Multifamily developers’ confidence in the health of the market fell over the last few months, thanks to a combination of factors, including the threat of rising construction costs due to tariffs and NIMBYism standing in the way of new multifamily developments getting off the ground.
NIMBYism (or NIMBY) stands for “Not In My Backyard.” The phrase represents a sentiment among residents of certain areas (usually homeowners) who resist different types of developments, out of fear that it will depress their property values or bring in a different kind of “element” into their neighborhood.
NIMBYists, as they’re called, want to keep things just the way they are in their neighborhoods and push back against new developments.
“Multifamily builders and developers are seeing strong demand, but there are headwinds that have impacted further development,” Steve Lawson, chairman of National Association of Homebuilders Multifamily Council. “Some developers have had difficulty getting projects off the ground due to regulatory burdens and neighborhood opposition in certain parts of the country.”
Those headwinds drove confidence among developers down during the second quarter, according to NAHB’s latest Multifamily Production Index, which measures builder and developer sentiment about current conditions in the multifamily market.
According to the NAHB report, the MPI fell two points to 51 compared to the previous quarter. The MPI is measured on a scale of 0 to 100, with a number above 50 indicating that more respondents report conditions are improving than report conditions are getting worse.
So things are still in the “positive” camp, but only slightly.
The MPI is broken down into three components: the construction of low-rent units, apartments that are supported by low-income tax credits or other government subsidy programs; market-rate rental units, apartments that are built to be rented at the price the market will hold; and condominiums.
And much of the decline in overall sentiment came from the market-rate and condo categories.
According to the NAHB report, the segment measuring market-rate rental units dropped six points to 50, while the component measuring for-sale units fell three points to 46.
Conversely, the component measuring low-rent units actually climbed three points to 57.
The NAHB report also details the Multifamily Vacancy Index, which measures the multifamily industry’s perception of vacancies. The MVI is a weighted average of current occupancy indexes for class A, B, and C multifamily units, and can vary from 0 to 100. In the MVI, any number over 50 indicates that there are more property managers reporting more vacant apartments.
According to the report, the MVI rose three points to 45, which the NAHB says is still a “healthy” figure for the market.
“Although the MPI is down two points in the second quarter, it is still above 50, reflecting a solid number of multifamily starts so far this year,” NAHB Chief Economist Robert Dietz said. “In addition to regulatory costs, developers still need to monitor the impact of tariffs and the threat of further trade restrictions on building materials prices, especially lumber.”