Multifamily Production Index Hits Highest Level Yet
Production of apartments and condominiums gained momentum in the second quarter of 2013, according to NAHB's latest Multifamily Production Index (MPI), released last week. The index increased nine points to 61, which is the highest reading since its inception in 2003. The MPI measures builder and developer sentiment about current conditions in the apartment and condominium market. The three key elements on which it focuses are construction of low-rent units, construction of market-rate rental units and construction of “for-sale" units, or condominiums.
In the second quarter of 2013, the MPI component tracking builder and developer perceptions of market-rate rental properties rose six points to 67, the 11th straight quarter above 50; for-sale units had a significant increase of 16 points to 58, which is the highest reading since the second quarter of 2005; and low-rent units increased five points to 60.
Meanwhile, the Multifamily Vacancy Index (MVI), which measures the multifamily housing industry's perception of vacancies, rose four points to 42. With the MVI, lower numbers indicate fewer vacancies. After peaking at 70 in the second quarter of 2009, the MVI improved consistently through 2010 and has been at a fairly moderate level since 2011. Commenting on the latest data, NAHB Chief Economist David Crowe said that the increased level of construction activity in the multifamily market "is needed to meet current demand and to compensate for a serious lack of new units developed during the downturn."
Lot Shortages Holding Back Recovery, Say Builders
Findings of an NAHB survey conducted this August indicate that a shortage of buildable lots, especially in the most desirable locations, has emerged as one of the key factors that is holding back a more robust housing recovery.
A total of 59% of builders reported that the supply of lots in their markets was low or very low in the latest report. That's up from 43% in September of last year, and it's the largest percentage NAHB has seen since we began conducting such surveys in 1997. NAHB Chief Economist David Crowe explains that one reason for this is that many residential developers left the industry, abandoned certain markets or simply stopped buying land and developing lots during the downturn. Our survey found that lot shortages tended to be especially acute in the most desirable, or "A," locations, with 34% of builders saying that the supply of A lots was very low, compared to 18% who said so about lots in B locations and 12% who said so about lots in C locations.
The shortages have translated into higher prices on those lots that builders are able to obtain. The same survey found that 34% of home builders believe the price of developed A lots is "somewhat higher" than it was a year ago, while 26% said the price was substantially higher. In comparison, 15% of builders said the price of B lots was substantially higher than a year ago, and 11% said the price of C lots was substantially higher.
Of course, higher lot prices must ultimately be passed on to buyers in the form of higher house prices. NAHB ran a special press release this week calling attention to the fact that, while there is still a substantial pent-up demand for housing waiting to be unleashed, lot shortages are one of several barriers that are restraining builders from responding completely to increased demand.
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- Joanne Loftus