The condominium market’s loss is the apartment market’s gain, according to surveys of multifamily housing developers by the National Association of Home Builders.

Builder confidence in the condo market dropped dramatically in the second quarter of this year, while confidence in the apartment market hit record highs.

NAHB Chief Economist David Seiders says there is “clearly an oversupply” of unsold condo units, while vacancy rates for apartment buildings are dropping and rents are increasing.

“It looks pretty solid for the rental market for the foreseeable future,” says Leonard Wood, director of Wood Partners, a Marietta, Ga.-based multifamily housing developer.

The conversion of apartments to condominiums when the condo market was hot helped increase the demand for new apartments, he notes.

Now some projects that had been planned as condos are being switched to apartments. But these are “marginal projects” in poor locations, says Bruce Menin, president of Crescent Heights, a New York City-based developer of high-rise condominiums.

“Special projects on special streets in American cities are not going to get replicated,” he says, and will still do well.

But some projects may get harder to do as condo prices soften, he says. This means local governments should moderate their demands for low-income units in new condo projects, he says. That’s “a good public policy goal,” he says, but requirements that are too onerous could keep projects from getting off the ground. This ultimately would reduce housing supply, and make housing more expensive in tight markets, even for moderate-income residents, he says.

Wood says local governments should “be more careful” about adding costs to multifamily housing projects through impact fees and building codes.