Builders and developers signal caution on multifamily conditions

On the bright side, robust demand keeps multifamily developers "fairly optimistic"

Builders and developers signal caution on multifamily conditions

Multifamily sentiment faced downward pressure in the first quarter as high construction costs took their toll on developers.

Builder and developer confidence in the current production conditions in the multifamily market dipped six points to 48 during the quarter, new data from the National Association of Home Builders’ Multifamily Production Index (MPI) revealed. This was the first time in three quarters the MPI fell below the break-even mark of 50, indicating that conditions are getting worse.

Broken down by some of its key components, the element measuring the construction of low-rent units climbed one point to 49, while the component measuring market-rate rental units plunged 12 points to 49, and for-sale units declined nine points to 44.

“The decline in the MPI indicates incipient caution on the part of multifamily developers,” said NAHB chief economist Robert Dietz. “This caution has not shown up yet in the multifamily starts rate, which remains quite strong, but the MPI typically leads changes in starts by one to three quarters.”

Despite inching down one point to 68, NAHB’s multifamily occupancy index (MOI) remained consistent with the recent high rates of occupancy reported by the Census Bureau. The MOI measures the multifamily housing industry’s perception of occupancies in existing apartments. Numbers above the break-even point of 50 indicate increased occupancy.

Read more: Housing woes yield bonanza for multifamily investors

“Strong demand is still keeping multifamily developers fairly optimistic in many parts of the country, but high construction costs and their impact on affordability are making some developers increasingly cautious,” said Sean Kelly, chairman of NAHB’s Multifamily Council.

LATEST NEWS