The National Association of Home Builders' latest results from the Multifamily Market Survey (MMS) released this week shows U.S. builder confidence in the market for new multifamily housing remained unchanged in the fourth quarter of 2019.
The MMS produces two separate indices. The Multifamily Production Index (MPI) remained even at 49, while the Multifamily Vacancy Index (MVI) also remained even with a reading of 40.
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. The component measuring low-rent units increased two points to 53, the component measuring market rate rental units rose six points to 50 and the component measuring for-sale units dropped four points to 46.
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 than increasing. With a reading of 40, the MVI has remained unchanged for the past three quarters and well under 50, indicating vacancies are improving.
"Demand for apartments has been strong for the past several months, especially for apartments that are more affordably priced," said Barry Kahn, chairman of NAHB's Multifamily Council. "We are seeing an increased need for affordable housing in most markets around the country."
"Favorable weather conditions and high rates of production contributed to a positive outlook among multifamily developers in the fourth quarter," said NAHB Chief Economist Robert Dietz. "Sentiment would be higher, but it is being constrained by emerging concerns over housing policies enacted in certain parts of the country, especially proposed rent control policies."
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.