Multifamily construction sentiment improved in the first quarter of 2021 as the rental housing market became more competitive, according to the National Association of Home Builders (NAHB).

“We continue to see strong demand for rental housing, especially in the suburbs,” said Justin MacDonald, chairman of NAHB’s Multifamily Council. “But an increase in building material prices and difficulties obtaining approvals remain significant headwinds for the industry.”

NAHB’s Multifamily Production Index (MPI), which measures builder and developer sentiment about current conditions in the multifamily housing market, jumped eight points to 51 quarter over quarter. All three components of the MPI increased in Q1: the component measuring low-rent units climbed four points to 46, the component measuring market-rate rental units grew six points to 54, and the component measuring for-sale units was up 13 points to 52.

“The MPI reversed trend and rose strongly in the second quarter of last year, one quarter before a similar turn-around in the multifamily housing starts data,” said NAHB Economist Robert Dietz. “Since then, multifamily starts have mirrored the MPI. The surge that we saw in the MPI for the first quarter of 2021 coincides with a similar surge in multifamily starts to a seasonally adjusted annual rate of more than 450,000 units. Based on these recent numbers, NAHB now expects a gain in multifamily starts this year.”             

NAHB replaced the former Multifamily Vacancy Index with the Multifamily Occupancy Index (MOI). The new index uses the same underlying data to measure the multifamily housing industry’s perception of occupancies in existing apartments. The MOI edged up one point to a reading of 59, indicating increased occupancy during the first quarter.