NAHB’s Multifamily Production Index (MPI) recorded its third consecutive quarterly increase for the multifamily housing market. The MPI tracks multifamily industry sentiment about the strength of the market on a scale of 0 to 100, and it increased from 40.8 in the fourth quarter of 2010 to 41.7 in the first quarter of 2011.
The index provides a composite measure of three key elements: construction of low-rent units, construction of market-rate units and construction of “for sale” units. The index and all of its components are scaled so that any number over 50 indicates that more respondents report conditions are improving than getting worse.
“Multifamily continues to be one of the brighter spots in housing,” says NAHB Chief Economist David Crowe. “Not only is the overall index on the rise, the market-rate rental component has improved dramatically. In the first quarter, the market-rate rental component was 60.5, the highest level in more than five years.”
However, Crowe says the multifamily market still faces significant challenges. “There is considerable pent-up demand, but the ongoing crisis in funding for new construction means that developers are limited in their ability to meet that demand.”
The Multifamily Vacancy Index (MVI), which measures the multifamily housing industry’s perception of vacancies, increased slightly from 33.3 in the fourth quarter of last year to 35.0 in the first quarter of 2011. With the MVI, lower numbers indicate fewer vacancies.
“Even though we saw a slight increase in the vacancy index in the first quarter, the long-term trend is downward,” Crowe says. “Given the demographics of demand, we expect that trend to continue.”
“We are seeing positive movement in the multifamily market,” says Stillman Knight, chairman of NAHB’s Multifamily Council Board of Trustees and president and CEO of the Knight Company of Alexandria, Va. “However, production is still low in the context of anticipated demand, and rents are increasing as a result. Rents are likely to continue to rise unless financing for new construction becomes more readily available.”