Multifamily Developer Confidence Declines Significantly in the Third Quarter

Confidence in the market for new multifamily housing declined significantly in the third quarter of 2022, 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) decreased 10 points to 32 compared to the previous quarter while the Multifamily Occupancy Index (MOI) fell 15 points to 45.

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 saw decreases compared to the second quarter: the component measuring low-rent units fell nine points to 36, the component measuring market rate apartments dropped 13 points to 39 and the component measuring for-sale units declined 10 points to 23.

The MOI measures the multifamily housing industry’s perception of occupancies 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, with a break-even point at 50, where lower numbers indicate decreased occupancy. The MOI fell 15 points to 45, the lowest level since the first quarter of 2010 (excluding COVID-19).

Results for the MOI’s components weakened further from the previous quarter, with all three components falling below 50 for the first time since Q2 2020. The index for occupancy in class A and class B apartments both fell 16 points to 43 and 45, respectively, while the index for class C apartments dropped 11 points to 49.

Even though the number of multifamily units under construction is at its highest level since December of 1973 and multifamily construction spending continues to increase, developers are starting to see the signs of a slowdown as evident by this quarter’s results. They are citing the high cost of materials and land along with weakening financing conditions given the recent monetary policy of the Federal Reserve as the main reasons for this decline in confidence, impacting affordable housing projects the most. Based on these factors, NAHB is now projecting a significant decline in multifamily starts in 2023.

For complete results from the Multifamily Market Survey, including the history of each index and its components back to the survey’s inception in 2003, please visit NAHB’s MMS web page.