Housing Shuffle

By Edward E. Scharff

Years of low home construction lead to shortages

The bellwether housing industry is once again poised for a painful plunge. As the nation's economy grew by a modest 1% between July and September, home building enjoyed a mild rebound from a steep drop it suffered last spring. But the new run-up in mortgage rates, which has pushed the cost of money to 14.5% in California and New York City, has left millions of home buyers anxiously waiting once again for the cost of money or the price of houses to come down. Says Merrill Butler, president of the National Association of Home Builders: "This was the shortest recovery in the history of the industry."

During the past year, housing has taken some of the heaviest blows from the recession. After the Federal Reserve sharply tightened credit in March, mortgage rates soared to a high of 17% in some areas. As a result, housing starts, which two years ago were running at an annual rate of 2 million, dropped to 900,000 in May. When interest rates on home loans fell to about 12% during the summer, customers again began shopping for new homes. Housing starts rose in September to an annual level of 1.5 million, but the increase stemmed largely from new construction on federally subsidized apartments that builders had to get under way before Sept. 30, when the Government closed the books on its fiscal year. For the first nine months of the year, housing starts lagged a dismal 32% behind 1979.

The sluggish housing market is not only a bad omen for the current health of the economy; it is also a sure sign of more trouble to come. Because of years of insufficient construction, the U.S. has developed an acute shortage of moderately priced housing. More and more members of the baby-boom generation are now moving into the prime home-buying age group. Divorce, single-person households and the great migration of people to the Sunbelt and the Northwest have placed further strains on the existing housing supply.

The U.S. needs an estimated 2.4 million new dwellings annually to meet demand, but only once in the past five years, in 1978, has the housing industry come even close to that mark. Michael Sumicrast, chief economist of the National Association of Home Builders, predicts that only 1.2 million new housing units will be built this year, the lowest number since 1975. Says James Christian, senior economist of the United States League of Savings Associations: "We are starting the decade about 1 million units a year short. We will have tough years ahead. Marriages will have to be postponed, and young people will have to double up with families. There is little short-term prospect for closing the gap in the housing deficit."

The beleaguered industry's problems immediately hit consumers when they start looking for a new home. In Long Beach, Calif, for instance, Susan and Tom Ragan last week bought a modest two-bedroom house for $71,950. Hardly proud of his new domicile, Ragan says dejectedly: "We're just going to have to live in a place we don't really want." In Milwaukee, Jean and Ron Ross have been hoping to sell the duplex unit they have owned since 1972 in order to trade up to a detached house. Even though the value of their home has gone from $30,000 to $75,000, they are no closer to the house of their dreams than they were eight years ago. Says Ross: "It's depressing that we could spend $100,000 and still not get what we want."

Just as Americans are learning that they will have to pay stiff prices for the new small, fuel-efficient cars Detroit is now producing, consumers are also discovering that they must cough up lots of money for less glamorous living accommodations. Housing today often means unfinished rooms, small condominium apartments and mobile homes.

Dream houses are still being built, but they often carry price tags that drive away all but the superrich. In Washington, D.C., about 115 new houses will be constructed in the next five years on the 27-acre estate once owned by Nelson Rockefeller. Though the houses are only 30 ft. apart on the average, and prices start at $457,000,24 of them have already been sold. In California, Jerry Buss, owner of the Los Angeles Lakers basketball team and the Los Angeles Kings hockey team, paid $5.4 million last month for the 22-room mansion once owned by Movie Star Mary Pickford. Buss estimates that he will have to spend another $1 million sprucing up the place.

People of more modest means who are searching for a detached house in the suburbs must sometimes settle for depressingly spartan structures. To hold down prices, one major builder in Gwinnett County, Ga., 20 miles north of Atlanta, sells $70,000 houses with up to one-third of the interior space unfinished. Owners can complete the rooms later, when they have the money. Bathroom and kitchen floors are covered with vinyl instead of tile, and closets have sliding doors made out of a light plastic material rather than wood. Boston Builder Anthony Lapuma has turned out the first half dozen of what he calls "workingman's specials." The Cape Cod-style houses sell for $49,900, but the second floor, which is big enough for a large bedroom and small bathroom, is completely unfinished.

Another new cost-cutting innovation sweeping the country is the California-inspired "great room," a substitute for both the living room and the family room. For privacy's sake, living rooms traditionally are cut off from other rooms in a house by a hallway, staircase or dining room. The great room, however, opens directly onto every other room in the house. This saves the construction cost of building a hallway. Says Daniel W. Miller, an Orlando, Fla., real estate consultant: "Hallways are the result of lazy architects, and the days of the formal living room and dining room are numbered, except for the very affluent."

Many Americans, however, are deciding that they can no longer afford the detached house that has long been the standard family living unit in the U.S. Instead, they are moving into town houses or condominiums, which make better use of land and are also more fuel efficient. Four or five town houses can be placed on the land needed for one detached house; and, since the dwellings have only two or three sides exposed to the weather, they use much less energy. This fall, 15% of all new housing on the market is condominiums, as compared with only 11.6% a year ago. In older cities, apartment houses like one opposite the Metropolitan Museum of Art in Manhattan are being purchased by their residents and converted to sometimes stunning coops. Meanwhile, town houses with community yards, swimming pools and tennis courts are springing up in places like Alexandria, Va., and outside Atlanta. But the prices are not low. Condominiums in one Santa Monica, Calif., development range from $240,000 to $520,000.

Other people looking for cheaper shelter are moving into mobile homes or "manufactured housing," as promoters now call them. Despite high interest rates and the hostility of many local zoning boards, mobile-home construction is strong. Sales in Florida have gone from 14,000 in 1977 to a projected 30,000 this year. A large, comfortable two-bedroom mobile home will cost about $20,000. Some 90% of them are bought for a permanent homesite, and owners have no intention of towing them behind their pickup trucks.

Mobile homes are now more welcome in many areas. California and several other states have changed their laws to allow mobile-home manufacturers to transport 14-ft-wide units on highways previously limited to 12-ft. ones. California also no longer taxes mobile homes as vehicles, but permits local communities to assess property taxes. Sydney Adler, a Bradenton, Fla., mobile-home community developer, says that mobile homes have achieved such acceptance that many financial institutions in the Sunbelt are giving buyers 25-year mortgages with 20% down payments.

Despite all the new cost-cutting innovations, however, the housing industry still cannot keep up with the population growth. During the 1980s a record 42 million people will reach their 30s, the heaviest house-buying years. That is 10 million more than during the 1970s. For many of them, the detached house in suburbia will be only a fading mirage. For them, the era of lowered expectations will mean less house for more money.

-- Edward E. Scharff

This file is automatically generated by a robot program, so viewer discretion is required.