Why did multifamily construction sentiment slip despite strong demand?

Analyst sees broad strokes of improvement on the horizon

Why did multifamily construction sentiment slip despite strong demand?

More builders and developers reported that multifamily construction conditions got worse in the second quarter despite solid demand for rental housing.

The National Association of Home Builders’ Multifamily Production Index (MPI) – a measure of builder sentiment about current apartment and condo market conditions – has fallen below the 50 benchmark to 48.

Broken down by three key elements of the multifamily housing market, the MPI component measuring low-rent units rose three points to 49. Meanwhile, the component measuring market-rate rental units fell three points to 51, and the component measuring for-sale units dropped seven points to 45.

“Demand for rental housing remains strong, but headwinds that have emerged in some parts of the country are slowing production of new apartments,” said Justin MacDonald, chairman of NAHB’s Multifamily Council. “The moratorium on evictions is making it difficult to obtain financing in places where rental assistance is inadequate to offset the moratorium. In other places, local governments imposing new regulations and switching to virtual meetings are making it take longer to obtain approvals.”

Read more: What’s happening with US housing starts?

The Multifamily Occupancy Index (MOI), which measures the multifamily housing industry’s perception of occupancies in existing apartments, was up by six points to 70. This is the highest reading since the start of the survey, according to NAHB.

“The MPI softened slightly in the second quarter while multifamily production continued to increase, but it is typical for the MPI to turn one to three quarters before starts,” said NAHB economist Robert Dietz. “Nevertheless, the MPI remains as strong as it was at any point in 2020, and NAHB expects more apartments to be started in 2021 than in 2019 or 2020.”

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