Multifamily construction will get worse before it gets better. At least, that’s the word David Crowe, chief economist for the National Association of Home Builders (NAHB).

Crowe said last week at the Urban Land Institute’s “Financing Workforce Housing in a Stimulated Economy” forum in Washington, D.C., that he expects approximately 129,000 multifamily starts in 2009 and 126,000 starts in 2010. “Single-family starts will begin to recover in the third quarter,” Crowe says. “Multifamily will take longer.”

In 2009, he thinks 5 percent to 10 percent of starts will surprisingly be condos still in the pipeline. About half of the total will be tax credit deals, and the remainder will be market-rate rentals. “Some high-production builders at NAHB say that number [for market-rate] should be closer to zero,” Crowe says.

The main reason for the drop-off is financing. Though some reports say the financing markets are beginning to loosen, it’s still nearly impossible to finish new construction deals. “Financing will be extremely difficult,” Crowe says.

Right now, the only financing vehicle available to most multifamily builders is FHA’s 221 d4 program, but the program is often criticized for its burdensome process, long timeline, and its per-unit cost limits, which make it more difficult to use in high-cost areas. In the past, there had been talk of Fannie Mae and Freddie Mac providing construction financing, but James Lockhart, director of the Federal Housing Finance Agency, said at the ULI meeting that that scenario won’t happen because Fannie and Freddie are “second players” that can provide financing after a project is built.

Lack of financing is a major problem, but Crowe see demand as another huge issue. “The overhang [in housing supply] will be more competitive against the rental market,” he said.

Right now, fewer residents have jobs that allow them to pay for their rent. “The new renter is the new employee,” he says. “That group needs to get its job back or get a job [before it can rent].”

Once the Echo Boomers find work, there should be huge demand for rentals. “I expect the rental market in 2010 and 2011 will be extremely good because we won’t be able to start the supply chain fast enough,” Crowe adds.