Multifamily Construction Sentiment Reaches Highest Point in Seven Quarters

Multifamily construction sentiment has reached its highest mark in seven quarters in Q1 2021, according to results from the Multifamily Market Survey released by the National Association of Home Builders.

The Multifamily Production Index, which measures builder and developer sentiment about current conditions in the apartment and condo market on a scale of 0 to 100, rose eight points from Q4 2020 to 51 in Q1. NAHB says this is the first time the MPI has been over 50 in seven quarters. Meanwhile, the Multifamily Occupancy Index increased one point to 59. 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 components of multifamily housing: construction of apartments that are supported by low-income tax credits or other government subsidy programs, market-rate rental units and for-sale units—condominiums. The component measuring low-rent units rose four points to 46 in Q1, while the component measuring market-rate rental units increased six points to 54. Finally, the component measuring for-sale units jumped 13 points to 52.

NAHB added a new element to the MMS this quarter—the Multifamily Occupancy Index. The MOI measures the multifamily housing industry’s perception of occupancies in class A, B, and C existing apartments. It ranges from 0 to 100, with a break-even point at 50. Higher numbers indicate increased occupancy. In Q1, the MOI registered 59. It improved over the last three quarters.

“The MPI reversed trend and rose strongly in the second quarter of last year, one quarter before a similar turn-around in the multifamily housing starts data,” said NAHB economist Robert Dietz in a prepared statement. “Since then, multifamily starts have mirrored the MPI. The surge that we saw in the MPI for the first quarter of 2021 coincides with a similar surge in multifamily starts to a seasonally adjusted annual rate of more than 450,000 units. Based on these recent numbers, NAHB now expects a gain in multifamily starts this year.”

Indeed, multifamily starts rose 5% in April, according to Dodge Data & Analytics.

However, single-family starts fell 18% in April, pulling down total construction starts 2% in April to a seasonally adjusted annual rate of $853.5 billion. Overall residential building starts fell 12% to a seasonally adjusted annual rate of $387.8 billion in April. Total residential starts were 24% higher year to date. Single-family starts rose 31%, while multifamily starts increased 6%.

“The pullback in single-family construction starts was inevitable after showing exceptional strength over the past year,” said Richard Branch, chief economist for Dodge Data & Analytics, said in a prepared statement. “Higher material prices, supply shortages, and a dearth of skilled construction labor were bound to catch up with housing and will ultimately limit the ability of this sector to show the same rate of expansion this year as it did last.”