Gimme Shelter! But Where?

It is getting ever harder to find housing as more buys less

In Hartsdale, N. Y.' a young wife asks a rental agent: "Do you have any nice, one bedroom $350-a-month apartments?"

"Sure, lady," replies the agent, "we got a lot of $350 apartments. But we're getting $600 for them."

Everywhere in the U.S.--in towns and villages as well as in cities and suburbs--the cost of shelter is going through the roof. Despite runaway rents, galloping home prices and the difficulties of finding mortgages and paying sky-high interest rates, demand remains strong. The availability of apartments, coops, condominiums and houses is tight, and there is no sign that the housing boom is about to bust. Meanwhile, the worsening shelter squeeze is changing the way America lives--for the worse.

In the twelve months through May, the median price of new one-family houses jumped 13% to $62,900, and the National Association of Realtors expects roughly the same size rise this year. Prices of old houses are moving up just as rapidly. The average mortgage rate for a new home has jumped from 9.1% in January 1978 to 10.7% last month and is rising faster than at any time since 1973.

The daring or desperate who bought two years ago are smiling now, but the cautious are weeping and wailing. Young couples are acquiring their first homes earlier in life--more often than before with family financial help--partly as a hedge against further inflation. Even with the new graduated payment mortgages that allow lower monthly outlays in the first few years, many people are dangerously overextending themselves. Says Norris Allman, 27, an engineer in New Jersey: "We finally made a decision that either we buy now or we would never be able to afford to buy at all."

The Department of Housing and Urban Development estimates that in 1970 half the people in the U.S. could have afforded to buy a median-priced new house --then $23,400--by the normal credit rule that they spend no more than 25% of their pretax income on mortgage payments.

Today, by that same standard, only 13% can afford new-home ownership and 38% of all buyers ignore that prudent rule. In recent years, the price of new housing has gone up much faster than either personal income or inflation. Consequently, many Americans have become "house poor."

They do without and put off having families while the wife works full time to make ends meet. Last year almost half of all home buyers were families with two incomes. Says Patti Garmel, a Los Angeles real estate agent: "I think some people wind up looking at four walls because they can't afford to go to a movie."

However poor, new homeowners may be lucky. It used to be that people who could not afford to buy a house at least could afford to rent a comfortable apartment. But that has become much tougher lately. The rent of a nice two-bedroom apartment in Manhattan is now more than $1,000 a month, vs. $700 two years ago; in Chicago, it is $670, vs. $540; and in Los Angeles, $700, vs. $400. "It's a closet," sighs Olga Flores, a Houston social worker, of her $350-a-month one-bedroom apartment, which she found only after a long search. The old rule that renters spend no more than a quarter of their pretax income on rent went out with the Edsel. Explains Marc Lewis, a part owner of Manhattan's Gardner Realty: "They come looking for a one-bedroom and end up taking a studio."

Rents are soaring largely because apartments are growing scarce. In desirable areas of such cities as New York and Los Angeles, the vacancy rate is under 1%, and landlords are using the shortage to vet prospective tenants and refuse those with modest incomes. Finding an apartment requires tramping the streets and often bribing doormen. Reports Norman Kailo, president of the New Jersey Association of Realtors: "Young marrieds are beginning to double up, and there are a lot of illegal conversions of one-family units into two-family."

Rent controls have discouraged new building. While rents on newly let apartments have soared, the levy on occupied premises has been held artificially low. Worried about future controls, landlords have stopped building. Many are breaking the controls by converting rental apartments to co-ops or condominiums and selling out for a quick profit. This year landlords will convert and sell up to 130,000 apartments, vs. only 60,000 in 1977.

The average selling price of a Manhattan co-op has jumped to more than $30,000 a room, from $18,000 a year ago and $11,000 in 1974. In Chicago, the typical condominium price per room is $46,000, vs. $30,000 last year. Demand is strong: all 280 condos in one town-house complex in Los Angeles' Century Hills sold out even before construction began. Prices: $230,000 to $400,000 per apartment.

The price explosion can be frustrating for sellers as well as buyers. Two years ago, Leonard Sillman, a theatrical producer, was offered $300,000 for his five-story Manhattan town house. He decided to wait, and three months ago his patience paid off: he sold his house for $600,000. But two weeks later he was offered $800,000. How does he feel about his sale-too-soon? Replies Sillman: "Suicidal."

For buyers the scramble is depressing.

A two-bedroom East Side Manhattan apartment that cost $50,000 four years ago now goes for $225,000. A modest brownstone in Brooklyn costs $130,000. Fifty-year-old houses in Atlanta's Virginia-Highland neighborhood of wood-frame bungalows have doubled from $30,000 in 1976 to $60,000. A one-bedroom condo in Boston's scruffy South End costs up to $60,000. Says Ann Wallace, 31, who was looking to buy in the supposedly inexpensive area of south-central Los Angeles: "What we figured would sell for $40,000 is selling for $60,000. What we figured would go for $60,000 sells for $100,000."

Ater two months of looking, Karen Goldstein, 25, a freelance writer, spotted a condo for sale in Culver City, a Los Angeles suburb, at $79,000. But by the time she brought her husband back the next day to look at it, the price had bumped to $89,000. While the Goldsteins waited a week, the price went up a further $10,000. Later they found a three-bedroom "dream house" in the Cheviot Hills area that Karen estimated should cost $180,000 tops. Its asking price: $450,-000. Steven Flint, 26, a savings counselor in Des Plaines, Ill., and his wife Nadine are thinking about buying a $62,600 town house in a housing development that is located 25 miles northwest of Chicago. Says he: "For $500 I can reserve a place and then work my tail off at two jobs for a year to get the down payment together. I'll have to continue with two jobs after we move in, and my wife will probably have to work all her adult life to support this house. There is a good chance our daughter will be an only child."

In some states, searching for a mortgage is as hard as scouring for a house. The thrift institutions, which make most mortgage loans, are strapped for cash. Federal law limits the interest that they can pay depositors, who are now withdrawing funds to invest more lucratively. This April and May were the two worst months ever recorded for withdrawals, and preliminary June figures also look poor.

Usury laws in some states artificially hold down the interest that home lenders may charge. This has discouraged them from lending locally. For example, New Jersey limits mortgage interest to 10%%. Says Robert O'Brien, president of Newark's Carteret Savings & Loan Association: "Every day a phone rings and a mortgage broker offers prime loans that we can make in good areas of California and Maryland at a high interest rate. Our conscience tells us to serve the people of New Jersey, but we know we will lose money on every loan we make."

Many usury ceilings are being raised --New York's is now 9%%--but money shortages persist. That is because demand for loans has stayed high even when charges increase, so many lenders are rationing credit and even refusing new applications. Some lend only 50% or 60% of the value of a house or restrict the term of a loan to 20 or 25 years. Others lend only to established depositors or to affluent people earning more than a set limit.

The squeeze is tightened further by large corporations that pay fees to thrift institutions to reserve mortgage money for their employees.

Land, labor and materials costs are inflating at a 17% rate in some areas. Government regulations, especially at local levels, add up to 20% to new house prices.

Towns may require 10-in. water mains when 6-in. pipes would do, and 36-ft.-wide roads where 26-ft. streets would be adequate. Because of such regulations, HUD officials report, it now takes builders three or four times longer than just a few years ago to move from the planning stages to completion of a house.

House prices historically have proved remarkably resistant to economic downturns. Today the supply of homes is limited, and the demand from buyers is likely to remain strong and even grow as more and more baby-boom couples rush to jump aboard the real estate express. The prospect is for prices to continue rising faster than salaries. This will lead to a steady increase in debt, which will burden even well-paid two-income families.

Argues Michael Inselmann, president of Houston Metro, a real estate research firm: "We are going to have to change our expectations as to what our little abode is going to be. The American dream will have to be readjusted."

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