The high cost and dilapidated condition of dormitory rooms at the University of Maryland has created a boom market for rental housing in nearby neighborhoods, College Park officials say.

In College Park, which has an abundance of rooming houses, apartment buildings and homes for rent within walking distance of the campus, rents range from $100 a month for a room in a private home to $1,400 a month for a large house.

The city's public services director, Donald Byrd, whose department inspects all housing in the city, said the number of rental units in College Park has grown from 1,499 in 1975 to 2,352 last year. Byrd said the average rent in the city is near $800 a month.

"The rental business is probably College Park's most lucrative market," among all city commerce, Byrd said, but it is a mixed blessing. Student demand is keeping young families from finding rental homes, he said, "and it is only going to get worse because of the university's housing fees. It is cheaper for students to live off campus and they can get the privacy of a neighborhood."

The university provides housing for only 8,100 of its 37,000 students. Dormitory residents pay $941 a semester or about $235 a month during the eight-month school year; it is one of the highest dorm fees at any state- supported university.

Freshmen and sophomores living in the dorms also are required to purchase one of three eight-month meal plans that range in price from $1,247 for 10 meals a week to $1,405 for 19 meals a week.

By comparison, a group of four students can rent one of the dozens of small apartments that line Knox Road on the southern edge of the campus for $500 to $700 a month.

The apartments--nicknamed "Knox boxes" by the students--generally have two bedrooms, one bathroom, a living room and a kitchen and dining area. By sharing the rent, students pay $50 to $80 a month less than they would for dorm rooms, where they share small kitchens and bathroom facilities with an entire floor of students.

"The landlords can charge almost anything they want as long as it is cheaper than the dorms--and we are happy to pay it," said Cheryl Steele, a former dorm resident who has been living in a Knox Road apartment for more than a year. Steele and two roommates pay $505 a month, utilities included, for a two-bedroom apartment.

"If I wanted to, I could jack up the rents $25 per girl and they would still pay it, because it is better than the dorms," said Harry Appleton, who has owned half of one six-unit Knox Road apartment building since 1950. Appleton said his three apartments are now worth $140,000 and gross $18,000 a year.

While city officials concede that the demand has pushed up real estate values in the city, university and College Park officials disagree about the effect housing conditions on campus have on the College Park rental market.

"We believe the problem is relatively small for those who want to live on campus and cannot," said university student affairs vice chancellor William L. Thomas. Thomas pointed out that the student population has been relatively constant for the past five years and that the university has consistently been able to fill its waiting list for campus housing by the second semester of each school year.

"The cost of commuting has become more expensive and some of the students are just moving closer to campus," said Richard Stimpson, campus resident life director.

"Price isn't the only reason people move off campus," said Steele, a junior. "I just outgrew the dorms."

"You have more control here. You have privacy and you can study," said Sheri Siegel, a senior who shares a $400-a-month, one-bedroom apartment on Knox Road with a woman she met in her dorm last year.

Although the university operates free shuttle buses to a number of less expensive, larger, and more modern apartment buildings a few miles from campus, many students said they prefer being close to campus because the shuttle buses do not operate at night.

"It is just not an option when you need to be on campus a lot and you don't have a car," Steele said. "We are so close I don't consider myself a commuter."

Siegel said her Knox Road apartment is closer to classes than her dormitory was.

"Students are paying through the nose for slum housing," said City Council member Chester Joy. "The rents are astronomical and there are a lot of absentee landlords who are not taking care of their property."

"Because of changes in the tax law, rental property has become an increasingly attractive investment. It is going to get worse if interest rates climb because it will be a greater barrier for normal family housing," Joy said.

But not all landlords are the same, said Tim Friel, who is now living in his second Knox Road apartment. "Here my landlord is excellent," but his first apartment was "a dump and the basement leaked," he said.

Friel said he also had problems with maintenance in his campus dormitory two years ago.

The majority of campus dormitories are more than 20 years old; the oldest was built in 1913. "Some of the dorms are on the verge of being terrible," said vice chancellor Thomas. The university is currently in the third phase of a seven-phase program to gut and renovate 19 of the 36 dormitory complexes. The project is scheduled to be completed in 1989 or 1990.

Because the Maryland General Assembly requires all university dormitories in the state to be self supporting, utility costs for the dormitory, salaries for personnel and capital improvements must be paid entirely by student housing fees, said Jan Davidson, administrative services manager for resident life.

The university Board of Regents is expected to take action next month to relieve students of some of the burden of paying for the renovation project. According to Stimpson, $400 of the students' $1,842 annual housing fee is currently set aside for future capital improvements of dormitories. The regents' finance committee last month unanimously approved a recommendation authorizing the university to sell bonds to fund the fourth phase of the renovation project. The full board is expected to approve the measure next month.

But Stimpson pointed out that there are no plans to use the bonding authority to build additional dormitory spaces. "We might be able to fill it, but the cost is too high," he said.

Earlier this year the university rejected a plan proposed by council member Joy that would have allowed the city to arrange for a private investor to build additional housing on campus at no cost to the university.

Thomas said the university rejected the idea because it had not worked well when tried at other campuses and because the university did not foresee a demand for additional housing on campus in light of a state mandate to reduce freshman enrollment.

"We were talking about the university not spending a nickel," Joy said. "For the university to not provide adequate housing on campus is itself an endorsement of the private developers who are controlling student housing in the city."