Rental Apartment Builders See Weaker Second Quarter
Amid concerns of a slowing U.S. economy and continuing trouble in other housing sectors, builder confidence in the rental apartment market dipped in the second quarter of 2008, according to NAHB’s latest Multifamily Rental Market Index (MRMI), which was released on Aug. 21.
The component of the index tracking builders’ views of market-rate rental apartment starts dropped to 38.1 in the second quarter, down from 52.9 for the same period a year earlier. The component of the index tracking affordable or subsidized apartment starts slipped from 42.9 to 32.9 from the second quarter of 2007 to the same period of this year.
"An oversupply of housing inventory in general, combined with systematic job losses, is starting to take a toll on the rental housing market," said David Seiders, NAHB's chief economist.
Seiders noted that even where demand for rental units remains relatively strong, problems in the financial markets are making it difficult for multifamily developers to get the capital they need for new apartment construction.
The MRMI is derived from a quarterly survey of multifamily builders and developers; the index is on a scale of 0 to 100, with a rating of 50 generally indicating that the number of positive responses is about the same as the number of negative responses.
When asked about the overall market conditions expected over the next six months, multifamily developers were more optimistic about market-rate than affordable apartment rentals, which stood at 40.5 and 33.3, respectively, down from 55.6 and 45.7 a year earlier.
Components of the MRMI tracking demand for rental apartments also decreased significantly from a year earlier. The decline was most precipitous for Class A (luxury) apartments, which plunged 30 points, from 63.8 to 33.8, from second quarter to second quarter.
Class B apartments dropped from 19 points to 48.7 in this year’s second quarter, and Class C apartments rated 50.0, off 12.5 points from the second quarter of 2007.
Survey participants were more positive about demand over the coming six months, with the indexes running at 43.9 for Class A apartments, 55.3 for Class B and 56.1 for Class C. This was despite weakness in the component of the MRMI gauging current demand from prospective renters, which was at 52.6, down from 66.1.
The recent news that the President had signed into law long-awaited housing stimulus legislation may further bolster multifamily builder confidence in the future.
"The housing stimulus legislation that the President signed into law will go a long way to help the housing market and the economy by stimulating demand and getting the capital markets working properly again," said Seiders. "That will be good for the rental apartment market as well as for the for-sale housing market."
For more information about NAHB's multifamily housing resources, e-mail Ann Marie Moriarty, or call her at 800-368-5242 x8350.