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Builders confident in multifamily, but see vacancies on the rise

Builders and developers were very confident in multifamily production in the second quarter—the most confident they have been in 12 months—but at the same time predicting a rise in vacancies in 2015.

The National Association of Home Builders (NAHB) Multifamily Production Index reached 58 in the second quarter, up from 53 in the first quarter, and the highest reading since the index stood at 61 in the second quarter of 2013.

NAHB considers any index reading above 50 to mean that builders feel confidently about the pace of production. 

NAHB creates the index using three separate elements: construction of market-rate units, construction of low-rent units, and construction of units for sale.

Individually, the indices measured confidence at 52 for low rent starts, 68 for market rate starts, and 56 for sale unit starts. Builders are also confident in production for the next six months, rating each of those three elements above 50.

Market rate confidence off, not out

Builders appear to be losing confidence slightly in market-rate rents. Standing at 68 in the second quarter, the six-month projection puts that part of the index at 60.  

NAHB Vice President of Survey and Housing Policy Research Paul Emrath told Scotsman Guide News that that an index of 60 is still high, and expects production of market-rate units to remain strong.

“We had a big recession in the early 1990s, and we came back from that and [beginning in 1996] were producing 330,000 to 350,000 units per year,” Emrath said. “We did that almost every year between 1997 and 2006. We’re finally now looking like we’re getting back to that stable long-term production rate.”

Recently, multifamily starts have been in the range of 400,000 units annually, according to the U.S. Census Bureau.

Slight vacancy increase

The NAHB Multifamily Vacancy Index remained low at 38. As opposed to the production index, a lower number means fewer vacancies. The second quarter 2014 reading was below the second and third quarters of 2013, but it increased over the first quarter of 2014.

The three elements of the vacancy index measure vacancies in class A, B, and C apartment types. In the next six months, builders and developers expect vacancies to increase in all three classes, with class A and C vacancies rising to 42 and 45, respectively.   

NAHB Chief Economist David Crowe noted vacancies are up from lows seen three years ago—the index hit 31 in 2012—but qualified that by pointing out that production was not moving as rapidly then as it is now.

“Although [the vacancy index] is slightly above the low vacancy numbers we saw in 2011 and 2012, those low numbers were the result of depressed production with few new apartments coming online. Meanwhile, the strength of the [production index] in the second quarter is not surprising given that we’ve seen employment improve, which allows younger consumers to form their own households.”


Questions? Contact Neal McNamara at (425) 984-6017 or

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