Apartment Market Conditions Improve: NMHC

Apartment rental markets nationwide continue to reflect ongoing improvement and substantial demand. But investment is threatened by rent control measures. These are among the key findings of the National Multifamily Housing Council’s (NMHC) Quarterly Survey of Apartment Market Conditions for January 2022.

For the fourth quarter in row, the survey showed Market Tightness (69), Sales Volume (59) and Equity Financing (67) indexes each finished above the breakeven level of 50. By contrast, for the second straight quarter, the Debt Financing (36) index revealed weaker conditions.

Sales Volume vs. Market Tightness. Data and chart courtesy of NMHC

Widely available

Higher interest rates have resulted in higher borrowing costs, the NMHC reported in a prepared statement. Despite that, equity financing continues to be broadly available. That has resulted in a continuance of apartment sales market transactions.

Among the survey’s highlights:

The Market Tightness Index declined from 82 to 69, revealing tighter market conditions. Almost half (49 percent) of respondents characterized market conditions as tighter than three months earlier, while 12 percent reported looser conditions and a sizable 40 percent found conditions unchanged from the previous quarter.

The Sales Volume Index fell from 79 to 59, but widespread disagreement was registered among respondents. While 40 percent reported higher sales volume than the earlier quarter, almost one-fourth (23 percent) cited lower sales volume. Another 35 percent of respondents felt volume was the same as it had been three months earlier.

The Equity Financing Index inched higher, creeping from 65 to 67. While just more than one-third (35 percent) of respondents deemed equity financing more available than the previous quarter, fully 58 percent were convinced it remained unchanged. Only 1 percent of respondents reported equity financing being less available.

The Debt Financing Index contracted further from the breakeven mark, falling from 48 to 36 and staying under breakeven for the second straight quarter. Just 8 percent of respondents felt debt financing conditions were improved. More than one-third (36 percent) believed it was worse. And 48 percent registered their conviction debt market conditions had not changed vis-à-vis the previous quarter.

The survey authors warned that rent control measures have begun to appear in a number of jurisdictions. Respondents were asked whether those measures had led them to re-evaluate their plans for investment or development in those locations. About one-third (32 percent) said they didn’t operate within those jurisdictions.

Approximately a quarter (26 percent) have not reduced investment in those market. An additional 15 percent of respondents have not yet made those investment cuts, but are now thinking about doing so. Finally, 23 percent do not anticipate making any changes to their investments in those markets. An additional 4 percent do not now operate in those markets, and would not be dissuaded from considering doing so by the threat of rent control.