Confidence in the market for new multifamily housing waned in the fourth quarter of 2020 due to headwinds caused by rising material costs, according to the National Association of Home Builders (NAHB).

The Multifamily Production Index (MPI) – a measure of builder and developer sentiment about current conditions in the apartment and condo market – dropped five points to 43 quarter over quarter. The reading indicates that more respondents think conditions are getting worse.

“The decrease in the MPI is a reflection of lower multifamily activity in the final quarter of 2020, as production fell 9% from the third to fourth quarter,” said NAHB Chief Economist Robert Dietz. “Building material delays and increased costs, especially lumber, have become serious headwinds for builders and developers.”

All three components of the MPI were down in Q4 2020: the component gauging low-rent units dipped four points to 42, the component measuring market-rate rental units declined five points to 48, and the component measuring for-sale units fell seven points to 39.

Despite the weaker builder sentiment, more property managers reported fewer vacancies in existing apartments. The Multifamily Vacancy Index (MVI) dipped two points to 42 in the fourth quarter.

“Multifamily builders and developers are facing ongoing uncertainty in the industry,” said Justin MacDonald, chairman of NAHB’s Multifamily Council. “The eviction moratorium and other restrictions on owners of rental properties are making developers cautious about starting new multifamily projects in certain parts of the country.”