According to the National Association of Home Builders (NAHB), multifamily developer optimism about new construction is now at its highest rate since 2006 as vacancies are dropping. The only hiccup developers currently have is difficulty securing financing for continued building.
NAHB claims conditions currently “indicate a return to healthy market conditions for both new and existing apartment and condominium buildings.”
The Multifamily Production Index (MPI) tracks developer sentiment about new construction on a scale from 1 to 100, and currently sentiment sits at a 40.8 which has risen five points from the previous quarter.
Developers continue to see difficulty with construction finance but we predict the past several years of challenges has led to creative financing (portfolio lending for example) as well as a resignation as to when financing will loosen.
The Multifamily Vacancy Index (MVI) is likely the reason financing has taken a back seat as the focus, as developers’ optimism toward vacancies has declined to 33.3, half of what it was last year. Low MVI indicates low vacancies.
The NAHB says, “Historically, the MPI and MVI have performed well as leading indicators of U.S. Census figures for multifamily starts and vacancy rates, providing information on likely movement in the Census figures one to three quarters in advance.”
NAHB naturally points to restricted finances as a reason that there is a potential shortage in multifamily options for such high demand and although they’re just doing their job, we will continue to disagree with that drumbeat of “supply won’t meet demand” the NAHB has claimed for years.
Jeff Brown
March 13, 2011 at 2:53 pm
Lani — to the extent financing is difficult to find, or not found, supply will continue to lag. However, what I’m seeing, in Texas anyway, is that the last of the well located/cheap land has been bought. Much of that land will have 2-4 unit props on it in the next 8-24 months or so. What’s good about that is a large portion will sport separate tax IDs for each separate unit. This will provide velocity to the next wave of homebuyers, who, due to our current miasmic economy, were unable to buy homes.
It’s this class of property currently attracting forward thinking investors. Buy at investor prices, sell at owner-user prices. Works for me. 🙂
stephanie crawford
March 14, 2011 at 10:06 pm
In Nashville we have several failed condo developments converting to apartments. Around 400 units in total I’d guess.