Reducing the cost of new housing - or at least slowing the acceleration of prices to the pace of overall inflation - may not be an impossible dream, but it is a complex challenge for the building industry and government.
Consumers are going to have to cooperate, in addition, by accept the fact that added insulation and energy-saving features force up the price of a house, as do the addition of higher grade appliances, flooring, carpeting, paint - and quality workmanship.
At a recent two-day seminar on housing costs, sponsored by the National Association of Home Builders, Jay Janis, undersecretary of the Department of Housing and Urban Development, said that HUD is forming its own government-industry task force to examine "all the building and marketing components, which, when added together, help escalate housing costs." The task force wlll look for short-term as well as long-term solutions, ha said.
The Commerce Department reported last week that the average price of new houses had topped $50,000 for thd first time during the early part of this year. Janis, a former builder, asserted that the 12 per cent increase in prices over last year "cannot continue."
But it may.
Why? Because Americans who have the money are buying larger, more expensive houses. And builders are building to satisfy that market. A housing boom is flowering across this land - in part because many buyers seem to be saying, "It's now or never."
In such a seller's market, all prices increase. In a buyer's market, when sales are slack, prices tend to level off. It's simplistic but it's basic to housing.
Despite the surge in building for the affluent, the concern over cutting new house costs continues. With out it, those in the low end of the burgeoning middle-class have only a slim chance of buying houses.
Mechael Sumichrast, the home builder association's chief economist and oft-quoted source on anything related to housing, says that this cost-cutting "will have to be done in bits and pieces. There may be 500 potential items in a house that could be sources of some small savings, $5 or $10. If a hundred of those items can be isolated and trimmed in terms of costs then the price of a new house might well be reuced $500 or more."
There are other avenues to lower-priced housing among them, rehabilitation of existing housing. Rep. Les AuCoin (D-Ore.), keynote speaker at the NABH seminar, said that making better use of the current housing stock has a potential for savings of staggering proportions.
In this area, one example of ownership at a relatively low cost is found in Loudoun County, where the 12-year-old Sterling Park rental, town houses were converted to condomiumiums earlier this year and renamed "Pembrooke of Loudoun." Within a few months, and without formal advertising, the 292 dwellings were all sold - 42 per cent of them to tenants and at prices ranging from $23,900 to $30,990.
Where units were substantially redone, with new kitchens and appliances, the price was $4,000 more. But yet the average price per square foot of livable space remained well under $30 - at least $10 a square foot less than for most comparable new housing.
Walter J. Hodges and Stephen G. Yeonas came from diverse housing backgrounds to buy the development, which also includes the 126-unit, six-year-old North Apartments, last December from the Sterling Park Development Division of U.S. Steel Corp. The price was slightly more than $4.5 million.
The first thing Hodges and Yeonas did was to provide tenants with information about how they could remain as owners. Those who decided to leave were given 90-day notices.
Many of the 42 per cent who remained (and allowed a $1,000 discount for an early decision to buy) took possession of their dwellings without substantial interior renovation.
In most cases, the project's 95 per cent financing allowed tenants to keep their effective monthly payments at about the same level as their rent - and in some cases it was even lower.
Yeonas, a veteran home builder now in the real estate investment business, said that he and Hodges are making "a nice profit in doing the conversation to ownership but we also provide an unusual opportunity for the purchasers.
"The townhouses needed some renovation and we improved the housing stock," he continued. "But I contend that the main beneficiaries will be the purchasers. They certainly stand to participate in the housing value appreciation that has been so traditionally strong in this area."
Another notable among the local housing complex renewals is another Hodges project, the Fairlington Villages town house condominium conversion near King Street and the Shirely Highway corridor of Northern Virginia. CBI-Fairmac Corp. reports that sales of the more than 3,000 units have been very strong. Prices have hovered at $50,000 but have inched up recently as demand increased and the number of available town houses dwindled.
Elsewhere, in Southwest Washington, the Fairfax Village conversion has also been going strong. The developer, Giuseppe Cecchi, is also in the first stage of converting the Parkfairfax complex, near Fairlington, to condo ownership.
Not all of the area's rental housing is destined to be turned into ownership property, but the trend is obviously increasing in all parts of the Washington area.
Buckingham, another large, older, close-in Virginia rental complex is on the market and likely headed for the Fairlington-Parkfairfax route. In fact, almost any aging rental project in an attractive location could be considered a likely target for conversion-rehabilitation. Rental apartment owners do not seem disposed to invest in major improvements without a strong prospect for additional rents. But those same projects are attractive to redevelopers who can modernize and resell them profitably.
Yet, the trauma of new housing costs remains with us. And it seems likely that the private housing sector and HUD may really break some new ground in attacking the problems of mounting costs.
David H. Miller, president of Miller & Smith and currently president of the Northern Virginia Builders Association, participated in the NAHB cost conference and came away with this creation: "We've faced the same problems for years. I can't say that I really learned anything new but some of the outside participants now seem to have a better appreciation with processing delays and the higher costs of building roads in subdivisions and abiding by regulations on grading, curbing and gutters. As I see it, the buyer of a new house is paying for the improvements (streets, ect.) that serve everyone. I really think we need a sensible national model code for land development."
David C. Smith, a builder in upper Montgomery County and a past president of the Suburban Maryland Home Builders Association. commented that "We have to live with standards of all kinds. Complying costs money and that goes into the price of a house. For instance, smoke detectors are good. But should they be mandated or optional? Heat pumps save money on fuel bills and so does added insulation. But how much can the buyer afford? Optional is the key word on many items that we can or do not put into a house. But we must also address the big problem of communication with our local officials."