The Multifamily Production Index (MPI), released by the National Association of Home Builders (NAHB), remained fairly steady in the third quarter of 2012 at 52—the third straight quarter the index has been over 50.
The MPI measures builder and developer sentiment about conditions for apartment and condominium construction, and is are scaled so that any number over 50 means more builders and developers report conditions are improving than report conditions are getting worse. When conditions are changing, the MPI generally turns before the data on actual construction.
The MPI is built from three components, capturing sentiment about the construction of low-rent apartments, market-rate rental apartments and “for-sale” units, or condominiums. In the third quarter, the MPI component tracking sentiment about market-rate rental production increased from 63 to 69, and has now been over 60 for five consecutive quarters—the longest sustained period of strength since the inception of the index in 2003. The component tracking sentiment on condo production increased from 41 to 44—the highest reading since the fourth quarter of 2005. In contrast, sentiment on low-rent apartment production dropped 15 points to 46.
The weakness in the low-rent component of the MPI was likely due to a specific provision of the Low-Income Housing Tax Credit that is set to expire at the end of the year. The prospect of dealing with this has been making lower-rent projects difficult to underwrite.
For complete history of the MPI and its components, see the web page for NAHB’s Multifamily Production & Vacancy Indices.