NMHC Reports Upswing in Multifamily Construction

By Dees Stribling, Contributing Editor

Washington, D.C.—The National Multi Housing Council’s (NMHC) latest Quarterly Survey of Apartment Market Conditions reports that increased demand for rental housing has led to a considerable uptick in multifamily construction. It seems that after some years of extreme dysfunction because of the credit crisis of the late 2000s, supply and demand dynamics—at least for multifamily properties—seem to be returning to something like normal, even though with this increased activity, more than half of the survey’s respondents (54 percent) think new development remains considerably below demand.

NMHC Chief Economist Mark Obrinsky, in a statement accompanying the survey, pointed to powerful demographic trends, along with changing attitudes about homeownership and tighter mortgage underwriting, as drivers toward renting, which in turn is fueling a ramp up in new construction. “While some survey respondents expressed concern over sporadic overbuilding, others noted that the lack of construction financing may prevent some developments from actually breaking ground,” he notes.

About two-thirds of respondents (67 percent) noted considerable activity in multifamily development, either in the planning stages or actual new construction, according to the survey. In particular, 20 percent said developers are breaking ground on new projects at “a rapid clip.” The other 47 percent reported an increase in pre-construction activities—land acquisition, lining up financing, obtaining building permits and the like—but not much actual construction just yet.

Overall, the apartment market continued its healthy growth, although not quite at the pace of previous quarters. For the sixth time in the last seven quarters, all four market indexes were above 50—a reading above 50 means improving market conditions—although all four fell, suggesting less widespread growth.

The survey’s Debt Financing Index decreased slightly from 74 to 70. Just under half (49 percent) said borrowing conditions were unchanged, while another 43 percent said now is a better time to borrow. Only 3 percent believed conditions had worsened over the past three months. The Equity Financing Index fell to 54 from 70, but it still marked its ninth quarter of an above-50 reading. The majority of respondents (55 percent) said that equity financing conditions were unchanged from the previous quarter, while 24 percent said equity was more available and 16 percent said it was less available.

The survey’s Market Tightness Index, which measures changes in rents and vacancies, dropped from 82 to 52. Even with the decrease, that’s the seventh-straight quarter the index topped 50. Roughly one-quarter of respondents (27 percent) still saw tightening markets, while 51 percent said markets were unchanged. Twenty-two percent said markets were looser, a considerable increase from the 3 percent of the previous survey.

The Sales Volume Index decreased to 54 from 70, its eighth quarter of an above-50 reading. One quarter of respondents (27 percent) said their markets saw more transactions last quarter, but the number of respondents who saw fewer deals rose from 5 percent last quarter to 20 percent this quarter.