Yet it isn't sagging demand that's driving developers to hold orcancel projects. Just like in the stalled sales market, the lack offinancing is one of the main factors in keeping starts down. Andgiven market conditions, new starts should continue to dwindle,says Sharon Dworkin Bell, senior staff vice president formultifamily at the National Association of Home Builders. "We'rehearing anecdotally from our members that the lack of financing ishaving a substantial impact on starts, but it really hasn't beganto show up in a meaningful way in the national numbers," shestates. "The impact will probably be more noticeable in thethird-quarter figures because developers are canceling or notmoving forward with planned projects due to the financingsituation."

Commercial banks, which have typically provided debt forconstruction, have tightened their lending criteria significantly,and that's severely restricted cash flow. "There are still dealsgetting financed, it's just more difficult," says Bell. "In thepast, developers would solicit maybe a handful of banks to getfinancing. Now they have to go out to 10 times as many institutionsto get money."

In addition to the slower pace of new starts, the type ofproduct that is being built has changed. Bell observes thatdevelopers, due to the higher cost of concrete and steel, areincreasingly opting to construct smaller, low to mid-risecommunities, rather than high-rise properties.