Affordable homes: will US economy snuff the dream?

A home may be one's castle, but unless the economy improves dramatically, home ownership will be the stuff of dreams for many Americans. "There's no doubt that we are facing a real dilemma in housing," agrees Phil D. Winn, assistant secretary of Housing and Urban Development (HUD), speaking here this week.

Providing adequate housing to all Americans has been one of the federal government's specific goals since the first national housing program was begun in 1949. Since then substandard housing in the United States has been reduced to 2 percent or less. But the effort has cost billions in tax dollars, and studies suggest that 15 to 20 percent of this money has gone to "administrative overhead."

Today, however, the US housing industry is in shambles. Savings and loan associations, which have provided most of the mortgage money for home buyers, are having trouble attracting funds. They cannot pay the high interest rates that other forms of investment provide, in part because their income is limited by the relatively low interest rates they charged years ago for the large number of mortgages still outstanding.

Between 1974 and 1980 the median cost of new houses skyrocketed 20 percent faster than general inflation and family income. When combined with prevailing high interest rates, this means that fewer Americans than ever before can afford to buy homes.

Rising costs also have made it uneconomic for builders to put up low-cost housing, given existing ceilings on government subsidies. This summer, the national rental vacancy rate fell below 5 percent, the lowest since statistics have been taken. In many cities vacancies are running less than 2 percent.

At the same time, the National Association of Home Builders (NAHB) estimates that 16 million new households will be formed in the 1980s, one-quarter more than during the last decade. This means that more than 2 million new units will be needed yearly to fill the expected demand. Last year only 1.3 million new units of housing were begun, the lowest since World War II. So far this year, it appears that fewer than 1 million units will be started, although the NAHB estimates that in 1982, housing starts will come closer to matching 1980's 1.3 million rate.

As with most domestic programs, the Reagan administration's prescription for housing is part and parcel of its approach to the entire economy. With tax cuts , spending cuts, reduced federal regulations, and monetarist economics, ruling Republicans are confident they can whip inflation and revitalize the economy, including the housing sector.

The administration and Congress have pared $10 billion from President Carter's proposed $28 billion HUD budget. Most of this has come from funds for federally subsidized housing, which now will provide for 153,000 new units as opposed to 260,000 under the Democrat's budget.

"We have reduced the budget without turning our backs on the truly needy or the first-time home buyers," Mr. Winn says.

He admits the administration's definition of true need is far different from that of its predecessors. The Republicans consider those who make 50 percent or less of the national median income, which was $21,020 for a family of four in 1980, to be "truly needy," and thus qualified for public housing. The old figure was 80 percent. In addition, the rent for public housing tenants has been boosted from 25 to 30 percent of monthly adjusted income.

For the 16 million first-time homeowners anticipated in the next eight years, the Federal Housing Administration (FHA) is considering a number of alternatives , including graduated and variable rate mortgages and various tax exemptions, to make it easier to enter the market.

There has been pressure within the administration to abolish the FHA. But the home-building industry has warned that it will wreak havoc, and Winn says he is waging a "one-man campaign" to save the agency. "Without it we'd see redlining [banks refusing mortgages on homes in certain neighborhoods] the likes of which we have never seen before," he believes.

HUD's "202 program," which allows nonprofit organizations to borrow federal money at 9.75 percent to build housing for the handicapped and elderly, has been retained, Winn says. But HUD will be working to contain the cost of this program.

President Reagan's solution to the rental problem has been passage of a series of tax breaks for those who build multi-unit buildings.