Apartment Index Shows Tipping Point Is Far Off

Sentiment among builders in the U.S. multifamily market appears to have reached a point where there is little hope of a sharp revival of the battered market, based on responses to the National Association of Home Builders (NAHB) quarterly survey for 4Q 2023.

That may not be surprising given that apartment construction is peaking near its highest level in 50 years.

The NAHB’s overall Multifamily Production Index (MPI) for the quarter came in at 41 – well below the score of 50 that indicates a kind of tipping point. The MPI measures how builders and developers feel about production conditions in the apartment and condo market. A score below 50 is not good news. The index of 41, though lower than the 56 recorded in 2Q 2023, is higher than the 38 recorded in 3Q 2023.

Garden/low-rise apartment construction was the only segment of the multifamily sector to score above the baseline, with an MPI of 51. The MPI for high/mid-rise was 26, for subsidized 41, and for built for sale 43.

The Multifamily Occupancy Index (MOI), which measures perceptions of occupancy in existing apartments, fell in the fourth quarter to 77, from 82 in 3Q 2023 and 89 in 2Q 2023. The score for mid/high-rise was the lowest at just 64. Occupancy in garden/low-rise scored 80 and subsidized housing 88.

On the brighter side, the share of respondents who thought overall market conditions were better rose from 5% in 3Q to 14% in 4Q 2023. The share who thought conditions were worse fell to 23% in 4Q from 33% in 3Q 2023. Of the respondents, 63% thought conditions were about the same.

“NAHB projects that multifamily production will be down in 2024, as the number of apartments currently under construction is near its highest level since 1973,” said chief economist Robert Dietz.