Housing: Demand Down, Prices Up

Anyone who sets out to buy a house this fall will run into a bothersome paradox: while the demand for houses is declining the asking prices are rising. The number of housing starts in 1965 will dip 4% to 6% below last year’s disappointing 1,591,000, and Treasury Secretary Henry Fowler calls housing one the U.S. economy’s few “sputtering” segments. Yet the home buyer has to pay at least 3% more than a year ago. Throughout the U.S., reports the Census Bureau, the median price for new houses has jumped in the past year from just under $19,000 to about $20,000. The rise is even sharper in big cities’ from $24,400 to $27,100 in the pas year in the Chicago area.

More Amenities. The main reasons for the decline in demand are 1) the overbuilding that took place earlier in the 1960s, and 2) the decrease in the biggest buying segment of the population, people aged 30 to 40, most of whom were born during the low birthrate years of the Depression. Main reason for the higher prices: the continuing jump in the price of land, the economy’s most inflated commodity.

The cost of land in and around cities has been rising 10% to 15% a year since 1960, and in some places, such as Los Angeles, has increased close to 20% annually. Also adding to housing costs are zoning boards that require houses to be built on increasingly larger plots, and builders who put up increasingly commodious houses. Another factor is the first stiffening in several years of mortgage rates, which in many areas have risen from 5½% to 5¾%, principally because money is tightening and investors are finding more lucrative outlets for their capital.

With desirable land becoming scarcer, developers are turning to marginal plots in areas as far as 45 or 50 miles from the heart of the city and brightening them with come-ons—Olympic-size swimming pools, tennis courts and teen-age “centers.” Builders are offering various forms of walled-in courtyards, patios or other places for private outdoor entertainment or relaxation. In Boston, houses with atria—R oman-style enclosed courtyards—will go on sale next spring.

Outside Pomona, Calif., one development has built houses with a pretentious name (“Tiffany”) but a practical attraction: a covered swimming pool just half a dozen steps away from the kitchen. Prices for the houses: $22,450 to $33,450. Other amenities offered by builders now include long, narrow windows that extend from ground to roof: hi-fi systems with outlets in every room: and television hookups between front door and kitchen so that housewives can see who is calling.

No Mood to Pare. Since buyers in todays affluent market are willing to pay more for comfort, convenience and gimmickry, the builders themselves absorb only part of the costs of the extras. In any case, they are in no mood to pare prices: they expect demand to increase next year, when the new Housing Act will enable veterans to get longer and lower-cost mortgage loans and will provide easier federal financing for higher-priced homes and raw land In addition, the number of Americans who will marry and enter the housing market will jump this year from 800,000 to 1,200,000, thus giving a badly needed push to the housing market.