More than one million households joined the ranks of renters in the last two years, according to a new report by the National Multi Housing Council, a Washington-based group representing the multifamily rental housing industry.

Nationwide, the number of renters is projected to increase by 4.3 million households over the next decade, says Mary Ann King, 2007 NMHC chairman, in the council’s newly released annual report. Apartment demand is forecast to increase by 430,000 units annually, the report says.

In part, the rise in the number of apartment dwellers can be traced to the crisis in the residential home ownership market, which has suffered because of the subprime mortgage debacle. By the end of 2007, as many as 2.2 million subprime borrowers had lost their homes or were in the process of losing them, NMHC says.

But despite the growing number of renters, apartment companies could experience a difficult time in 2008 because of the “shadow” market — competition from unsold houses and condos that were placed on the rental market. Another negative factor for multifamily firms is the continued possibility of a national recession, which could drive down sales and returns for investors.

“The apartment market remains healthy, but if a vulnerable economy should tip into recession, that could change,” says Mark Obrinsky, NMHC vice president of research and chief economist.

Problems in the financial markets and the tightening of credit put a crimp in transaction activity, Obrinsky says. Total volume for 2007 is likely to exceed the 2006 record of $91 billion, because of the $22 billion Archstone-Smith privatization. If not for that transaction, amount of 2007 transaction activity would have represented a decline for the first time in five years, Obrinsky says.

Still, overall apartments performed well as an investment, with returns to privately held apartments in the first nine months achieving an annualized rate of 12.6%. That’s a drop from the 2006 level of 14.6%, and down significantly from 21.2% returns in 2005.

For the first time in four years, the apartment REIT index fell, racking up its worst year since 1998, NMHC reports.

According to the industry group, 32% of Americans rent their housing. Over 14% of U.S. households — 16 million households — live in an apartment, a rental unit in a building with at least five units.

The nation’s apartment stock of buildings with at least five units is valued at $1.6 trillion, and rental revenues from apartments total more than $120 million per year.

New apartment construction averages $32 billion in value annually, according to the industry group.