Landlords' Delight

Apartment living began to fall out of fashion in the U.S. soon after World War II. Over the past two decades, the nation has built four private homes for every new rental dwelling. This year, after seesaw performances during most of the '60s, apartment construction is making a comeback that surprises economists, delights landlords, and quite possibly signals a fundamental shift in how most Americans will choose to live in the years ahead. "Demand is so strong that you could almost leave out the bathroom and rent a new apartment," says California Developer Gerson Bakar, whose 994-unit Woodlake Apartments in San Mateo have a six-month waiting list. Bakar's comment, which drew appreciative chuckles last week at a Las Vegas convention of the National Apartment Association, reflects his industrys' ebullient mood.

Many analysts expect a record 600,000 new apartment units to be started across the U.S. this year. Construction of one-family homes is also rebounding. Last week the Commerce Department reported that total private-housing starts rose to an annual rate of 1,598,000 units during September, the highest since February 1964. But apartments account for 40% of new housing so far this year, and Arthur Pomponio, president of the Apartment Association, insists that the apartment share will grow to 45% of all starts by 1970.

Accent on Leisure. In many cities, eager tenants fully lease new apartment projects before they are completed. The latest Census Bureau tabulation shows that rental vacancies in metropolitan areas fell to 4.9% during the first quarter of this year, the lowest level of the decade. The figure runs far lower in many places. One reason is the remarkable proliferation of huge apartment communities loaded with amenities for a leisure age. A swimming pool is no longer enough. In Houston, Developer Jenard Gross' latest 1,250-unit project will also have a shopping center, tennis courts, a gym and sauna baths, along with air-conditioned one-bedroom apartments for $150 a month. Some builders throw in a private cocktail lounge, shuffleboard courts, a putting green or even a big community center for games, hobbies and parties.

Economists have long anticipated a jump in apartment building, but few expected anything like this year's surge. Rental construction has increased by 36% in Phoenix, 67% in Denver and 145% in Miami. In such metropolitan areas as Boston, Atlanta, Houston and front-running Dallas, more apartments are now going up than one-family houses. That condition has long prevailed in New York City, whose prosaic brick or concrete residential towers command attention mostly by sheer size. The current behemoth is Co-Op City, a 15,400-apartment complex now rising on the site of a former swamp in The Bronx. Both in and out of New York, the quality of construction often leaves something to be desired; many builders admit that noise traveling through thin walls is a main source of tenant irritation.

A Share of the Profits. Inflation plays a widely overlooked role in the swing to apartments. The rising cost of land, labor and materials (lumber prices have soared 30% this year) has driven up the total price of for-sale homes in many areas much faster than rents have climbed. Labor Department figures show that the cost of renting in the Los Angeles area, for example, has risen 12% since 1960, while the cost of home ownership has gone up 29%.

Inflationary pressures on the mortgage market also favor rental housing. "Lenders have lost confidence in the future value of the dollar," says Washington Economist Miles L. Colean. Accordingly, many shy away from making fixed-rate loans on homes, instead funnel their funds into apartment deals at higher rates (typically 8%), plus a share of the revenues or profits. Such concern prompted John Hancock Mutual Life Insurance Co. to insist on a slice of profit in 80% of its loan agreements during the first half of this year.

For Empty Nesters. A major phenomenon among big apartment complexes is a form of segregation everybody seems to like: by family types. Parents with children go into one building, single swingers draw another, and "empty nesters"--as builders like to call couples whose offspring have grown--fit into a third. Singles want lots of parking space and spacious bedrooms (presumably to accommodate roommates). Families go for garden apartments clustered around play space, look for units with good soundproofing and storage space. Empty nesters like apartments with extra security features. "Put up a pleasure palace for singles and you can be sure married tenants won't be happy in it," says Vice President Charles E. Peck of Owens-Corning Fiberglas Corp., which just completed a five-city survey of what renters want.

Whatever their preferences, most new-apartment tenants get something that usually resembles a one-family house. About 70% of the nation's rental construction today consists of garden apartments. Thanks to the freeways, a lot are going up in outer suburbia, right where the subdivisions sprout.

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