 35.6 %.
“ The relatively weak MPI is consistent with the declining production levels seen in the second half of 2023 and NAHB ’ s projection that they will be lower still in 2024 ,” said NAHB Chief Economist Robert Dietz . “ Surveys by both NAHB and the Fed indicate that cost and availability of credit for builders and developers has become a major headwind for new construction .”
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