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When Carolyn and Daniel Selke of Arlington Heights recently decided they needed more room, they didn`t go looking for a new house; they created one out of their old house.

The Selkes added a second story to their home, built in 1952, increasing the square footage to 2,125 from 1,250 and creating a four-bedroom, 3 1/2-bath colonial-style house out of what had been a two-bedroom ranch.

Community planners, zoning officials and other industry observers say the Selkes typify what has been happening in Chicago`s older suburbs in recent years. Because vacant land in those communities is so scarce and the cost of new housing so expensive, many residents with older homes have re-examined their dreams of buying a newer, larger house.

”A lot of the families are deciding to stay in an older home, and they want something that`s nicer than what was built years ago,” said Richard G. Wall, president of the Remodeling Council of the Home Builders Association of Greater Chicago, which says remodeling activity has been strong throughout the Chicago suburbs during the past three to four years.

”In the suburban areas where they have these small duplex and ranch houses, they`ve added on room additions, large closet areas, large shower stalls, adding comfort areas for their families,” he said.

The result is a dramatic transformation in housing styles in several established suburbs, where residents either are changing their house`s look by adding on or by demolishing it and rebuilding. Both methods allow the residents to maintain community ties while avoiding the cost of purchasing a house built in the last few years.

That was the situation the Selkes found themselves in. They considered moving, but a desire to stay in the community and send their two children to school in Arlington Heights helped them decide to add on instead.

”We planned to stay for a while. That`s why we did it,” said Carolyn Selke, who estimated that the addition increased the value of their house by approximately $100,000.

It took them three months to obtain a zoning variance and four months to complete construction. Their concern for architectural appeal prompted them to add only three-fourths of the length of the first floor as the second floor.

”We didn`t want it to look like a box,” she said.

Roger Fox, deputy director of building and zoning for Arlington Heights, says such worries are becoming more common among village residents, who are concerned about how home additions and renovations will affect the overall style and density of the community.

When public meetings are held to discuss requests for zoning variances, Fox says, ”more and more people are showing up for it, and they don`t necessarily live next door. They`re just concerned about open space.

”We`re seeing more room additions instead of people buying and selling existing houses,” he said. ”The economy is forcing them to do that because they can`t necessarily afford a newer house,” which carries an average price tag of about $250,000.

Most homes built in the village during the 1970s range from 1,500 to 2,000 square feet. ”The majority of new homes are 3,000 square feet and up,” he said. ”There seems to be a trend in people looking for more square footage.”

An addition may increase the value of the home for the resident, but it may not always pay off when selling the house, said Clayton Waite, a Realtor with Prudential Preferred Properties in Arlington Heights. ”It`s hard to be the first to do so in a neighborhood because to do so you make yourself the most expensive house on the block,” he said.

Waite stressed the importance of adding space that is compatible with the existing architectural style of the other houses in the neighborhood, and estimated that only half of the cost would typically be recaptured if the house were sold four years after the remodeling.

”It`s kind of like buying jewelry,” he said. ”Buy something you like because it may not appreciate when you go to sell it.”

Housing style changes also are occurring in west suburban Hinsdale, where residents` questions about such changes prompted officials to begin studying the community`s zoning codes more than a year ago.

According to Ben Saag, staff liaison to the Hinsdale Plan Commission, residents have torn down more than 100 houses in the past year. Older ranch houses have been replaced by two- and three-story houses, often on the same block with other ranch houses.

The commission held six workshops to discuss the village`s zoning ordinance, adopted in 1989. Five changes were proposed and are being reviewed by the village board.

According to Saag, the recommendations include applying a ratio of floor area to lot size to determine the maximum size of a house and requiring that a house conform to all zoning standards before an addition or demolition is approved.

Hinsdale, where the median home price was $284,300, according to the 1990 Census, is characterized by frame houses built in the 1950s and earlier, and remodeling allows residents to remain in an area they like without the expense of buying a new dwelling, said Tim Thompson, president of Tim Thompson Builders Inc.

Thompson said his company charges approximately $125 to $200 per square foot to remodel and $5,000 to $10,000 to demolish a house. Factors such as construction materials, woodwork and electrical and plumbing requirements contribute to the remodeling cost. The demolition cost varies according to the house`s size and style.

Bill Lang, an architect with Fotsch Associates Inc., based in Northbrook, said the condition of a house should be the main consideration when deciding whether to tear it down or remodel. Houses with termite damage or other problems that affect structural quality should be torn down rather than remodeled, he said.

Lang said a change in lifestyles is another reason that many older suburbs have experienced an increase in remodeling activity. The formal living room that once was a mainstay of houses, for example, is being replaced by large, multipurpose rooms with an emphasis on open space.

Rosario Scalise, president of his own Chicago-based construction company, said he has seen an increase in second-floor additions to ranches and room additions on houses throughout the North Shore and the northwest and west suburbs.

Residents want more living space, private baths, large closets and a more modern design, Scalise said. ”If you can put an addition on, why move somewhere else?” he said.

That`s how Rob and Priscilla Holt felt. The Holts, who moved into their two-story Northbrook home eight years ago, had always wanted a screened-in porch, so this summer they went ahead with plans to build a one-story, 16-by- 20-foot addition to their 2,700-square-foot home.

But it turned out to be a bigger project than they had imagined, and the design evolved into a year-round Florida room, with windows on three sides, two skylights, an overhead fan, a cathedral ceiling and a new deck. The cost was $45,000. The median home price in Northbrook is $271,000.

”A Realtor told us we would get back our investment if we sell, but we wouldn`t have done it if we were planning on moving soon,” said Priscilla.

”We can use it in winter. It gives a quasi-feeling of being outdoors.”

Tom Poupard, a planner with the Village of Northbrook, said the movement toward remodeling is a ”function of people who have lived in that house for quite some time and have a great deal of paper equity in it.” Residents with a double income and equity in a house can usually afford to finance the remodeling.

He said some areas of Northbrook have undergone a complete transformation from ranch-style houses intermixed with one or two new, large houses to entire neighborhoods of large, two-and three-story houses.

”As more and more people build these mini-mansions, your affordable housing stock is wiped out. It really changes the character of a community,” Poupard said.

Northbrook is currently evaluating its zoning ordinances to determine if changes should be made to restrict the density allowed in new construction.

”From a regulation perspective, it`s quite controversial,” Poupard said.

”A community really has to think about where it wants to be.”

Most North Shore communities have placed restrictions on housing density because residents continually want more and more space. ”Most people want to get the most they can get on a lot,” Lang said.

Winnetka changed its zoning regulations in 1989 to address similar issues. Matt Nielson, a planner with the village, said that significant addition and remodeling activity forced the village to adopt more stringent requirements for house size, side-yard size and tree preservation.

”(An existing home) comes on the market and it is reasonably affordable compared with what`s already on the market,” Nielson said. ”So, they (tear down and) build something back that would fit their lifestyle.”

While many communities have taken housing regulation a step further by establishing committees that oversee architectural designs, Glencoe opted to keep its housing mix diverse.

Styles range from Victorian to colonial to art deco and ”even on established blocks there is a mixture of housing style,” said John Houde, the village building commissioner.

South suburban Palos Heights also has seen significant activity in home additions and renovation during the past year. Residents added space to their houses 48 times in 1991 and 16 times during the first half of 1992.

According to Palos Heights Building Commissioner William Czajkowski, one of the most popular housing modifications is a room addition, which can cost anywhere from about $40,000 to about $90,000. New houses in that area sell for approximately $200,000, making remodeling a more affordable route for residents who want to stay in town.