Special to Realty/Builder Connection
Builder confidence in current rental apartment market conditions climbed to a new high in the second quarter of 2006, and their expectations for the next six months are even higher amid rising occupancy rates, rising rents, and increased traffic at all classes of rental apartments, according to results from the National Association of Home Builders/Fannie Mae Multifamily Rental Market Index released last month.
“We are in the midst of a solid comeback on the rental apartment side of the multifamily housing market,” said NAHB Chief Economist David Seiders, who noted that condos have made up a rising share of multifamily housing production during the last three years.
“At the same time, thousands of existing rental units had been converted to for-sale units to meet what seemed an insatiable appetite for condos,” said Seiders. “As a result, the supply of rental units is very tight at a time when the demand pendulum is swinging back to rentals.”
The component of the MRMI that tracks current demand saw both luxury apartments and lower-priced apartments (Class A and Class C) reaching their highest levels on record in the second quarter of 2006, with luxury rentals reaching 73.2 and lower-priced rentals reaching 68.0, up from 62.5 and 61.5 respectively in the second quarter of 2005.
The same demand index for moderately priced (Class B) apartments stood at 71.4, up 6.6 points since the same time last year and the same as in the first quarter of this year. The scale is from 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.
Meanwhile, the index tracking market supply conditions moved down slightly for both market rate and affordable apartments. Developers’ responses produced a value of 54.1 for market rate rental starts, and 48.9 for affordable (federally subsidized) rental starts.
When asked about their expectations for the rental market over the next six months, multifamily builders were extremely optimistic, with the MRMI reaching 75.9, 78.6, and 74.0 for Class A, Class B, and Class C apartments respectively. Those expectations seemed based on a big boost in the volume of calls from prospective renters the index tracking this component of demand was up to 70.7 in the second quarter of 2006 from 68.9 in the second quarter of 2005.
In addition, the index that gauges effective rents also reached a record level in the second quarter of 2006, standing at 85.0, which is 15.8 points higher than the same time last year and more than 30 points higher than the same time in 2003.