Confidence in the multifamily housing market remained positive in the first quarter of 2018, according to the Multifamily Production Index (MPI) and the Multifamily Vacancy Index (MVI) recently released by the National Association of Home Builders (NAHB). The MPI remained unchanged from last quarter, coming in at a reading of 53, while the MVI remained essentially unchanged at 42.
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 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. The component measuring low-rent units edged down two points to 54, while the component measuring market rate rental units increased two points to 56 and the component measuring for-sale units remained even at 49.
The Multifamily Vacancy Index (MVI), which measures the multifamily housing industry’s perception of vacancies, remained essentially unchanged with an increase of one point to 42. The MVI is a weighted average of current occupancy indexes for class A, B, and C multifamily units, and can vary from 0 to 100, where any number over 50 indicates more property managers report more vacant apartments. A reading of 42 is seen as a healthy number for the multifamily market.
“Multifamily builders and developers are reporting solid demand around the country, as shown in the vacancy rate for the first quarter,” said Steve Lawson, president of The Lawson Companies in Virginia Beach, Va., and chairman of NAHB’s Multifamily Council. “We anticipate steady demand through the rest of the year as household formations continue to grow.”
“The stability of multifamily builder confidence is consistent with NAHB’s view that the market has reached a healthy, sustainable level of production,” said NAHB Chief Economist Robert Dietz. “The overall strong economy is supporting demand and balancing supply-side issues many builders are facing, including shortages of labor and buildable lots, and the recent surge in lumber prices.”
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.