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NAHB: Multifamily developers weighed down by affordability challenges

Multifamily Vacancy Index reaches 8-year high

Multifamily developers’ confidence showed signs of weakness in the third quarter of 2018, attributed to mounting affordability and inventory concerns.

According to the National Association of Home Builders latest Multifamily Production Index, the MPI retreated three points to 48 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.

“The drop in the MPI is consistent with affordability concerns that have emerged in the single-family market. Both sectors of the housing market face similar challenges, such as shortages of labor and increased regulatory costs," NAHB Chief Economist Robert Dietz said. "This quarter's MPI is yet another signal to policymakers that they should be paying more attention to housing market conditions as interest rates increase."

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.

In Q3, the market-rate category spurred the decline in overall sentiment, followed by a decrease in for-sale units.

According to NAHB’s report, the segment measuring market-rate rental units fell four points to 46, while the component measuring for-sale units plummeted seven points to 39.

However, the component measuring low-rent units improved, climbing two points to 59.

In fact, October’s Housing Starts report indicated that the multifamily sector championed the housing market, reversing course from September’s less than optimistic results, according to the U.S. Census Bureau and the Department of Housing and Urban Development.

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 two points to 47, which NAHB says is the highest score since the first quarter of 2010.  

“We are starting to see an increase in vacancy rates, which may indicate a saturation in the luxury apartment market" The Lawson Companies President and chairman of NAHB's Multifamily Council Steve Lawson said "Rising regulatory and construction costs are also affecting developers' ability to build apartments for the 'middle-income' market where housing is greatly needed."

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