Apartment Demand, Cost of Capital Increase: NMHC

There is some mixed news for investors, according to the National Multifamily Housing Council’s (NMHC) latest survey of conditions in the multifamily housing market. Apartment demand continues upward, while rising interest rates related to inflation have led to increased concern about cost of capital.

NMHC’s Quarterly Survey of Apartment Market Conditions for April 2022 reported that at 60 the Market Tightness index was the only index this quarter to come in above the breakeven level of 50. The Sales Volume index finished at exactly 50, while both the Equity Financing (35) and Debt Financing (8) indexes fell compared with their performance three months prior, denoting weaker conditions.

“As the Federal Reserve looks for ways to combat inflation, interest rates are going to rise and the cost of capital is going to increase for developers of new and renovated housing,” Caitlin Sugrue Walter, vice president of research for NMHC, told Multi-Housing News. “At the same time, we continue to face challenges posed by supply chain issues, labor and material costs, and NIMBYism efforts.”

Sales volume vs. market tightness. Chart and data courtesy of NMHC

Above breakeven

For the third consecutive quarter, debt financing became less available. And for the first time in six quarters, equity financing was less available.

In the Market Tightness Index, only 10 percent of respondents reported markets to be looser than three months earlier, vis-à-vis 30 percent that believed that to be true last quarter. A majority (59 percent) found apartment market conditions unchanged.

At 50, the Sales Volume Index indicated sales volume was comparatively the same as three months earlier. Disagreement was the order of the day, with 28 percent of respondents reporting higher sales volume, 29 percent reporting lower, and the rest (38 percent) stating volume unchanged from the previous quarter.

The Equity Financing Index totaled 35, indicating equity financing was less available. More than a third (35 percent) of respondents reported equity financing less available than three months before. Only 4 percent found it more available. More than one in two (52 percent) reported equity financing conditions unchanged.

In the Debt Financing Index, most respondents by far (83 percent) stated now is a worse time to borrow than three months ago. By contrast, not one respondent felt conditions have improved. Just 9 percent reported unchanged conditions.

“However, demand remains very strong and it is clear that communities throughout the country badly need more housing of all types,” she added.