The apartment sector is projected to lead the housing market on the road to recovery, but growth in the multifamily sector will be highly uneven, industry experts said last week in Orlando.

For one thing, the net gain in purely rental units will be minimal, given the demand, apartment professionals said at the National Association of Home Builders' (NAHB) annual convention. For another, production is highly concentrated. And for a third thing, the units being built do not match the needs of newly formed rental households.

The NAHB is expecting builders to put up a total of 208,000 multifamily units this year, up from 177,000 in 2011. And it is projecting 235,000 apartment starts in 2013.

But both figures are "well below" the 350,000 units a year that are needed to maintain balance the market, Sharon Dworkin Bell, the group's senior vice president for multifamily and 50-plus housing, told reporters.

And according to Ron Witten, president of Witten Advisors, a Dallas-based research firm, 10 markets will see 60% of this year's production. "The vast majority (of places) will see no recovery at all," he said at a press briefing. Worse, though, is that the number of actual rental units — as opposed to those built for such other uses as timeshares and nursing homes — is only slightly more than the number of obsolete units that are demolished or otherwise taken out of service.

In an average year, according to Witten, some 120,000 apartment units are removed from the inventory. And since only 150,000 of this year's production will be pure rentals, the net increase will be a paltry 30,000 units.

On top of all this, people who are forced to find somewhere else to live when their units are taken off the market are not necessarily the people today's apartments are being built for, said developer W. Dean Henry, president of Legacy Partners Residential, Foster City, Calif.

Henry said capital sources are not interested in backing the prototypical garden-style apartment, the kind of unit favored by lower-end wage earners and those who are taking the new jobs currently being added to the workforce. Rather, he said, lenders "want denser mixed-use, high-rise and transit-oriented properties, making it difficult to finance less-expensive product in suburban locations." And as a result, builders are forced into delivering smaller but high-end one-bedroom apartments.

"People being displaced are not likely to be renting what we're building," said Henry, who is chairman of the NAHB's Multifamily Leadership Board.

The California-based developer also said that even though demographics favor the apartment market, he and his colleagues are "having a difficult time" obtaining the credit they need to satisfy demand for their product.

"Credit conditions are so tight that even developers with strong balance sheets and good reputations are having difficulties," said Henry, who built only one apartment project last year "because of financing constraints" and none in 2010.

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