NAHB Sees Rising Demand for Multifamily Rental Properties

Washington, D.C.–The latest National Association of Home Builders’ Multifamily Market Indices (MMI), released this week, show that current and expected demand for rental apartments improved significantly nationwide in the second quarter of 2010 compared to the first quarter. The organization breaks the MMI into Class A, Class B and Class C property components, and the three rose to 59.5, 57.6 and 56.6, respectively, during 2Q10.

The MMI measures multifamily builder sentiment based on production and occupancy at the current time, as well as builders’ expectations for conditions over the next six months. An index number greater than 50 indicates that the number of builders who view conditions as getting stronger outnumber those who view conditions as becoming weaker. The second quarter 2010 increases were of more than 15 points when compared to the first quarter and the highest level since 2007.

“As the supply of additional units declines and pent-up household formations re-emerge when the labor markets improve, demand for traditional rental apartments will rise,” David Crowe, NAHB’s chief economist, noted in a statement. However, “it’s possible that the supply of new units will not arrive in time to meet the emerging demand and some shortages will occur in some markets. Even in robust production years, it’s only possible to increase the stock of rental units by a relatively small percentage through new construction.”

The current production index for market-rate apartments, at 34.4, rose from the 30.1 reported during 1Q10, but increased significantly when compared to the same period a year earlier (16.7). For lower-rent units, the current production index slipped from the first quarter to the second quarter of 2010 (35.4 to 32.8), yet was an improvement over the 21.8 reported a year earlier.

Until very recently, lenders have been unwilling to fund much rental multifamily development, says Crowe. That’s because the inventory of rental housing expanded from traditional multifamily communities to include foreclosed and investor-owned single-family homes made available for rent as a means of creating a temporary cash flow until the homes can be sold.

Development of multifamily rental housing might be edging upward, but for condos, according to the NAHB, no such luck. The current production index for condominiums for sale sank to 14.5 from 21.5 the previous quarter, to about the same level it stood a year earlier (15.2).