A nascent boom in the demand for rental apartments is luring U.S. property developers from the shadows, and their efforts to meet that demand are softening the blow for a still sliding housing market.

Easy credit fueled the housing boom and pushed homeownership to record highs. Now, that process is in reverse. Tighter credit has put homeownership out of reach for millions of Americans who are now being driven toward renting.

Highlighting the sector's ills, sales of existing homes fell more than 9 percent in February, snapping three straight months of gains, a real estate group said on Monday.

In February, builders broke ground on 104,000 multifamily properties, a 33 percent increase from a year earlier. In contrast, single-family home construction was down 28 percent.

The shift has pushed the multifamily share of overall construction starts to 19.7 percent in 2010, compared to 17.0 percent when the housing bubble reached its zenith in 2005.

And builders expect that proportion to keep rising.

We are increasingly seeing increased levels of demand in the face of what we believe will be a shortage of new supply to address that demand for the next two or three years, said Charles Brindell, chairman of the National Association of Home Builders' Multifamily Leadership Board.

Demand for rental apartments last year was the third highest in 25 years, according to the NAHB, and that has led to a growing bullishness among developers.

Confidence among multifamily property developers tracked by the NAHB hit a four-year high in the fourth quarter of last year.

Multifamily construction, measured by the total number of units started is always lower than single family homes, but the proportion of multifamily units in 2011 and 2012, I believe will be larger than has been historically the case, said Brindell who is also CEO of Mill Creek Residential Trust.

You could translate that to leading or certainly helping to lead a recovery in housing.

Another sign of the shift is a decline in vacant rental properties. The rental vacancy rate dropped to 9.4 percent in the final three months of 2010 from the 11.1 percent peak reached in the third quarter of 2009.

Tighter lending standards have lessened the appeal of buying and priced some potential shoppers out of the market. Banks that may have extended loans with as little as 5 percent down as the market was booming now request deposits of anything up to 30 percent.


People have the money in their salaries to pay their mortgages, but they don't have the money in their savings to put down 25 percent deposit for a condominium or a home, said Rick Andritsch, co-owner of VJS Construction in Wisconsin.

That is driving the demand for apartments because people that were planning in 2007/2008 to buy a condo are now renting. They are going to continue to rent and save until they can afford to buy a condo.

But some economists question the developers' enthusiasm, citing a huge supply of unsold homes on the market and the relentless wave of foreclosures.

Developers are going to find reasons to be bullish. They will talk about specific neighborhoods that need new home construction and of course you will be able to find areas in this country that need new homes, said Brian Levitt, an economist at OppenheimerFunds in New York.

But in the aggregate, when you look at the supply numbers and you look at the household formation numbers, there is simply not a lot of need for new construction at this point.

Still, the rental market has picked up.

With the labor market finally showing signs of life, a sense of job security is returning and making some people who had moved in with family and friends confident enough about their future to find lodging of their own.

According to the NAHB, much of the demand for rentals is being driven by the 20-34 age group that is estimated to have landed about 60 percent of the roughly 1 million new jobs generated by the economy last year.

The flip side of the rental coin is the decline in homeownership. The homeownership rate, which peaked at 69.2 percent during the housing boom in 2004, dipped to 66.5 percent in the fourth quarter.

It is now near levels last seen in the late 1990s and closing in on its historical 64-66 percent range. Analysts expect it to level out there, supported by the bulge of young adults, who will likely seek to buy their own homes as the labor market gains traction.

(Editing by Kenneth Barry)