Confidence in the market for new multifamily housing declined in the fourth quarter of 2020, 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) fell five points to 43 compared to the previous quarter. Meanwhile, the Multifamily Vacancy Index (MVI) decreased two points to 42, with smaller numbers indicating fewer vacancies.
The MPI measures builder and developer sentiment about current 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 below 50 indicates that more respondents report conditions are getting worse than report conditions are improving.
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. All three components decreased in the fourth quarter: the component measuring low-rent units dropped four points to 42, the component measuring market rate rental units decreased five points to 48 and the component measuring for-sale units fell seven points to 39.
The MVI measures the multifamily housing industry's perception of vacancies 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, where a number under 50 indicates more property managers believe vacancies are decreasing rather than increasing. With a reading of 42, the MVI has improved the past two quarters.
"Multifamily builders and developers are facing ongoing uncertainty in the industry," said Justin MacDonald, president and CEO of The MacDonald Companies in Kerrville, Texas, and chairman of NAHB's Multifamily Council. "The eviction moratorium and other restrictions on owners of rental properties are making developers cautious about starting new multifamily projects in certain parts of the country."
"The decrease in the MPI is a reflection of lower multifamily activity in the final quarter of 2020, as production fell 9 percent from the third to fourth quarter," said NAHB Chief Economist Robert Dietz. "Building material delays and increased costs, especially lumber, have become serious headwinds for builders and developers."
Historically, the MPI and MVI have performed well as leading indicators of U.S. Census figures for multifamily starts and vacancy rates, providing information on likely movement in the Census figures one to three quarters in advance.