Squeeze Play at Home

High prices and costly mortgages force people to modify their living styles

Patricia Roberts, 32, a Federal Reserve Board researcher in Washington, decided that homeownership even before marriage was the best way to beat inflation. As a single person, her $24,000-per-year salary put her in a relatively high tax bracket, and she lacked the tax benefits of owning a house. The trouble was that she could not meet the steep mortgage payments required for homes in the expensive Virginia suburbs. Her friend Suzanne Reed, 30, who works for the House Republican Research Committee, was in a similar bind. “It finally dawned on us,” says Roberts, “that we just couldn’t afford the kind of place we wanted alone.”

The two women then decided to become joint owners of a $111,000 town house in an Arlington, Va., development that designs homes for unrelated buyers who double up to beat the high costs of homeownership. Similar developments are cropping up in Phoenix, Denver, Houston and Montgomery County, Md. The sharing is usually done by two young singles, but friendly couples and unrelated senior citizens beset by loneliness, as well as inflation, are also doubling up. The obvious cause of the trend is the decade-long escalation of housing costs and mortgage interest rates. At present, the average-priced new home sold in the U.S. costs $67,100 and has a 17.5% mortgage.

Realtors have labeled those willing to share ownership and living arrangements as the “mingles market.” Typically, mingles houses feature two or more identically sized master bedrooms connected to private baths, plus a shared kitchen and combination living and dining room. Houses and condominiums built for mingles usually are no bigger than four or five rooms. To preserve a semblance of privacy, the two master bedrooms are usually put at opposite ends of the house. “We believe people will settle for less if a home fits their life-style,” says mingles developer Rick Sullivan, 36, who plans with partner Herman Porten, 52, to build 2,000 mingles town houses of 800 to 1,300 sq. ft. in the Washington suburbs. Price: $50,000 to $80,000 apiece.

Mingles housing is just one of the ways Americans are improvising to cope with the collapse of the traditional housing market. A maturing baby boom generation was once expected to fuel a housing boom throughout the 1980s, generating demand for 2 million new units annually. But consumers now are simply unable to buy homes. Fully 85% of U.S. families cannot afford the $904 monthly interest payment required for a typical mortgage of $60,000, at 18% interest, according to a study by the National Association of Home Builders.

As a result, new housing starts have fallen off a cliff. The Commerce Department last week reported that construction on new homes in October dropped to an adjusted annual rate of 857,000, the lowest level in 15 years. Starts of single-family homes meanwhile hit the lowest rate since the end of World War II, an adjusted annual level of 487,000.

While thousands of unattached people are moving in together, another alternative for the hordes of young people born in the middle of the postwar baby boom is going back home to live with the folks. Although this can cause some problems, it is often a comfortable solution. “I have a very cushy life-style,” confides Sandy Edens, 26, who commutes from her father’s house in Grosse Point, Mich., to the Center for Creative Studies, a private Detroit art college, where she is assistant dean of students. Adds she: “A maid comes and cleans and does the cooking, and I can use all the money I’d pay for rent on clothes and vacations.” Edens, who contributes to the cost of food, utilities and the maid’s salary, concedes that there are drawbacks to the arrangement. “If a gentleman friend wanted to stay the night, he’d have to use the guest room.” In Troy, Mich., Sheet Metal Executive Harold Rochon, 44, last August invited daughter Dee Anne and her new husband Steve to move to a cottage attached to the side of their split-level ranch house after the newlyweds began experiencing financial difficulties. Says he: “We like the kids, and that’s all that counts.

We hope they can put some money aside for the day they want to move out.”

Lending officers around the U.S. report a big jump in home improvement loans, which are often used to pay for construction of extra living quarters in existing housing.

“It’s a fair surmise that much of this expansion is being done to accommodate children who live at home,” says Norwick R. Goodspeed, chairman of the Peoples Savings Bank of Bridgeport, Conn., which has seen a 50% increase in home improvement loans since 1979.

In Braintree, Mass., Builder Gordon Poulos recalls that on one local street he recently encountered three different homeowners who were sprucing up their cellars to house family members. Says he: “It used to be that people finished the attic of a Cape Cod home. Now they’re fixing up the cellars, hooking up fluorescent lights, making real underground apartments.”

The renting of rooms in single-family homes is also rising, even in areas where multiple occupancy of single-family housing violates local zoning laws. In one recent survey of 200 bedroom communities surrounding New York City, 71% reported that illegal rentals were beginning to surge. Says Richard Spirio, planning commissioner in the town of Babylon, N.Y. (pop. 153,000): “People have been hiding their heads in the sand about illegal, multifamily conversions. In Babylon, we discovered that roughly 5,000 homes out of 38,000 had already been converted.”

Babylon officials have been willing to approve such conversions, although urban planners have long regarded them as a cause of overcrowding and city decay. The new arrangements make it possible for older couples to remain in their homes, while permitting the community to keep its younger members, most of whom are unable to afford local home prices.

High costs for traditional housing have proved a boon for manufacturers of mobile homes, whose sales for the first eight months of 1981 rose 17%, to an annual rate of 280,000 units. Price is the big selling point. Last year, a mobile home cost an average of about $18,500, compared with $64,500 for site-built houses.

Today’s mobile home is mobile in name only. Often, it makes just one trip, going from the factory to the lot, where it is permanently attached to a foundation. For about half of the homes sold, the site is a conventional trailer park. But increasingly, manufacturers are promoting mobile-home subdivisions complete with curving streets and cul-de-sacs.

The standard, single-width mobile home accounts for 70% of the industry’s sales, yet double-wide and triple-wide mobile homes, supplied with shingled roofs, wood paneling and even wet bars, are growing in popularity. Prices start at about $8,000, but at the very top of the line they reach $100,000. Champion Home Builders of Dryden, Mich., is developing a luxury mobile-home complex in Novi, Mich. In the Southern California town of Yorba Linda, manufacturer Fleetwood Enterprises has joined with a local developer, John D. Lusk & Son, to create a posh 400-acre development known as Green Hills. The community will include both custom-built Fleetwood mobile homes, selling for $87,000 and up, including land, and site-built homes, starting at $200,000. Yorba Linda officials dropped the normal lot size requirement from 7,500 to 5,000 sq. ft. so that builders could lower costs and the city could fulfill state requirements for lower-and middle-income housing. Says Planner Robert Kirkpatrick: “The conventional building industry has come to a virtual halt in this area. If interest rates remain where they are, we will be looking at more and more of these types of arrangements.”

Both home builders and potential buyers last week saw some encouraging signs that the cost of borrowing money may be dropping a little. First, the Federal Reserve eliminated the 2% surcharge it had been charging member banks for loans. Then the Open Market Committee met in Washington, and some Federal Reserve watchers concluded that the group voted to ease up slightly on its tight money policy. Many banks last week lowered the bench-mark prime rate to 16.5%, and a few went as low as 16%.

These declines, however, will be slow in reaching mortgage rates, which traditionally trail the prime as money-lending levels both rise and fall. Still, New York’s Citibank and Chase Manhattan last week dropped the rate on several types of mortgages. Although Citibank will still charge regular customers 16.5%, the 1% cutback was Citibank’s first decline since August 1980. In Columbus, Ohio, BancOhio announced a mortgage rate cut to 16⅝% from 17⅜%. Nonetheless, housing experts doubt that mortgage levels will drop to less than 13% during 1982. Such rates are nearly double those of a decade ago and would force many home buyers to continue searching for new housing alternatives.

—By Kenneth M. Pierce. Reported by Christopher Redman/Detroit and Jeanne Saddler/Washington, with other U.S. bureaus