The 'hidden housing market' -- unused buildings become homes

This is not like any kindergarten classroom you've ever seen. Not with an elegant living room, cathedral ceilings, two bedrooms and two baths upstairs, and a price tag of $240,000.

This classroom-turned-condominium at the former Wyman School here is one of 500,000 units nationwide that make up the burgeoning ''hidden housing market'' - an amalgam of old schools, factories, and public buildings that are annually converted to residential use.

This hidden market accounted for almost a third of all new housing in the United States over the last decade, according to Arthur D. Little Inc., an international research and consulting firm based in Cambridge, Mass. Margaret F. McDonald, a construction market analyst for the company, says she believes that level of conversion ''will be sustained if not exceeded'' throughout the rest of this decade.

The market is so large that ''we shouldn't expect a boom in housing starts when interest rates decline, because a lot of the demand has been satisfied through conversion and rehabilitation,'' says Robert Gough, senior vice-president of Data Resources Inc. (DRI), a Lexington, Mass., economic forecasting firm. (He estimates 650,000 units will be converted annually through 1985.)

While dwindling enrollment and obsolete industries make schools and factories prime targets for redevelopment, virtually any structure that can be rezoned for residential use is a candidate for conversion. The more unusual projects range from a tugboat in Sausalito, Calif., to a railroad station in Sheffield, Mass., to a water tower in San Francisco.

The impetus for conversion is the demand for low-cost housing. In most cases gutting a building and rebuilding it from the inside out can be done at less cost than new construction. DRI studies show that, on average, converted properties are 20-25 percent cheaper to build than new, single-family houses.

For the construction industry, the trend to conversion has proved to be a boon in a depressed economy. ''Contractors will all tell you they're busy,'' Mr. Gough says. ''Fewer people in the industry are being laid off in this recession than they were in 1974-75.'' In many metropolitan areas up to half the business of development firms is now in the renovation and restoration of existing structures.

Not all conversion projects have met with community acceptance. Local officials, fearful of drastically altering a neighborhood or allowing housing in what are still industrialized areas, have veteod scores of projects.

Adding to the woes of the construction industry are building codes that have traditionally required that rehabilitated structures meet the standards of new home construction, a requirement critics say is unreasonable and adds considerably to resale cost.

In the case of the Wyman School, where a dozen developers expressed interest in converting the property, local authorities were able to dictate their wishes down to the types of trees used in landscaping and their placement on the property.

But these strict attitudes may be changing. ''There is a trend on the local and federal level to get rid of undue restrictions, because a lot of people see (redevelopment) as a way to provide more affordable housing,'' says Ms. McDonald of Arthur D. Little.

Governmental regulations are often of less concern than nearby neighbors.

''Neighbors can stop any development they want to,'' says Helen Blakely, director of marketing and sales for the development firm of Blakely/Walsh Associates in Boston.

She argues that far from detracting from a neighborhood, rehabilitated properties often enhance it. ''It is obviously better than having a building stand idle - a target for vandalism,'' she says.

Residents who occupy redeveloped property say living in factories and schools is far from the image it conjures up in many people's minds. Muriel Mason is a resident of Keystone, a converted apartment complex in Dorchester, Mass. It is a 10-story brick building that originally housed a piano factory, and later a camera maker. When redevelopers came in, they reduced the structure to a shell before rebuilding it, even replacing factory windows with terraces.

''It's like living in any other apartment, you can't tell the difference'' Mrs. Mason says. ''As for the outside, it looks just as good or bad as other high-rise apartments do.''