0th Congress 1st Session JOINT COMMITTEE PRINT + HIGH COST OF HOUSING REPORT OF OF A SUBCOMMITTEE OF THE JOINT COMMITTEE ON HOUSING CONGRESS OF OF THE THE UNITED STATES PURSUANT TO H. CON. RES. 104, 80th CONGRESS 9991 Nocking. S のう ​Printed for the use of the Joint Committee on Housing UNITED STATES GOVERNMENT PRINTING OFFICE WASHINGTON, 1948 UNIVERSITY OF MICHIGAN LIBRARIES * URAL DPADY Letter of Transmittal Conclusions.. Recommendations__ CONTENTS t PART 1 PART 2 1 1 t 1 Page Į VII 1 1 1 1 1 1 I 1 1 12 1 1 1 15 15 16 1 1 16 1 1. 1 Chapter 1. The Problem of High Costs.. The setting of the problem- The most promising possibilities.. Supply problems- Increasing demand_ The future of housing prices. How costs are reduced_. Chapter 2. Will History Repeat Itself? Chapter 3. Housing Costs and Prices__ World Wars I and II._. The trend continues. Costs in various localities.. Ability to buy----- 1111111111 1 1 Chapter 4. Land Development and House Design.. Land development_-- Plans- Chapter 5. Materials. Shortages---- Cost of materials 1 1 1 1 1 + 1 1 I 1 1 I 1 I I Explanations for high costs and recommendations_ Chapter 6. Labor__ Wages- Efficiency- Shortages and training_ Chapter 7. Operation and Maintenance Costs. Importance of these costs___. Increase in operating costs. Reducing operating costs- Low-income housing experience. Chapter 8. Financing and Profits.. Financing- Profits. - I Chapter 9. Building Code Restrictions_ The building code dilemma. Special problems of codes.. What is being done. What might be done.- Note on building permits_ Chapter 10. Trade Restraints_ Introductory- I 1 111111 1 1 1 Reasons for and consequences of restrictive practices_ Labor restrictions_ Materials distribution. Chapter 11. Cost Reduction Techniques Introductory.- Technical research__ Technological improvements. Standardization_ Surplus and temporary housing-- 1 !! 1 1 18 19 21 23 27 27 31 40 54 56 56 59 61 61 65 69 72 72 80 85 1 1 J 1 1 1 E 1 I I 89 68 1 90 91 92 86 98 104 106 106 107 109 110 114 115 115 117 119 126 133 1 I 133 134 137 1 1 139 142 III UNIVERSITY OF MICHIGAN LIBRARIES IV Chapter 12. Prefabrication. Barriers to prefabrication_ Analysis of the industry- The machine-made house.. CONTENTS Chapter 13. Large Scale Site Operations.. Evaluation of these operations_ Eastern operators-- Western and midwestern operators_ Low-income housing- Suggestions.. Acknowledgments- 1 t 1 LIST OF FIGURES 1 A. Construction costs, living costs, and factory wages, 1913-25- B. Construction costs, living costs, and factory wages, 1938-47. C. Construction costs, living costs, and factory wages, 1918-25 D. Construction costs, living costs, and factory wages, 1945-47. 1 1 1 I 1 1 I Page 144 144 147 160 165 165 166 169 172 182 184 ∞ ∞ ∞ ∞ Facing 28 Facing 28 Facing Facing 28 28 LIST OF TABLES Table 1. Indexes of value of residential building contracts awarded. 2. Construction costs, living costs, and weekly earnings of factory workers, 1913-24__ 24 27 3. Construction costs, living costs, and weekly earnings of factory workers, 1938-47. 28 4. Construction costs, living costs, and weekly earnings of factory workers, 1918-25_ 29 5. Construction costs, living costs, and weekly earnings of factory workers, 1945-47__. 30 11. Housing prices compared with house construction cost, rent, and cost of living, 1939–47. 6. Index numbers of wholesale prices.. 7. Indexes of union hourly wage rates in all building trades. 8. Index of building costs, 1940–46_ 9. Index of building costs, 1945-47. 10. Comparison of prewar and postwar sales prices of typical houses_ 12. Comparative cost of building brick houses, in eastern seaboard open- shop city, 1941 and 1947…. 13. Cost of building a minimum house in the Southwest, 1940 and 1947- 14. Building construction cost increases by districts, 1941-47- 15. Estimated current necessary cost for typical small-home construction in specified individual areas in September 1947 as a percentage of estimated cost for each area in 1941- 16. UIA Housing Price Index, September 1947 (preliminary). 17. Number of new privately financed dwelling units in 49 specified areas and their percentage distribution by construction-cost class, third quarter of 1947_ 18. Number of transactions, average selling price, and percent of increase from 1940 to 1945 and to 1946 in sample of houses sold in Minne- apolis 19. Construction costs in St. Louis, 1939 and 1947. 30 31 1 1 1 32 32 34 37 39 40 40 41 41 42 45 46 20. Change in component construction costs in St. Louis area -6-room frame house, 1939 to 1947 and 1946 to 1947__ 21. Cost of New York City Housing Authority postwar projects. 22. Cost of New York City Housing Authority prewar projects - 23. Cost break-down of building a comparable house in Richmond in 1941 and 1947____. 9999999 46 48 49 51 24. Cost break-down, Miller homes, Detroit, Mich. 51 25. Comparative cost study, Detroit, Mich 52 26. Comparative cost estimates, Detroit, Mich., and Washington, D. C.- 27. Comparative cost analysis of two types of land plans_- 28. Index of production for selected construction materials (unadjusted), 1941, 1946, 1947. 53 58 62 ARCHITECTURAZ LIBRARY CONTENTS V 7-6·53 Table Page 29. Weighted index numbers of wholesale prices by groups and subgroups of commodities, 1913-26, and 1939-47_. 66 67 31. Average union hourly wage rates for seven selected building trades in 75 cities, 1939 to 1947, inclusive__ 72 30. Production and price comparisons, 1939, 1946 and 1947. 32. Union wage scales for selected building trades in seven cities, June 1, 1939, and July 1, 1947. 33. Average weekly hours and average weekly and hourly earnings in private building construction, by months, 1934, 1939, and 1945-47__ 34. Hourly wage rates of construction workers in New York City, 1940-47- 35. Ratio of site wages to total construction costs, various projects, 1931-46_ 36. Comparison of field labor and all other costs New York City Housing Authority prewar projects versus postwar projects__. 37. Comparison of unit field labor costs and unit all other costs, New York City Housing Authority prewar projects versus postwar projects--- 38. Comparative labor production in years 1940 and 1947.- 39. Decrease in labor efficiency in plumbing and heating operations, 1940-46---- 40. Monthly costs per dwelling unit for 55 public housing developments with 23,150-23,769 units- 73 74 75 77 78 79 82 84 92 41. Antitrust cases in the construction industry as compared with total antitrust cases instituted by the Department of Justice, from October 15, 1914, to October 15, 1945__ 116 42. Antitrust cases in the construction industry classified by type of product, October 15, 1914, through October 15, 1945__ 117 43. Cost of building an industry-engineered home in Baltimore, Md. (2A L-shaped plan 47-1,768 square feet) – 44. Selling price and components of houses of 10 prefabricators.. 45. Summary of unit costs of prefabrication price ranges- 46. Summary of unit costs of prefabrication percentage ranges. 142 147 150 1 J + } 150 1 1 I 1 LETTER OF TRANSMITTAL Hon. RALPH A. GAMBLE, UNITED STATES SENATE, Washington 25, D. C., January 12, 1948. Chairman, Joint Committee on Housing, United States House of Representatives, Washington, D. C. MY DEAR MR. GAMBLE: On September 8, 1947, you asked members of the Joint Committee on Housing to give special consideration to primary questions that confront the committee. I was asked to study and report on "cost factors and cost reduction in housing. I am herewith transmitting to you the results of my study of this phase of the current housing problem. My conclusions and recommendations are contained in Part 1 of this report. In order to obtain the necessary background materials, I sought information from a great many private individuals, groups and Government agencies. Part 2 contains excerpts from the most interesting, representative, and helpful information received. Specific acknowledgment of these contributions appears at the end of Part 2. In assembling the material contained in the second part of this report, I was aided by Mr. A. Benjamin Handler, Miss Margaret Kane, Mr. Nathaniel Polster, and Miss Charlene Obstfeld. The Legislative Reference Service of the Library of Congress was also of great help through its housing consultant, Dr. Jack Levin. Sincerely yours, RALPH E. FLANDERS. 1 VII PART 1 CONCLUSIONS THE PROBLEM OF HIGH COSTS We, the American people, have long been unable to supply our own housing needs. For half a century the housing industry has barely provided enough new homes to accommodate our population increase. It has failed to replace depreciation and protect our capital invest- ment in housing. It is clear that we have not devoted enough of our resources to residential construction. There are many reasons for this neglect. This report is concerned with one of the most important, if not the most important, namely high building costs. The public simply can- not get its money's worth in buying a product which is manufactured with nineteenth century methods. Too many other products, pro- 'duced in modern factories, offer the buyer more for his dollar. Almost all home builders are inefficient, small-scale productive units, which would fail completely in any other important industry. The construction workers, too, usually insist on using handicraft methods until forced to do otherwise. The whole industry oper- ates under a limitation of output rather than an expansionist out- look. As long as poor management, inefficient labor, and high costs. of materials continue (and it must be remembered that each feeds on the others) housing costs will remain high. The chronic inadequacy of the housing industry has been high- lighted since the war by an exceptionally high demand for housing. Possessing relatively high incomes, people are not as tolerant of poor housing as they were when their incomes were low. Added to this increase in demand is the need for construction neglected during the depression. Added to these two is the demand for home building that was neglected during World War II, and for dwellings to house the wartime increase in families. Much of this human demand has become market demand with the large increase of available money accumulated during the war. Under conditions of short supply and great demand, the price prospects for the consumer became unfavorable, and continued so. Furthermore, we cannot solve the problem by helping to perpetuate inefficient production methods, or by making credit more readily available to prospective home buyers. This would only add to the inflationary pressures. The only real solution is for all sectors of the housing industry squarely to face the task of modernization and expansion for mass production. PROSPECTS FOR HIGH HOUSE BUILDING ACTIVITY An examination of the aftermath of World Wars I and II reveals that residential construction costs after World War II rose less than 1 2 HIGH COST OF HOUSING 1. they did after the previous war. Residential construction cost increases in both postwar periods exceeded cost-of-living rises and, after World War II, earnings as well. The rise in prices has already gone on longer this time; and, if it continues, builders will rapidly price themselves out of the market while making a major contribution to the ensuing depression. Recently, the efficiency of the industry, which had declined con- siderably, has begun to improve with increases in the supply of building materials. Such progress means lowered housing costs. Its continuance may well contribute to the maintenance of demand by producing houses at prices within the means of more people. No simple prediction is possible. Though a large house-building program for 1948 is under way, there are signs of price resistance by buyers, more critical appraisals by banks, and caution by apartment builders. One thing is true, the market for home construction cannot be sustained indefinitely at present exorbitant costs and price levels. A steady decline in prices is essential to a sound continuing construc- tion program. THE RISE IN HOUSING PRICES It must, however, be recognized that there has been a long-run increase in building costs, despite cyclical fluctuations. The decline in each successive depression has not reached the low point of the preceding one. Fortunately technological changes in the building process can alter the established trend. Meanwhile, however, between 1939 and the latter part of 1947, residential building costs had almost doubled, with building-material prices more than doubling and average hourly earnings of all building trades workers increasing by 80 percent. Selling prices of homes have risen even more, to 130 percent above the 1939 level in September 1947. This means that the house sold for $6,500 before the war now sells for $15,000. The greatest increases have occurred on the west coast, where the demand is greatest. It is because of this pressure of demand, enabling the seller to increase his profit margins, that selling prices have increased much more rapidly than have construction costs. High-income levels, a large volume of liquid savings, and plentiful mortgage credit, coupled with a shortage of reasonably priced rental units, all are helping to keep prices high. There are many families, however, particularly of veterans of World War II, for whom the present price level makes home owner- ship out of the question, but who would be able to enter the market if prices were reduced. Home ownership for most families means undertaking a long-term debt, and since it is impossible to foresee now how long incomes will continue at their present level they natur- ally hesitate to assume the responsibility of a purchase made at today's prices. MATERIALS PROBLEMS Materials shortages have aggravated the cost increases and in addition have slowed up the entire house-building industry since the war. Builders have been forced to stop work when essential materials were unobtainable and costs due to delays mounted. HIGH COST OF HOUSING 3 t In recent months the supply situation has improved. There are still delays, but they are not as frequent nor as long. Some suppliers were even able to build up inventories when house-building activity declined during the early summer. However, certain regions still experience great difficulty in obtaining specific items, particularly flooring, nails, rock lath, millwork, and plumbing. Whenever these shortages develop, the builder's operations are delayed. When he can manage to find supplies, he must pay the limit. Even with improvements in supply, prices of materials still continue to rise alarmingly. Present prices are higher than the peak prices which prevailed during the 1920 housing boom. The composite building materials price index has more than doubled since 1939, with lumber prices more than tripling and most other materials rising from 60 to 80 percent. In just the last year, the composite index rose by more than a third. Vigorous action by government and private sources will need to be taken if we are to have a decline in prices with demand as high and money as abundant as they are now. If materials shortages are eradicated, a long step will have been taken toward coping with the price problem. Members of the Joint Committee on Housing have been instru- mental in increasing production of scarce cast-iron soil pipe. In addi- tion, committee members have elicited pledges from steel executives that nail production will be increased and allocated equitably. The shortage of materials is partly due to unsatisfactory distribu- tion. Leaders in the industry suggest giving manufacturers of build- ing supplies priorities on the use of freight cars. However, no legal weapon exists for preventing the removal of scarce materials from normal supply channels. Some believe price control should be reim- posed, mainly to oust the profiteers from the building industry. Criticism has been leveled against the traditional methods of distributing building materials. Small builders will continue to require the services of regular distributors. But the present distribu- tion system appears unsuited to large-scale construction operations. If the housing industry is to expand to meet its enormous demand, the large-scale home producers will require the same distribution methods that are used in other mass-production industries. LABOR PROBLEMS Acute shortages of skilled workers in the building trades have aggravated the problem of providing urgently needed housing and have contributed to high building costs. Although annual earnings in construction, as well as average hourly rates, are higher than in most other industries, the advantage to the worker is largely offset by the seasonal and cyclical uncertainty of employment and by the long apprenticeship required. The same reasons cause employers to hesitate to make long-term training com- mitments to apprentices, and cause unions to limit membership. The steadily rising wage scale is a very important factor in rising building costs. Between 1939 and 1947, union wage rates in the building trades increased about 40 percent for plasterers, electricians, and painters; 45 to 50 percent for bricklayers, plumbers, and carpen- ters; and over 75 percent for building laborers. Variations throughout 4 HIGH COST OF HOUSING the country in the rates of increase have tended to make union wage rates in different sections more nearly equal than they were before the war. However, the heavy demand for skilled workers has resulted in actual pay greater than the established union rates. Gross hourly earnings of all on-site workers on private building construction averaged $0.92 in September 1939, and $1.72 in September of 1947. The chief complaint currently made about building labor is that increased wage rates have been accompanied by greatly lowered efficiency. Forced overtime, lower production per hour, restrictive work rules, jurisdictional disputes, and failure to provide enough apprentices largely because of an outmoded apprentice-training sys- tem, are the chief reasons given for high labor costs. The claim is made that the reduction in the efficiency of skilled and other labor, when added to the increase in the wage rates, has resulted in an increase of 100 percent in labor costs since 1939. The best informa- tion available indicates that labor costs have not risen more since before the war than have all other construction costs combined, though the evidence is by no means conclusive. Charges of deliberate slowing down of work and "feather bedding" practices are denied by the unions. They point out that methods of construction have changed over the years, and that the figures for amounts of work produced before and since the war are often not comparable. Union representatives maintain also that the training periods required for complete mastery of the trades cannot be reduced. The productivity of many of our skilled workers has fallen as the workers aged; while average productivity of all workers has not been sustained by the entrance of younger workers into the industry. The instability of the industry discourages prospective apprentices from entering training. The unions, eager to protect their members' jobs, make it difficult or impossible for new men to learn the trades. Employers, facing uncertain markets, hesitate to make long-term training commitments to apprentices. Aggravating the skilled-labor shortage, the wartime draft further reduced the number of workers in training. Some contractors believe that the chief reason for the fall in effi- ciency is the shortage of materials, which causes delays and reduces output per man-hour. If housing is to be produced on the scale needed and in the price. range where the greatest demand exists, more workers must be attracted to the building trades, standards of workmanship must be maintained or raised, and the training process must be speeded up. It has been suggested that the training system might provide for two types of mechanics: the all-around craftsman and a worker receiving a much shorter course of training and capable of doing routine jobs under supervision. Another suggestion is that an assembly-line technique be developed whereby workers will be trained to do specific parts of a job, as is done in automobile production. But when all is said and done, the chief attraction to prospective members of the building trades would be a stable industry offering some assurance of steady employment and an adequate wage. OPERATION AND MAINTENANCE COSTS Housing costs not only include construction but also operation and maintenance. Therefore, any proper consideration of housing costs I HIGH COST OF HOUSING 5 LO must consider them. Maintenance expenses have been increased by the same means that have increased construction costs: ascending costs of materials and labor. In fact, plumbing, paint, lumber, and nails, most frequently used in repair work, have risen more sharply than some other building materials. In New York City Housing Authority projects, maintenance, repair, and replacement costs have risen 39 percent between 1944 and 1947. On public housing projects in general, outlays for utilities increased 29 percent between 1941 and 1946. Apartment and large-project managers have found many ways of reducing maintenance, repair, improvement, alteration, and replace- ment costs. Most effective are prompt repairs; more careful initial planning; and period check of heating-plant efficiency; careful selec- tion of appliances; and elimination of fire hazards which increase insurance rates. All of these methods can be used by the individual home owner. Strategic in the reduction of operating costs of apartments is tenant cooperation and hiring of maintenance personnel on an annual basis. Tenant cooperation in public housing projects has reduced painting costs by from $7.20 to $16.59 per room. Employment of maintenance workers on an annual basis in a Columbus (Ohio) Public Housing Administration project resulted in savings as great as $1,200 per worker per year. Though the annual employment of repairmen is impossible for most home owners, "tenant" cooperation can be given more attention. The majority of owners underestimate the costs of delayed repairs, fire hazards, and poor utilization of fuel. Operating costs are largely dependent on materials used in construc- tion, and upon the design of the dwelling. Therefore it is important to calculate operating costs carefully prior to commencement of construction. Accurate appraisal of such costs serves to prevent subsequent default by the home owner. This greatly needed stability ultimately encourages home production. With more consideration of maintenance costs before construction begins, buyers will consent to increased original costs which lessen their long-term financial burden by reducing maintenance costs and requirements. PRODUCERS' FINANCING DIFFICULTIES Generally speaking, it is easy for most home buyers to find ready financing for their homes. Accumulated savings now provide many buyers with funds. With special financing provisions for veterans, mortgage interest rates are lower than ever before, and the amortiza- tion period longer. However, monthly payments are high because of inflated prices. While some banks report a "steadying" interest rate, inferring that loans may be slightly more difficult to obtain in the future, no appre- ciable rise in rates is predicted. However, there is such a large pres- sure of demand for housing that further expansion of credit to con- sumers would merely enhance inflationary tendencies without further stimulating production. The great financial needs in the housing industry are at the pro- ducer's and manufacturer's outlet levels. The ordinary builders generally obtain "progress loans," receiving capital to erect the frame 6 HIGH COST OF HOUSING only after the foundation is completed, capital for finishing only after the framing is completed, etc. If we are to have mass-produced houses, the initial advance of capital must be large enough to cover substantial outlays for planning, land, heavy equipment, stock piles of materials, and labor. Bankers acknowledge that any builder desiring to begin large-scale operations without sufficient capital would have a difficult time in borrowing funds. Of course, large, well-established contractors can obtain additional capital without too much difficulty.. Yet some of our largest house producers complain that the cost of financing new developments is excessive. Bankers are chary of real estate invest- ment. This difficulty assumes critical dimensions when it is con- sidered that to overcome housing shortages and high prices we must make a bold attack on the waste of inefficient, handicraft, small-scale operations and encourage operations based on standardization, mass- production techniques, and large-scale planning. At the present time practically all aid is centered on the individual purchaser or producers of a single or a few units. Government aid directed to those respon- sible builders who want to modernize housing construction by utilizing proved techniques essential to large-scale mass production, could well bring about the long-awaited technical revolution in house building. And, in the short run, it might provide the basis for a reduction in present high-profit margins resulting from the pressure of demand. BUILDING CODE BARRIERS Building codes are local ordinances designed to protect the people from the physical dangers of improper construction. Because the enactment of codes takes much time, skill, and expense, they fre- quently lag far behind the latest technical knowledge. Almost two-thirds of our codes were adopted over 13 years ago and one-third of them over 23 years ago. While continuing to afford protection, such codes also serve to increase housing costs by enforcing obsolete building techniques, prohibiting the introduction of newly developed materials, limiting the mobility of labor, enforcing need- lessly high standards, and restricting competition. When enacted these codes may have been designed to assure the safest and best building methods then known. But later developments have resulted in far better, simpler, and cheaper methods which these outmoded codes do not recognize. Codes have been used collusively by builders, unions, and national suppliers, with the aid of local politicians, to protect their particular interests. Many codes enforce virtual labor monopolies and preserve markets for local suppliers. Moreover, the very diversity of the thousands of local codes in itself prevents the design and distribution of inexpensive mass-produced house components, even though indi- vidual codes might otherwise be satisfactory. Some progress has been made in modernizing and standardizing codes. Trade associations have initiated reforms. Housing agencies in the Federal Government aid local authorities who are endeavoring to simplify codes. Some States have established appeal procedures which offer relief from excessively restrictive codes. But the revision of codes is a costly process. Therefore, it is advisable to delegate the task to central groups which can prepare HIGH COST OF HOUSING 7 a model code or codes, and suggest their adoption by municipalities with modifications where necessary. Such codes are already in existence or in process of formulation. Organizations like the Council of Mayors or the Council of State Governments might take the lead in promoting their adoption by municipalities. TRADE RESTRAINTS Through the findings of the Antitrust Division of the Department of Justice and other sources, we learn that industry, management, and labor, individually or collectively, have conspired to saddle the housing industry with numerous kinds of obstacles that have needlessly and substantially increased housing costs. Sometimes such increases arose from designing local building codes so as to exclude new ma- terial or new competition. Again they may have favored local interests. Or the scheme was to patronize one group now entrenched as against another that sought entry. The significant fact is that these groups have placed numerous obstacles in the way of those desiring to enter their particular field. At a time when skilled workers are comparatively old, unions have limited the ratio of apprentices to skilled workmen. Contractors and subcontractors have secured the passage of building-code regulations which directly or indirectly destroyed price competition. Franchise arrangements have forced the distribution of materials through favored firms and suppliers. In times of scarcity, building resources and labor have been wasted. Unions have engaged in make-work practices which add unnecessary costs to every house erected. Builders have prevented the use of materials not purchased through their firms. Suppliers have extracted commissions on goods they never handled, and have refused to handle less costly materials. The use of prefabrication units has been resisted bitterly by builders and contractors. Workmen have insisted on re- taining the traditional modes of construction, particularly opposing labor-saving devices and machinery. Collectively, these groups have tacitly or actively conspired to retain antiquated production methods. Trade association understandings, union practices, and the building code, have been their main tools to increase housing costs. Politically effective in the use of their leading citizens, legislators, trade associations, commercial societies, and unions, these groups have been highly successful in controlling key officials and city building officers. The result is that onto already high costs, for every home purchased is added an unwarranted tribute to these groups that dominate the entire building industry. ECONOMIES THROUGH LAND DEVELOPMENT AND HOME DESIGN Of the many opportunities for reducing home-building costs, basic improvements in the lay-out of building lots and the design of homes are two of the best, yet most neglected methods. Much can be done to keep land development costs down by careful site selection, by careful street lay-out with a view to reducing street and utility installa- tion costs, by designing land improvements for economical mainte- nance and for protection against future deterioration of the surround- ing neighborhood. 8 HIGH COST OF HOUSING The house-building industry is only beginning to realize the econo- mies that can be effected by adopting new techniques in home design, such as by placing plumbing, heating, cooking, and refrigeration units near each other. This curtails labor costs greatly, and reduces drasti- cally the amounts of such scarce and costly materials as pipe, wire, and electric fixtures. Besides rearranging the interiors of homes, proper planning can make the entire unit expansible to meet future needs. This reduces initial outlay and, when carefully planned, the cost of additions as well. Other cost-lowering techniques require new materials, new con- struction methods, or the training of workmen to perform new duties. Improving subdivision and home designing, however, saves money without these changes. In fact it makes for the most efficient use of our scarce materials and limited number of skilled laborers. DUCTION COST REDUCTION TECHNIQUES Considerable impact on house-building costs can be made, without disturbing the existing organization of the industry, as follows: 1. By utilizing new materials and improved techniques.—Technical improvement requires little invention. The means already exist. The pressing need is for the introduction of labor-saving machinery. Already available are portable electric saws, mechanical trowels, spray guns for paint and plaster, mobile cranes, electric drills and hammers, ditch diggers, pipe threaders, and many other devices. New materials are also available. Crucial shortages could be avoided by turning, as have a few builders already, to porcelain and cement walls, instead of walls made of wood and rock lath. Precast concrete joists facilitate conservation of wood also. Radiant heating apparatus eliminates the costly installation of hot-water pipes and radiators, and obviates expensive delays occasioned by a dearth of pipe and plumbers' tools. Every effort should be made to increase the use of these techniques and eliminate resistance of suppliers and workers to their introduction. 2. By standardization.-Not only does lack of standardization necessitate the constant attention to each operation of a skilled work- man; it involves the processing at the construction site of each piece of material. It has been estimated that no less than one-fifth of all materials purchased by builders of conventional homes is removed as waste from the home site during construction. The housewife's alleged desire to have an "individual" rather than a "machine-made” home cannot possibly account for the production of 150 strengths of window glass or the 200 sizes of interior door found on the market. The continued waste is especially remarkable in view of the avail- ability of standardized codes which remain largely unused. Two organizations, however, combining forces, have designed and caused some houses to be built with the newly classified materials. Standardization is one area where Government practice can follow precedent. Further work along these lines must be forwarded. The possible savings are immeasurable. 3. Through technical research.-Research to test and try materials is the basis for the success of every efficient industry. Housing will only come of age in efficiency when research is integrated by the in- ་ HIGH COST OF HOUSING 9 dustry and the Government cooperating through the Bureau of Standards. Such cooperation will cause builders more readily to use new proven materials and techniques. FACTORY PRODUCTION OF HOUSES Manufacture of houses saves money by utilization of high-speed factory processes on specially adapted materials. Steel, aluminum, plywood, and plastics are treated with baked, sprayed, or mechanically applied coatings. Units are assembled with the aid of high-speed welding, automatic drills, power jigs, and riveting. Cost reductions are effected at the factory by minimizing waste of materials and using semiskilled labor. Direct purchases of materials from mills eliminate the accumulation of intermediate profits. Handling charges are lowered by direct shipment of components to the home site from the factory. Erection of houses is simplified consider- ably, involving mainly preparation of foundation, assembly of wall and roof trusses and panels, connection of utilities and appliances. Time- consuming excavation, building of the frame, and tedious construction of walls are eliminated, along with finishing and painting. The whole process involves a large reduction in man-hours of work. Though prices to consumers would be reduced considerably by intro- duction of modern industrial methods, the industry is still in the developmental stage. There has been consumer resistance to pre- fabrication; but this is being overcome. Sales and distribution forces for site operations must be organized, which is more than an overnight job. Costly assembly lines must be tooled. Design and production difficulties will need to be eliminated. The chief obstacle facing companies today is their need for sub- stantial working capital and financing for their large production oper- ations as well as financing for purchases by dealers and consumers. Lenders' confidence in the new industry is weak while dealers have difficulty in paying for a factory-made house in advance. Recognizing these basic problems, Congress passed section 609 of the National Housing Act to insure loans for working capital of housing manufacturers. It is important that this law be administered expe- ditiously and in a manner which will effectuate the intent of Congress to "stimulate the production of houses at moderate prices through the use of modern industrial methods." In 1946, 37,300 prefabricated homes were shipped. The manu- facturers' estimates for 1947 indicate the number of shipments fell to 37,000, only a small proportion of our total production for the year of 800,000 dwelling units. Optimistic producers of housing from new type materials claim a present peak capacity of 100,000 homes annu- ally, assuming they get the working capital which they need. Meanwhile, many builders of conventional homes are maximizing their use of prefabricated components-glazed windows, sash and door packages, plumbing units, etc. This indicates a healthy transi- tion, from handicraft to factory home building. The success of this trend is already apparent in the increased production of the country's leading builders. Every effort should be made to encourage factory production of houses. The houses are adaptable, lend themselves to personal- 69991-48-2 10 HIGH COST OF HOUSING 1 izing, and most important, promise great savings in housing costs without sacrifice of livability. Prefabrication, however, is not something that is confined to factory- built houses. The prefabrication of component parts on the construc- tion site, or the transfer to the site of component parts manufactured elsewhere are at present vastly more important segments of total housing production. Nowhere are the possibilities greater in increas- ing the housing supply and also reducing the housing costs than in large-scale operations. LARGE-SCALE SITE OPERATIONS The mass production of dwelling units on the site has so far been the dominant factor in reducing housing costs. Foregoing the laborious, costly methods of single-unit construction, techniques of large-scale site production have already gone far to outmode such old and costly methods. This has been accomplished by large scale. planning, purchasing, inventories, erection, and finishing. True, equally great savings have not been made in all areas. Tra- ditional methods of management, materials distribution, labor utilization, and financing have been real obstacles to lowered costs. through large-scale operations. Nevertheless, the techniques for reducing costs have proved themselves so conclusively that we should promote this method as a means of going far toward meeting America's enormous housing needs. Government experience with the construction of low-income housing has shown the value of making available suitable technical advisory services. Through comparative studies made by staffs of architects and engineers, important reductions have been made in the cost of necessary materials and appliances. Only a large-scale project, however, can afford such an investment. The large scale of the Government's housing operations has made it possible to negotiate effectively with labor unions, utility firms, and suppliers. Cost reductions were effected nearly everywhere. An extremely important factor in cost reduction through large- scale multiple-dwelling operations is found in the unification of con- struction and operation under one management. Large-scale projects sponsored by private as well as Government corporations have availed themselves of the savings resulting from unification. The most lucrative aspect of unification is seen when construction and main- tenance costs are calculated simultaneously. Since costs of materials, design, and maintenance are so closely interrelated, unification of construction and operation results in the minimum long-run cost. As large-scale operations have proved economical in many types of constructions, from the single dwelling to the apartment house, it would be wise if Government housing funds and loans favored such operations. HOUSING ADVISORY COUNCIL In its early days in 1934, the Federal Housing Administration established a Housing Advisory Council composed of 25 representa- tives who were authorities in the seven broad functions of the FHA: architecture, construction, materials, labor, city planning, housing and finance. Although the Council was a temporary body, and lasted HIGH COST OF HOUSING 11 * for only 6 months, it aided that agency in formulating policy based upon the experience of the housing industry. In its purpose, this Council was very similar to the Business Ad- visory Council formed in June of 1933 by the Secretary of Commerce. This body was established to make available to the Government the experience and advice of leading businessmen who had demonstrated their interest in the general welfare, by disinterested participation in public and civic affairs. Since then, this Council has been a sub- stantial aid to the Government in formulating desirable policy, and eliminating difficulties which stemmed from a lack of experience or understanding of the problems of industry. The marked success of the Commerce Business Advisory Council suggests that a similar body be established for housing. Its purpose would be to make available to the Federal housing agencies the best experience and judgment of technically qualified leaders of the private housing industry in order to discuss (1) policy questions, (2) housing standards, (3) administrative practices, and (4) the local application of housing legislation, in order to interpret for the public and the housing industry alike the aims of Congress. RECOMMENDATIONS In summarizing the foregoing views, I would like to recommend the following as possible ways of reducing housing costs: 1. The house-building industry needs to be reorganized and put on a modern industrial basis. Congress should make every effort to encourage large-scale site construction and factory production of houses. This is one of the basic solutions I find to the excessively high costs prevailing in the industry. It would tend to stabilize the industry and eliminate restrictive practices which have been the result of the uncertainty in the industry. 2. The ideal time for introducing power machinery and labor- saving devices with a minimum of technological unemployment is when demand vastly exceeds supply. Congress, through loans or insurance, should take the initiative in encouraging builders to modern- ize their techniques now and facilitate the entrance into house-building of those who are able and willing to break new industrial paths. 3. The National Housing Act should be amended to provide Government aid for financing planning, plant and equipment, and working capital for large-scale projects. 4. Section 609 of the National Housing Act, which provides for the insurance of loans to housing manufacturers, expires in March 1948. This section should be extended in time, enlarged in scope, and administered more expeditiously. 5. Proved cost-reduction techniques which can effect substantial savings should be applied widely. The old-type small builder can easily reduce his costs by at least a fifth through the use of these techniques. Of particular importance in this respect is the movement toward standardization of sizes. Every effort should be made to apply existing knowledge of standardization and expand such knowl- edge, in order to avoid the enormous waste in conventional construc- tion. Congressional encouragement of the use of this device should be equal to its encouragement of prefabrication and large-scale production. 6. Technical research is necessary for the modernization of house- building techniques. In cooperation with private industry and laboratories, the facilities of the Bureau of Standards should be. expanded to integrate research and testing facilities as well as to encourage new methods of production and the use of satisfactory new materials. To help clear the way for modernization of the industry and independently lead to a reduction of prices, I recommend further: . The Federal Trade Commission and the Department of Justice should be given adequate funds and instructed to prosecute and police vigorously distributors, wholesalers, and others connected with the housing industry who engage in practices in restraint of trade. 8. The Housing and Home Finance Agency should be charged by Congress with the responsibility of sponsoring and promoting the adoption by municipalities of a model building code with flexibility for 12 HIGH COST OF HOUSING 13 local variations. This, too, would help to break up local restrictive practices and monopolies. 9. The Federal Housing Administration should reassess its building requirements and eliminate those which add unnecessarily to con- struction costs. 10. A housing advisory council should be established to work with the Housing and Home Finance Agency and its constituent agencies, in order that Government, producers, labor, and consumers may cooperatively attack the problems of housebuilding modernization and high costs. To help alleviate excessive housing costs immediately, I recommend: 11. The Joint Committee on Housing should investigate the high profit margins now prevalent in the industry and consider action to reduce them. 12. There are bottlenecks in the supply of critical building materials that could be solved by a redistribution of freight cars. The Office of Defense Transportation should work closely with all segments of the housing industry and assign freight cars for such critical materials, so as to assure an equitable distribution. 13. Voluntary allocation programs should be instituted under the new Anti-Inflation Act. My conference on nails on December 17, 1947, indicated that action can be obtained through such conferences with industry. If voluntary means fail, statutory allocation would appear to be the next step. 14. In cooperation with labor and contractors, the Federal Govern- ment should continue on an even more vigorous scale its apprentice- training program in order to provide an adequate supply of skilled labor. J PART 2 CHAPTER 1. THE PROBLEM OF HIGH COSTS THE SETTING OF THE PROBLEM The large demand for new dwellings that exists today is only slightly due to war time restrictions. It is rather a reflection of the fact that even in normal times construction of new dwellings did not meet the housing needs of the country. For many years, say the reports of the Housing and Home Finance Agency, the general con- dition of the housing supply in this country has been declining. This, not the recent war and the last depression, is primarily responsible for our present plight. Under present methods of production and distribution, the housing industry is not geared to produce dwellings in the volume which is now demanded without increased costs and increased prices. The uncoor- dinated and sprawling character of the construction industry is well known, and this results in price rises during periods of greatest activity and a decline only when the volume of construction is low. The first factor in establishing the ultimate construction cost of a house is design. Costs are influenced by the skill with which the house is designed in relation to its site, in the number and arrangement of rooms and the elimination of waste spaces, in the quality of materials and workmanship required, in the selection of materials relative to their availability and degree of standardization for assembling with a minimum of labor and waste in cutting and fitting. With all the above factors resolved with skill and experienced judgment, costs are further influenced (without attempting to be com- prehensive) by regional and climatic differences, the season of the year in which the house is built, the volume of work under con- struction locally, materials manufacturers distribution and pricing arrangements, freight rates, building code regulations, and labor wage rates. The cost of construction is far from being the complete cost of acquiring a house for the average owner today. To this must be added the cost of the land and improvements, such as streets, curbs, sidewalks, and utility mains. In addition, there are numerous special or closing costs, including some of all of the following: Broker's com- mission, appraisal fees, survey charges, title search and recording, and file fees, revenue stamps, title insurance, credit report, attorney's fees, notary fees, and initial service charge. But after all is said and done, say the experts of the Housing and Home Financing Agency, the lack of uniformity in the product is the greatest single factor in high construction cost. A significant decline in the cost of residential construction probably will not occur (according to a Federal Reserve bank report) while construction is maintained at current levels, unless an environment is established which stimulates and permits the improvement of labor skills, building techniques, and materials utilization. J 1 15 16 HIGH COST OF HOUSING THE MOST PROMISING POSSIBILITIES John H. Fahey, recently retired Chairman of the Federal Home Loan Bank Board is in substantial agreement. All indications, he says, point to the conclusion that the most promising possibilities for effecting reductions in the over-all cost of housing lie, not in the area of mortgage credit, but in the direction of the development of better and less costly building materials, improved construction techniques, more efficient utilization of labor, and the application to the entire building industry of modern methods of production and distribution. An analysis prepared by the Housing and Home Finance Agency shows definitely that if the same percentage reduction were applied to any one of the items of home-owning costs, the greatest effect on the monthly cost would result from a reduction in the capital cost of the house. For example, a reduction of 20 percent in the capital cost of the house would result of itself in a saving of over 16 percent in the monthly cost, whereas a 20 percent reduction in interest rate would reflect only a 5.4 percent saving, a 20 percent extension of the period of amortization would reduce the monthly cost only 4.5 percent, and a reduction in tax payment would result in a saving of 3.5 percent. It has been frequently suggested that with a high level of national income and correspondingly high average family incomes, a large volume of house-building activity can be maintained without regard to the cost of construction. However (says the Housing and Home Finance Agency) no one has discovered a way to stimulate indi- viduals and organizations to invest sufficient funds in high-cost dwellings to achieve anything approaching the necessary volume. One of the factors that discourage investment in dwellings at this time is the feeling of many consumers that a dollar spent for housing does not obtain as much value as a dollar spent for automobiles, refriger- ators, radios, and many other things. The vast majority of dwell- ings are still produced by handicraft methods, while other industries, like the automobile, refrigerator, and radio industries, competing for the consumer's dollar, have forged rapidly ahead with inventions and technical improvements which have had the tendency to reduce costs to the consumer. Unless construction costs are substantially re- duced without reductions in size and quality of houses, sufficient incentive will not be provided to encourage the industry to build the necessary volume of dwellings. And unless more efficient methods are rapidly introduced, the level of dwelling costs will probably con- tinue to rise higher than the general price level, principally because of the rapid technological advances which are being made continuously in other industries. SUPPLY PROBLEMS Under present conditions of short supply and excess demand (says the former Chairman of the Home Loan Bank Board), it is ques- tionable whether reductions in production costs are being passed on to the consumer instead of being absorbed in increased profits to builders and developers. The tendency is to charge as much as the traffic will bear. Certainly this applies today to the prices being obtained for existing properties, and there are indications that in numerous parts of the country newly constructed houses are being sold at figures considerably above actual production cost plus a I HIGH COST OF HOUSING 17 reasonable profit. This situation can be expected to continue as long as demand far outstrips supply, and emphasizes the need for greater production. It also indicates the fallacy of attempting to cope with the present high cost of housing through easier credit terms. Any policy of using easy credit to support housing costs at unnecessarily high levels is of dubious wisdom. A staff writer in a recent issue of the Detroit Free Press agrees that prices of existing homes are likely to continue relatively high until new home construction has attained sufficient volume more closely to balance supply with demand. He says that panic buying has forced the price level of housing to astronomical heights, with scarcity prices soaring above production costs. The Federal Reserve Banks of Dallas, Richmond, and Kansas City also emphasize the shortage of supply. One of them points out that in order to reduce costs other than by reducing construction volume it would be necessary to expand the capacity of the construction industry (by increasing the number of skilled workmen, expanding building materials production capacity, and increasing the number of efficient contractors), and/or to have extensive innovations in con- struction which reduce the cost of materials and labor in finished dwellings. The rapid increase of the cost of residential construction (according to this Reserve bank) principally reflects the utilization of the construction industry's capacity beyond the point of greatest efficiency. There is too much competition for scarce materials and labor between commercial and residential projects. It is generally believed by builders in a large midwestern city (says a Federal Reserve bank report) that efficiency must show a widespread improvement and the supply of building materials must increase con- siderably before any hope of reduced costs, and in turn cheaper prices, can be expected. Builders interviewed recently by Federal Reserve bank experts in a large southern city, see no hope of reduced building costs unless the level of construction falls enough to create surpluses of both labor and materials. Only this, it is argued, will permit a culling out of ineffi- cient workmen, contractors and material producers, and sponsor price competition among contractors and building materials suppliers. His- The only difficulty with this kind of solution is that it may solve the price problem but aggravate the housing shortage. Moreover, it im- plies the low-production kind of economy we all want to avoid. torically, when construction fell, building costs did not fall com- mensurately. Data presented in America's Needs and Resources, published recently by the Twentieth Century Fund, show that for the 1900-39 period we built barely enough housing to provide for the increase in the number of families. We failed to replace houses as they became worn out. Nor did we spend enough money to modernize or repair our dwellings as they deteriorated and became outmoded. It is esti- mated that we spent only one-quarter as much as was necessary to replace the amount of housing we consumed since the beginning of the century. The supply problem is, therefore, not merely a short-run one. It is, rather, chronic in the field of housing. 18 HIGH COST OF HOUSING INCREASING DEMAND The Federal Reserve Board warns against emphasizing the cost of construction while minimizing the importance of demand in determin- ing costs. Costs must be discussed not only in terms of costs incurred by builders in construction but also in terms of costs incurred by house- holders in purchasing properties. Costs of production, by themselves, never set prices.. Before prices high enough to cover costs can be obtained, consumers must be willing and able to pay the prices. On the other hand, when consumers are willing to pay prices substantially higher than the costs of production, pressure is put on costs to rise, unless output can expand smoothly and rapidly to meet the increased demand. The current high level of housing costs is the continued result of the postwar inflationary situation in the economy generally and the unsatisfactory housing conditions of earlier years. The greatly increased personal incomes and holdings of liquid assets generated by wartime and postwar economic activity have enabled people to bid for better housing than they were accustomed to previously. The size and quality of the stock of housing inherited from the past, however, were not such as to permit people to improve their housing rapidly. Moreover, additions to the stock have been small, partly because of material and other shortages and partly because additions to the housing supply, even in the most favorable circumstances, are always small in any short period. The result has been that prices of houses, both old and new, have risen to exceptionally high levels. Increases in cost of materials, labor, and contractors' services have reflected in considerable part this basic strength in the market for houses. Whereas consumption of most consumer goods comes out of current production, housing services represent almost entirely the use of existing stocks. Consequently, the cost to the consumer of new houses is set mainly by what consumers are paying for old houses. When prices of old houses rise, prices of new houses also rise, and with them, the profits of builders. When builders' profits rise, there is more incentive to increase building operations and, because the supply of labor, materials, and land cannot be expanded smoothly and rapidly, the prices of these factors are bid up. In other words, costs rise. The rise in costs, in turn, provides a reason for sellers of both old and new houses to test the market at higher levels. In a period such as the present (continues the Federal Reserve Board analysis) in which there is generally full employment and in which inflationary pressures are widespread, some of the increase in residential building costs comes from factors other than the increased demand for housing. Demand for other types of structures competes directly for building labor and materials, and to some extent, for land. Demands for other kinds of goods and services also compete, either directly or indirectly. Furniture production requires carpenters, lumber, and nails; automobiles are made of sheet steel and cast iron which are also needed for guttering and radiators; the transportation of agricultural products requires freight cars which are also needed for the movement of lumber and cement. Because not all of these demands can be met at once with the resources available, the prices of the resources rise, and the resources are used in providing these goods and services for which consumers will pay most. 1 ་ HIGH COST OF HOUSING 19 1 → Individual Federal Reserve banks, too, emphasize the importance of demand. The general war and postwar increase in income has meant a tremendous demand for housing even at today's prices. There is, therefore, no real incentive, or, in fact, necessity at present for the construction industry to bring costs down. So long, it is felt, as demand continues at current or higher prices, it is doubtful whether any effective measures can or will be taken. Current high prices in the residential construction field, of course, result basically from the high demand for housing. Basic high-cost factors, moreover, are traditional in the industry, and stem from out-moded and restrictive building codes; numerous inefficiencies of the industry (many resulting from small-scale opera- tions); some featherbedding; a pricing system in which overhead, profit, selling costs, etc., are on a percentage basis; and, currently, delays in materials which lead to additional inefficiencies in utilizing labor. From the standpoint of counteracting the inflation of real estate values and bringing about desirable reductions in the cost of housing (warns the former Chairman of the Home Loan Bank Board) there is reason to believe that tighter rather than easier mortgage credit would be beneficial. 1 It must, however, be remembered that in the long run an effective impact on the housing problem presupposes an equally effective demand. THE FUTURE OF HOUSING PRICES When demobilization of the armed forces began (says a Federal Reserve Board analysis) there were no vacancies, and families were established or reestablished at a rapid rate. In addition, the high level of economic activity generally, the large volume of capital-goods production, and the relatively low capacity of the building industry, resulted in pressure on costs. Bottlenecks appeared in one line after another, in materials, transportation, and labor, limiting increases in supplies and contributing to higher costs. Important in the contin- uation of this inflation are high current incomes, the large volume of liquid assets and readily available credit in the economy, which has permitted veterans and others to pay the sharply advanced prices for houses. The National Association of Home Builders has recently analyzed the price situation as follows: On the demand side, the factors which influence prices are- 1. Family earnings and income with relation to the cost of living. 2. Savings available for investment in housing. 3. Availability of credit. 響 ​These factors have been shown to be so favorable that they operate to sustain demand and prices. On the supply side (continues the association) the factors which influence prices are- 1. Wages of on-site and off-site labor: Since wages represent four-fifths [sic] of the cost of new housing and since there is no reason to expect that wage levels are go- ing to decline, there is little room left in which to achieve any substantial reduction in prices. 2. Materials prices: Materials prices have shown a recent trend to level off. No great reduction appears possible because of the wage factor. 20 HIGH COST OF HOUSING 3. Builders' profits: Builders' profits appear to have stabilized at the lowest level possible to continue operations. Uncertainty of attaining a safe profit margin has forced some builders to drop plans. 4. Efficiency of operation: Price-saving benefits from increased production, improved distribution, and more efficient use of materials have been effected but continue to be overshadowed by higher labor rates and decreased labor productivity. From this analysis, it appears that only slight and gradual reductions in new housing costs can be expected in the foreseeable future. The stronger factors operate to increase costs. It must be emphasized that this is the opinion of the National Association of Home Builders. A recent survey by the Associated General Contractors of America shows nothing in the present situation favorable to reduced prices. The results show that building cost increases, following those for commodities and services in general, are principally caused by higher material costs, recent wage increases for construction trades in many cities, and a low labor productivity, which continues to be lower than prewar standards for output. Reports from Federal Reserve banks, too, are pessimistic about cost reductions. There seems to be little likelihood that building costs will decrease, says one report. Early in 1947 some experts expressed opinions that building costs would decline from 10 to 15 percent before the end of the year. Now the outlook appears to be reversed. Costs seem to be strength- ening rather than weakening. This applies to both material costs and labor. Realistically, (says another Reserve bank report) there is not much possibility in the short run of pulling down costs. As long as there is a high demand for housing, people in the industry-whether management, labor, supplier, financing agent, etc. are not at all interested in cost reduction. Contractors indicate (says a third bank report) that while there is no reason to expect a significant decline in construction volume soon in view of the large volume of building in the planning stage which probably will be initiated during 1948, they do not expect a significant drop in building costs next year. In fact, many builders apparently expect rising material prices and wages to press building costs higher. Information obtained from an out- standing authority on construction costs (says a fourth Federal Reserve bank report) supports the view that there is nothing to indi- cate a reduction in construction costs within the near future, and certainly not in 1948. However (says a fifth Federal Reserve bank report), according to the postwar developments in the building industry, costs very likely will fall from the present high level. The output per construction worker will rise with an even flow of materials to the construction site. As competition returns to the industry, the high profits of building-material manufacturers and of contractors will decline to the prewar margin. While these factors will reduce costs, the public's demand for houses with all the modern comforts and conveniences plus some individuality of design will tend to raise total costs. Con- sequently, future building costs may not deviate noticeably from the historical trend of rising costs. On the basis of all the evidence available, prefabricated housing costs, most likely, will decline gradu- ally during the next few years. No revolutionary changes in design or costs are anticipated during the present building boom. Con- sequently, prefabrication may not pull costs away from the historically rising trend. 1 ་ HIGH COST OF HOUSING 21 There is (reports a sixth Federal Reserve bank) practically a unani- mous belief among the principal builders in its area that costs of residential construction are going to continue to increase for some time before any reduction can be expected. They base their views mainly upon the fact that labor costs, although already extraordinarily high, will go even higher. This will be the result not only of a higher hourly wage which is expected in the spring of 1948 in response to new wage demands, but also of a continued low efficiency of the work- men as well. Little hope was expressed for improved efficiency in the near future, and most builders report that the quality of work- manship is very little, if at all, above that of last year. The supply of many types of workers is extremely tight, with the need for plaster- ers and brickmasons much larger than the number of such laborers available. The material situation has changed considerably during the past 3 months, with the prices of many commodities somewhat higher and the supply much smaller than in the spring of this year. There is a reported shortage of many building materials, such as nails, soil pipe, asbestos siding, plumbing fixtures, and flooring. While some builders state that the building-material situation is better than in 1946, others maintain that the supply is tighter than they have ever seen it. Construction costs, in the opinion of the Miami Chamber of Com- merce, will never return to prewar levels, because our money supply has been permanently inflated; but it feels that much of the present high cost of housing can be expected to disappear as more competitive conditions return. How COSTS ARE REDUCED The reasons for the high cost of housing are easier to find than solu- tions to the problem, warns the Detroit chapter of the Americans for Democratic Action. If Detroit built automobiles the way homes are built, most of us could afford neither cars nor housing. If the auto- mobile industry had to pay economic tribute to the conglomeration of promoters, subdividers, speculators, builders, wholesalers, jobbers, retailers, salesmen, agents, and assorted trades and professions which feed upon the building industry-each, of course, out for his take— we would be lucky to build 50,000 cars a year instead of 4,000,000. It is hardly necessary, says this organization, to point out that the housing industry is disorganized and inefficient. Rationalization of the industry is needed at many points, and costs cannot be signifi- cantly lowered until a comprehensive program is undertaken to attack the problem simultaneously on all fronts. Blaming any one factor exclusively merely delays the time when we have to face the issue squarely and organize home building in terms of twentieth century, technology instead of eighteenth-century horse-and-buggy methods. A few specific causes of high housing costs are summarized by this chapter of the Americans for Democratic Action: 1. High land costs, caused by excessive and premature land subdivision, un- controlled speculation, and the lack of a public land policy. 2. Obsolete and wasteful site and subdivision lay-out, leading to high costs for streets, sewers, utilities, and public services, and consequent high taxes. 3. Unnecessarily high materials costs due to lack of standardization of parts and dimensions, obsolete building-code requirements, and monopolistic control of key materials. I 22 HIGH COST OF HOUSING { 4. High labor costs due to wasteful and inefficient scheduling of work, irregular and uncertain employment (which in turn causes workers to demand high hourly rates), and restrictive practices. 5. High overhead, due to the prevalence of small-scale operations, uncertainties and delays, high contingency reserves, and general inefficiency of operations due to the disorganized state of the industry. 6. Excessively high financing charges and maintenance of interest rates at artifically high levels. 7. Exhorbitant and unnecessary fees, charges, and commissions. 8. Outrageously high profit margins masked as overhead, operating expenses, reserves, commissions, fees, and other so-called costs, a careful analysis of which would reveal most of them for what they are pure gravy. "There is no magic," says Edward L. Sard, a former National Housing Agency official, in a recent issue of the ORT Economic Re- view. Nor are there any easy shortcuts. Many things can be done to reduce housing costs: efficient land assembly, intelligent zoning laws, modernization of building codes, streamlined business organiza- tion, elimination of labor's featherbedding practices, removal of re- strictive business monopolies that charge what the traffic will bear and actively seek to impede technological progress, gathering and dis- semination of reliable data by government, lower interest charges, easier credit facilities, and Government-sponsored intensive and pro- ductive technical research. None of these is new and some have been the objective of recent housing legislation. One thing has been lacking in the central arch upon which the whole foundation of ultimate housing progress rests; namely, a concerted, conscious, and intelligent effort to apply the techniques of mass pro- duction to housing. This is the key to the problem of reducing housing costs. * CHAPTER 2. WILL HISTORY REPEAT ITSELF? Comparison of two postwar periods The pattern following World War II to date has pursued a course roughly similar to the pattern after World War I. Residential build- ing volume rose at a rapid rate; while materials prices, labor prices, and construction costs have all risen correspondingly. The general magnitude of the construction-cost increase has exceeded that which followed World War I; and price indexes for all types of goods have now outpaced previous peaks. Similarly, the volume of residential construction has greatly exceeded the peaks reached in the 1920-21 period. However, as table 1 shows, the duration of the present boom has been longer than that of the preceding period. While residential construction declined steadily from mid-1946 to mid-1947, a new inflationary trend has since occurred, accompanied by an increase in the volume of construction and a reassertion of upward price pressures. These movements may in part be attributed to variations in the flow of materials. More importantly, in the opinion of Housing and Home Finance Agency experts, they appear to be responses to the expectations of the building industry regarding future price trends. The steady decline in 1946 and early 1947 reflects both material diffi- culties and apprehensions regarding a possible break in prices. In the late spring of 1947 industry apparently became convinced that another round of inflation was in prospect rather than deflation. As a result, residential construction volume firmed and then resumed its upward climb during the summer and fall. It is impossible to forecast whether the depression following World War I will be repeated after World War II. The post-World War I increase in residential building reached a fairly early peak and was followed by precipitous decline. Regardless of whether the present situation is building up to the kind of recession which followed World War I, the present price and cost structure is economically unhealthy. It is almost universally recognized that present costs are excessive, that prices have exceeded the levels necessary to bring forth added output, and that the market for residential construction, at present cost and price levels, cannot be sustained indefinitely. Rapid price declines would cause high cost producers either to reduce output or cease building houses, thus provoking a sharp decline in residential construction volume not essentially dissimilar from that which occurred during the earlier period. Slow but steady declines in prices and costs would tend to sustain a volume of construction and would eventually mitigate unsound factors present in the current residential construc- tion economy. 23 24 HIGH COST OF HOUSING TABLE 1.-Indexes of value of residential building contracts awarded ¹ [1923-25=100] Month 1919 1920 1921 1922 1923 1924 1925 1926 1944 1945 1946 1947 January 11 38 24 February. 18 36 32 March 24 37 34 April. 32 36 36 May 42 33 38 June.. 58 30 42 July.. 63 27 46 August 61 26 51 September. 59 October. 55 November. 51 December. 43 21 Average 43 22228 25 55 24 57 59 59 30 44 8 INORONHZASZ? 61 80 101 96 135 29 14 61 144 61 82 107 99 127 21 13 95 152 62 80 102 106 121 17 15 129 129 65 78 98 112 121 17 18 172 123 68 77 96 117 120 16 20 179 110 75 78 91 126 119 15 22 177 116 74 77 87 135 119 14 23 161 136 69 75 85 145 119 13 24 157 150 67 81 88 141 120 13 26 147 69 84 93 74 90 76 94 8355 138 122 13 36 140 95 137 118 13 44 122 95 134 117 14 56 143 68 81 95 124 122 16 26 143 1 These series are 3 month moving averages, adjusted for seasonal variation. Source: Federal Reserve Board. Based on figures of F. W. Dodge Corp. Reduced efficiency When house building started really to get under way in 1946, demand for construction materials of all sorts found many of the producers short either of raw materials, of skilled workers, or of both. The building industry began to compete for these scarce items and the black (later the gray) market prospered. However, by the middle of 1947, the Federal Reserve Board was able to report that building materials, which contractors and consumers were seeking unsuccess- fully only a few months previously, were being produced in greatly increased volume and in greater variety. The labor force engaged in construction was much larger. Contracting firms had rebuilt their organizations and, with a more favorable material supply situation, had been able to increase the efficiency of their operations. But efficiency of operation, while improving, was still low and contractors' margins, which earlier had increased sharply owing in part to unusual allowances for contingencies, were still higher than in most periods. In the early part of 1946, according to sample surveys by the De- partment of Labor, the usual time required for completion of a single- family house was about 8 months, compared with 3% months before the war. As the material situation improved, delays were being reduced considerably. By June 1947 the average time required for completion of a single-family house had been shortened from 8 months to 5. The Federal Reserve Bank of Boston reports that the time is now being reduced to 3 months or less. Official Bureau of Labor Statistics data indicate that in Chicago the time is being reduced, but not sufficiently to remove delay as an item of higher cost. The Federal Reserve Bank of Richmond reports that the completion time of a house currently selling around $9,500 in that city has been reduced from an indefinite period a year ago to about 3 months at present. This, however, compares with a completion time there of about 2 months prior to the war. Construction time required to complete a house has been reduced from 9 to 14 months to about 5 to 6 months, according to the Federal Reserve Bank of Philadelphia. HIGH COST OF HOUSING 25 • Future prospects Continued heavy demand for homes, an improved flow of raw materials, a low volume of strikes, and favorable weather all con- tributed to the record number of jobs in the building trades during November, Ewan Clague, Commissioner of Labor Statistics, noted recently. He predicted that about a quarter of a million more con- struction workers would be employed next fall, if the anticipated level of close to a million units is reached. This year's employment peak was 1.9 million. Houses in Richmond are selling rapidly by all past comparisons except those in 1945 and 1946, reports the Federal Reserve bank of that city. Houses are moving rapidly enough to cause builders to continue making new starts in an amount equivalent to the number sold. Builders are in the dark regarding the volume of construction in 1948, but they are going ahead with new starts without getting too far involved. There seems to be a little less sales resistance to going prices of houses than in the spring when buyers anticipated some price reductions, but it takes many more prospects today before a house is sold than in the first quarters of 1947. Residential construction in the area, as elsewhere, reports the Federal Reserve Bank of Philadelphia, is taking on renewed vigor in spite of high costs, which seems to indicate that the need for housing is still far beyond the supply and that buyers have given up hopes for lower prices. The National Committee on Housing reports that builders of FHA title VI projects are embarking on substantial fall and winter programs, and speculative building is keeping up, although future trend is unpredictable. However, programs for future construction are some- what uncertain due to price resistance on homes costing above $11,000, plus a tightening of mortgage credits. Another factor is the resistance of utilities companies in some areas against adding to the load of gas consumed for home-heating purposes. A combination of these factors may result in sharp curtailment next year. Nevertheless a big home-building program is under way and ex- pected to continue, according to reports received by the National Committee on Housing. Current volume of construction is expected to continue and increase; and plans now being made for spring indicate an increase in construction due to the continued growth of population in coast States. In the face of increasing costs and the problems involved in materials shortages, there is little indication of serious. curtailment of the building program for the immediate future or for the spring of 1948. Most of those reporting are agreed that a con- siderable backlog of construction is awaiting a drop in costs, but the demand for residential and other building is so great that plans are being made for an even greater program in 1948. This is particularly true in west coast areas where the population continues to increase, thus adding to the demand for homes. The limiting factor during the months ahead, it was generally agreed, would be the availability of materials and labor ather than costs. However, the Federal Reserve Bank of Boston says that member banks are much more critical in appraisals than a year ago. Valua- tions for loan purposes are being held at last year levels. Meanwhile 69991-48- -3 26 HIGH COST OF HOUSING the recent survey of the Associated General Contractors of America shows 42 percent of building contractors reporting less work coming on the market, 50 percent reporting more work, and 8 percent reporting the market unchanged. The number of new apartment buildings started in the Kansas City area is very small, according to a Federal Reserve bank report. Many builders state that costs are so high and the future so indefinite that they are afraid to begin new projects which must rent at an extremely high monthly rate in order to provide a return on their investment. They feel that while 100 percent occupancy can be relied upon at the present, the time will come when these rents will have to be reduced to maintain a high occupancy rate and to meet new competition. Many builders, therefore, believe that the margin that will remain in the future is insufficient to justify the risks of a large apartment building program. CHAPTER 3. HOUSING COSTS AND PRICES WORLD WARS I AND II Historically, building costs have risen significantly, even though they were subject to considerable fluctuation during the course of the general business cycle. In each successive recession or depression building costs have not receded to the low point of the preceding recession or depression. Thus, in the recession of 1921, building costs declined sharply but remained 55 percent above the 1913 level; in the great depression of the early thirties, building costs fell only 10 percent below the low point of the recession in 1921. Since 1932 the costs have again risen substantially, and in April of 1947 they were 112 percent above the low point of the early thirties. However, in a dynamic economy such as ours, it is precarious to base an estimate of the future trend of building costs entirely on an historical trend. Innovations of substantial magnitude frequently upset the cost trend of a particular industry. New methods of pre- fabrication or radical changes in the conventional methods of con- struction may alter greatly the historical trend of costs in the build- ing industry. Figure A and table 2 show the relative changes in construction costs, cost of living, and factory wages from 1913 through 1924. All three indexes climbed steeply after 1915, reaching a peak in 1920. In 1920, building costs in general averaged over 180 percent higher than 1914. Residential costs, considered separately, rose 130 percent, cost of living, 100 percent. (Unfortunately weekly earnings data are not available for the year 1920. Between 1914 and 1919 they doubled.) The figures show a drastic 2-year decline after the peak. By 1923 they had stabilized. TABLE 2.-Construction costs, living costs, and weekly earnings of factory workers, 1913-24 1913_. 1914.. 1915 1916_ 1917. 1918. 1919___ 1920... 1921___ 1922__ 1923. 1924.. [1914=100] Construction costs Year E. H. Boeckh Engineering (residential)¹ Consumers' Price Index 3 Average weekly earn- ings (manu- News- Record 2 facturing)3 99.5 112,9 98.5 (4) 100.0 100.0 100.0 100.0 102.4 104.5 101.0 109.7 146.3 108.5 128.0 204.5 127.6 153.2 213.5 149.7 179.1 223.9 172.4 200.5 231.0 283.5 199.6 184. 2 227.8 177.9 168.9 196.8 166. 7 189.2 241.6 169.8 216.3 185.9 243. 1 170.2 217.3 ¹ Indexes of costs for frame and brick dwellings in 20 cities; city data from E. H. Boeckh and associates, combined by HHFA. 2 The Engineering News-Record Index is based on prices of structural steel, lumber, cement, and un- skilled labor in 20 cities. 3 Source: Bureau of Labor Statistics. 4 Not available. 27 28 HIGH COST OF HOUSING As shown in figure B and table 3, in the latter part of 1947 general construction costs had risen nearly 80 percent above the 1939 level. Residential building costs had almost doubled. Average weekly earn- ings had more than doubled, and the cost of living had increased by 65 percent. TABLE 3.-Construction costs, living costs, and weekly earnings of factory workers, 1988-47 1938_. 1939_ 1940--.. 1941 1942_ 1943__ 1944_ 1945---- 1946---- 1947---- Latest month [1939=100] Construction costs Year Consumers' E. H. Boeckh Engineering Price Index 3 Average weekly earn ings (manu- News- (residential)¹ facturing)3 Record 2 98.0 100. 2 101.4 93.5 100.0 100.0 100.0 100.0 105.0 102.3 100.8 105.6 113.4 109.5 105.8 124.0 119.5 117.3 117.2 153.6 125.0 123.1 124.3 180.8 134. 8 126.8 126.3 193.1 144.9 130.7 129.2 186.0 160.3 146.9 140. 1 183.3 4 172.9 (Sept.) 199.7 (Dec.) 179. 7 (Oct.) 164.8 (Sept.) 211.3 1 Indexes of costs for frame and brick dwellings in 20 cities; city data from E. H. Boeckh and Associates, combined by HHFA. 2 The Engineering News-Record Index is based on prices of structural steel, lumber, cement, and un- skilled labor, in 20 cities. 3 Source: Bureau of Labor Statistics. 4 Estimated. These increases were considerably below those for the comparable period 1914-20. Price movements during the two postwar periods are pictured in figures C and D, and in tables 4 and 5. From 1918 levels, residential costs rose swiftly until 1920. The same happened in the 2 years following World War II. In 1920 costs of residential construction rose to 150 percent of their 1918 levels, and then dropped drastically. In 1947 costs rose to 132 percent of 1945 levels, but are still going up at a fast rate. Comparing home construction costs to cost of living, we see that in 1920 the construction-cost rise exceeded by 17 points the cost-of- living rise. At the end of the third quarter of 1947 the construction- cost rise had exceeded the cost-of-living rise by 10 points. In fact, in 1947, peak residential construction costs (138 percent of 1945) and cost of living (128 percent) were both above weekly earnings (115 per- cent), and were rising faster than earnings. 1 FIGURE A 300 200 CONSTRUCTION COSTS, LIVING COSTS AND FACTORY WAGES .... 1913-1947 (1914 = 100) 1925 13 (2 5 100 1. 21 3. Construction Costs (E.N.R. Average Weekly Earnings Residential Construction Costs Boeckh 4. Cost of Living 0 15 1913 19 23 25 17 21 Source: Bureau of Labor Statistics ! 69991 O - 48 (No. 1) 250 200 150 100 50 : FIGURE B Construction Costs, Living Costs and Factory Wages...... 1938-1947 (1939-100) ན་ TH AVERAGE WEEKLY EARNINGS 1938 1940 1942 1944 1946 Sept • Sept BOECKH Dec Construction Costs (E.N.R.) Oct, 250 200 COST OF LIVING 150 100 50 €9991 - 48 (No. 2) No. 8380 G 48 10 x 10 to the inch MADE IN U. 6. A. O 175 150 125 FIGURE C Construction Costs, Living Costs and Factory Wages..... 1918-1925 (1918-100) O Residential Construction Costs Boeckh) ON Q 175 150 125 Q O 100 •Cost of Living 100 Construction Costs (ENR) 75 75 50 1918 DEC. MAR JUN SEPT DEC MAR JUN SEPT DEC 1919 MAR JUN SEPT. MAR DEC 1920 JUN SEPT. DEC 1921 MAR 1922 JUN SEPT. DEC MAR JUN 1923 SEPT DEC. MAR JUN SEPT. DEC MAR JUN SEPT. 1924 1925 No. 8380 G DEC 10 X 10 to the inch MADE IN U. S. A, 69991 O - 48 (No. 3) 175 150 125 100 75 50 25 FIGURE D Construction Costs, Living Costs and Factory Wages..... 1945-1947 (1945-100) श R 175 Residential Costs (Boeckh) 150 Construction Costs (ENR) 125 Cost of Living Average Weekly Earnings 100 O March June Sept Dec. March June 1945 Sept Dec. March June Sept. Dec. 1946 1947 No. 8380 G 69991 O 48 (No. 4) 10 X 10 to the inch MADE IN U. 8. A. 75 50 25 کے HIGH COST OF HOUSING 29 TABLE 4.—Construction costs, living costs, and weekly earnings of factory workers, 1918-25 [1918=100] Construction costs News- Record 2 Consumers' E. H. Boeckh Engineering Price Index 3 (residential)¹ Average weekly earn- ings (manu- facturing)³ June 1918_. March. September. December... 100.0 100.0 100.0 (4) 97.5 (4) 98.5 (4) 102.4 103.0 109.8 1919_.. 116.9 104.9 115.2 $22.08 March 104. 6 (4) June 101.4 112.6 September. 107.2 (4) December. 109.3 125.9 1920__. 150.7 132.8 133.3 (4) March 127.3 (4) June. 144.7 139.0 September. 134.9 (4) December. 133.0 128.7 1921. 120.2 106.7 118.8 (4) March 118.6 June 110.9 8 September 99.5 116. 6 December. 88.7 115.0 1922_ 110. 2 92.2 111.3 (4) March. 85.6 111.0 June 88.1 111.1 • September.. 97.8 110.4 December. 101.8 112.3 1923 123.5 113.2 113. 4 23.82 March. 108.5 111.8 June__ 116.6 113.1 September 117.1 114, 5 December. 114.9 114.9 1924... 121.3 113.8 113.7 23.93 March 118.8 113.5 June_ 114.6 113.3 September 111.6 113.7 December.. 110.3 114.6 1925_ 122.0 109.2 116. 7 24.38 March 111.1 (4) June.. 118.1 116, 2 September 106.8 (4) December. 108.9 119.3 1 Indexes of costs for frame and brick dwellings in 20 cities; city data from E. H. Boeckh and Associates, combined by HHFA. Combined index not available by months for these years. 2 The Engineering News-Record Index is based on prices of structure steel, lumber, cement and unskilled labor in 20 cities. 3 Source: Bureau of Labor Statistics. Monthly Earnings Data not available prior to 1923. • Not available. 30 HIGH COST OF HOUSING TABLE 5.-Construction costs, living costs and weekly earnings of factory workers, 1945-47 [1945=100] 1945... March June September.. December.. 1946... March June September December. 1947. March June.. September December. Construction costs Average Year and month Consumers' weekly earn- E. H. Boeckh (residential)¹ Engineering Price Indexings (manu- News- Record 2 facturing) 3 100.0 100.0 100.0 100.0 99.0 98.8 107.8 100.4 100.5 105.4 100.4 100.5 100.4 93.0 102.3 101.9 101.2 93.8 110.7 112.4 108.5 101.1 105.7 105.2 101.4 95.9 109.3 113.3 103.8 98.5 114.9 117.1 113.6 103.3 119.3 119.6 119.5 106.8 132.3 130.8 127.4 121.7 108.5 134.0 131.1 122.4 112.2 137.9 135.8 127.6 114.7 140.5 1 Indexes of costs for frame and brick dwellings in 20 cities; city data from E. H. Boeckh and Associates, combined by HHFA. 2 The Engineering News-Record Index is based on prices of structural steel, lumber, cement, and un skilled labor in 20 cities. 3 Source: Bureau of Labor Statistics. These data show, therefore, that construction-cost rises in both postwar periods exceeded cost-of-living rises, and after World War II, earnings as well. Analysis of this excess leads to an examination of the movement of prices which make up construction costs; namely, building-material prices and building-labor costs. TABLE 6.-Index numbers of wholesale prices [1926=100] Building materials Period All com- modities, total Total Lumber Paint Brick and tile Plumbing Cement and heat- ing World War II: 1939 August. December 1941 77.1 89.6 90. 1 82.1 90.5 91.3 79.3 93.6 107.8 129.4 96. 5 96.7 93. 4 89.1 June 1943. 103.8 110. 6 138.8 102.0 99.0 93.6 90.4 December 1943. 103.2 113. 4 148.0 103.3 100.0 93.6 91.8 September 1945. 105. 2 118.0 155.0 107.6 112.4 99.6 95.0 October 1946.. 134. 1 134.8 178.9 119.2 127.8 106. 5 107.2 November 1946.. 139.7 145. 5 192.1 151.3 129.1 107.0 107.2 March 1947. 149.6 177.5 269.3 176. 1 132.4 112.3 117.9 June 1947. 148.0 174. 4 266. 1 159.6 134. 7 114.3 119.1 July 1947. August 1947_. World War I: 150.8 175.7 269.0 156. 1 143. 3 114.9 123.4 153.6 179.7 276.5 154.9 144. 3 116.9 128.6 1914 August. 68. 1 52.7 49.0 50.7 38.8 55.0 April 1917.. 114. 1 87.0 71.4 91.8 49.7 80.3 November 1918... 136.3 101.8 83.7 133.8 73.7 99.1 March 1920.. 158.6 167.6 199.0 172.7 114.2 105.3 Mary 1920__--- 167. 2 164. 4 187.0 168.2 119.7 114. 4 August 1921. January 1922. 1 Not available. 93.6 91.9 81.6 80.3 102. 1 113.3 91. 4 91.6 89.2 85.8 99.9 99.9 HIGH COST OF HOUSING 31 Wholesale prices of building materials increased 62 percent from November 1918 to May 1920, as shown in table 6. In the comparable 19-month period following World War II, material prices rose 50 percent. Strictly comprable monthly statistics on labor costs are not avail- able. But, the index of union hourly wage rates in all building trades shows a 55-percent increase from 1918 to 1920. (See table 7.) The increase for the 1945 to 1947 period was 27 percent. Comparisons with prewar prices show building materials rising 74 percent from August 1914 to January 1922, and more than doubling between August 1939 and August 1947. Union hourly wage rates in building, however, almost doubled between 1914 and 1921 and in- creased by less than 50 percent between 1939 and 1947. TABLE 7.—Indexes of union hourly wage rates in all building trades World War I: 1914. 1915. 1916 1917 1918 1919. 1920_.. 1921 World War II: 1939. 1940. 1941. 1942. 1943 1944... 1945... Period [1939=100] All trades men Journey- Helpers and laborers 36.9 37.7 32.1 37.2 38.0 32.4 38.4 39.3 33.5 40.8 41.5 36.8 45.3 45.9 42.6 51.9 52.4 49.3 70.0 70.1 71.5 71.3 71.4 72.2 100.0 100.0 100.0 101.6 101. 4 102.0 105.3 105.0 106.8 111.9 110.9 117.5 112.7 111.5 118.9 113.6 112. 4 120.3 116. 0 114. 4 125.9 129.3 126.8 146.3 147.9 144.6 171.1 1946... 1947 (July 1). Hence the construction cost rises in both periods were due to increases in prices of both construction materials and labor, with material prices rising more than labor. The discrepancy between material prices and wage rate increases is particularly noticeable in the recent period. THE TREND CONTINUES Almost all sources agree that prices for houses have risen excessively. The price of homes in the United States has more than doubled since the war, according to a new index of housing prices in 21 principal cities released a short time ago by United Industrial Associates, Inc., Washington, D. C. The house and lot which sold for $6,500 in 1939, today costs nearly $15,000. As indicated by the UIA index, from 1939 to 1946 housing prices rose steadily. They reached a peak in October of 1946 of 125 percent above the 1939 level, rising almost 60 percent the last year of this period. Starting in November 1946, buyer resistance combined with a seasonal decline to force a sharp break in the housing market. From November until March 1947, the price trend was generally downward. Since April of 1947, how- ever, housing prices have yielded to the general inflationary pressure and have climbed in September 1947 to an all-time high of 130 percent above 1939. 32 HIGH COST OF HOUSING The $5,000 to $7,000 family house has practically disappeared from the United States market, reports the Wall Street Journal. Older houses in this range are not being resold, and the building industry is producing new dwellings mainly in the $10,000-and-up category. In a similar appraisal, the Federal Reserve Bulletin notes that, on the whole, it seems likely that costs to owners in the months of 1947 were roughly twice as high as in 1939, and that about half of the increase took place after the end of the war. According to a report of a western Federal Reserve bank, 87 percent above 1939 levels seems to be a generally accepted figure for the price rise in housing. A detailed analysis by the Housing and Home Finance Agency in tables 8 and 9 shows that in the last half of 1946, after the price con- trol holiday and final termination of price controls, price increases occurred at monthly rates exceeding the annual increases of war years. The peak rises occurred in January and February and March of 1947 when monthly increases of 6 to 7 percent were registered In April the monthly increase declined to 3 percent and thereafter monthly increases fell off to less than 1 percent. TABLE 8.-Index of building costs, 1940-46 [1935-39=100] Annual averages Total Material Labor Annual averages Total Material Labor 1940. 103.2 102. 1 105.4 1941. 113.1 111.0 1944... 117.3 1945. 134. 1 137.4 1942. 122.4 120.4 126.8 1946... 147.7 131.2 133.8 144.0 139.9 1 144. 8 155.3 1943.. 127.0 123.7 133.7 1 Revised. Source: Housing and Home Finance Agency. TABLE 9.-Index of building costs, 1945-47 1 [1935-39=100] Total Material Labor Total Material Labor 1945-January. 136. 1 132.5 143.'3 1946-Continued February. 136.3 132.8 143.4 May 143.6 139.2 152.6 March 136.7 133. 1 143.8 June. 145.7 141.6 153.8 April 136.8 133. 2 143.9 July 147.7 143.7 155, 6 May. 136.9 133.4 143.9 August 149.8 146. 1 157.2 June. 137.0 133.5 143.9 September. 151.8 148.0 159.3 July. 137.2 133.8 144. 1 October. 154.0 150.3 161.6 August 137.4 133.9 144.5 November. 156. 7 153.6 163.1 September. 138.0 134. 1 146.0 December 159.8 158.6 164.8 October. 138.5 134.6 146.3 1947-January. 167.0 168.2 166.8 November. 139. 1 135.0 147.3 February. 173.8 177.6 168.6 December. 139.3 135.2 147.5 March 179.6 185.6 170.2 1946-January 139.7 135.5 147.9 April. 182.5 188.8 172. 4 February 140.3 136.3 148.5 May. 183. 7 189.1 175.5 March 141.0 137.1 148.9 June 184.8 189.0 179.2 April. 142. 1 138.0 150.6 July. 185. 1 188.5 181.0 1 Three month moving average. Source: Housing and Home Finance Agency. HIGH COST OF HOUSING 33 4 During the midsummer of 1947 there was even some local evidence of price decline, although the national index appeared to be stabilizing rather than declining. After the midyear, inflationary forces again made themselves felt, and prices may be stabilizing or moving slightly upwards. Supporting this is a statement of a Federal Reserve bank indicating that by the autumn of 1946, real estate activity was declining, and since then prices have declined somewhat. This shift reflected the unwillingness or inability of potential buyers to follow the market up, even though their incomes were showing some further increase. Many people were becoming more or less adjusted to the rather unsatisfac- tory living quarters they were obliged to accept temporarily after the war. The rapid rise in prices of foods and many other consumer goods were encroaching seriously on the purchasing power of consumer in- comes. At the same time more goods, particularly durable goods, were becoming available to compete for consumers' dollars. The average valuation of FHA insured properties, reports the Federal Housing Administration, decreased from $5,978 in 1937 to $5,199 in 1940, and then increased to $5,334 in 1945 and $6,733 in 1946. Recent reports of FHA field offices have indicated that for the Nation as a whole, existing home prices have tended to stabilize after moderate declines earlier last year. Prices for new homes throughout the country in recent months have been for the most part either stationary or advancing, with a greater tendency toward price increases for low and moderate priced homes than for the highest price properties. With the cost of building a house on contract, as estimated by the Architectural Forum, running anywhere from $10 to $15 per square foot, and with most speculatively built houses selling in the lower reaches of this bracket, it is significant that the best of today's builders can and are selling livable houses at $7 to $9 per square foot, including land. Their sales prices also include one or more of these extras: Garage, expansion attic, built-in cabinet work, a completely equipped kitchen, additional closets, and radiant heat. Reduced to a common denominator, which takes into account the value of these unfinished areas and extras, five typical houses sell at basic unit prices averaging only $6.37 per square foot, excluding land. Despite wide variations in geographic location, city size, fabricating technique, and production volume, their basic unit sales prices are within 30 cents of each other. These data are shown in table 10 where they are compared with prewar built houses. 34 TABLE 10-Comparison of prewar and postwar sales prices of typical houses [Basic unit sales prices are calculated by adding unfinished areas and deducting beyond-normal standard equipment] Area and additions (gross Sales price and deductions square feet) Total adjusted Total Attic, area Cabinets Closets base- Finished ment garage at one-half Porch, at one- quarter (square feet) Actual Lot Extra equip- ment Fire- over 20 over 36 adjusted sales price place square square feet, feet, at $6 at $3 Unit sales price (per gross square feet) Actual Actual price and price and finished adjusted area | Adjusted price and adjusted area (basic) area HIGH COST OF HOUSING Postwar builders: Place & Co. 1, 020 None None 1, 020 $7,350 1 $420 None 'None $234 $120 $6, 576 $7.21 $7.21 Wm. G. Farrington Co.. 803 100 7 910 6, 250 1 500 None None 18 3 5, 729 7.78 6.89 $6.45 6.30 Kaiser Community Homes. 971 180 30 1, 181 8, 650 1 600 None None 288 9 7,753 8.91 7.52 6. 56 Byrne Organization. 988 None None 988 6, 950 1 600 None None None 165 6, 185 7.03 7.03 6. 26 Levitt & Sons. 750 173 None 923 6, 990 1 600 $490 None 66 24 5,810 9.32 7.57 6. 29 Prewar builders: Standard Properties. 625 144 None 769 2,990 2 350 75 None None None 2,565 4.78 3.89 3.34 Robert L. Mason. 784 492 None 1, 276 5, 675 2 336 None 200 None None 5, 139 7.24 4.45 4.03 County Homes, Inc. 802 684 None 1, 486 5,895 2 420 400 None 18 None 5, 057 7.35 3. 97 3.40 1 At $10 per square foot. 2 At $7 per square foot. Source: Architectural Forum, June 1947 HIGH COST OF HOUSING 35 A recent National Housing Committee survey of house construction costs shows the following: Labor productivity seriously de- Middle Atlantic States: A rise of 5 percent since July, and going up. Middle West: Still rising, but more slowly. ficient in some areas, but tending upward. Southwest: Costs up 4 to 5 percent since July. Rocky Mountain States: No change since July. Pacific coast: Costs up 12 to 15 percent since July. Still rising. A southern Federal Reserve bank reported that in May 1947, building costs had been steady for approximately 6 months, after having risen continuously over the preceding 6 years. It was the opinion of the trade at that time that the peak had been reached and that costs would probably become stabilized at a slightly lower level. The opinion was prevalent among the general public that prices were too high, and publicity releases in that vein emanating from Washing- ton and other sources influenced prospective buyers to stay out of the market. As a result, activity in the spring and early summer de- clined. However, the drop that actually occurred in building- material prices was more or less limited to one important item, lumber. Southern pine that had been selling at $75 per thousand went as low as $55. Following the seasonal pattern, lumber mills had accumulated large inventories during the winter, and when the expected spring activity did not materialize, considerable pressure on the small shippers developed. As a result, there was a brief period during which the market was glutted. This was only a temporary condition, however, because the larger outfits had been able to main- tain their positions and were not compelled to liquidate their stocks at the lower prices. After 2 or 3 months a change in the public attitude was evident. When the anticipated decline in over-all costs of construction did not materialize, prospective buyers again entered the market, and the demand has since continued strong. Prices of building materials have increased all along the line. For instance, in mass-production projects, plumbing for a 6-room house has advanced. from $615 in May, to $665, to $700, and to $750 for the last group under construction, and the trend is still upward. Similar price increases have occurred in galvanized pipe, soil pipe, and various other items. Lumber has advanced from a $55-$60 range to $85- $92.50 f. o. b. mill. There is the same trend with respect to labor. The hourly rate for rough carpenters has risen in this period from $1.15 to $1.40. Housing prices and building costs The relationship between housing prices and building costs explains the continued high volume in new house construction, despite the sharp rise in construction costs. During the prewar years, when competition was keen between new and used houses, prices and costs maintained a close relationship. When the war ended, the shortage of houses was so great that prices rapidly outstripped the rise in build- ing costs. The United Industrial Associates index (see table 11) with 1935-39 equal to 100, shows only a 3-point maximum variation be- tween costs and prices from 1935 to 1942. By 1945 the variation had increased to 18 points. By September 1946 the variation had grown to 73 points. Thus, in 1946, builders found that houses, which cost them much more to construct than in the prewar period, could be sold at a profit despite high costs. 36 HIGH COST OF HOUSING { When house prices broke in November 1946 and building costs continued to rise, many builders, according to the United Industrial Associates, became apprehensive lest the market would continue to fall and they would be caught with high-cost houses they could not sell at a profit. This greatly reduced the volume of new housing starts last winter and early spring. When housing prices leveled out in March and April, builders regained confidence, and the volume of construction quickly rose again. If housing prices stay high, the high rate of home building is bound to continue, asserts the United Industrial Associates analysis. A drop in construction volume need not be expected until the margin between the cost and price of housing is narrowed by a drop in prices or, less probably, by further substantial increases in cost. There is little likelihood of a major break in housing prices if rent control is eliminated, or if rents are increased substantially in 1948. Rents have increased only about 10 percent over the prewar level as compared with the 130 percent rise in housing prices and the 86 per- cent increase in housing construction costs. A large number of poten- tial home buyers are now renters, and will immediately enter the market if rents go up in line with housing prices and costs, according to the United Industrial Associates. A midwestern Federal Reserve bank shows that recent changes in the real estate market have been more significant than is reflected by the slight downward trend in the prices of some houses. With a leveling off in prices, sellers are prone to hold their properties longer in an endeavor to secure a better price, which produces a lag in the decline of real estate prices. Under such conditions the trend in the number of real estate trans- fers is an important indicator of real estate market conditions. Since the spring of 1946, when transfers were at a peak, the number has declined sharply. In the spring of 1946 the number of transfers was double the 1940 monthly average, while a year later the number was only slightly over 50 percent above the prewar average. The reduction in the number of transfers is a part of the transition from a seller's to a buyer's market. Buyers have become very choosey as to both location and type of house at the present level of prices. Comparion of housing prices with other prices Opinions vary as to the relationship between housing price increases and increases of other products, though most sources consider the housing price rise excessive. The survey by United Industrial Associates declared that increases in housing prices have outstripped every other major item in the cost of living, including food, clothes, and fuel. Housing prices have also risen far in excess of both rents and building costs, the study stated. The data are presented in the accompanying table 11. The National Association of Home Builders maintains that the cost of new houses has not advanced as much as the other major elements of the economy. This is not borne out by the data in table 11. Only housing prices and food have increased more than housing construction costs. The cost of living has not risen as much. HIGH COST OF HOUSING 37 TABLE 11.-Housing prices compared with house construction cost, rent, and cost of living, 1939-47 [1935-39=100] Housing Cost of living, BLS index Housing construc- Con- prices, tion Rent, sumers' BLS UIA costs, index price index FHLBA index Food Fuel, Clothing electricity index etc. 1939. 100.2 101.5 104.3 99.4 95. 2 100.5 99.0 1940... 103.6 103.2 104.6 100.2 96. 6 101.7 99.7 1941. 111.5 113.1 106. 2 105. 2 105.5 106.3 102. 2 1942 112.3 122.4 108.5 116.5 123.9 124. 2 105.4 1943 121.8 127.0 108.0 123.6 138.0 129.7 107.7 1944. 135. 1 134. 1 108. 2 125.5 136. 1 138.8 109.8 1945. 156.3 137.4 108.3 128.4 139.1 145.9 110.3 1946 201.0 147.7 108.6 139.3 159.6 160.2 112.4 September 224. 3 151.8 108.8 145.9 174. 1 165.9 114. 4 October. 225. 4 154.0 108.8 148.6 180.0 168.1 114.4 November 221. 4 156.7 108.8 152.2 187.7 171.0 114.8 December. 212.7 159.8 108.8 153.3 185.9 176.5 115.5 1947: January 208. 2 167.0 108.9 153.3 183.8 179.0 117.3 February 218. 1 173.8 108.9 153. 2 182.3 181.5 117.5 March 214.6 179.6 109.0 156.3 189.5 184.3 117.6 April. 216.8 182.5 109.0 156. 2 188.0 184.9 118.4 May 217.2 183.7 109.2 156. 0 187.6 185.0 117.7 June. 214.3 184.8 109. 2 157.1 190.5 185.7 117.7 July.. August.. September.. 218.0 185.1 110.0 158.4 193. 1 184.7 119.5 222.7 186.2 230.5 Source: United Industrial Associates, Inc., Washington 5, D. C., index of housing prices; former Federal Home Loan Bank Administration housing cost index carried forward by UIA with BLS material and labor cost data; and Bureau of Labor Statistics indexes for rent, consumer prices, food, etc. Various component costs • According to the indices in tables 8 and 9, during the last year of the war construction costs rose approximately 3 percent. During the first 6 months of 1946 construction-cost increases averaged about 1 percent per month. Throughout this period it will be noted that there were slight variations in the rate of change between building materials and labor, but that in general the two components have fol- lowed a parallel course of approximately the same magnitude. During 1945 and 1946 labor costs led materials costs, although the gap was declining. In 1947 materials increases exceeded the labor increase, and have remained in that position. E. H. Boeckh and Associates reports, according to a Federal Reserve bank, that the cost of labor and materials in a midwestern metropolis. in September for residential frame construction was 97.5 percent above the 1926–29 average and brick construction was 95.3 percent above the former average. The average labor rates for all classes of help have increased in the lumber industry approximately 66 percent from June 1940 to the present time; and it is estimated that the efficiency of labor is at least 35 percent less than in 1940, which means a greater number of men to do the same volume of work. A report from an electrical equipment manufacturer shows that the actual increase in the cost of a job, because of the increased cost of material, has been approximately 6 percent since June 1940. This. manufacturer says labor costs increased nearly 80 percent when it became necessary for his employees to join a union. A building material supplier gave figures showing that in 1940 gravel was $1.75 per cubic yard, cinders 75 cents, cement 57 cents per bag. Today gravel is $2.60 per cubic yard, cinders $1.75, cement 78 cents per bag. In June 1940 labor was 65 cents per hour, finishers 38 HIGH COST OF HOUSING 90 cents per hour. At the present time labor is $1.27 per hour, finishers $1.72 per hour. A plastering contractor presented these figures of the cost of labor and material as of June 1940 and today: Plasterers' wages. Laborers' wages……. Lathers' wages.. Rock lath, per thousand feet….. Compound, per ton:. Lime, per ton... Stucco, per ton Cornerite, per thousand feet. Corner bead, per thousand feet. 1940 Today Legal rate $10 $20 $15.20 8 12 10.40 9 20 15. 20 17 25 14 19 16 22 14 19 7 15 18 35 Although the plasterers' and lathers' rate is $1.90 per hour, he says it is impossible to get them to work for less than $20 per day. Lathers are limited to 35 bundles of lath per day for $15.20, and this is the union basis. A good lather (he claims) can easily install 60 to 80 bundles per day. A linoleum dealer reports the greatest increase in costs is in labor. During 1940 he hired or contracted for linoleum work on a piecework basis. Since that time, he has had to abandon piecework rates and pay a per hour rate. This has resulted in a large increase of costs. Material costs have increased on linoleum and the inability to get quantity discounts has resulted in another boost. Furnace prices, according to a heating contractor, have increased 9 percent at the factory. In addition, the factory no longer supplies inner liners and pokers. Labor cost increased from 90 cents per hour to $1.75 per hour, plus double time and mileage allowances. The price of brick in January, 1941, says a brick manufacturer, was $16 per thousand and the price in July 1946, $24.25. The advance of $8.25 per thousand, or 50 percent, was necessitated almost entirely by wage increases. The National Association of Home Builders concludes that the price of on-site labor is reflected in a 117-percent rise in average weekly earnings of building construction workers since the 1935-39 period. Weekly earnings in private building construction, according to Bureau of Labor Statistics figures, show an average of $28.24 for 1935 to 1939 and $61.23 for March 1947: Increased costs in the special trades are apparent in a comparison of the Bureau of Labor Statistics figures of average weekly earnings at the beginning of 1940 and early in 1947, though it must be remem- bered that full-time employment was far more prevalent in the latter period. Plumbing and heating. Painting and decorating. Electrical work. Masonry Plastering and lathing. Carpentry. ---- Roofing and sheet metal.. Excavation and foundation... January 1940 March 1947 $32. 11 $66.89 29.84 60. 10 38.87 75.75 23.99 57.37 36. 19 69.15 27.59 62.98 25. 14 53.67 27.21 68.36 HIGH COST OF HOUSING 39 The Federal Reserve Bulletin reported that since the middle of 1946 an increasing number of wage contracts have been negotiated- generally without work stoppages and altogether advances in wage rates since the end of the war have amounted to about 15 percent. Increased costs since 1941 in both labor and materials are shown in tables 12 and 13 prepared by the National Association of Home Builders. In each table the break-down used is for a specific house under construction by a typical builder constructing a group of houses. Neither the highest-cost nor the lowest-cost operations were selected. The figures in table 12 are for a quality house with six rooms, tile bath, slate roof, central heating, and all equipment. The floor area totals 1,230 square feet. Although the wage scale is near the national average, the construction cost is substantially less than in closed-shop areas in which the same wage scale prevails, because of the various restrictions imposed by the unions in those areas. TABLE 12.-Comparative cost of building brick houses, in eastern seaboard open-shop city, 1941 and 1947 1941 1947 1. Land cost.. 2. Land development. 3. Excavation, grading, and landscape work. 4. Foundations.. 5. Masonry: $255 $500 253 538 157 267 161 272 (a) Labor. (b) Materials. 6. Steel 207 447 299 398 73 107 7. Lumber and millwork: (a) Labor. (b) Materials. 8. Plumbing and drains: (a) Labor. (b) Material. 9. Heating: (a) Labor (b) Material. 10. Roofing and spouting: (a) Labor (b) Material… 11. Electrical: Labor and material. 12. Plaster: (a) Labor (b) Material_ 13. Concrete: 398 863 824 1,638 212 391 437 120 174 321 400 88 176 226 129 255 137 324 131 195 (a) Labor. 112 211 (b) Material. 114 138 14. Papering and painting: (a) Labor.. 151 284 (b) Material…. 51 77 15. Hardwood floors. 152 325 16. Bathroom tile, medicine cabinet, and heater. 115 185 17. Kitchen cabinets and equipment. 162 265 18. Screens, shades, and miscellaneous extras. 45 178 19. Insulation and weatherstrip. 73 105 20. Engineering and architect's fee and permits. 27 45 21. Supervision... 22. Miscellaneous job expense. 23. Interest, taxes during construction. 24. Expediting, office and administrative overhead. 25. Sales expense and net profit.. Total. Source: National Association of Home Builders. 38 80 118 245 150 200 250 450 450 650 6, 040 10, 779 40 HIGH COST OF HOUSING Table 13 presents cost figures in an open-shop area in the Southwest for an 800-square-foot frame house on concrete piers, built according to minimum specifications. The increase of the 1947 cost over 1940 is 80 percent. TABLE 13.—Cost of building a minimum house in the Southwest, 1940 and 1947 Lots and utilities. Building permits. Rough grading. Foundation. Lumber, doors, windows, roofing, and millwork Finish hardware. Metal flashing. Plumbing Electrical wiring. Electrical fixtures. Tilework: kitchen drain. Painting and decorating. Floor finish. Carpenter labor. Window shades and linoleum. Compensation insurance and overhead. Builders profit... Total.. Source: National Association of Home Builders. 1940 1947 $300.00 $550.00 3.00 15.00 90.60 4.00 25.00 142.50 1, 143. 50 1, 742.80 35.00 50.00 20.00 30.00 386.00 745.00 96.00 152.00 25.00 40.00 53.50 74.00 175.00 385.00 22.50 55.00 320.00 825.00 22.00 53.00 120.00 216.00 260.00 550.00 3,087.10 5,639.30 Unit cost changes COSTS IN VARIOUS LOCALITIES A Dow Service Survey in the fall of 1947 concludes that average building construction costs have increased 104 percent in 142 of the Nation's leading cities and their suburban areas since 1941. In these same areas, building trades labor had increased 77 percent and building material prices are up 109 percent. The results by districts are as follows: TABLE 14.-Building construction cost increases by districts Districts [1941=100] Number of cities reporting Materials, Labor, percent increase Building cost, percent increase percent increase 1. Metropolitan New York-New Jersey. 15 2. New England States 3. North Central and Eastern States (excluding dis- tricts 1 and 2) 4. South Central and Southeastern States. 5. Mississippi and West Central States. 6. Rocky Mountains and West Coast States. 21 22 3222 107 73 23 102 80 35 112 27 102 77 21 110 122 National average……. 142 109 28 2*** N 103 103 79 108 100 78 102 73 108 77 104 1 The remarkable feature of this table is the small district variation from the national averages. The following table (15) prepared by the Federal Housing Adminis- tration shows for each of the specified cities, the relationship of esti- mated necessary construction costs in that city as of September 1947, to construction costs in the same city in 1941. The percentages shown reflect relative increases in cost since 1941, not relative level of costs between cities in 1947. HIGH COST OF HOUSING 41 > TABLE 15.-Estimated current necessary cost for typical small-home construction in specified individual areas in September 1947 as a percentage of estimated cost for each area in 1941 Albany, N. Y. Boston, Mass_ Washington, D. C. Newark, N. J. Atlanta, Ga Dallas, Tex... Miami, Fla_. Oklahoma City, Okla 1411 1 ! Source: Federal Housing Administration. I 1 1 I 1 179 | Chicago, Ill 171 Detroit, Mich. 177 Omaha, Nebr. 178 St. Louis, Mo... 1 1 1 195 Albuquerque, N. Mex. 180 Denver, Colo. 212 Los Angeles, Calif. 195 Seattle, Wash... I 1 1 1 I 172 175 188 193 193 197 226 208 Cost increases in these selected cities ranged from 171 to 226 percent of 1941 costs, with the greatest increases occurring on the west coast and Florida. A survey by United Industrial Associates shows data for 21 cities: TABLE 16.—UIA housing price index, September 1947 (preliminary) National average_ Baltimore_. Boston___ Buffalo Chicago_ Cincinnati Cleveland. Detroit } 1 1 Houston Indianapolis. Kansas City.. 1 1 I 1 1 1 1 I 1 Source: United Industrial Associates, Inc. [1935-39=100] 230. 45 | Los Angeles- 224. 18 Milwaukee 192. 79 Minneapolis. 216. 75 New York City. 217. 76 Philadelphia- 176. 33 Pittsburgh_ 237. 23 Portland, Oreg- 206. 40 St. Louis, Mo- 254.90 | San Francisco. 172. 10 Seattle__ 1 1 1 I 1 I 1 1 213. 13 Washington, D. C... 1 | 1 1 1 1 I 1 301. 75 222. 45 272. 43 211. 21 05 239. 27 190. 42 263. 04 238. 203.36 249. 23 204. 91 These figures yield similar results about comparative cost increases in different sections of the country to those in table 15. Table 17 gives, for units scheduled to be started during the third quarter of 1947, a distribution of privately financed dwelling units into five classifications of construction cost, as estimated by the contractors, for each of 28 urban areas and 21 urban counties. The cost figures are for the dwelling units proper, including overhead and construction profit of the contractors and subcontractors but exclud- ing cost of land and site improvements, financing and sales expense, and other construction items. Hence they are substantially lower than selling prices. It is apparent that median construction cost is below $5,250 in very few of the industrial areas, and is above $7,250 in almost half of them. Data also prepared by the Bureau of Labor Statistics for 1938 shows that in 72 cities, almost 35 percent of the units were in the under $5,000 class, with only 11 percent over $8,000. 69991-48— -4 42 HIGH COST OF HOUSING TABLE 17.-Number of new privately financed dwelling units in 49 specified areas and their percentage distribution by construction-cost ¹ class, third quarter of 1947 1-FAMILY STRUCTURES Area Month 2 Num- ber of dwell- Percent distribution of dwelling units with construction cost of- ing units 3 Total Under $3,250-$5,250-$7,250- $3,250 $5,249 $7,249 $9,249 over $9,250 and Industrial areas: ³ Atlanta.. Boston. July. 529 100 17 13 22 30 _do_ 700 100 9 9 31 33 Buffalo. August. 494 100 5 15 14 34 Chicago. July 1,384 100 13 20 17 24 Cleveland. do.. 671 100 2 5 14 32 47 Columbus. September.. 184 100 12 14 27 24 Dallas.. July 471 100 8 22 36 18 Denver. _do_ 298 100 11 20 32 11 Detroit. August. 1, 290 100 5 6 26 38 Fort Worth. do... 344 100 15 36 22 18 Hartford.. _do__ 163 100 0 18 36 26 Indianapolis. July. 277 100 16 13 36 20 Knoxville. September. 150 100 46 16 28 5 Los Angeles. August.. 4,367 100 7 14 20 39 Memphis.. do.. 271 100 39 13 29 15 Milwaukee- _do……… 306 100 1 11 23 30 35 Sacramento. St. Louis Toledo.. Adams, Ill.. Minneapolis. New York-Newark-New Jersey. Philadelphia-Camden. Pittsburgh.. San Francisco Bay. Springfield-Holyoke. Syracuse. Washington, D. C.. Worcester. Urban counties: 7 Cass, N. Dak. Chittendon, Vt.. September.. (6) July. 1,254 100 1 7 32 25 35 August... 915 100 7 19 20 32 22 NCI GANGENONNUN+ 2005 18 18 32 26 23 16 26 25 9 20 15 20 4 September.. (8) _do_ 303 100 20 26 22 17 15 July.. 1, 476 100 September. (6) July 658 100 17 -do 258 100 do.. 1, 108 100 do... 177 100 16 August. 162 100 ~ 72200 3 8 15 13 1 5 29 9 13 July. 16 100 0 12 38 do. 31 100 6 6 19 2020 2 40 27 16 8 18 44 20 2 28229 2 32 17 26 15 39 25 21 25 12823 30 60 35 6 29 39 September.. (6) Dade, Fla. Garfield, Okla.. Hancock, Maine………. Ingham, Mich... Lancaster, Pa. Logan, W. Va. Maricopa, Ariz. August... ._do___. 14 100 7 29 29 21 14 ._do___ 15 100 20 47 7 13 13 .__do____ 132 100 24 33 17 14 12 September.. 52 100 5 15 10 35 35 August. 3 100 100 0 0 0 0 July. 34 100 6 53 18 18 5 Marion, Ohio. Marquette, Mich. Mobile, Ala. Plymouth, Mass. St. Lawrence, N. Y Sussex, N. J. Tioga, N. Y. September. 18 100 11 67 22 0 July. 11 100 27 37 18 do. 74 100 41 22 16 do.. 85 1 100 23 31 25 do... 11 100 18 46 18 • September.. 37 100 46 36 do.. 10 100 10 10 60 Webster, Iowa. Whatcom, Wash Wichita, Tex. York, Pa... do 17 100 29 35 _do_. 20 100 30 July.. 30 100 43 do 83 100 0 13838 24 60 53 30 18 10000000000 9 9 12 13 8 9 8 5 20 0 6 6 5 5 4 0 0 37 15 1 Construction cost represents the cost of all labor and materials, all subcontracted work, and contractor's overhead and profit. It excludes land and development costs. 2 Each area completely surveyed only 1 time during quarter. Data shown are for 1 month during quarter. 3 Represents the number of units for which permits were issued in permit issuing places, plus the number of units started in nonpermit places. 4 Units for which permits were allowed to lapse have been excluded. Less than 10 percent of the total number of units for which estimates of construction costs could not be obtained have been distributed on the basis of information on those units for which data were available. 'Industrial areas include entire counties or groups of counties containing the central city or cities. • Data not available. 7 Data are for the entire county. Source: Bureau of Labor Statistics. Figures quoted recently in the Washington Post show that with all frills abandoned and without a lot and land improvement, a typical frame dwelling of one and a half stories, with six rooms and one bath, HIGH COST OF HOUSING 43 ས containing 20,300 cubic feet of construction, might be built for $10,000 in Lewiston, Maine, or in Portland, Ore. That same house in New York City; St. Louis; Toledo or Dayton, Ohio, will cost about $13,195. But in Columbia, S. C., you can build it for $8,180. In Spokane, Wash.; Louisville, Ky.; Richmond, Va.; or Jackson, Miss.; it probably will come to $10,300. It runs a little higher-around $11,700-in Kansas City, Minneapolis; Scranton, Pa.; Tulsa, Okla.; and Wausay, Wis. However, that identical house costs in the neigh- borhood of $14,128 to build in Newark or East Orange, N. J. The Federal Home Loan Bank building-cost index reveals that the national average cost of building a six-room frame house increased 35 percent between VJ-day and July 1947. Comparable estimates for Boston register a 38-percent rise, somewhat more than in the country generally. Increases since VJ-day in Portland, Maine, and Hartford, Conn., were 34 and 29 percent, respectively. Fairly wide variations from city to city in average costs of new homes in New England are shown in Bureau of Labor Statistics reports. These are based on the estimated costs (excluding land) of single-family units started. In July 1947 Boston costs exceeded those of other New England cities, with an $8,000 average cost estimate on new starts. The range in other communities went from $3,900 in Brockton, Mass., to $6,000 in Worcester, Mass.; $6,300 in Burling- ton, Vt.; and $6,400 in the Springfield-Holyoke, Mass., area. An analysis was made by the Builders Association of Metropolitan Detroit of a standard house that was sold in 1940 for $5,600, and cur- rently sells for $8,400. To have bought the house in 1940, a farmer would have had to offer 11,200 bushels of corn, compared with 6,267 bushels in 1947. The house could have been paid for in 1940 with 16,231 bushels of oats, while 10,874 bushels would cover the cost today. However, this kind of analysis must be used with caution, for while it is probably true that farmers' incomes have risen more than the price of houses; this is not definitely shown by current prices of two grains the farmer sells. One Detroit home builder, who has constructed more than 2,000 homes and maintains an itemized cost account of every house erected, shows that the prewar cost of a typical house which he has built at various times in the intervening years has practically doubled. The house is a one-and-a-half story brick veneer bungalow of five rooms and bath, with full basement. It measures 24 by 35 feet with an 8- by 4-foot vestibule extension, and contains 19,870 cubic feet or 890 square feet. The actual construction cost in June 1940, according to the builder's records, was $4,139.50. On October 1, 1946, the cost had risen to $7,731.37, and on January 1, 1947, it was $8,009.56, an increase over 1940, or about 94 percent. Home building costs today in the Detroit area, reports the Free Press, are at the highest level in 27 years, topped only in 1920, and then only by a small margin. In comparison with the prewar year of 1940, residential construction costs have risen an average of 85 percent, according to figures compiled by the Detroit Department of Buildings and Safety Engineering, as of January 1, 1947. Depending on the type of construction, the increase varied from 70 to 115 per- cent. Despite this unprecedented increase, the current level of home-building costs is about 10 percent lower than the 1920 peak. 44 HIGH COST OF HOUSING Specific examples of increased prices (as distinct from costs) are given by the Free Press: In East Detroit, a one-and-a-half story face-brick veneer, six rooms, full basement, with coal-fired forced-air heat, was built and sold in October 1940 for $7,650. The owner partially finished the second floor and installed venetian blinds and screens for $1,000, making cost to him $8,650. He resold in January 1947 for $13,000, an increase of 50 percent. A six-room brick veneer, full basement, gas forced-air heat was built and sold in 1940 for $6,000. The owner added a screened porch, basement toilet, screens, and storm sash at an expenditure of $700, making cost to him $6,700. He resold the house in May 1946 for $13,000, including carpeting valued at $500, or $12,500 for house and lot, an increase over 1940 of 86.5 percent. A two-story brick veneer, tile bath, hot-air gravity heat was built and sold in 1940 for $5,750 and resold in February 1946 for $11,500, an increase of 100 percent. The Meadville, Pa., Chamber of Commerce published a survey of 15 cities from coast to coast, made by the NEA Service, showing that the pre-war $5,000 house averaged $8,584 in 1947. Chicago was low at $7,780 and Atlanta was high with $9,465. These are the kind of homes the average industrial worker could, and did, afford to live in before the war. Today, points out the chamber of commerce, he doesn't think he can afford this same home, because of the new price tag on it. A midwestern Federal Reserve bank gives these figures: Low- priced homes (defined as those selling for less than $5,000 in 1940, and the lowest 60 percent of the price range of houses on the market in that year and in subsequent years) selling for an average price of $3,394 in 1940 sold during the first 4 months of 1947 for an average price of $8,530-an increase of 151 percent. In 1946 these properties sold for an average price of $7,930, or an increase of 134 percent over the 1940 price, and in 1945 for $5,542, or 63 percent above the pewar price. For lower-priced houses, continues the bank, there have been only a few signs of weakening in price. Houses located in the less desirable residential districts have declined in price since last year. Houses in the more desirable districts have continued to rise in price, and those in relatively new additions have risen substantially since last year. Medium-priced houses (defined as those selling from $5,000 to $10,000 in 1940 and whose price in that year and subsequent years was between the lowest 60 percent and the top 6 percent of all houses in the market) selling for an average price of $6,545 in 1940, were selling for $13,583 in 1947-approximately double the 1940 price. In general, houses in this price range have shown practically no increase in the last year. In one-half of the areas over the city and suburbs, the prices of these houses have declined. Older houses in the less desirable residential districts dropped sub- stantially in the last 12 months, while the new houses in the suburban areas continued to increase substantially, says this Reserve bank. High-priced homes (defined as those selling for more than $10,000 in 1940, and the top 6 percent of all houses on the market in that year and subsequent years) averaging $12,732 in 1940, have declined the most in price. These houses averaged $21,535 in 1946 and $19,231 1 ་ HIGH COST OF HOUSING 45 } during the first 4 months of 1947. This represents a decline of 10 percent in the price during the first part of 1947. In the suburban areas the decline in the price of these houses was less in the city, and in one suburban area the price has continued to mount. Residential property in Minneapolis and in the surrounding suburbs on the whole has risen approximately 115 percent since 1940. Low- priced houses (as defined above) have risen approximately about 150 percent; medium-priced houses (as defined above) have doubled; and high-priced houses (as defined above) are now about 50 percent above the prewar prices. A summary for Minneapolis follows in table 18. TABLE 18.-Number of transactions, average selling price, and percent of increase from 1940 to 1945 and to 1946 in sample of houses sold in Minneapolis Number of transactions.. Average selling price.. Percent above 1940.. Source: Federal Reserve Bank of Minneapolis. 1940 1945 1946 412 $4,593 372 102 $7.220 $8,995 57.2 95.8 Another midwest Federal Reserve bank finds that independent sources indicate residential building costs in its district have increased about 10 percent during 1947. F. W. Dodge data on residential contracts in the Chicago territory (northern Illinois, Wisconsin, Iowa) show that residential building costs per square foot, as measured by contracts let, have increased from an average of $6.30 in the first 9 months of 1946 to an average of $6.90 in the same period of 1947. A survey by the United States Bureau of Labor Statistics shows that the cost of the average new house in the Chicago industrial area has moved up from $7,800 in 1946 to $8,600 in 1947. This BLS estimate does not include land cost or profit. The Boeckh index of residential construction costs in large cities records an increase of more than 20 percent during the same period. The officially published data, in the bank's opinion, do not measure adequately all housing cost increases, largely because they represent contractors' estimates at the time the job is started and therefore fail to measure the less tangible causes of higher costs which develop throughout the job. For example, it is common knowledge that "firm" contracts between subcontractors and general contractors frequently do not remain "firm." Many specific services (e.g., plastering, bricklaying) are at such premiums that subcontractors can demand and get more than the "firm" price whenever their actual costs are higher than originally anticipated. Failure to pay this extra legal premium is likely to mean that the general contractor can no longer expect to get the services of the subcontractor. In many or most instances the buyer of a custom-built home must also pay additional costs, even with a "firm" price contract, in order to expedite final delivery of the house. Many essential items ordinarily included with a new house are now listed as extras. Furthermore, there seems no doubt that quality of both materials and workmanship is commonly below prewar standards, particularly in the lower-priced houses. In addition, gray-market 46 HIGH COST OF HOUSING prices for scarce materials, combined with allied delays in construc- tion time, are causing actual cost to become much higher than either the contractor, the supplier, or the buyer expected. There is evidence, although not official, that a moderate-to-good house in the Chicago area will cost today not less than $12 per square foot of floor space. Various indices of construction costs and a survey which the Federal Reserve Bank of Kansas City has recently completed among the principal builders in that area place, costs of residential construc- tion in Kansas City between 90 and 100 percent above 1940. Another Reserve bank states that it believes a residence costing $10,000 in 1939-40, exclusive of the lot, would have been valued then at approximately 40 cent a cubic foot; today banks are valuing the same residence at 65 cents a cubic foot, and other lending sources are valuing it up to 72 cents a cubic foot. Such a residence would con- tain six rooms, one bath, basement, hot-water heat, and be of brick construction. From the St. Louis Federal Reserve Bank comes the information in tables 19 and 20. TABLE 19.-Construction costs in St. Louis, 1939 and 1947 Type of building 30-family apartment. 18-family apartment. 6-room brick house. 6-room frame house….. 5-room brick-veneer house. Cost per cubic foot Number of cubic feet Percent change in cubic-foot October .1939 cost 1947 303.534. $0.445 $0.861 +93 168.385 .358 .721 +101 23, 100 .277 .555 +100 25, 376 .232 .515 +122 23, 913 .227 .485 +112 TABLE 20.-Change in component construction costs in St. Louis area—6-room frame house, 1939 to 1947 and 1946 to 1947 Labor. Materials Overhead, etc.. Total 1 Peak. Percent change from Cost item 1939 1945 1946 1 1947 1947 1939 to September 1947 September 1946 to September 1947 $1,696 $3, 163 $3,685 $4, 162 $4, 162 3,026 +145 4,329 +13 4, 681 6, 445 6,220 +106 1, 172 1,859 +33 2, 108 2,563 2, 553 +118 +21 5, 894 9, 351 10, 474 13, 170 | 12, 935 +120 +24 Source: Roy Wenzlick & Co., St. Louis. The peak in the cost of a standard 6-room frame house, according to the Wenzlick series, came in April 1947. Costs declined between April and July, but between July and September they resumed their upward trend. The decreases between April and July reflected pri- marily price declines for finished and unfinished lumber. The decline in these two items alone accounted for $350 of the total cost decline of $410. It should be noted that the cost decline between April and HIGH COST OF HOUSING 47 July probably was not as great in a brick house as in a frame house, and frame construction is not permitted in St. Louis proper. Since July a number of major material items have increased in cost. Al- though details on October costs are not yet available, total cost of the standard house in October was $13,074, only $96 less than in April. A southern Federal Reserve bank reports that estimates of cost of residential construction vary from $6.50 per square foot for frame to $10.50 per square foot for top quality and fully appointed brick or stone veneer single dwellings. These costs are from 120 percent to 200 percent above dollar costs in 1939, and probably 10 percent to 12 percent higher than early 1947. Differences in cost between comparable projects and between various types of dwellings probably are more pronounced than in earlier years. The differentials in favor of frame over masonry, and multiple over single-unit dwellings apparently are very marked. For example frame dwellings currently cost $6.50 to $7.50 per square foot; brick veneer, $9.50 to $10.50; multiple-unit brick, $8.50 to $9.50; single unit brick, $9.50 to $10.50. A typical veteran of Columbus, Ohio, related the usual story. He said a contractor advised that on a cost-plus basis a house of 13,000 cubic feet, a four-room structure would cost $10,000, including the lot. To the veteran the price seemed outrageous. This builder, the veteran said, was building two-family houses. He had been out of the construction business during the war, and afterward went back into it. His first postwar project was a two-family house which he assumed would cost him about $6,000, and therefore he borrowed this amount. When the house was completed it had cost him $9,000, and he had to sell it for $10,000 or $11,000. The Miami Chamber of Commerce reports that the average con- struction cost of all privately financed dwelling units started in Dade County in August was estimated by the builders to be $7,705. The construction cost for apartment buildings averaged $5,665, while the cost of one-family houses averaged $9,285. Contractors' cost estimates showed wide variations. They in- dicated that 15 percent of the dwelling units for which permits were issued in August would cost less than $4,250 to build; 25 percent from $4,250 to $5,750; 37 percent from $5,750 to $9,250; and 18 percent over $9,250. Some builders were unable to give estimates of costs. Those mentioned here are not the same as the selling prices of finished houses, as they do not include the value of the lot, the cost of land- scaping and driveways, or selling costs. The five-room house is the most usual type representing 35 percent of the total, while an addi- tional 25 percent were three-room houses. Only 14 percent of the houses had six rooms or more. Thirty-four percent of the one-family houses had a floor area of from 900 to 1,100 square feet, while an addi- tional 26 percent had areas ranging from 700 to 900 square feet. Component cost changes Tables 21 and 22 respectively, show prewar and postwar apart- ment construction costs for New York City Housing Authority proj- ects. Total cost per room ranged from $694 to $919 before the war. Postwar construction costs ranged from $1,168 to $1,714 per room. 48 HIGH COST OF HOUSING Name of project TABLE 21-Cost of New York City Housing Authority postwar projects [Does not include piling; elevators, refrigerators, gas ranges, or any site improvements] Elliott Lincoln houses houses Brownsville houses Johnson houses Marcy houses Amsterdam houses Riis houses Lillian Wald houses Gowanus houses 2,485 5,432 5,610 5,484 7,321 4,586 7,424 7,702 4,869 608 1,286 1,338 1,310 1,717 1,084 1,768 1,861 4,301,454 10,796,154 10,101,026 10,750,768 14,029,520 8,259,493 14,314,100 4-12-46 9-25-46 9-25-46 9-25-46 2-19-47 12-13-46 3-13-47 14,691,881 9-24-47 1,139 9,140,715 10-30-47 2 172, 867.00 1, 233. 98 5, 212. 26 0.621 474, 757.00 1, 151. 79 4,829. 28 0.640 565, 500. 00 Cost per constructed room Cost per apartment. Cost per cubic foot.. Award date 1. Foundation and superstructure. Cost per constructed room Cost per apartment. Cost per cubic foot. Heating $2,259, 969.00 $6,702, 967.00 $6, 461, 566.00 909.45 3,717.05 0.525 $6,661, 002.00 $9, 665, 107.00 $5, 519, 476.00 $5, 314, 100.00 $9, 686, 000.00 $6, 263, 400. 00 1,214. 62 1,320. 19 69.56 284. 32 0.041 87.40 369. 17 0.044 100.80 5, 084. 73 0.619 537, 814.00 98.07 5, 629. 07 0.689 804, 568. 00 1, 203. 55 5,091. 77 0.668 493, 119.00 1, 254. 59 5, 268. 16 0.650 1, 257.60 5, 204. 73 0.659 1,286. 38 5,499. 03 0.685 109.90 107.52 422.64 410.54 468.59 454.91 897, 699.00 120.92 507.75 3 896, 164. 00 116. 36 751, 750.00 154. 39 481.55 660. 01 0.056 0.050 0.057 0.060 0.063 0.061 Electric 0.082 117, 700.00 327, 365.00 370, 465.00 351, 048. 00 403, 616.00 267,044.00 501,000.00 Cost per constructed toom. 523, 997.00 339,990.00 Cost per apartment. Cost per cubic foot.. 47.36 193. 58 0.027 60. 27 66.04 64.01 55. 13 58. 23 67.48 68.03 69.83 254.56 276.88 267.98 235.07 246.35 283.37 281.57 298.51 0.030 0.036 0.033 0.029 Plumbing 353, 764.00 Cost per constructed room 142. 36 Cost per apartment. 581.85 Cost per cubic foot. 0.082 1,059, 059.00 194. 97 823.53 0.098 1, 108, 980. 00 197.68 828.83 0.110 1, 106, 324.00 201.74 844.52 1, 467, 844. 00 0.032 969, 600.00 0.035 0.357 0.037 1, 453, 000. 00 1, 599, 750.00 993, 770. 00 200.49 211.43 195.72 207. 71 204. 10 854.89 0.103 0.105 894. 46 0.11 821.83 859.62 872.49 0.102 0.109 0.109 Total cost. 2,904, 300.00 8, 564, 148.00 8, 506, 511.00 Cost per constructed room Cost per apartment. 1, 168. 73 4, 776. 80 1, 576. 62 6, 659. 52 1, 516. 31 6, 357.63 6, 607. 77 Cost per cubic foot. 0.675 0.793 0.842 0.805] 7, 187. 62 0.880 1, 580. 73 6, 687. 49 0.877 8,656, 188.00 12, 341, 135. 00 7, 249, 239.00 12, 165, 799.00 12, 705, 911. 00 8, 348, 910.00 1, 578. 44 1, 685. 71 1, 638. 71 6, 881. 11 1, 714. 70 7, 330. 04 0.850 1, 649.69 6, 827. 46 0.865 0.913 Total rooms.. Total apartments. Total cubic feet. 1 General construction or superstructure. 2 Bid date. 3 Heating bid rejected. It did not include approximately $25,000 worth of work for the 56 additional apartments Source: New York City Housing Authority. HIGH COST OF HOUSING 49 TABLE 22-Cost of New York City Housing Authority prewar projects [Does not include piling, elevators, refrigerators, gas ranges, or any site improvements] Name of project Red Hook Queensbridge Vladeck Fed. Vladeck City South Ja- maica East River Kingsborough| Clason Point Wallabout Markham Fort Fort Greene Total rooms. Total apts. 9, 378 2, 545 11, 387 3, 149 5, 500 1, 531 960 Total cubic feet. 19, 292, 734 23, 057, 084 10, 617, 265 Award date. July 1938 Sept. 1938 Aug. 1939 240 1,766, 160 Aug. 1939 1,568 448 2,940, 659 Sept. 1939 4,316 1, 170 7,963,515 March 1940 4, 163 1, 166 8,037, 853 Sept. 1940 1,684 400 3, 388, 939 Feb. 1941 764 207 1, 341, 461 June 1941 1, 456 360 2,715, 000 April 1941 13, 133 3, 501 23,840, 447 April 1941 Foundation and super- structure. Cost per constructed room 584.50 Cost per apt. Cost per cubic foot.. Heating- room 2, 113. 59 0.289 597, 600.00 Cost per constructed 60.03 52.48 621.25 2, 231. 78 0.322 287, 425. 00 52. 26 622.34 2, 489. 37 0.338 49, 545. 00 675.42 2, 363.95 0.360 105, 000. 00 51.61 66.96 Cost per apt $6, 140, 214.00 $6, 655, 682.00 $3, 416, 852.00 $597, 448.00 $1,059, 051.00 $2, 268, 925.00 $2, 286, 790.00 $1,034, 770. 00 1 $455, 707.00 $973, 850.00 $8, 551, 780. 00 654. 75 2, 412. 66 0.318 562, 927. 00 150,000.00 89.07 596.48 2, 201. 48 0.340 1 32,000.00 668.85 2, 705. 14 0.359 170,000.00 0.359 690, 500.00 52.58 525.70 1, 939. 25 0.285 187,000.00 549. 31 1, 961. 23 0.285 204, 316. 00 614. 47 2, 586. 93 651.17 2, 442. 66 0. 305 43.33 Cost per cubic foot. Electric- 221.19 0.029 189.77 187.74 206.44 234.38 159.83 49.08 175.23 375.00 41.88 154.59 0.026] 0.027 0.028 0.036 0.024 0.025 0.044 0.024 116. 76 472. 22 0.063 197. 23 0.029 429, 997.00 486, 950. 00 206, 785.00 35, 644. 00 59,000.00 169, 000. 00 165, 684.00 60, 000. 00 1 23,000.00 59, 000.00 634, 150.00 Cost per constructed room 45.85 42.76 37.60 37. 13 Cost per apt. 168.96 154.64 135.07 148.52 37.63 131.70 39. 16 144. 44 39.80 142. 10 35.63 150.00 30. 10 111. 11 40.52 163.89 48.29 181. 13 \ Cost per cubic foot…. 0.022 0.021 0.019 0.020 0.020 0.021 0.021 0.017 0.017 0.022 0.027 Plumbing. 898, 995. 00 1,047, 845.00 476, 640. 00 82, 160.00 175,000.00 372, 500.00 386, 019. 00 163, 100. 00 1 53, 000. 00 Cost per constructed 136,000.00 1, 151, 900.00 room. Cost per apt Cost per cubic foot.. 95.86 353. 24 0.047 92.02 86.66 85.58 111. 61 86.31 92.73 96.85 69.37 93.41 332.75 311.33 0.045] 0.045 342.33 0.047 390.63 318.38 331.06 407.75 256. 04 377.78 Total cost. 8,032, 133.00 8,788, 077.00 4, 387, 702. 00 | 764, 797.00 0.060 1,398, 051.00 0.047 0.048 0.048 0.040 0.050 87.71 329.02 0.048 Cost per constructed room. 856.49 771. 76 Cost per apt. Cost per cubic foot... 3, 156. 04 0.416 2, 790. 75 0.381 797.76 2,865. 91 0.413 796.67 3, 186. 65 0.433 891. 61 3, 120. 65 0.475 2, 997, 425.00 3,042, 809. 00 1, 407, 870.00 563, 707.00 1,338,850.00 11, 028, 330.00 694.49 2, 561.90 0.376 730.92 2, 609. 61 0.379 836.03 3, 519. 68 0.415 737.84 2,723. 22 0.420 919. 53 3, 719. 03 0.493 839. 74 3, 150.05 0.463 1 Estimated, figures not available. Source: New York City Housing Authority. + 50 HIGH COST OF HOUSING I A chamber of commerce statement reveals that houses, including lots, in one of the best residential areas in McAllen, Tex., on paved streets, are being built with two bedrooms, kitchen, dining room, and bath, for as low as $6,000. One-bedroom houses with breakfast nook, living room, and bath are being built for as low as $5,000. These houses are of lumber or concrete blocks of the pumice type. Part of the low cost is due to the equable climate in which no "snow roots" and no basements are needed. Common labor capable of using a hammer draws 50 cents per hour and skilled carpenters draw $1.50 per hour. The committee of the Oregon Building Congress mentions statistics recently published by the F. W. Dodge Corp. in the Architectural Record indicating that in the San Francisco area the cost of a frame residence has increased 95.5 percent over the 1939 level and that of a brick residence 84.8 percent. Most of the skilled crafts have had wage increases which are comparable to these cost increases. This means that in terms of man-hours worked a carpenter can afford to buy the same house today that he could have bought on his wages 10 years ago. The Detroit Free Press reported on a typical house which cost $4,139.50 in 1940. The lumber bill amounted to $828.41. On Jan- uary 1, 1947, the lumber cost was $1,898.80, an increase of 129 percent. Rough carpenter labor jumped from $210 to $490, up 133.33 per- cent. Finish carpenter labor, which cost $103 in 1940, increased 118 percent to $225 in 1947. Aside from the scarcity effect on lumber prices, the largest factor in the increase is attributable to rises in wages, stemming back to the logging camps. While the carpenter hourly wage rate increased about 46 percent, another 40 percent of the carpenter cost was attributed by the builder to increasing labor inefficiency. The cost of plumbing rose from $398 in 1940 to $830 this year, an increase of 108 percent. Scarcity was a factor in the cost rise, forcing the use of substitute and more costly materials, such as copper piping. An increase of 100 percent in the cost of plastering, from $245 to $489, resulted from higher material prices attributable to scarcity, labor "featherbedding," and higher labor wages. Heating, which in the typical house was coal-fired warm-air gravity type, registered a cost rise of 97 percent, from $152 in 1940, to $300 in 1947. Scarcity of sheet-metal items for duct work necessitated the use of aluminum sheets costing 30 cents a pound, compared with galvanized iron commonly used, at 10 cents a pound, which in the prewar era cost only 4 to 5 cents a pound. Masonry, up 69 percent from $935 to $1,582, involved the second largest cost item. Brick and block prices were boosted by increased labor wages and transportation costs. Common brick, quoted at $16 to $17 a thousand in 1940, commanded a price of $26.75. Rising costs of oil and clay used in the manufacture of brick, and "make work" labor practices on the site, contributed to the high cost of masonry work. Other substantial increases were shown in floor laying, up 107.6 percent; hardware, 92.7 percent; electric wiring, 80 percent; insulation, 74 percent; tile, 71 percent; cement work, 64.9 percent; excavation work and rough grading, 60 percent; sodding, 80 percent. HIGH COST OF HOUSING 51 2 In the Detroit area it has been accepted practice by reputable builders to limit their profits to 15 percent of the cost, including sales commission, which commonly is fixed at not more than 5 percent. The builder's profit item has increased proportionately to the cost, according to the Detroit Free Press. However, under the circum- stances, builders have been restricted in the number of houses they could complete in a given period, and consequently, the total profit generally, has been less. The Federal Reserve Bank of Richmond has furnished a cost break- down of building a comparable house in Richmond in 1941 and 1947. This is shown in table 23. TABLE 23.—Cost break-down of building a comparable house in Richmond in 1941 and 1947 Summer February 1941 1947 Summer February 1941 1947 Price of lot. Brickwork. Foundation. Yard leveling. Cement work. Shrubbery. $500 $412 Scraping floors. $35 $55 250 386 Hardware. 60 80 25 36 Roofing- 100 126 30 218 Insulation. 50 100 27 151 Papering. 50 98 25 50 Extras.. 100 200 Carpenters. 500 919 Gutters and downspout. 30 60 Lumber and millwork.. 900 1,750 Disappearing stairway. 45 Plumbing and heating. 900 1,600 Builders' fee. 387 942 Plastering. 240 486 Survey of lot. 15 15 Screens. 50 125 Loan cost.. 195 136 Electric wiring. 90 232 Commission, selling. 250 425 Electric fixtures and installing_ 35 232 Linoleum... None 26 Window shades. 15 30 Water connection. None 40 Painting.. 140 200 Tile bath and kitchen, includ- ing installation. 5, 219 9, 130 175 232 Source: Federal Reserve Bank of Richmond. The president of Miller Homes, Inc., of Detroit, says that the increased cost of labor resulting from higher wages and much lower productivity is the real reason for the more than 85 percent increase in building costs within the last 6 years. The break-down of costs for one of his standard homes-first as of June 1940 (total cost $5,090) and then as of July 1, 1946 (total cost $9,489.50), is shown in table 24. Brick masons, he claims, are laying about one-third of the number of brick per day they used to lay, thus raising the cost for direct labor from $20 to $50 per thousand. His union contract since the 1st of November 1945 has required him to hire carpenters on a day-work basis, and has increased labor cost for carpenter work 50 percent. Plumbing material costs have increased because plumbers cannot buy merchandise in quantity lots with trade discounts. Plumbing labor is up 100 percent. Plastering is up 100 percent. TABLE 24.-Cost breakdown, Miller homes, Detroit, Mich. June July 1, 1940 1946 Percent of in- crease June 1940 July 1, 1946 Percent of in- crease Survey. Permit. Excavation and rough grading $4.00 $7.50 5.00 100.00 150.00 14.00 180 87 Roofing. Millwork.. Insulation, ceiling. $81.98 $119.52 45 19.39 28.25 45 35.00 61.00 74 50 Carpenter labor: Masonry 935.00 1,595.00 70 Rough. 210.00 475.00 126 Steel. 43.54 55. 32 27 Finish. 103.00 225.00 118 Plumbing. 398.00 721.00 81 Shingling roof. 19.50 (1) (1) Heating, warm air. 152.00 280.00 84 Floor laying…. 14. 20 26.50 86 Lumber 828.41 1,725.00 100 Floor sanding. 12.00 6.00 1 Now included in roofing. 52 HIGH COST OF HOUSING TABLE 24.-Cost breakdown, Miller homes, Detroit, Mich.-Continued June 1940 July 1, 1946 Percent of in- crease June 1940 July 1, Percent 1946 of in- crease Sheet-metal work.. $28.57 $45.00 Wiring- 87.10 137.50 Plastering. 245.00 456. 50 Hardware. 72.38 110.00 Glazing 15.91 25.50 Cement work. 135.00 229.26 Painting and decorating Tile..... 175.00 325.00 145.00 205.00 41 Weatherstrip Lighting fixture allow. Caulking 35.00 52.50 12.00 20.50 Ornamental iron shades.. 14.00 22.00 Linoleum.. 42.97 73.68 Grading 14.00 25.00 Sodding.... 25.00 45.00 Cleaning- 12.00 18.00 558288K-8 - 5N088 57 Whitewash walls, plans 57 and specifications. $25.00 $55.00 120 80 Miscellaneous, cleaning, removal of debris, etc.. 75.00 200.00 166 60 69 Construction cost... 4,139.95 7,554.53 82 Compensation insurance. 50.00 100.00 100 50 Field supervision. Commission. 150.00 450.00 200 249.50 474.50 90 71 57 71 Mortgage expense, total estimated cost... 4,589.45 8,579.03 87 78 Profit and overhead... 500. 55 910. 47 81 Total cost.- 5,090.00 9,489.50 86.4 Gas piping. 20.00 20.00 Source: George W. Miller, president, Miller Homes, Inc., Detroit, Mich. Table 25, prepared by the Housing and Home Finance Agency, shows the distribution of costs among the various items on a typical house in the Detroit area built by the same builders in 1940 and in 1947. TABLE 25.-Comparative cost study, Detroit, Mich. Dollar distribution of selling price Percentage distribution of selling price June October Percent June 1940 1947 increase 1940 October 1947 Percent of change in each item 1. Survey. 2. Permit. $4.00 $7.50 88 5.00 16.00 220 0.0786 .0982 0.0689 -12 .1469 +50 3. Plans. 25.00 55.00 120 .4912 .5051 +3 4. Excavation.. 100.00 175.00 75 1.9646 1. 6070 -18 5. Masonry. 935.00 1, 749. 48 87 18.3693 16.0657 -13 6. Steel... 43.54 67.72 56 .8554 .6219 -27 7. Lumber and millwork. 847.80 2,129. 65 151 16. 6562 19. 5551 +17 8. Carpentry, rough. 210.00 575.00 174 4. 1258 5. 2800 +28 9. Floor laying. 14. 20 46.00 224 .2790 .4224 +51 10. Floor sanding. 12.00 24.00 100 .2358 .2204 -7 11. Hardware_- 72.38 170.00 135 1.4220 1.5611 મ +10 12. Carpentry, finish 103.00 265.00 157 2. 0235 2.4334 +20 13. Roofing. 101.48 141. 12 39 1.9938 1.2959 -35 14. Sheet metal. 28.57 48.40 69 .5615 .4444 -21 15. Insulation.. 35.00 51.00 46 .6877 .4683 —32 16. Glazing. 15.91 25.50 60 .3126 .2342 -25 17. Painting- 18. Plastering. 19. Tile.. 175.00 365.00 109 3. 4381 3.3517 -2 245.00 563. 25 130 4. 8133 5. 1722 + 145.00 308.00 112 2.8487 2.8283 -1 20. Cement. 135.00 232.02 72 2. 6522 2. 1306 -20 21. Weatherstrip. 12.00 23.50 96 .2358 .2158 -8 22. Shades 14.00 26.50 89 .2750 .2433 -12 23. Linoleum. 42.97 85.31 99 .8442 .7834 -7 24. Plumbing and piping. 418.00 880.00 111 8. 2121 8.0809 -2 25. Heating. 152.00 313.00 106 2.9862 2.8742 -4 26. Wiring 87.10 172.50 98 1. 7113 1.5840 -7 27. Fixtures. 35.00 50.00 43 .6876 .4591 -33 28. Grading. 14.00 20.00 43 29. Cleaning- .2750 .1836 -33 12.00 25.00 108 .2358 .2296 -3 30. Sodding. 25.00 50.00 100 .4912 .4591 -7 31. Miscellaneous.. 75.00 200.00 167 1.4735 1.8365 +25 32. Company insurance…. 50.00 100.00 100 .9823 .9183 -7 33. Overhead. 150.00 350.00 133 2.9469 3.2140 +9 Total cost.. 4,339.95 9, 310. 45 115 85.2644 85.4953 34. Commission 249.50 539.50 116 4.9017 4.9542 +1 35. Profit. 500.55 1,040. 05 108 9.8339 9.5505 Selling price. Source: Housing and Home Finance Agency. 5,090.00 10, 890.00 114 100 100 រ HIGH COST OF HOUSING 53 Table 26 shows a comparison between cost data submitted by a Detroit contractor and cost data published by a Washington, D. C., contractor. Considering that the plans and specifications are quite dissimilar, there is an unusual comparability of costs between the combined items of masonry and cement, lumber, millwork, and car- pentry work in the sample houses. The item of heating is logically quite dissimilar because of the difference in the systems used. Table 26.—Comparative cost estimates, Detroit and Washington 14. Cement 15. Weatherstrip. Detroit Washington Amount Percent Amount Percent 1. Survey, permits and plans. 2. Excavation and backfill. 3. Masonry 4. Steel.. 5. Lumber and millwork…. 6. Carpentry and labor. 7. Hardware. $63 1.00 $20 0.32 140 2.22 97 1.54 1,450 22.98 1,297 20.63 44 .70 72 1.15 1, 413 22.40 1,375 21.89 556 8.81 691 10.99 80 1.27 45 .72 8. Roofing.. 120 1.90 108 1.72 9. Sheet metal_ 40 .63 60 .95 10. insulation. 60 .95 50 .80 11. Painting and glazing. 273 4.33 230 3.67 12. Plastering. 339 5.37 396 6.30 13. Tile... 174 2.76 90 1.43 194 3.08 273 4.33 20 .32 40 .64 21 .33 25 .40 69 1.09 30 .48 565 8.96 490 7.80 240 3.81 535 8.52 155 2.46 126 2.01 18 .29 40 .64 18 .29 10 .16 45 .71 40 .64 150 2.38 97 1.55 60 .95 45 72 6, 307 100 6, 282 100 200 3.2 (1) 400 6.3 (1) 885 14.0 (1) 7.792 123.5 1, 644 26.1 1,570 25.0 1,969 31.2 2,066 32.9 3, 613 57.3 3,636 57.9 16. Shades 17. Linoleum. 18. Plumbing 19. Heating. 20. Electrical.. 21. Grading. 22. Cleaning. 23. Sodding 24. Miscellaneous. 25. Insurance. 26. Construction cost. 27. Overhead 28. Commission.. 29. Profit__ 30. Selling price.. Masonry and cement work. Lumber, millwork, and carpentry. Total of items.. 1 Information not given. Source; Housing and Home Finance Agency. The Chamber of Commerce of Meadville, Pa., reports a successful housing venture 10 years ago which prompted the formation of a new corporation in 1947 with $150,000 in equity capital. At first the chamber of commerce sought to duplicate the earlier project, or at least 100 units. Last spring, after using all possible pressure, the chamber finally persuaded one contractor to show some plans for five-room houses which he thought might be built for $9,000 each. However, he offered no firm price. This compared with the $5,000 a unit cost of 10 years earlier. The chamber thereupon employed an architect to draw plans for apartment houses, aimed at a cost of about $6,500 a unit. When bids were opened on a sample section of 32 units recently, the chamber of commerce got a bid a few cents under $10,000 a unit. All bids were rejected: Negotiations were then started on a cost-plus basis with the lowest bidder. A price of $8,500 was indicated as a possibility. 54 HIGH COST OF HOUSING ABILITY TO BUY The Federal Reserve Bulletin reports that the large volume of transfers and the higher prices were made possible by the high and rising levels of employment and aggregate income, supplemented by large holdings of liquid assets, and, particularly in the case of veterans, by plentiful mortgage credit. The National Association of Home Builders points out that since 1935-39, savings and other assets increased 250 percent, average in- come 119 percent, and typical earnings 111 percent. But the cost of living went up only 56 percent, and the cost of new housing 82 percent. Mr. Connors, of the Detroit Citizens' Housing and Planning Coun- cil states that the Daily News took a market survey of that area last year, and their figures with reference to housing indicated that the average price that people at that time were willing to pay was $7,500. A Peoria report also showed that half of the 7,500 married veterans were renting dwelling units for which the average monthly rental was $40. The average veteran was able to buy a $6,000 house. Median income for all veterans from all sources was $44 per week. 1 Mr. Edwards, president of Detroit Common Council stated that survey after survey has shown that the bulk of the need in the Detroit area is for homes costing between $6,000 and $7,500, and for rental units at between $40 and $55 per month. An eastern Federal Reserve bank asserted that this reluctance to buy homes now should not be confused with ability to do so. The ability of individuals to buy houses, as measured by their incomes, has steadily continued to improve. The increase in New England's per capita income from 1940 to 1946 of 82 percent has more than matched a 55 percent rise in residential building costs. However, the Massachusetts State Board of Housing, in a recent study of housing supply and demand in the State, found that new units currently put on the market are not generally within the cost or rental range of the veteran. Demand of the average Massachusetts veteran, as measured by his ability to pay, has been for a home costing him $40 a month. "Typical" housing units privately built in 1947 have been designed to rent or to sell on an amortized home purchase payment basis for $80 monthly. Only public housing falls within the $40 classification generally desired. From newspaper real-estate offerings in a sample American city noted for its high building costs, it was determined by the Lumber Dealers Association that a house offered in 1940 at an average price of $7,685 would in 1947, carry a price tag of $14,550. However, says the association, look at what some typical purchasers would have to do to earn this house. At 1947 wage rates, the plumber in that city would work 838 hours less; the painter, 2,048 hours less; the carpenter, 146 hours less; the electrician, 1,218 hours less; to pay for this house at $14,550 than he would have worked in 1940 to buy its $7,685 counterpart. At present prices, the butcher would have to sell 9,717 fewer pounds of beef; the grocer 5,654 fewer dozens of eggs to accumulate the 1947 purchase price. Similarly the shoe dealer, the men's clothing store, and the department-store owner could buy it for the proceeds of fewer sales of shoes, or shirts, or women's spring coats. Even the farmer, says this association, should he decide to move into town, would find himself better able to purchase this house. In HIGH COST OF HOUSING 55 1940 the net income of a farm operator averaged only $768; it would have used up all the farmer's net for 10 such years to buy the 1940 house. In 1946, however, the farm operator netted $2,578; he could buy the 1947 house in less than 6 years at this rate of income. The Oregon Building Congress Committee on Low-Cost Housing feels that if we had reason to believe that present wages and costs would continue at approxmately their present level for the next 20 or 30 years we might readily conclude that today's prices are not out of line with today's incomes. Most people are finding that the radios, ranges, refrigerators, and washing machines they are buying at today's high prices are easier to pay for than similar items purchased a few years ago when costs were lower and paid for out of lower incomes. It is not unreasonable for a worker to assume that his present wages will continue or perhaps increase for at least another year or perhaps more. However, in the purchase of a home, the buyer is obligating himself for many years, and a monthly payment which seems reason- able today may be impossible to meet 5 or 10 years hence. The Detroit Free Press, however, is not troubled by such increases. It can refer an average citizen to any 1 of 400 builders who will give immediate delivery of one or more houses, which will be within the income purchasing power of the average industrial wage earner, in that area; and the purchaser will not need an old house for a trade-in. This is taken to mean that there is no severe shortage. But the vet- erans' organization, AMVETS, reported that verbal information from Detroit members of their organization shows that many homes, priced $8,000 and up, are standing vacant and have not been sold. In Oakland County, builders are not erecting any of those homes unless sales are made in advance. The average $9,000 home in the Detroit area, it is pointed out, in- volves a down payment of 10 percent or $900, with monthly payments, exclusive of taxes, of $44 per month. The average $1,500 automobile involves a down payment of 33%½ percent or $500, and a monthly pay- ment of $70.83 per month. When new houses are as easily obtainable as mass-produced automobiles, and not a greater drain on the home owner's pocket, the housing situation can scarcely be classed as a national emergency, according to the Detroit Free Press. This, of course, implies that it is as easy to make a 15- to 30-year commitment, as it is to make a 1- or 2-year commitment. Every home investor is faced with the possibility of dratic alteration of presently inflated prices. In Akron, Ohio, a recent study was made comparing the cost, in man-hours and labor rates of a home built in 1939 and one built in The wage rates paid to 13 job classifications in Akron were found to have average 90%½ cents an hour in 1939. A two-bedroom house in 1939 cost $4,950. Today the same jobs are averaging $1.47%2 an hour, and the same house costs $7,900. The average worker, then, in 1939, had to work, 6,392 hours to pay for the house, which today, he works 5,980 hours to pay for. In percentage terms, the home at today's so-called high price, is 7 percent cheaper than it was in 1939, requiring 492 hours less work for him to pay for it. This, again, is the equation of pay rates with annual income—not always a true equation. Furthermore, the high costs become espe- cially important when it is seen that they must be borne for the next 15 to 35 years while maintenance of present wage levels is uncertain. CHAPTER 4. LAND DEVELOPMENT AND HOUSE DESIGN LAND DEVELOPMENT Field office reports of the Federal Housing Administration indicate that over the major part of the Nation, costs for developing raw acreage have been advancing since last spring. The most recent reports show that for about three out of every five field offices such costs were still advancing, with costs stationary in other offices. As land costs resume their upward trend, the need for finding better development methods grows. The real estate magazine, Urban Land, reported recently that the skilled builder and developer are called upon to meet high standards of production at a time when abnormal pressures are upon them for the production of low-cost housing in a high cost building market. The only "give" indicated in the builder's tight position, says the magazine, must lie in the economies and ingenuity which competition induces and which skill in site planning and development can effect. But sometimes devel- opers and municipal authorities are not quick to recognize the long- term cost and depreciation savings which result from careful develop- ment practice. If maintenance costs are to be reduced, construction standards on improvements will have to be raised. Urban Land says there is no question that the value of good street improvements accruing to a home property is much greater than the actual expense of installation. The lending institutions have proved this to their satisfaction. A detailed outline of cost-reducing techniques which land developers may use is furnished by the Federal Housing Administration. Appli- cation of these techniques in a specific proposed development, says the FHA, frequently results both in reduced construction costs and improved standards. Among the techniques advocated by the FHA are the following: 1. Selection of sites which are adaptable to the type of the housing construction proposed. For example, builders are advised to avoid lands involving excessive rock excavation, excessive grading work, excessive drainage work, or costly extension of utilities. 2. Adaptation of street locations to topography in order to reduce costs of grading and excessive depth of house foundations. 3. Adjustment of street lay-out to reduce the length of utility lines and the number of catch basins, manholes, and other appurtenances. 4. Use of longer blocks, to eliminate unnecessary side streets and thereby reduce the length of street construction necessary to serve a development. Utility and street improvement costs are frequently reduced 5 to 10 percent through this economy. 5. Functional planning of street systems to attain a large propor- tion of local minor streets which cost less to construct than through streets. Streets on a gridiron street system are commonly paved 30 or more feet wide. On a functional street system most streets 56 > HIGH COST OF HOUSING 57 4 • carry only local access traffic and pavement width may be reduced to 24 to 26 feet. 6. Adjustment of street and lot lay-out to utilize all buildable land in a development and make all lots marketable. For example, land near a heavily traveled highway or near industrial plants or other adverse nonresidential uses may sometimes be made usuable for resi- dential purposes by facing lots in the other direction with protective screen planting installed along the back lot lines, or by providing a marginal access street along the highway with a protective screen planting in the panel between the highway and the local access street. 7. Installation of land improvements of the type and to the extent needed to assure economical maintenance of properties. For ex- ample, planting of ground cover on steep slopes saves maintenance costs for controlling soil erosion and cleaning out storm-sewer facilities. 8. Design of developments to create a high degree of market appeal in order to aid in obtaining rapid sale of properties and thereby permit large-scale building operations and the accompanying economies. 9. Programing land development to keep pace with but not exceed the need for lots for building purposes. Large tracts of land may be platted and improved progressively by sections as needed for building instead of all at one time. This reduces costs by eliminating carrying charges for utilities and street improvements installed too far in advance of needs and by keeping assessed value of and taxes on land as low as possible prior to its use for building. These principles of land-development technique, applied in the following illustration, which is taken from the journal Urban Land, shows the specific points at which savings are effected. For the purpose of practical comparison, an actual tract of approxi- mately 30 acres was chosen. This is the approximate size of the aver- age subdivision currently being developed throughout the United States. The tract used for analysis was, at the time, being considered for single-family development in the Washington, D. C., area, and was chosen principally because a topographic survey of the property was at hand. Certain existing conditions had to be met in developing the tract: (1) some of the streets already platted in adjacent areas had to be extended; (2) complete utilities had to be installed to service all lots except those abutting the existing boundary street on one side where all utilities except sidewalks were present. Beyond this the developer was on his own. Two plans are shown in table 27, completely comparable except as to lay-out. Both are on the same tract of land. Streets are 50 feet in width. The standard lot is 60 by 120 feet. Roadway pavement is 26 feet wide between rolled curbs. Four-foot sidewalks are provided adjacent to the curb on one side of each street only. 69991-48- -5 58 HIGH COST OF HOUSING Sanitary sewer: 8-inch pipe. Manholes. Total. Storm sewer: 15-inch pipe.. Manholes. Catch basins. TABLE 27.-Comparaitve cost analysis of two types of land plans Gridiron plan A-Length of street, 4,690 feet; percentage of the Curvilinear plan B-Length of street, 4,310 feet, percentage of the tract in street, 18 tract in street, 16.5- Quantity Quantity Unit cost Cost 5,050 feet. 18. $2.50 per foot. $125 each. $12, 625.00 2, 250.00 4,515 feet. 17. 14, 875.00 1,765 feet. 8. 14. $2.50 per foot. $125 each. do... 4, 413.00 1,000.00 1,750.00 1,625 feet. 7. 10.. 7, 163.00 $2 per foot. 11, 030.00 5,480 feet. Total. Water mains (including valves): 6-inch cast- iron pipe. Street-paving and grading: 5,515 feet Unit cost $2.50 per foot. $125 each. $2.50 per foot.. $125 each do.. $2 per foot. Cost $11, 288.00 2, 125.00 13, 413.00 4,063.00 875.00 1,250.00 6, 188.00 10, 960. 00 Rolled curb and gutter. 4-foot sidewalk (1 side). Roadway paving.. Grading. Street trees. Total. Total construction costs. 10,600 feet. 22,650 square feet.. 12,200 square yards. 10,000 cubic yards. 150. $1.30 per foot…. 25 cents per square foot. $2 per square yard. $1 per cubic yard. $5 each 140 lots, average 60 by 120 feet. 1 lot: Construction cost. Cost per front selling foot. 13, 780.00 5,663.00 24, 400.00 10,000.00 750.00 54, 593.00 87,661.00 626.00 10.45 Savings in construction costs of plan B over plan A: Total, $9,095; per lot, $48; per front selling foot, 82 cents. Source: Urban Land, January 1947. 9,650 feet.. 21,000 square feet.. 11,250 square yards. 7,000 cubic yards.. 142. $1.30 per foot. 25 cents per square foot.. $2 per square yard. $1 per cubic yard. $5 each 136 lots, average 60 by 120 feet. 1 lot: Construction cost. Cost per front selling foot. 12, 545.00 5, 250.00 22,500.00 7,000. Uu 710.00 48, 005. 00 78, 566.00 578.00 9.63 1 HIGH COST OF HOUSING 59 Other things being equal, gridiron Plan A with 140 lots should, at $1,000 per lot gross $4,000 more than curvilinear plan B with 136 lots. However, the engineering cost analysis reveals that plan B is less costly in every instance. The net result is a total saving of $9,095 in construction costs representing $48 per lot or 82 cents per front selling foot. Plan A contains a greater number of undesirable lots than does plan B. The developer may well find himself faced with excessive grading costs in order to make these undesirable lots buildable. Loss of existing tree growth, excessive settlement of new fills, and problems of erosion must also be considered. Plan A provides no protection on the open side against uncontrolled development of the adjacent acreage. Plan B, within site limitations, is insulated against this possibility. Past experience indicates that both FHA and qualified independent appraisers would place an average valuation on the lots in plan B from 8 to 15 percent higher than those in plan A. Reasons for this, among others, would include adherence to topography resulting in superior home sites, discouragement to future use of streets by through traffic, reasonable variation in lotting, and avoid- ance of monotony. In other words, fewer good lots have created more value than more poor lots. Even in previously occupied areas which have been cleared, there is room for improvement of developments. The FHA notes that by following the suggestions in its data sheets, builders have improved their developments to the extent that the property owners are not con- fronted with additional assessments to provide proper street improve- ments. Attention is directed particularly to the fact that these suggestions for individual localities are developed with full consulta- tion with the local officials who will eventually be responsible for maintenance of streets or utilities installed. Today, when every dollar spent for land development must be checked carefully against the end result, the smaller operator is apt to question the value of proper subdivision planning, according to Urban Land. This skepticism is often justified because of the em- phasis which has been placed on savings obtainable in large tracts, and the impractical character of many published examples which have depended largely on the use of elaborate and unorthodox methods such as superblocks, culs-de-sac, double building lines, etc., for their apparant savings. Complete analysis of the latter often shows a failure to include other cost items thus created and little attention to enduring market value. The practical test of economical land subdivision is the over- all construction cost balanced against marketability, sales appeal, and livability measured in terms of front selling feet of buildable land created. PLANS The architect's plan of the home provides a basis for cost-reduction computations. At the drafting board, various arrangements of living space can be compared to find ways of using less building materials. The saving effected by use of substitute materials can be figured from the plans specifications. The Housing and Home Finance Agency reports that a critical analysis of the planning elements and their functions has made 60 HIGH COST OF HOUSING possible simplified plans for both detached houses and multifamily units. These plans have reduced corridor and service spaces to a minimum and have proportioned the usable areas more nearly according to their intended function, at the same time obtaining a higher proportion of efficiently used space. A reduction in the ratio of total to usable areas has also reduced the over-all size of the entire structure. Prototype plans have been drawn with such features as back-to-back kitchen and bath, and closets used to separate bed- rooms, arrangements which make for additional economies in mechanical installation and in finish. HHFA has recently published the results of its planning studies on the special problems of the expanding house in which an initial structure containing one bedroom has been planned as part of a final larger dwelling containing as many as three bedrooms. The additions, so planned from the beginning, can be made as the family grows with- out atructural alterations and without disturbing originally installed. service and equipment. Specific recommendations as to the preferable type of home resulted from a study of plans by the National Capital Housing Authority. The Authority's experience showed that the most economical type of housing, both to construct and to manage, is the two-story, one- family house built in groups or rows. Scarcity of sites or high land values may lead to acceptance of multifamily dwellings. However, not only are they less desirable for families with children but they also entail larger operating costs. Illustrative is the statement that while a 14 percent gross return will yield a net 6 percent in the case of one- family houses, a gross return of 20 percent or more is necessary in the case of multifamily dwellings. Accepting the group or row, two-story, one-family house as the most economical type of dwelling, the NCHA found it should be of fire-resistant materials. Again there may be initial construction savings by using other materials, especially if lumber is cheap, but the cost of painting a frame building will, in the course of years, more than balance this saving. Brick may be taken as the material to use for measurement. In some sections of the country other materials locally available, such as the stone often used in south- eastern Pennsylvania, may prove more economical under local condi- tions. The material used largely determines methods of construction. The close connection between costs and plans, and the opportu- nities for reducing construction costs at the drafting board, are illus- trated in the following Federal Housing Administration statement: The FHA is concerned with floor plans for structures securing mortgages insured by FHA because of the opportunities for improving housing standards through use of more efficient floor plans, and the opportunities to improve housing condi- tions by encouraging development of more economical construction. Assurance that the floor plans used will result in sufficient marketability of the mortgaged property provides adequate security for the insured mortgages. CHAPTER 5. MATERIALS SHORTAGES The industry is fond of blaming any lack of housing on building material shortages. That was perhaps a legitimate factor in the first months after the war. But today, more than 2 years after VJ-day, the excuse simply will not stand up. Supporting this contention of Nathan Straus, former United States Housing Authority Administrator, is a Federal Reserve Bulletin reference which points out that, although practically all materials were in short supply earlier, some are now freely available, having been produced for a considerable period in sufficient volume to permit rebuilding of stocks. Production of materials is now over 50 percent above the 1939 average, according to the Department of Commerce index. Such an increase is substantial, though not as large as the nearly twofold increase shown by industrial production as a whole. Production of building materials in general actually declined after October 1946, from 151 percent of the 1939 monthly average to 122 in February 1947. Thereafter it rose, and by October stood at 156. Expansion of building material production has been uneven, as is evident from table 28. Output of lumber in October was about one- third above the 1939 rate. Several items, such as softwood plywood, asphalt roofing, rigid steel conduit, and warm-air furnaces, were being produced at rates between twice and three times as high as in 1939. Gypsum production was five times as great. Only mechanical stokers were being produced at rates below the 1939 averages. In May, June, and July, 1946, issues of the Monthly Review of the Boston Federal Reserve Bank, emphasis was given to the severe shortage of labor and materials as an obstacle to home building. Today it can be reported that considerable headway has been made since that time both in production increases and labor supply. The average time needed to build a single-family house has been cut down for the country as a whole from 8 to 5 months. Reduced construction delays and improved building efficiency have resulted from the current freer flow of materials and an increased supply of labor to the contractor. 61 62 HIGH COST OF HOUSING TABLE 28.—Index of production for selected construction materials (unadjusted), 1941, 1946, 1947 [1939 monthly average=100] Composite index. Production material Lumber. Hardwood flooring. Softwood plywood. Brick. Structural clay tile. Clay sewer pipe.. Cast-iron soil pipe and fittings. Gypsum (including lath) 2. Cement.. Asphalt roofing materials 3 2 Fabricated structural steel 2. Concrete reinforcing bars 2. Wire nails and staples 2 Cast-iron radiation.. Rigid steel conduit and fittings 2 Warm air furnaces. Mechanical stokers 1 Production estimated by Construction Division. • Shipments. * Includes prepared roofing, siding, and saturated felts. 4 Shipments estimated by Construction Division. · Sales Source of data: A. Forest Service, Department of Agriculture. B. Bureau of the Census. C. Bureau of Mines. Department of Interior. D. American Institute of Steel Construction. E. American Iron and Steel Institute, AIS No. 10. F. Office of the Housing Expediter. Source of of data 1941 monthly average 1946 monthly average October 1947 132.1 125.3 156 A H 127.8 122.7 134 H 127.3 58.2 149 B 1 166.8 143.2 204 B 104.3 102.8 129 B 105.6 119.1 129 B 1 104.4 100.0 133 B 109.7 108.1 167 C F 181. 1 198.5 502 с 134.3 134.3 180 B 114.4 145.3 233 D 173.3 130.3 145 E 174.6 110.6 127 B F 4 136.7 92.0 127 B 140.0 64.0 117 G 223.2 149.7 215 B 125.4 157.8 267 B 195.0 193.4 97 G. Dun and Bradstreet, Inc., Marketing and Research Service, Rigid Steel Conduit and Fittings Industry Report. H. National Lumber Manufacturers Association. A representative of the Loeb Electric Co., in Columbus, Ohio, says that practically all electrical commodities are readily available for wiring a house, with the possible exception of steel outlet boxes. This one item, while not always at hand, can usually be supplied in time if given enough notice, say at the time an electrical contractor is awarded a contract. Mr. Carl K. Dale, representative of the Columbus Concrete Prod- uct Manufacturers Association, and in the concrete-block business himself, reports that the producers can supply the market adequately, barring some spotty shortages. A northern Federal Reserve bank arrived at similar conclusions about the general supply, stating that construction delays have been reduced, though not eliminated. Improvements in the materials situation came late in 1946 when basic construction items came into somewhat better supply. All had been in critically short supply since early 1946. The building materials picture, the report continues, is not an entirely optimistic one, even now. Millwork and flooring, gypsum board, cast-iron soil pipe, sheet steel, and electrical supplies in general are still inadequate despite recent production increases. The reasons for high construction costs, à southern Reserve bank indicates, are many and interrelated. There is a shortage of nearly everything that enters into residential construction, including heating, plumbing, lumber, plasterboard, nails, etc. The export of certain materials over which there is no control, principally plumbing, accentuates this shortage. · 63 HIGH COST OF HOUSING Another southern Reserve bank also tempers the optimistic view of increased production, stating that although the flow of materials has improved vastly since 1946, shortages still occasion on-site delays which raise costs. Moreover, materials supplies are "inadequate” in that they are not sufficiently abundant to permit free choice among them and to induce price competition. An additional dissenting report came from an eastern Federal Reserve bank, which publishes the information that the materials situation has improved during the last 6 months but the renewed activity in construction has brought with it a new crop of material shortages. The most acute shortage is in nails, which are now selling in jewelry stores and lingerie shops. Plasterboard, heaters, bath- room fixtures, and hardwood flooring are also extremely scarce. The lumber situation has eased considerably since last May but prices are going up again. According to the latest monthly report of the Federal Housing Administration, construction delays are being caused principally by materials shortages in nails, iron and steel pipe and fittings, plumbing fixtures and materials, and millwork. This information, collected from 63 market areas covering the country, shows the most serious shortages to be in the East and the South. Many sources, while reflecting general satisfaction with recent pro- duction increases, point out the crucial shortages of specific items. A cursory glance reveals repeated complaints about a few essentials. The nongovernmental National Committee on Housing mentions. nails, an irritating shortage discussed by the entire industry. Ac- cording to its recent Nation-wide survey, an increasingly acute short- age of nails for home building is slowing down residential construction and may cause a virtual stoppage in some areas. An active gray market in nails is in existence. The northeastern quarter of the United States appears hardest hit by the shortage of nails, while other sections like the Midwest seem to be getting a more generous supply. The regular price for nails at this time is just under $5 a keg, but builders and dealers are unable to obtain them from their regular suppliers. The gray market seems to have ample stocks at from $9.75 to $12 a keg. Some builders are using aluminum nails at 60 cents a pound. The National Capital Housing Authority, speaking of the nail shortage, says that an order for several kegs of common nails has been pending with the Federal Bureau of Supply since August 1946—15 months. Within this period, because of short supply and urgent needs the Bureau has granted the Authority clearance to buy nails on the open market. The purchasing clerk has telephoned as many as 20 hardware and building supply dealers in the Washington area in an effort to secure only one keg of nails. This subcommittee has been paying special attention to the nail situation. In 1947 we produced almost 900,000 tons of wire nails and staples, which about equaled peak production of 1923. This was only about three-fourths of rated capacity. In 1925 wire nails and staples comprised more than 2 percent of hot-rolled iron and steel production, in 1947 less than 1.5 percent. It is evident that the nail sector was lagging behind the rest of the steel industry. This is confirmed by the fact that the industry as a whole was producing at the rate of more than 90 percent of capacity. 64 HIGH COST OF HOUSING + A major factor in the shortage is that other items are more profitable to the steel manufacturer. Consequently, steel mills have in recent years been shifting to other products. Costs have been increased with the reduction in off-grade wire production. Moreover, many producers were finding it difficult to obtain wire rod in sufficient quantity. Millwork and lumber are also extremely scarce, according to the National Committee on Housing, primarily because of the inability of middle western manufacturers of doors, windows, et cetera, to obtain cars for the shipment of lumber from the west coast to their plants. An eastern Federal Reserve bank says, however, that materials generally are more plentiful, but very high priced. The Red Cedar Shingle Bureau, in recognizing the shingle shortage, says the mills are working on a 30-hour-week basis but that because of the limited supply of cedar logs it is doubtful that production would be very materially increased if the hours were longer. The industry is facing the greatest demand in its history. Practically the entire output is channeled directly from the plant to the retail lumber dealer and then to small homes. Mills are at maximum production which perhaps might be doubled if there were more cedar logs available. Other specific shortages are mentioned by various authorities. The National Committee on Housing reports that gypsum products, required primarily as a base for plaster, together with plumbing items and soil pipe, are scarce in many areas. As a result these and other shortages, especially millwork, nails, and soil pipe, completion of homes is being seriously delayed, and in many areas work is being stopped. Housing Expediter Creedon reports that the more acute shortages of materials are (1) cast iron soil pipe, (2) nails, and (3) gypsum products. In the opinion of a representative of the Builders Association of Metropolitan Detroit, the current high rate of housing production is being threatened because of the recent development of building mate- rial shortages, which in the order of their importance are nails, gyp- sum, lath, water closets, cement, sheathing, and all metal products. Mention of some of the same materials is found in the statement of a midwestern Federal Reserve bank that, although materials supply in general is fairly good, shortages are still evident in finished lumber, flooring, plywood, and steel. The National Capital Housing Authority mentions not only plumb- ing supply shortages but shortages of plumbers' tools as well. The Authority states that many items essential to sanitation are in criti- cally short supply. These include wash basins, commodes, tubs, malleable and cast iron fittings, and pipe. Small supplies are occa- sionally procurable after repeated contacts have been made with a considerable number of dealers, but it has been impossible to secure bids for proposed quantity purchases. The Authority's comments on tools are that manufacturers of threading sets, pipe cutters, and pipe reamers state they are unable to assure delivery in less than 1 year from the placing of the order. Two orders for such items have been pending since August, 1946—15 months; repeated efforts have been made during that period to obtain the items by purchase on the open market, but these attempts have been unsuccessful. HIGH COST OF HOUSING 65 Glass shortages have also delayed the Authority's work. In November 1946, the Authority placed an order with a local contractor for nine different sizes of double-strength window glass. Delivery of eight sizes was made at various times during the past year, but the order for the largest size-57% by 57% in.-is not only undelivered but has not been obtainable from any glass company in the Wash- ington area. The Authority requires only one box of this glass. Glass of any size requires approximately 120 days from order to delivery. A study by the National Capital Housing Authority of the present dislocation of distribution also reveals shortages of paint and sheet metal. In November 1946 the Authority placed an order with the Federal Bureau of Supply for 100 gallons of semigloss white paint and 300 gallons of flat white interior paint. Delivery of the semigloss paint was not made until August 1947, 9 months after the order was placed; partial deliveries of 150 gallons of the interior paint (300 gallons ordered) were made in April and May 1947. The Bureau has informed the Authority's Purchasing Section that it has not been possible to get large supplies of paint and that the Authority's order will be filled as soon as the Bureau can make the requisite purchases. The Authority has obtained clearance from the Bureau several times to purchase small quantities of paint on the open market in order to meet emergency maintenance requirements. Electrical supplies also are in extremely short supply. In Novem- ber 1946, the Authority placed orders for 20 duplex outlet receptacles, 20 three-way flush tumbler switches, and 20 single pole tumbler switches. Delivery of even this small order has not been completed, but the Purchasing Section has been successful in buying one or two such items occasionally from various dealers. Small quantities of some electrical supplies are sometimes obtainable, but no relief is apparent in the Authority's current inability to secure large quantities. Sheet metal is not available in large quantities, although the Au- thority has been able to procure a few sheets from dealers at infrequent intervals. Recently the Authority solicited bids from 6 dealers for 100 sheet metal flue stacks. The low bidder stated that he could supply the stacks in 3 weeks, two bidders promised delivery in 120 days, and the other three dealers refused to bid because of the shortage of sheet metal. COST OF MATERIALS Rising costs cause confusion in planning operations, according to the National Association of Home Builders. It is thought that some owners who undertook to build their own homes failed to estimate costs with sufficient accuracy. For others, the cost of materials and labor had increased beyond original estimates and the job had to wait either for additional financing or for the accumulation by the owner of additional savings. But the indications are that shortages more frequently cause delay. The Tuttle Co., a Boston construction firm, substantiates the Home Builders' statements on high costs paid by small builders. The builder of a single house, says the Tuttle Co., pays at a higher rate for his materials and supplies than is paid by large operators. Table 29 shows index numbers for wholesale prices of building materials from 1914 to 1926 and from 1939 to 1947. From late 1945 66 HIGH COST OF HOUSING 1 until the end of 1946 these were an understatement of the actual price situation, because they did not reflect black-market prices. Sub- sequent to decontrol of prices, black-market operations have been of slight importance for building materials prices as a whole even though they have upset normal distribution patterns for a few materials temporarily. Quite the most serious situation since that time is now prevailing with respect to nails. This is a serious impediment to orderly building operations but has little effect on the over-all cost of materials. TABLE 29.—Weighted index numbers of wholesale prices by groups and subgroups of commodities, 1913–26, and 1939–47 [Average for year, 1914-26 and 1939-46; 1947 by months] Building materials Year Paint and Plumb- Brick and tile Struc- Other All build. Cement Lumber paint ing and materials heating ¹ tural steel building ing mate- materials rials 1913. 38.9 59.6 54.0 50.8 77.1 63. 1 56.7 1914. 38.8 55.0 49.9 50.7 60.0 59.7 52.7 1915. 39. 1 51.0 48.7 54.8 65.3 65. 1 53.5 1916. 42.4 65.4 55.1 77.1 128.9 87.8 67.6 1917 50.2 80.3 72.2 95.3 190.8 114.0 88.2 1918- 66.7 94.6 83.5 121.9 153.2 121.0 93.6 1919_ 91.9 102.3 113.0 140.3 128.7 116.8 115.6 1920- 118.4 117.2 165.2 148. 1 144.4 135.0 150.1 1921. 105.7 110.8 88.9 83.9 104. 4 111.1 97.4 1922- 99.4 103.5 99.1 93.8 88.5 95.3 97.3 1923. 103.6 107.9 111.8 101.3 123.7 105.5 108.7 1924__ 103.4 105.7 99.3 99.7 114.2 104.0 102.3 1925__ 100.1 102.6 100.6 109.3 102.2 100.4 101.7 1926__ 100.0 100.0 100.0 100.0 100.0 100.0 100.0 1939 91.4 91.3 93.2 82.8 79.2 107.3 90.3 90.5 1940. 90.5 90.8 102.9 85.7 80.4 107.3 93.3 94.8 1941. 93.7 92.0 122.5 91.4 84.8 107.3 98.3 103.2 1942. 98.0 94.0 132.8 100.3 95.4 107.3 103.5 110.2 1943. 99.1 93.8 141.4 102.3 90.7 107.3 102.0 111.4 1944 101.7 95.8 153.3 105. 2 92.2 107.3 103.1 115.5 1945 112.4 99.4 155.1 106.9 93.4 107.3 104.4 117.8 1946__ 122.9 104. 1 178.4 118.5 103.8 118.4 118.6 132.6 1947: January 132.2 108.3 249.9 171.2 117.0 127.7 139.0 169.7 February 132.3 109.9 263.6 173.9 117.1 127.7 141.5 174.8 March 132.4 112.3 269.3 176.1 117.9 127.7 143.5 177.5 April 134.5 114.0 273.5 175.5 118.2 127.7 143.7 178.8 May. 134.5 114.0 269.4 169.2 120.0 127.7 144.8 177.0 June. 134.7 114.3 266. 1 159.6 119.1 127.7 145.1 174.4 July. 143.3 114.9 269.0 156.1 123.4 130.8 146. 1 175.7 August. 144.3 116.9 276.7 154.9 128.6 143.0 150.1 179.7 September. 145. 4 119.0 285.7 157.9 135.9 143.0 150.6 183.3 1 Not computed as separate subgroup prior to 1926. Source: U. S. Bureau of Labor Statistics. Not one of the above prices is now below that of the 1920 boom year. All prices excepting structural steel are higher than 1920 prices. Lumber in September 1947 was 73 percent points higher than in 1920. Brick and tile were 23 percent higher. All materials together are 22 percent higher. • The Federal Reserve Bulletin points out that between February and September of 1946 ceiling prices of building materials at all stages of distribution were raised by amounts ranging from 10 to 20 percent. During this period the Office of Price Administration and the Office of the Housing Expediter worked closely together to remove impedi- ments to production of building materials. Achievement of volume HIGH COST OF HOUSING 67 · production and the operation of premium payment plans made possible smaller increases in price than might otherwise have been necessary. After the removal of price controls in November the prices of building materials rose sharply. In March and April of 1947 wholesale prices of building materials were about 50 percent higher than at the end of the war and 100 percent higher than in 1939. Prices of some items, notably lumber and paint, had risen much more than prices of other items. The sharp rise in paint prices was due to acute shortages of lead and other pigments and also of linseed oil. Recently supplies of both lumber and paint materials have been increasing, and prices in some markets have been declining. Coincident with increased production of building materials adds an eastern Federal Reserve bank, prices have advanced steadily during the past year. The rise in all building materials prices from July 1946 to July 1947 was 34 percent as reported in the Bureau of Labor Statistics index. This compares with a 97 percent increase since August 1939. The most spectacular price increase in the year ending July 1947 has been in lumber, which registered a 52 percent increase. Paint and paint materials follow with a 40 percent rise. According to a middle western Federal Reserve bank, materials. costs are increasing steadily and contractors report inability to obtain firm bids on structural steel. Plumbing, heating, and electrical items have been and are increasing steadily in price. Referring to the recognized production rise, an eastern Federal Reserve bank reports that average prices of all important building materials, except cement and structural steel, surpassed in July 1947 their World War I price levels. Department of Commerce statis- ticians predict no foreseeable materials price declines during the remainder of the year. Further information on materials costs and some comparisons with other prices are tabulated below in table 30. TABLE 30.--Production and price comparisons, 1939, 1946, and 1947 September August 1947 1947 September 1946 1. Production construction materials (Commerce composite index) (1939 monthly average=100). (1) 144.8 139.7 2. Industrial production (Federal Reserve Index) adjusted for seas- onal variation (1935-39=100) 185.0 182.0 180.0 3. Construction costs (Commerce composite index-all types) (1939 monthly average=100) - - 200. 2 196. 7 166.8 4. Wholesale building material prices (BLS index) (1935-39=100) 1926 base adjusted: (a) All building materials. (b) Brick and tile__ (c) Cement. (d) Lumber (e) Paint and paint materials. (f) Plumbing and heating.. (g) Structural steel.. (h) Other. 5. Consumer prices (BLS index) (1935-39=100).. 6. Rental prices (BLS index) (1935-39=100)... 1 Not available. 204.7 200.7 149.4 160.0 158.8 140.5 130.6 128.3 116.9 318. 1 308.1 198. 4 194.1 190.4 143.5 178.6 169.0 140.8 138.0 138.0 115.9 162.8 162.3 131.3 163.8 160.3 145.9 113.6 111.2 108.8 Source: Housing and Home Finance Agency. In this table the Housing and Home Finance Agency compares building materials production with industrial production in general. Building supplies production lagged 20 percent behind industrial 68 HIGH COST OF HOUSING production in August 1947. In 1946, construction costs had risen 16 percent higher than cost of wholesale building materials. But by August 1947, this 16 percent difference was wiped out and in addition materials prices had risen 4 percent more than construction costs. A month later, both construction and materials had advanced another 4 percent. The leader, of course, was lumber at 318 percent of 1939 prices. By comparison, consumer prices in general had risen to 163 percent of 1939 figures and rents to 113 percent. Referring to figures from his own company, a representative of the National Oak Floor Manufacturers Association said it is true that between 1941 and the present there was an increase in the average flooring price of about 110 percent. However, it is important to note that 50 percent of this over-all increase was allowed during the life of OPA. Since the decontrol of prices the advance has been 40 percent over the last OPA list. The hardwood flooring picture, he believes, will continue to improve steadily. This improvement has been reflected not so much in price as in quality, and quality is as much a factor in price as the price itself. Buyers will no longer accept what some manufacturers rep- resent as quality merchandise. They are critical today. This is the forerunner of price decline. An eastern Federal Reserve bank shows the scarcity of certain materials contributing greatly to the increased costs by citing nails, which used to sell for $4 to $4.50 and are now selling in a "gray" mar- ket for $15. Lack of building board and other gypsum products results in the payment of premium prices. Cement, says the Builders Association of South Florida, which formerly cost 90 cents per sack now costs $1.30 per sack because of out-of-area freight charges and because the buyer's quota is limited by the manufacturer. Rock lath which should sell at $28 to $30 per thousand now costs from $60 to $70 per thousand, largely as a result of gray market operations. The prices, 90 cents, $28, $30, the Associa- tion points out, are not to be construed as prewar prices. They are the prices supposed to prevail in legitimate channels, compared to prices charged if the material is obtained through unconventional channels such as exist in the present market. The National Committee on Housing comments that rough shop- lumber prices are mounting. While some old line lumber producers are holding prices, others are skyrocketing them. For instance, one company sells No. 3 shop and better kiln-dried ponderosa pine at $71.50 delivered, another sells No. 3 shop and better rough green ponderosa pine at $130 f. o. b. mill, which when kiln dried and delivered amounts to about $172 per thousand. Mr. Ludwig, the committee's president, said that retail and wholesale dealers in the Eastern States have no nails, but gray market operators are offering from 50,000 to 300,000 kegs at fantastic prices running from $7.70 to $14 a keg. The National Association of Real Estate Boards reports that higher costs still figure in reports from builders. A Charlotte, N. C., firm states that it has had an over-all increase of 2 percent in material costs between September 1 to October 1. A Louisville report indicates that on each group of new houses started in the 3 months from August 1 to November 1, prices are up because of increased costs. HIGH COST OF HOUSING 69 A Texas survey finds more material and labor available, although both are still short. Mr. Carl K. Dale, Columbus, Ohio, cement man, raises a lone voice when he points out the favorable position of cement-block prices. Block is currently selling at an average price in Columbus a half-cent less than the price allowed by OPA at the time of its termination. He feels that the present price will undoubtedly increase, but that in existing circumstances it will never be more than a half cent above the OPA price. Cement-block producers, he claims, are going to hold the line on prices to the best of their ability. (The Bureau of Labor Statistics shows less than a 2 point rise in 1947 cement prices over 1920.) Low-cost housing necessarily uses a large portion of the supply of concrete block which provides a means of building quickly and cheaply. A Columbus, Ohio, distributor estimates that the cost of electrical supplies is about 40 to 60 percent above prewar and immediate post- war prices. Products made of steel have had the greatest advance. Rising costs cause confusion in planning operations, according to the National Association of Home Builders. It is thought that some owners who undertook to build their own homes failed to estimate costs with sufficient accuracy. For others the cost of materials and labor had increased beyond original estimates and the job had to wait either for additional financing or for the accumulation by the owner of additional savings. However, the indications are that shortages more frequently cause delay. The Tuttle Co., a Boston construction firm, substantiates the Home Builders' statements on high costs paid by small builders. The builder of a single house, says the Tuttle Co., pays at a higher rate for his materials and supplies than is paid by large operators. EXPLANATIONS FOR HIGH COSTS AND RECOMMENDATIONS Explanations of high materials costs and suggestions for alleviating the shortages are numerous and varied. Three important reasons for the shortages are presented by a Southern Federal Reserve bank: an insecure market, depression and war dislocation, and boom-time inefficiency. At present cost levels, private investment in new materials produc- tion capacity generally is considered dangerous because of the possi- bility that the market will soften and prices decline. Moreover, production of some basic building materials (for example, lumber) probably can be expanded only at increasing cost. Reduction of the cost of most conventional building materials other than through a decline in demand therefore may prove difficult. The inadequacies of material supply (adds this book) also are trace- able in part to the depressed condition of the construction industry in the 1930's which tended to deter replacement of obsolete and depreciated plants. Although the war expanded demand for many building materials, it reduced requirements for others, and the capacity of the building materials industry may have declined on the whole. Building materials are being supplied at present in part by in- efficient producers, a condition which has led to high prices for ma- 710 HIGH COST OF HOUSING A terials and premium prices for better grades of materials. It is noteworthy that the cost of materials is reported to be a larger com- ponent of total residential construction costs than before the war. An Eastern Federal Reserve bank states also that an increased supply alone, by elimination of construction delays and black market conditions, should reduce home costs. The Oregon Building Congress reaches similar conclusions, placing the emphasis on increased produc- tion. The Building Congress' committee on low-cost housing states that as long as the supply of materials is limited and the demand is unlimited there is a tendency for the operator to add all that the traffic will bear. The only law that can force a reduction in this item, the committee believes, is the law of supply and demand. Governmental regulations can attempt to fix ceiling prices, but if the operator finds that he cannot make what he feels to be a reasonable profit on his investment and risk he will cease his operation and thus further restrict supply. A free flow of materials therefore is the only thing that can act to reduce material costs. Again emphasizing production, an Eastern seaboard Federal Reserve bank points to the disparity in materials and home-building production rates, indicating there must be a higher production of building mate- rials if costs are to be reduced. At the present time, production of houses is running far ahead of production of materials, and there is little hope of any great reduction in building costs until that condition is corrected. The New York Times recently published a news item which tends to substantiate these analyses. One section of an industry revamped its own outmoded processes, but ran into the snag of an insecure market. The Times reported that the ability of the plumbing brass goods industry to outstrip other elements of the plumbing group was credited to readily available raw materials and increased mechaniza- tion of manufacturing processes. The productive capacity of the industry is said to be greater now than at any time in its history, but at the wholesale and retail level there has been a reluctance to stock up at present prices. Consequently inventories are still small. A number of authorities blame the export trade for shortages in domestic supplies. The Miami Chamber of Commerce is of the opinion that the continued large-scale exporting of building materials vitally needed for American housing adds to the shortage and thus to high prices. A Detroit builder also points to shortages induced by exports. The reason for the low rate at which nails are bing produced, he said, is that there is an insufficient supply of low carbon steel rods for that purpose because approximately 18 percent of our raw carbon steel rods are being exported. Believing that increased production is the key to lower costs and steady supply, legislators have been able to aid industrial leaders in breaking some serious bottlenecks. Many meetings have been held between legislators and business executives, as a result of which some producers have agreed to alter processes so as to increase the produc- tion of critically short supplies. In other instances, the Government has lent a hand in the opening of bottlenecks. An example of the latter may be found in the partial alleviation of the cast-iron soil-pipe shortage. It was recently learned that the HIGH COST OF HOUSING 71 { major bottleneck in the production of homes was the shortage of cast- iron soil pipe. It was also learned that current production was threatened because repairs were needed on an idle blast furnace which normally produced the merchant pig iron used in soil pipes. Acting on this information, Congressman Gamble and Senator McCarthy conferred with officials of the Republic Steel Corp. and the War Assets Administration. They sought to break a deadlock that had continued for 60 days or more on the question of who was to pay for repairs probably costing about $365,000. After discussion, the two groups agreed to proceed with the repairs at once, the War Assets Administration to pay for the repairs and allocate the cost under a subsequent agreement. National figures CHAPTER 6. LABOR WAGES Building wages, like other costs, have increased substantially since 1939, as tables 31 and 32 below show. Between 1939 and 1947, average hourly wage rates rose about 40 percent for plasterers, electricians, and painters, 45-50 percent for bricklayers, plumbers, and carpenters, and over 75 percent for building laborers. TABLE 31.—Average union hourly wage rates for 7 selected building trades in 75 cities, 1939 to 1947, inclusive 1 1939 1940. 1941. 1942 1943. 1944. 1945___ 1946___ 1947 2 Year Brick- Carpen- Electri- layers ters cians Painters Plasterers Plumbers Building laborers $1.660 $1.400 $1.530 $1.370 $1.690 $1.530 $0.790 1.710 1.430 1.550 1.390 1.700 1.540 .810 1.730 1.420 1.550 1.470 1.720 1.590 .800 1.770 1.480 1.670 1.490 1.760 1.670 .800 1.790 1. 500 1.670 1. 520 1.750 1.650 .830 1.810 1.530 1.710 1.530 1.710 1.660 .880 1.810 1.540 1.750 1.550 1.740 1.750 .930 2.060 1. 730 1.870 1.690 1.950 1.880 1.060 2.370 2.000 2.100 1.890 2.290 2.230 1.230 1 Because of changes in coverage and shifts in union membership, the average rates are not strictly com- parable from year to year. ? Preliminary. Source: U. S. Bureau of Labor Statistics. These national rates, however, conceal significant local variations. Union wage rates for bricklayers rose 29 percent in San Francisco and Chicago, 52 percent in Philadelphia, and 90 percent in Los Angeles. Similarly, building laborers' union wages increased only 31 percent in New York, but 116 percent in Los Angeles. An examination of table 32 shows that wage rates for the same trades are more nearly uniform throughout the country now than before the war. Carpenters in New York, for instance, in 1939, received 65 cents more per hour than in Los Angeles, while in 1947 the difference had been reduced to 12% cents. The net result has been not only a rise in union building labor costs but also a tendency toward greater equalization of union labor costs as between different sections of the country. 72 HIGH COST OF HOUSING 73 Table 32.—Union wage scales for selected building trades in 7 cities, June 1, 1939, and July 1, 1947 Washington, D. C. Philadelphia, Pa. New York, N. Y. Cleveland, Ohio Trade Rate per hour Per- Rate per hour Per- Rate per hour Per- Rate per hour Per- cent cent cent cent in- crease in- crease in- crease in- 1939 1947 1939 1947 1939 1947 1939 1947 crease Bricklayers. $1.750 $2.375 35.7 $1.650 $2.500 Carpenters. Electricians 1.500 2.050 36.7 1.250 2.000 51.5 $1.900 $2.750 60.0 1.750 2.500 44.7 $1.625 $2.250 38.5 42.9 1.375 2. 125 54.5 1.800 2.000 11. 1 1.500 2. 250 50.0 2.000 2.250 12.5 1. 650 2. 125 28.8 Painters. 1.571 1.950 24. 1 1.175 1.900 61.7 1.500 2.000 33.3 1.300 2.000 53.8 Plasterers.. 2.000 2. 250 12.5 1.650 2.500 51.5 2.000 | 3.000 50.0 1. 625 2. 125 30.8 Plumbers. 1.500 2.125 41.7 1.440 2.250 Building laborers. .700 1.200 71.4 .600 1. 100 56.3 2.000 2 2.813 83.33 1.143 4 1.500 40.7 31. 2 1.500 .900 • 2. 125 41.7 1.500 66.7 Bricklayers. Carpenters. Electricians. Painters Plasterers. Chicago, Ill. San Francisco, Calif. Los Angeles, Calif. Trade Rate per hour Per- Rate per hour Per- Rate per hour Per- cent cent cent in- in- in- crease 1939 1947 1939 1947 crease crease 1939 1947 |$1.700 $2. 200 29.4 $1.750 $2.250 28.6 $1.250 $2.375 90.0 1.625 2. 150 32. 3 1.250 2.000 60.0 1.100 2.375 115.9 1.700 2. 150 26.5 1.375 2.250 63.6 1. 125 2.150 91. 1 1. 667 2.150 29.0 1.250 2.000 60. 0 1.100 1.750 59. 1 1.700 2. 225 30.9 1.667 2.250 35.0 1.500 2. 250 50.0 1.700 2. 150 26. 5 1.400 2. 250 60.7 1. 250 2.250 80.0 1.025 1.500 46.3 .810 1.400 72.8 . 625 1.350 116. 0 Plumbers. Building laborers. 1 Union A; union B, $1.900. 2 Union A; union B, $2.500; and union C, $2.857. 3 For cement and concrete; $1.031 for excavating building construction and $0.875 for excavating heavy construction. * Concrete workers, $1.875. Source: U. S. Bureau of Labor Statistics. Table 33 gives monthly data for selected years. The averages shown are for all site workers (foremen, journeymen, apprentices, helpers, laborers, and any others such as superintendents, time- keepers, truck drivers, etc.) on the pay rolls of the reporting con- tractors. Thus they represent a composite of all site occupations for workers employed by all types of building contractors and the various types of special trade contractors-plumbing, electrical, painting, etc.). Both union and nonunion workers are included. The earn- ings figures are gross earnings, including any overtime premium or other above-basic wage rates that may have been paid. The weekly earnings figures are total earnings shown on the pay rolls, divided by the number of workers listed. Thus they may be regarded as average earnings for the building workers actually em- ployed during any part of the pay-roll period, but they do not reflect periods of unemployment and thus are not a direct indication of average annual earnings. In an industry so subject to weather and other seasonal conditions as construction, many if not most of the site workers are affected to some degree by seasonal employment. The average hours per week represent time actually worked by all employees. They reflect hours for the jobs (both straight time and overtime) minus time lost because of bad weather, other job inter- ruptions, personal reasons (sickness, personal business, etc.), and the "short" workweeks in which individual workers were hired or laid off. 69991-48-6 74 HIGH COST OF HOUSING TABLE 33.-Average weekly hours and average weekly and hourly earnings in private building ¹ construction, by months, 1934, 1939, and 1945–47 1 Average Average Month Weekly Hours Hourly Month Weekly Hours Hourly earn- ings per week earn- earn- per earn- ings ings week ings 1934 1947-Continued January $21.63 27.9 $0.775 February 21.10 26.6 .792 June. $55.50 40.4 $1,374 March. 21.95 27.8 .790 July. 55. 57 40.1 1,387 April. 22.43 29.0 .774 August 55.79 40.3 1,383 May. 22.92 29.6 .775 September.. 52.94 38. 1 1, 388 June 23.04 29.9 .772 October 53.87 38.7 1,392 July. 23.44 29.7 .790 November. 51.64 37. 1 1.391 August 23.12 29.0 .797 December 51.79 37.1 1.395 September. 23.30 29.0 .802 October 23.86 29.7 .802 Average 53.73 39.0 1.379 November. 23.66 28.8 .822 December_ 23.28 27.9 .836 1946 January 52.89 37.7 1.402 Average_ 22.97 28.9 .795 February 53.04 37.3 1.422 March 52.87 37.5 1. 411 1939 April 54. 29 38.2 1.423 January 28.18 30.3 .931 May. 53.63 37.5 1. 431 February 27.31 29. 1 .939 June. 55.23 38.2 1. 444 March. 28.98 30.4 .952 July... 56.25 38.2 1.473 April. 29.97 31.3 .959 August. 56.67 38.2 1.482 May.. 31.52 33.5 .942 September 58.49 38.7 1. 510 June. 30.96 33.4 .928 October.. 59.20 38.8 1.526 July. 30.94 33.6 .920 November. 57.65 37.2 1. 549 August 30.94 33.5 .924 December 60.32 38.4 1. 569 September 31. 11 33.9 .918 October. 31.09 34.0 .916 Average 56. 24 38. 1 1.478 November 30.94 33.4 .926 December 30.95 32.8 .943 1947 January 59.97 37.6 1.594 Average 30.39 32.6 .932 February 58.92 36.9 1.598 March 61.23 38.0 1.610 1945 April 60.53 37.1 1. 634 January 52.98 38.8 1.364 May. 62.38 37.7 1.656 February 52.89 39. 1 - 1.352 June 62.68 37.7 1.661 March. 54. 49 40.0 1.363 July. 63.30 37.9 1.669 April. 54.42 40.0 1,361 August 66.97 39.7 1.689 May. 53.64 39.3 1, 366 September.. 65. 22 38.0 1.718 1 Covers all on-site employee on privately financed building construction projects. Source: U. S. Bureau of Labor Statistics. Wage rates appear to have increased more than the union scales would indicate; for average hourly earnings of all building workers have increased by about 80 percent since 1939, compared to a 40- to 50-percent increase in the union rates of most trades. Average hourly rates in construction, points out the Housing and Home Finance Agency, are higher than in most industries; annual earnings also are slightly higher, although the difference is smaller than the high hourly rate would lead one to expect. Local data The Federal Reserve Bank of Richmond finds that wages are in- creasing. The bank gives the union scale for bricklayers as $19 a day and cites several projects on which bricklayers are being paid $26 a day, laying about 450 bricks a day as against 1,000 shortly before the war. Because of the scarcity of bricklayers, it is believed that the daily rate may rise to as high as $30 a day. A southern Federal Reserve bank indicates that the steadily rising general wage scale is a very important factor in rising building costs. To assure prompt completion at a large plant in the locality, day laborers are being paid peak wages. Moreover, the recent widespread HIGH COST OF HOUSING 75 increases in textile wages in the area will add further pressure to the local wage situation. According to a midwestern Reserve bank, local contractors antici- pate substantial wage increases virtually across the board for construc- tion labor. Bricklayers, the leaders in the upper wage bracket in the construction industry, just recently asked for, and got, an increase from $2.25 per hour to $2.50 per hour. Municipal construction laborers are asking for an increase from $1.20 to $1.45. TABLE 34.-Hourly wage rates of construction workers in New York City, 1940–47 Trade Prevailing rates Wage rates as certified by New York City ¡Comptroller October 1945 2 July December February October 1940 1 June 1947 1 1947 1 1941 1 1947 2 Skilled: Bricklayers $2.00 $2.00 $2.50 $2.75 $2.00 $2.50 Carpenters. 1.85 1.85 2.50 2,50 1.85 2.50 Cement masons. 1.75 1.85 2.10 2.50 1.85 2.30 Composition roofers. 1.60 1.70 2.50 2.50 1.60 2.50 Dock builders. 1.75 1.85 2.50 2.50 1.75 2.50 Electrical workers. 2.00 2.00 2.25 2.25 2.00 2.25 • Elevator constructors_ 1.85 2.00 2.50 2.50 1.85 2.50 Operating engineers. (3) (3) (3) (3) (a) Crane.. 81.00 81.00 105.00 105.00 2.02½ 2.2712 (b) Pile driver. 381.00 3 81.00 3 115.00 3 115.00 2.0212 2.3712 (c) Shovel. 385.00 3.90.00 115.00 115.00 2.25 2.50 (d) Hoisting engineers. 2.00 Glaziers.. 1.8844 2.00 1.8834 2.50 2.75 2.0212 2.50 2.50 2.50 1.8844 2.50 Junior engineers. 3 85.00 3 85.00 1.372 1.75 Metallic lathers…. 1.75 1.85 2. 10 2.50 1.75 2,30 Ornamental iron workers. 1.75 1.90 2.50 2.50 1.75 2.50 (41.50 1.80 2.00 2.30 1.60 2.00 Painters. 1.60 Pipe fitters- 2.00 2.20 2.30 2.75 1.65 1.65 Plasterers.-- 2.00 2.00 2.50 3.00 2.00 2.50 2.00 2.00 4 2.25 4 2.50 2.00 2.25 Plumbers.. 2.00 2.8114 Sheet metal workers. 1.85 2.00 2.30 2.75 1.85 2.30 Steam fitters-- 2.00 2.00 2.30 2.75 2.00 2.30 Tile layers.. 1.6834 1.75 2.00 2.50 1.6834 1.6834 Semiskilled: Bricklayer helpers.. 1.2134 1.2134 1.50 1.78 1.2134 1.4624 Carpenter. .90 1.10 1.45 1.45 .90 1.45 Cement and concrete workers. 1. 1434 1.2134 1.50 1.70 1.2134 1.4634 Electrical workers helpers.. 1.20 1.30 7.80 1.20 1.20 1.20 Elevator constructors... 1.35 1.45 1.85 1.85 1.35 1.85 Excavating laborers.. 1.0318 1.10 1.25 1.50 1.03 1.50 Ornamental iron workers helper- 1.30 1.50 2.00 2.00 1.30 2.00 Plasterers helper... 1.42 4 1.42 1.70 2. 10 1.42 1.63 1.5124 Plumbers helper.. 1.16 1. 1634 (5) (5) 1. 16% 1.722 1.50 Steam fitter helper_-- 1.50 1.50 1.721½ Tile layer helper- 1.25 1.3114 1.50 1.90 2.00 1.25 1.50 1.72½ 1.25 1 Compiled from data from Building Trades Employees Association, Engineering News Record, and various unions. 2 From New York City comptroller. 3 Weekly rate. * Some boroughs of New York City have separate wage agreements in some trades. • Wide wage range. Apprentices received only 50 percent to 85 percent of journeymen's rate. Source: New York City Housing Authority. The Federal Reserve Bank of Boston points out that in New Eng- land, despite an 18 percent increase in contract construction em- ployment from June 1946 to June 1947, wage rates have risen. Bricklayers in the city of Boston received $2.15 per hour in September 1947, compared with $1.72%½ per hour in April 1946; carpenters, $1.90 (April 1946, $1.60); electricians, $2.15 ($1.72%); painters, $1.87%½ ($1.44); plumbers, $2.00 ($1.72) and building laborers, $1.40 ($1.15). 76 HIGH COST OF HOUSING Union wage scales in other New England cities reporting to the Bureau of Labor Statistics show parallel rises. The Oregon Building Congress Committee on Low-Cost Housing writes that in 1939 the union scale for house carpenters was $1 per hour, and most houses were being built with nonunion labor at the going wage of 75 cents per hour. Since the war practically all house construction is employing union labor and the carpenter scale is now $1.75 per hour. This is an increase of 133 percent over the pre- war 75-cent rate; and further increases are being requested. At the Detroit hearings of the Joint Committee on Housing, the president of the Detroit Common Council pointed out that the con- stant pressure on the family budget is one of the principal reasons labor has been asking round after round of wage increases. At the same hearings it was mentioned that the average Detroit contractor today is not paying over the union scale for skilled work- ers, although there are a few mechanics who, because of their extra skill and ability, are receiving over the scale. The contractors pay- ing more than the union scale are predominantly in the housing field. New York City construction workers' wage rates are shown in table 34. In general semiskilled earners' wages went up more than skilled workers'. Carpenters' helpers went up more than 60 percent. Skilled carpenters' wages rose about 35 percent. Brick- layers' helpers rose by 50 percent; bricklayers by only 25 percent. • When hearings were held in Cleveland, there appeared to be such a scarcity of labor that the contactors were bidding against each other for the services of skilled workers. In Columbus it was reported that skilled labor is paid more for working on commercial buildings than on residential buildings, which serves to transfer trained men away from housing projects. The Builders Association of Southern Florida said at the Miami hearings that according to established rates of pay, block layers, plasterers, and tile setters should receive $18 per day. Instead, they demand and receive from $25 to $27 per day. This same disparity of scheduled wages to actual wages received exists with plumbers, roofers, electricians, and carpenters. In Pittsburgh, contractors on certain projects were said to be offering premiums of $1 to $3 over the union scale. Ratio of Labor to Total Costs The Housing and Home Finance Agency reports that the exact amount of labor costs going into dwelling construction is difficult to determine from available data. Prior to the war, the best opinion assigned 35 to 40 percent of total costs to labor at the site; current percentages are estimated at between 40 and 45 percent. These estimated percentages of total dwelling costs for site labor are high in comparison with labor costs in the final stages of fabrication in most manufacturing industries. For residential building, the ratio between site wages and total construction cost has remained fairly stable as economic conditions change, according to the Bureau of Labor Statistics. This ratio, HIGH COST OF HOUSING 77 according to the Bureau, has been about 32 to 38 percent, even though individual projects at times depart widely from this range. Seriously abnormal ratios for the most part are found on quite small projects (commonly owner-built houses), and seem ordinarily to result from defective records of expenditures, failure to include the value of work performed on the house by the owner and other family members, or failure to assign a reasonable value to materials which the owner had previously accumulated, salvage materials, etc. A high labor ratio is usual in buildings constructed with second-hand materials. The lower prices at which these are ordinarily sold is in part an allowance for the increased site labor required for their handling, processing, and installation. Table 35 shows the ratios of site wages to total construction cost on a series of projects built from 1931-32 to 1946. TABLE 35.-Ratio of site wages to total construction costs, various projects 1931-46 Project and location Date of construc- Dwelling units tion Site wages as percent- age construc- tion cost Average hourly earnings Group of miscellaneous projects, 15 cities. Knickerbocker Village, New York City. 47 F. W. A. housing projects, various cities.. 1931-32 (1) 2 32.0 (1) 1933-34 1,593 37.5 $1.148 1935-37 21, 463 37.5 .985 Defense housing projects, various cities.. 1941 2 8, 100 32.3 .955 Selected frame houses, Cleveland 1946 78 32.5 1.700 Selected frame houses, San Francisco. 1946 118 33.4 1.542 Selected brick houses, Washington.. 1946 94 36.0 1.425 1 Not available. 2 Approximate. Source: U. S. Bureau of Labor Statistics. Of the three groups of detached houses built in 1946, the lowest ratio of site wages to total construction costs is for Cleveland, where average hourly earnings are highest, and where union organization of residential building workers is extensive and effective. For the first group of projects listed, built in 15 cities in 1931-32, data were for 204 buildings of which 120 were residential and 84 were nonresidential. For this group, the data are only for site wages and material expense, exclusive of contractors' other expenses and profit. On the assump- tion that other expenses and profit of the contractors and subcon- tractors were 15 percent of total construction cost, site wages were 31.7 percent of the total. This 15 percent allowance for other ex- penses and profit would be low on normal circumstances, but was probably realistic for 1931-32. According to the above table, while wages have risen material and other costs have risen commensurately. In table 36, prewar and postwar figures are given which show labor's share of total costs. These figures, from the New York City Housing Authority, show practically no change over the years. The authority's field labor costs prior to the war were 39 percent of total costs of construction. After the war they were 41 percent. 78 HIGH COST OF HOUSING TABLE 36.—Comparison of field labor and all other costs New York City Housing Authority prewar projects versus postwar projects Divi- sion num- ber Prewar Postwar All other costs Field All other labor costs (percent) (percent) (percent) (percent) Field labor 12 Excavation and backfill. 34 Concrete foundations... 39 (a) concrete. 26 (b) forms. 67 33 (c) reinforced steel... 41 Concrete (super) 38 (a) concrete.. 26 (b) forms.. 55 (c) reinforced steel. 36 లు (a) rough.. 5678 — Masonry.. (b) face.. (c) back-up. Caulking.. Spandrel type waterproofing- 50 39 55 35 Roofing, sheet metal and insulation. 31 Metal windows and trim. 9 Combination metal bucks and trim. (a) bucks... (b) partition ends. 10 Metal covered doors... 11 Metal stairs (pan type)……. 13 Miscellaneous and ornamental iron work. 16 Metal furring and lathing. (a) furring and lathing. (t) base and top runner. 17 Plastering:.. 61 (a) scratch (b) brown. 60 (c) white.. 71 18 Ceramic tile……. 19 Asphalt tile. 37 20 Carpentry.. 36 (a) doors. (b) grounds and blocking. 30 23 Glazing.. 35 28 Painting. 75 29 Dustproofing. Heating and ventilating. 32 Electric 46 Plumbing Weighted average 1 39 **/****INOZANJOONYMA*O*RON928 55 33 23 25 25 43 18 17 10 47 43 52 ***8***ZZZSPARAPURANO☺UN-8 66 62 38 61 40 60 74 16 84 55 45 59 47 53 62 42 58 74 24 76 45 56 44 64 36 64 50 50 50 61 52 48 45 52 48 65 46 54 45 49 51 67 31 69 69 30 70 77 19 81 75 23 77 75 24 76 57 29 71 82 13 87 83 10 90 90 18 82 53 44 56 57 43 57 48 46 54 39 53 47 50 50 47 53 40 53 47 29 60 30 45 55 46 54 63 46 54 64 51 49 24 76 34 66 70 63 37 65 38 62 25 57 43. 50 50 32 68 68 30 70 54 49 51 71 33 67 61 41 59 1 Average weighted by relation of the cost of each item to the total cost of all divisions and mechanical trades. Source: New York City Housing Authority. Table 37 gives dollar and cents figures per unit on labor costs and all other costs on New York City Housing Authority projects. It is seen that labor and material price increases were almost identical, each going up about 200 percent, varying from 149 percent on con- crete work to 452 percent on wood doors. HIGH COST OF HOUSING 79 TABLE 37.—Comparison of unit field labor costs and unit all other costs¹ New York City Housing Authority prewar projects versus postwar projects Division Average prewar Average postwar Postwar percentage of prewar costs Field labor All other costs Field labor All other costs Field All other labor costs 2. Concrete (superstructure): (a) Concrete (cubic yards). (b) Forms (square feet). (c) Reinforced steel (pounds). 3. Masonry: (a) Face brick (thousand). $3.18 $9.07 $4.73 $14.57 149 161 .11 .10 .20 .16 182 160 .02 .04 .04 .08 200 200 35.06 31.34 67.91 62.17 194 198 (b) Back-up tile (square feet) (c) Rough brick (thousand) .15 .18 .27 .31 180 172 19.50 21.68 50.47 50.76 259 234 5. Caulking (lineal feet). .02 .02 .03 .03 150 150 6. Spandrel waterproof (square feet). .02 .06 .05 .11 250 183 7. Roofing: Insulation (square feet). .02 .06 .04 .14 200 230 Built-up roofing (square feet). .03 .07 .06 .11 200 157 8. Metal windows and trim (square feet).. .18 ..55 .26 1.25 144 227 9. Metal bucks (each). 1.19 3.16 2.00 5.87 168 186 10. Metal covered doors (each).. 2.15 10.99 3.33 21.75 155 198 13. Miscellaneous and ornamental iron (apartment) 3.94 30.91 9.83 45.27 249 146 16. Metal furring and lathing .28 .47 .53 .73 189 152 17. Plastering: (a) Scratch (square yards). 12 .12 .20 .29 167 242 (b) Brown (square yards). .22 .15 .41 .35 186 233 (c) White (square yards). .18 .07 .23 .17 128 243 19. Asphalt tile (square feet). .03 .05 .07 .09 233 180 20. Wood doors (each). 1.05 2.92 4.75 8.67 452 297 23. Glazing (square feet) .07 .12 .14 .22 200 183 28. Painting (apartment). 49.08 20.64 90.20 67.08 184 325 Heating and ventilating (apart- ment) 56.09 121.52 129.84 293.06 231 241 Electric (apartment). 71.13 84.92 119.25 125.74 168 148 Plumbing (apartment) 95.02 231.47 240.04 492.82 253 213 Weighted average 2. 202 199 ' Contractor's break-downs used as basis of comparison. Foundations were not considered because sufficient information was not available. 2 Average weighted by relation of the cost of each item to the total cost of All Divisions and Mechanical Trades. Source: New York City Housing Authority. The Econometric Institute, Inc., in a report prepared for this Committee, shows that the long-term pattern of changes in costs of materials is similar to the pattern of changes in labor costs. How- ever, the Institute's report indicates rises in labor costs have recently exceeded the rise in costs of materials. Prices of building materials in 1920 were 168 percent of the 1935-39 average, and in 1947 had risen to 199 percent. Based on the same years, labor costs per house were 99 percent in 1920 and 245 percent in 1947. As a result, the report states, in 1920 and in 1931 the cost of building materials was about 55 percent of the cost of standard 5-room brick veneer house in St. Louis, but only 46 percent in 1947. In view of the present contradictory conclusions a clear case cannot be made which will conclusively place the greater blame for high costs onto labor. 80 HIGH COST OF HOUSING Many claim labor inefficient EFFICIENCY Claims of labor's present inefficiency are many. Representative claims are listed below, followed by counterclaims and explanations. Greater efficiency of labor is urgently needed, states the report of a southern Federal Reserve bank. A 50-percent reduction in efficiency, which is the situation that exists today with brickmasons and some others, contributes to increased costs of construction in the same degree as a 100-percent increase in the wage scale. "Spread the work" and "slow down" theories advanced by labor groups are powerful stumbling blocks to the return of any degree of normalcy in this field. One of the major points made by a prominent Boston builder is that more production per person is essential. The Federal Reserve Board relates efficiency to the workers' age, stating that limitation of the number of apprentices has created a labor force of older and slower workers. The Wall Street Journal also says that a drag on production is the advanced age of most mechanics. While no recent national figures are available, a check among builders indicates the average construc- tion worker today is over 55 years of age. This stems from tenacious union policy, adopted in the depression years when it was considered unwise to put on apprentices when skilled men were in search of work. An eastern Federal Reserve bank states that labor efficiency has improved very little, if at all, in recent months and is still far below prewar, as indicated by the fact that about 2,000 man-hours are re- quired to build a house, in contrast to 1,300 to 1,400 man-hours before the war. The National Oak Floors Manufacturers Association reports that despite the introduction of modern labor-saving equipment, a recent Department of Labor Survey showed that 30 man-hours are required to produce 1,000 feet of hardwood flooring as compared with 27 hours in 1935. When Plumbing and Heating magazine states that consumers today are paying about 50 percent more for labor, not because of wage increases but because the men do not do the work they used to do. wage increases are considered with low labor efficiency, the inflation of plumbing and heating labor costs would come close to 100 percent. These are conclusions drawn from a survey of labor production, covering 64 cities and 28 States. If the production drop for all jobs shown on the questionnaire were averaged, a loss of 32.4 percent in over-all labor efficiency is revealed. Continuing in this vein, the Miami Chamber of Commerce reports that the cost of labor alone, in a typical Dade County home, now is more than the entire cost of the house in prewar years. At this time there is a critical shortage of labor in this area. If new craftsmen are permitted by the unions to enter the building trades, housing costs may be reduced by elimination of unjustified overtime and other such practices. Greatly increased wage rates and forced overtime, much lower production per man-hour, certain restrictive work rules, and failure to provide enough apprentices for the trades have combined to unduly increase the labor cost of producing materials and homes. A. V. Taurasi, former president of the Home Builders Association of Greater Boston, says that bricklayers today lay about 300 bricks a day compared with 800 to 1,000 before the war. HIGH COST OF HOUSING 81 A representative of the Gould (Florida) Builders Association gives a different estimate of prewar production quotas when he says that the average block layer laid 400 to 450 blocks per day prior to the war, but today only from 150 to 200 blocks. Tile setters, until recently, set the tile for a bathroom in 1 day and now are taking 1½ days to complete the same job. Title setters in San Francisco do 40 percent less work than in 1940, says H. R. Faltin head of the Granada Tile Co. He computes that in 1939 and 1940 an average tile setter could handle between 100 and 125 square feet a day. Now his men set 70 square feet in an 8-hour day. To install a kitchen sink and bathroom equipment today takes twice as long as it did prewar, say some builders. The Wall Street Journal reported that a Cleveland builder said that plumbers have an unwritten rule which says they must take 7 days to "rough in" fixtures in an average-size four-fixture (sink, tub, toilet, basin) house, even though the job can be done in 32½ days. If they finish ahead of time they go and walk up and down the street to put in the required hours. "If everybody would get busy and work the way they should," claims this builder, "the house selling for $8,500 now could be sold for $6,500." O. J. Hartwig, executive secretary of the Long Island Home Builders Institute, claims builders on the Island are getting about 5 or 6 doors a day from carpenters compared with approximately a dozen before the war. San Francisco's Henry Doelger says that before the war plumbers. installed kitchens and bathrooms in his five-room houses in 3 days, now this takes as long as 5 days. From a report made for this committee by the Econometric Insti- tute, Inc., it is learned that most contractors do not appear to keep productive efficiency records. Construction surveys of Roy A. Wenzlick & Co. of St. Louis show labor costs in 1946 to be 215 percent of 1939 costs on a standard brick-vencer home in St. Louis. Dividing by the hourly wage increase (141 percent) we see that efficiency has fallen to 66 percent of 1939 levels. The Institute estimated over-all 1947 productivity of several occupa- tions in New York: Bricklayers, 90 percent of 1939 productivity; carpenters, 75 percent; electricians, 80 percent; plumbers, 65 percent; excavators, 85 percent. Over-all efficiency in New York was com- puted to be about 75 percent of the 1939 levels. The Oregon Building Congress states that unfortunately producti- vity has not kept pace with rising prices but instead has shown a definite decline. Hunter P. Wharton, secretary of the Building and Construction Trades Council of Pittsburgh, believes "dislocation of war" caused the slowdown. During the war, he says, men slowed down because most projects had more men than needed. "There's no doubt," he continues, "that the men are careless. The problem eventually will be worked out but not as long as there is a shortage of mechanics." Building labor today is doing 30 to 50 percent less work than before the war, according to the Wall Street Journal. That is the complaint of home builders across the Nation. 82 HIGH COST OF HOUSING Table 38 gives specific information to show lowered efficiency in four trade classifications. The information refers to New York City. In contract B the bricks laid per hour fell from 126 prewar to 76 post- war. Lathers and plasterers showed similar reductions in output per man-hour. TABLE 38.-Comparative labor production in years 1940 and 1947 Prewar Contract B Present Contract A Contract B Bricklayers.. Lathers (reinforcing). Lathers (partition-ex- panded metal). Plasterers (brown)_ _ Contract A 800 front brick per 8-hour day. 115 pounds per hour. 7.2 square yards per hour. 18 square yards per man-hour. Source: New York City Housing Authority. Counterclaims 883 brick per 7- hour day. 112 pounds per hour. 7 square yards per hour. 29.3 square yards per 7-hour day. 420 front brick per 7-hour day. 55.5 pounds per hour. 3.86 square yards per hour. 7½ square yards per man-hour. 531 brick per 7-hour day. 70 pounds per hour. 4.8 square yards per hour. 19.7 square yards per 7-hour day. The National Association of Manufacturers reported that labor is called less efficient than previously but that labor also has had to keep pace with technological improvements. The rate at which brick is laid appears to be less than the rate of a decade ago, but a comparison is complicated by the changes in exterior design and other technical changes which makes the bricklaying job not as simple a one as then. A test survey of construction labor productivity conducted by Engineering News-Record last spring, 1 year after a similar test, shows median productivity of skilled building labor computed on the same basis by 26 building contractors in 12 cities, is very slightly higher than a year ago. The common labor median on building con- struction climbed in the same period about 10 percent. By cities, the 1947 building productivity trend compared with 1946, is mixed. In Cincinnati, skilled and common productivity are each 15 percent and 20 percent higher than a year before. At Detroit, average skilled labor productivity is slightly higher. Common labor productivity in Detroit is about 20 percent higher. At Kansas City, skilled labor productivity fell slightly and common labor productivity rose about 25 percent. At Minneapolis, productivity was up about 10 percent. From New York, 1947 reports show increased pro- ductivity over 1946. In Pittsburgh the skilled range, 65 to 81 percent, in 1947, compares with 54 to 65, in 1946, and the common labor productivity, 69 to 96 percent, in 1947, compares with 70 to 90 percent, in 1939 and 1946. In St. Louis there were scattered declines in skilled productivity. Common labor productivity was up about a seventh in St. Louis. Plumbing and Heating magazine printed that many builders claimed the old journeymen were slowing down, and that new workers neither were masters of their trade nor of the right mental disposition to produce well. However, some of the few high production reports gave older journeymen the credit. * Mr. Walters, an A. F. of L. official, testified that when bricklayers are accused of only laying 300 bricks a day the fact that the type of 1 HIGH COST OF HOUSING 83 construction has changed is not taken into consideration. years ago the typical wall was of solid brick masonry, 12 inches or 22 inches thick. Today, we have a different type of construction— what is known as a curtain wall-with face brick frontage and cinder brick behind it. Laying an 8-inch cinder brick is equivalent to 8 bricks. His figures show bricklayers laying 350 bricks today and backing them up. Laying cinder block takes time. Years ago, masons would back that up with brick and increase production figures about a thousand. He claims that on a veneer house today, they are still putting on 600, 800, or 900 bricks a day. That is the average type of construction. The Federal Reserve Bulletin printed that in recent months there may have been little change in costs, as higher wage rates have been offset, at least in part, by improved efficiency of operation growing out of improvement in the material situation. To an increasing extent contractors have been willing to make firm commitments as to prices and completion dates. In a special publication on the mason shortage, the Structural Clay Products Institute explained that it is difficult to compute a definite figure of average number of brick a mason can place in a given time, since much depends on his skill, diligence, and the quality of work he is required to do, the type of materials used, and so on. In general, however, it is felt that 125 bricks per hour per mason may be placed in a 12-inch wall having struck joints on one side; 100 brick per hour in 8-inch masonry wall struck one side; while 37½ brick per hour per mason would be a good average in struck-face, 4-inch face brick or brick veneer walls. Reducing these totals to the average number of brick per mason per hour, simple computation reveals a mason can lay an average of 832½ brick per hour or 583 brick in a 7-hour day. This refers to brick equivalent, not bricks. The way "brick equivalents" have replaced "bricks" and cut down production figures is recognized by the Insti- tute as well as the unions, but not by many contractors, it is claimed. Mr. Louis Goodenow, of Detroit, said that in the 52 years he has been working at the trade of bricklaying, under the method of heavy wall construction, they used to lay 2,500 brick every day; but the wall was 16 to 21 inches. As time went on and buildings were built with steel frames and reinforced concrete which carried the load, walls were reduced in thickness. The thinner the wall, the smaller the production. Now you seldom get a masonry wall over 8 inches in thickness unless you use cement block. No bricklayer, he claims, averages a thousand bricks a day, every day, even on veneered work. If you get 500 or 550, possibly 600, that will be tops for a veneered wall, which is only 4 inches thick on new buildings. "We lay as many brick, under the circumstances, as we did 20 or 30 years ago under the same conditions", he concludes. Shown in table 39 is the fall of efficiency which has affected certain operations in the installation of plumbing and heating apparatus as shown by a sample survey. According to the Plumbing and Heating Journal, some of this fall was attributable to the use of inferior, sub- stitute materials. But in this example, as well as in the examples previously cited, the facts indicate a fall in labor efficiency, though many accusations of inefficiency are apt to be exaggerated. 84 HIGH COST OF HOUSING TABLE 39.—Decrease in labor efficiency in plumbing and heating operations, 1940-46 Percent of decrease 1940 1946 in labor production PLUMBING 1. How many 4-inch lead joints were made and caulked per 8-hour day. 2. How many ½-inch copper sweat joints were made per 8-hour day. 3. How many hours required to set and connect a water closet- 4. How many hours required to set and connect a lavatory- 5. How many hours required to set and connect built-in bathtub with shower 20.8 12.8 38.5 50.1 36. 3 27.5 2.2 3.6 38.9 2.6 3.9 33.6 6.1 9.0 32.2 6. How many hours required to set and connect an automatic water heater.. 3.8 5.7 33.3 HEATING [Answers based on 2-pipe radiator system, steam or hot water, for resi- dences up to 8-rooms or small commercial buildings] 1. How many radiators connected per 8-hour day.. 2. How many pairs of radiator runouts installed per 8-hour day. 3. How many pairs of risers (1-story) installed per 8-hour day. 6.9 4.6 33.3 6.0 4.0 33.3 6 4. 2 30 4. How many 2-inch cuts and threads made per 8-hour day, including attaching fittings.. 21.2 15.7 25.9 5. How many hours required to assemble 7-section boiler, 1,000 square- foot capacity. 11.1 15.8 29.7 6. How many hours required to install a replacement gas-fired boiler. 17.9 25.8 30.6 Source: Plumbing and Heating Journal, March 1947. Explaining low productivity In explaining lowered efficiency, the influx of new workers into the building trades is frequently emphasized, inferring that the expe- rienced workers are maintaining standards of production. An eastern Federal Reserve Bank explained that the great volume of building during the war lowered the average of skill and of will to work, when new workers were hired at the same wages paid to selected and seasoned old hands. A prominent Boston builder agrees that as long as there is a short- age of skilled and common labor and hence an inability to replace inefficient with more competent workers, there appears to be small hope of securing increased output by labor. He does not expect an increase in the efficiency of labor until a recession has created a sub- stantial amount of unemployment. But few would suggest we await a recession and make no attempt to increase efficiency meanwhile. The Oregon Building Congress also puts the reason for low produc- tivity largely on the influx of unskilled labor and lack of journeymen with apprentice training. The output of the inexperienced craftsman in the building trades today is variously estimated as being from 30 to 60 percent of the prewar output of competent journeymen. These factors have all operated together and have caused labor costs to pyramid to an unbelievable extent. "Lowering of the production minimum for lathers," states Leo A. Vie, business representative of the Los Angeles Building and Construc- tion Trades Council, "was forced when contractors hired a number of men who were not experienced lathers and sent them in for union cards. Some sort of standard had to be set that these men could reach. Knowing there is a shortage in their craft a lot of lathers have adopted the minimum production standards as their maximum. That's human nature. It's true of a lot of people." Many builders blame the malpractices of unions for lowering efficiency. The Wall Street Journal compares union with nonunion HIGH COST OF HOUSING 85 conditions. From open shop in Hyattsville, Md., a Washington suburb, comes a report.of several bricklayers putting down 900 bricks a day. Robert Bready, President of the Maryland Home Building Association, declares that in Baltimore builders get more work from their men than do builders in union cities. An important factor in the greater efficiency of nonunion workers, according to the Journal, is that much of the work in nonunion cities is done on a piecework basis. Fortune magazine states there is fair evidence that the unions are bad because the employers are too small and hence too weak to bargain with them effectively. Most proposals for better labor performance in the building industry call for either Government intervention or an aroused public opinion. But the Government has never reformed a bad union and the building trades are singularly oblivious to what the public thinks. A sufficient number of sizable employers might be able to make labor improve discipline, raise productivity, and settle its interfraternity rows. In other industries it has been management, not the Government or the public, that has forced the issue on bad labor practices. A Plumbing and Heating magazine survey revealed that it was the unanimous opinion of all builders contacted that when materials become more plentiful, conditions should improve. It was also the unanimous opinion that a large percentage of the falling-off in labor production has been due to the fact that there is more work than mechanics to perform it. Hence, labor takes advantage of the situa- tion, remembering times when there was not enough work for all the workmen. The Gould (Florida) Builders Association shows that labor costs are further increased by the scarcity of materials. When men see supplies on the job dwindle, they tend to draw out the process of using up stock piles. Likewise, there is a tendency to keep men on the pay roll even when the job is out of supplies in case they cannot be replaced when material is more plentiful. All this raises labor and construction costs. It is extremely important to note that no real efficiency standards have been set and that comparisons between periods are not very reliable. The Bureau of Labor Statistics indicates that numerous comparisons have come to its attention, between the man-hours re- quired for given operations currently or in the recent past, and the man-hours required for supposedly similar operations at an earlier period. The Bureau has been unable to find any concrete basis (such as time records) for these, and regard them as based primarily on general impressions rater than accurate data. As such, they are subject to the inaccuracies of recollection. It would be surprising if some of the comparisons were not between different types of work, as, for example, common brick laid per day in plain wall without open- ings in 1940 (as the side wall of a commercial or industrial building on a lot line) compared with face brick laid per day on brick veneer houses, with window and door openings, corners, and chimney work. SHORTAGES AND TRAINING The greatest labor shortages appear to be of bricklayers, followed closely by plasterers. Of the 63 FHA field offices, 47 reported brick- layers, 31 reported plasterers, 22 carpenters, and 15 plumbers in short supply as of November 1, 1947. 86 HIGH COST OF HOUSING The Structural Clay Products Institute estimates that the 91,000 available masons, laying 83% brick per hour and working 1,400 hours per year, will lay up 10.6 billion brick equivalents, which is only 59 percent of the estimated demand for brick masonry work in the postwar construction market. According to the Institute the total number of skilled craftsmen needed to lay up the 18 billion brick equivalents is 154,300 masons, which indicates that 63,300 new masons will have to be trained immediately to lay only the clay products. necessary in the postwar program, to say nothing of the additional masons that will be required to install the other masonry materials, such as cinder and concrete block, glass block, gypsum tile, and so forth. At the hearing held in Detroit last October by the Joint Committee on Housing, a representative of the bricklayers' union admitted that locally the trade was losing members faster than it recruited them. There were estimated to be not over 1,000 bricklayers in the area and about 250 apprentices. The carpenters' union had about 9,000 carpenters and about 1,000 apprentices. All bricklayers and carpen- ters were fully employed, and neither the bricklayers' union nor the carpenters' was able to suggest any means of increasing the ratio of apprentices, although the carpenters' representative believed his trade was gaining members locally through the apprenticeship train- ing program. The training of a bricklayer or a plasterer takes 4 years and that of a carpenter 3. The unions have a certain hesi- tancy about encouraging substantial additions to the number of apprentices because of the feast-and-famine nature of employment in the building trades and the consequent fear of overmanning them. The Pittsburgh hearings revealed that the local bricklayers' union, which had 103 apprentices, was losing 1,800 members a year through death. The average age of these men is 57. The demand for additional sheet metal workmen is practically uni- versal in the industry and the Sheet Metal Contractors National Association is engaged in discussions with labor as to ways and means by which employers may obtain subgrade mechanics at a reduced wage rate and also additional numbers of apprentices. A southern Federal Reserve bank, citing the inadequacies of the labor force as an element of high construction costs, points out that the deficiencies were engendered by the depression and amplified by the war. Sharp curtailment of demand for construction in the 1930's led to unstable demand for skilled mechanics, and deterred entrance of labor into the building crafts. During the war, young men were diverted to industrial work and military service, and entrants into the construction crafts apparently were, for the most part, older men with limited skills. Since much of the construction required was relatively simple, and all was needed urgently, quantity and speed were empha- sized more than quality, and craft standards tended to deteriorate. The war boom in construction employment may have added fewer trained mechanics to the labor supply than were necessary to offset withdrawals of skilled workers from the crafts. At present levels of construction activity, there are too few crafts- men to man all projects efficiently. Moreover, many of the crafts- men who are available are older men who were trained during the 1920's and who are now past their years of greatest energy and skill, or are new members of the crafts who have not yet become proficient HIGH COST OF HOUSING 87 in their skills. In addition, recruitment of apprentices and unskilled workmen is proving difficult because the construction trades now are oftentimes less attractive to such workers than alternative employ- ment. For example, cotton picking at $3 per 100 pounds is preferred to cement mixing or other heavy on-site work; employment as porter or janitor at $0.75 to $1 per hour may be preferred to intermittent unskilled work on constructions sites. The Federal Reserve Bank of St. Louis believes that it should be possible to increase considerably the construction apprentice training program. For example, the number of building trades, the bank says in the St. Louis area is very small. The bank has no recent figures on the number of apprentices in the region, but states that about a year ago it was reported that there were less than 300 such apprentices in St. Louis and building trades journeymen numbered almost 20,000. In the opinion of the Oregon Building Congress, the apprentice- training program is a vital cog in the process of raising efficiency. The congress has long been active in this program and believes that similar plans should be encouraged throughout the country. One of the principal reasons for the low efficiency in the various crafts today, according to the congress, is the fact that the apprentice program fell down during depression years. Craftsman in the various trades were obsessed with the fear that there would never be enough work to go around and discouraged the training of apprentices in their trades. These craftsmen have now grown older and in many cases have slowed down considerably by sbeer old age. The younger workers skilled in their crafts by apprenticeship training 10 years ago, who should now be taking their places, do not exist. Unskilled and inexperienced workers must do the best they can, but the result, says the congress, is destroying confidence in the various trades. The Builders Association of Metropolitan Detroit maintains that the current labor shortages is artificially created by the archaic ap- prenticeship system which imposes 4 years of training to produce a finished mechanic. The association asserts that, insofar as the house field is concerned, on-the-site training will produce a competent workman in from 1 to 6 months and that if the present apprentice- ship system were abolished and the builder were free to select and train men, the current shortage of building mechanics would disappear overnight. A southern Federal Reserve bank suggests the following actions to increase the supply of construction workers. (1) Initiation of a large-scale vocational program to train skilled workmen and professionals for the construction industry. (2) Stepping up recruitment and training of building trades workers to help eliminate manpower bottlenecks and gray market premium labor pay rates. Expansion of capacity, the bank continues, probably will require: (1) Creating a work-situation in the construction trades more inviting and more stable than that which has existed. Assurances of steady employment and advancement may be necessary to attract the quality and quantity of men which are needed by the industry. (2) Providing adequate training. The apprentice system of the crafts may not work efficiently again. Its requirements apparently are felt to be too onerous relative to the rewards, and an adequate number of apprentices is not being recruited. Perhaps vocational training programs could provide the necessary supplemental to on-job training, speeding up the "production" of skilled work- men. Additional training facilities are needed throughout the entire labor classi- fication: for craftsmen, foremen, supervisors, engineers, and architects. 88 HIGH COST OF HOUSING The housing committee of the Detroit Citizens Housing and Planning Council believes that the development of an adequate supply of labor in the building-trades field results from the instability of the building industry. The contractor is unwilling to involve himself in any long-range responsibility toward an apprentice. Labor is unwilling to enter into any program which may swell the supply beyond what a low period of production may require. The prospec- tive apprentice himself is not too interested in participating in the training program for the same reason. With respect to apprentice training the Detroit committee believes that three possibilities might be explored. The first is the working out within the AFL Building Trades Council of some procedure that would provide for a transferable card between one trade and another to take care of seasonal and other variations in the amount of employ- ment available to members of different trades. The second is a program that would recognize two types of mechanics: (1) An all- around mechanic receiving the full course of training; (2) a worker receiving a much shorter course of training and generally recognized as not being the all-around mechanic. The Detroit committee be- lieves that to train more apprentices it will be necessary to place more contractors in a position to do large-scale building, which would provide a situation enabling them to employ more apprentices. The Builders Association of Metropolitan Detroit feels that a degree of specialization can be permitted whereby a carpenter can be trained in a specific job or a plumber in a specific part of a job. Train- ing can be completed in a relatively short time; and by proper coordina- tion, the productive process can be effectively completed. The difficulty under the present apprenticeship system, according to the association, is that the builder who undertakes the assignment of an apprentice is obligated to train that apprentice in all phases of the trade. That necessarily takes a great deal more time than if the principle of specialization of labor were applied, as most operative builders would like to see it applied. A الله CHAPTER 7. OPERATION AND MAINTENANCE COSTS IMPORTANCE OF THESE COSTS The price paid for a house is only one of the elements influencing the continuing housing cost of a home owner, stresses a memorandum prepared by the Federal Reserve Board. Interest charges, deprecia- tion, repair, maintenance, replacement, and heating costs are, in varying degrees, independent of the original capital cost. If these recurring costs could be reduced substantially, an important cause of the instability of home ownership would be removed. Greater atten- tion to these costs would also disclose points at which further reduction of original cost leads to greater costs of operation. These operating costs, of whose magnitude an owner-occupant is usually only vaguely aware at the time he purchases, are not met regularly, but when they come due they are substantial. If an owner has committed himself to the limit of his budget for the more obvious items such as interest, amortization, taxes, insurance, utilities, and heat, a large job of repair, maintenance, or replacement may have to be neglected, with consequent impairment of value or danger to health. Or if it is undertaken, it may require reduction of expenditure for food, clothing, or medical attention. Because these costs, as time goes on, are so large, are concealed at the time of purchase, and cannot conveniently be accrued, they account for a substantial amount of the difficulty which home owners encounter in times of economic reversal. These costs, rather than the original price paid for a house, often make a reduction or interruption of income a more serious matter for a home owner than for a tenant. Operation and maintenance costs depend upon the durability of the materials and assembly methods used, the amount of wear the dwell- ing is subjected to by occupants, the weather and the degree and quality of upkeep, points out the Housing and Home Finance Agency. It is difficult to measure such variables, but expensive maintanence and operation costs resulting from inferior design, materials, and workmanship may seriously affect the purchaser's ability to keep up payments of monthly carrying charges, taxes, etc. On the other hand, the reduction of maintenance and operation costs through the use of long-life materials and careful workmanship may result in construc- tion costs too high for most prospective purchasers. A balance of all elements of cost is difficult to achieve due to the different nature and durability of the various parts of the house. A southern Federal Reserve bank points to the fact that many of the comments with respect to costs of residential construction apply equally to operating costs of rental property. Increased costs of both building materials and labor add to the expense of maintenance, including repairs, improvements, and alterations. On account of high costs and the strong demand for rental property regardless of condition, maintenance of such property generally is on an extremely 89 69991-48- -7 1 90 HIGH COST OF HOUSING low standard and is likely to continue so as long as the present cost level prevails. INCREASE IN OPERATING COSTS A midwestern Federal Reserve bank writes that the companies which manage a large number of rental units report that even though gross revenue has increased as compared with prewar years (becuase of present 100-percent occupancy), expenses of operation have risen much faster. To offset these increased costs, these companies have been forced to reduce maintenance and upkeep in most instances. Apartments that use gas for heating purposes are forced to maintain stand-by coal or oil facilities. This is necessitated by the fact that they obtain gas on a commercial basis, and their supply is subject to curtailment in the severe winter months. Janitorial help is some- what improved, but some companies report maids practically unob- tainable at the prevailing wage scale. This Reserve bank feels that an allowance of 1½ month's rent for a year should be sufficient to cover replacements, upkeep of exterior and interior, loss of rent, etc., on rental units. Formerly it was 1 month's rent. The following tabulation shows how operating expenses have in- creased in recent years on New York City Housing Authority projects: Per apartment per month Management.. Operating services. Dwelling utilities. Maintenance, R & R…….. 1 First 6 months. 1944 1945 1946 1947 1 $2.54 $2.96 $3.27 $3.60 1.84 2.09 2.51 3.32 6. 26 5.79 5.87 7.63 4. 56 6.25 5.54 6.35 These increases in costs for management and operating services during the 1946-47 period reflect an adjustment in salaries and an additional cost-of-living bonus granted by the authority in January 1947, in accordance with personnel policies of the city of New York. The increase in expenses of dwelling utilities occurred primarily as a result of an increase in costs for heat and hot water, although minor increases also occurred in the cost of gas and electricity furnished to tenants. (Rentals in New York City Housing Authority permanent projects cover utilities as well as shelter.) Average costs for heat and hot water amounted to $3.65 per apart- ment per month during the first 6 months of 1947 compared with $2.39 during the same period of 1946. The increase resulted pri- marily from an increase in the cost of fuel. Fuel costs during 1947 have averaged 5.7 cents per gallon of oil, compared with a 4.5 cents in the same period of 1946. Cost of electricity furnished to tenants during the first half of 1947 amounted to $1.08 per apartment per month, or $0.08 higher than in the corresponding period of last year. Consumption of electricity has averaged 85.9 kilowatt-hours per month during 1947, compared with 80.1 kilowatt-hours during 1946. The consumption of gas was somewhat higher. Average monthly costs for gas furnished to tenants during the first half of 1947 amounted to 61 cents per apart- also HIGH COST OF HOUSING 91 ment per month compared with 55 cents during the first half of 1946. Cost of gas has been increasing as a result of a steady increase in fuel adjustment charges. REDUCING OPERATING COSTS How can management keep operating costs down without sacrificing standards of living that assure safe, healthful, and attractive housing? asks an article in the Journal of Housing. It is felt that in large measure, the answer for public housing is to be found through greater resident participation in the housing operation. Experience indicates that the residents are definitely an operating resource and that they have been quite cooperative with management. Three principles to obtain resident participation are laid down: 1. The approach to resident cooperation must be via the interests of the residents, and not sought as a service to management. For example, the resident's civic pride and sense of social responsibility, his concern for a good home and community, must be used as the basis for cooperation. There must be sympathetic resident recogni- tion that, with increased operating costs, increased resident mainte- nance is required if low rents are to be maintained. Further, the message must be conveyed that, by the terms of his lease, the resident has made a bargain with management to do just that. And he must be reminded that it is up to him to keep the bargain. 2. To obtain maximum benefits, any program must be planned. This principle is of special importance in setting up a program to gain resident cooperation. 3. A variety of methods and techniques is to be preferred to reliance on any single method. There is no one specific way of obtaining resi- dent maintenance. The truly successful program uses a combination of devices for achieving the goal. Largely because of a management policy intelligently planned and efficiently carried out, Day Village on the outskirts of Baltimore is one of the outstanding rental housing projects developed for Negroes under the FHA program, according to an article in the FHA's Insured Mortgage Portfolio. Both houses and grounds are exceptionally well maintained, and the cooperation of the tenants, which is important to a high standard of maintenance in a project where the rents are moderate, has been carefully fostered. It has been explained to the tenants that in order to keep the rents at their present reasonable level and at the same time maintain the property in good condition it is necessary to keep maintenance costs. as low as possible, and that the help of the tenants is essential to this end. The Civic League organized by the tenants has elected a cap- tain for each block, and he is responsible for maintaining the appear- ance of his block and for acquainting new tenants with the services and facilities available to them and the cooperation expected of them. All repairs are made by a staff of workmen employed and trained by the management. Requests for service are answered the day they are received. Repairs and replacements of defective equipment are promptly and efficiently taken care of. When a refrigerator, for example, goes out of commission, it is replaced immediately and taken away to be repaired in the shops maintained on the project, and kept available for use when a similar replacement is needed elsewhere. 92 HIGH COST OF HOUSING A remarkable community spirit prevails in the Village. The isolated situation of the project doubtless contributes to this, but the chief reason for the feeling of solidarity among the residents may well be that most of them have experienced the familiar and often des- perate problem that housing represents to Negro people and are determined to make the most of what is offered to them here. LOW-INCOME HOUSING EXPERIENCE The following material is from a memorandum prepared by the United States Public Housing Administration: The record of actual operating costs The operating record of the local authorities is set forth in the following table. It shows the various items of operating cost which, together with payments in lieu of taxes, reserves and debt service, comprise the entire cost of low-rent housing. These figures are the average cost per dwelling per month for all low-rent projects built under the original United States Housing Authority, and cover local fiscal years years ending in 1946. Operating cost: Management, tenant selection, accounting, etc. Utilities Repairs, maintenance, and replacements. Operating services_ Insurance_ Vacancy loss._ Collection loss- Other expense and adjustments_ Total__ 1 1 } } 1 $2.80 5. 45 4. 14 .93 .24 .06 .02 76 Payments in lieu of taxes_ Reserved for future repairs, maintenance and replacements for vacancy and collection losses, etc. Debt service: Interest and amortization on bonds issued to cover average development cost of $4,441 per dwelling unit………. Total__ 14. 40 1.95 2.03. 12. 67 31.05 Table 40 shows the same information for a group of identical housing developments for the fiscal years 1941–46: TABLE 40.—Monthly costs per dwelling unit for 55 public housing developments with 23,150-23,769 units [In dollars] Cost items 1941 1942 1943 1944 1945 1946 Management, tenant selection, accounting. Utilities. $2.40 4. 55 $2.67 $2.58 $2.66 $2.76 $2.97 4.82 5.54 6.02 5.79 5.89 Repairs, maintenance, replacements. 1. 12 2. 14 3.09 3.70 5. 19 4.39 Operating services. .90 1.00 1. 07 1. 18 1.30 1.53 Insurance. .33 .47 .70 .50 .31 .31 Vacancy loss. .57 .12 .24 .17 .09 .04 Collection loss. Other expenses and adjustments.. .02 .02 .03 .02 .03 .02 2.04 1.70 2.97 .83 1.45 1.06 Total operating costs.. 11.93 12.94 16. 22 15.08 16.92 16.21 + Payments in lieu of taxes. .48 .77 .93 1.98 2.15 2. 17 Reserve for future repairs, maintenance, replacements for vacancy and collection losses. 5.10 4. 18 3.82 4.47 2.48 2. 16 Debt service: Interest and amortization on bonds issued to cover $4,441 per dwelling unit. 14.48 14.58 13. 65 15.15 15.08 15. 19 Total. 31.99 32.47 34.62 34.68 36.63 35.73 Source: Fifth Annual Report, National Housing Agency, p. 279. HIGH COST OF HOUSING 93 The PHA says that on the basis of its studies made in the past, these operating costs compare favorably with the best results of private enterprise. The low operating costs achieved by the local authorities are, in the opinion of PHA, due in large part to the fact that their projects were designed with this end in view, as well as to skilled management and a continual follow-up of the thousands of items involved in the operation of a large-scale housing project. ·Planning and guidance of project operation The standards established by the PHA require that the services provided in low-rent projects be held to the simplest possible minimum consistent with an adequate standard of maintenance, and that the greatest possible reliance be put upon the tenants themselves. The complete cooperation of the tenants is necessary for the efficient and satisfactory operation of a project. They are usually given a small handbook which includes information about the project with instruc- tions for the use and care of the dwelling equipment. Planning of operations must begin at the very earliest stages, and be well in hand before final building plans and specifications are begun. It is only by making firm operating decisions at this early date that they may be reflected in project design. Before the beginning of each fiscal year the local authority makes careful plans covering its operations for the next annual period. This careful advance planning of operations is a source of real economy. It permits the scheduling of both administrative services and maintenance so as to provide a steady flow of work during the year. It also permits an advance scrutiny of all expenditures and the elimination of any that appear wasteful or unnecessary. Important economies in accounting costs have been made possible through the use of the uniform "Classifica- tion of Project Management Income and Expense Accounts" which the PHA has prepared, and which all local authorities are required to follow. The careful definition of accounts to assure that the same term always includes exactly the same items of expense, simplifies local accounting, facilitates Federal audits, makes possible the valid comparison of the experience of various projects, and permits the evaluation of the operations of the local authorities. The PHA has also prepared an exhaustive handbook of accounting procedures which it recommends for adoption by local authorities. The PHA reviews and approves the budgets of local authorities before the beginning of each local fiscal year. It also conducts periodic financial audits, including on-the-site management audits, as to the state of physical maintenance and the efficiency of operations. As a result of its reviews and examinations, the PHA is enabled to make many constructive suggestions to the local authorities. Com- parative data on a uniform basis are also made available. By com- parison with other projects local authorities can pick out inefficient or wasteful spots in their operations and take steps to correct them. Utilities One of the most important items of expense, and one which can easily get out of hand without continual scrutiny is that of utilities. Although the largest savings in this field depend upon the initial selection of the most economical combination of utilities, there are important opportunities for further savings in operation. 94 HIGH COST OF HOUSING In projects where electricity and gas are purchased wholesale and distributed as part of rent, excessive and extravagant use by tenants may present a problem. This has been satisfactorily controlled by providing for reasonable amounts of energy in the lease, and check- ing tenant meter usage. Tenants exceeding their quotas are billed for the excess. Experience shows that this system, together with periodic encouragement of tenant economy, reduces consumption to reasonable limits. Since the amounts to be collected for excess usage are relatively small, it is enough to read meters and make collections every three months. Fuel for heating represents a major part of utility cost. One method used for promoting maximum efficiency in heating plant operations is through the preparation and distribution of the Fuel Summary, which tabulates data on fuel consumptions at the different projects and evaluates the relative efficiency of heating plant opera- tions. The Fuel Summary is distributed annually and accomplishes several purposes: 1. Encourages a competitive spirit between personnel at the differ- ent developments and provides an incentive to produce economies in plant operation. 2. Points out the need for better operation and maintenance of heating equipment where below par. 3. Uncovers the existence of such hidden waste as underground steam, condensate, or domestic hot water leaks. 4. Indicates the excessive consumption or waste of domestic hot water or the existence of excessive room temperatures throughout a particular project. A study of the Fuel Summary has led to improved operating practices in many cases. For example, on a coal-burning central heating plant serving over 500 units which showed excessive fuel con- sumption, an examination of plant operations and equipment led to changes which reduced consumption by 28 percent. In another case of excessive consumption, the adoption of an automatic control system reduced consumption by 18 percent; several years later a new study of the same project indicated that further savings were possible and operating techniques are now being changed which will effect another reduction of nearly 10 percent. Repairs, maintenance, and replacements Especial emphasis is placed on preventive maintenance. Keeping buildings and equipment in good order at all times reduces deteriora- tion and the large expense involved in replacements or reconditioning. In the early years of a project's life, when the cost of repairs and replacements is naturally low, reserves are set up against the time when these costs will necessarily increase. The availability of such reserves makes it possible to carry out repairs and replacements at the time when it is most economical and efficient to do so, rather than to defer needed work because funds are not available. The standards of maintenance established for low-rent projects also aid in achieving a constant rather than fluctuating level of main- tenance. The large-scale nature of low-rent housing makes the regu- lar inspection of buildings and equipment much easier than in the case of a number of scattered properties. Regular inspections facili- tate the economic maintenance of equipment by stopping deteriora- tion before serious harm is done. HIGH COST OF HOUSING 95 1 The large-scale nature of low-rent housing also makes it feasible to employ a staff of full-time mechanics and other necessary maintenance men. This has several advantages. Regular men become thoroughly familiar with the type of equipment and structures on the project and do not have to waste time familiarizing themselves with the nature of a particular repair job and obtaining the correct tools. It is not necessary to pay for the waste of time in coming and going to the job which a contractor would necessarily incur. Finally, the cost per hour of labor hired on an annual basis is substantially less than on an hourly basis. The use of improved maintenance techniques brought to the atten- tion of local authorities by PHA has resulted in substantial savings. For example, in the case of leaking masonry walls PHA has developed a survey method for determining the exact places at which the leaks occur. On one project, correction limited to the faulty areas cost only $1,700 per building as against a quoted price of $12,000 per building for conventional over-all waterproofing. Very material re- ductions in the cost of inhibiting the corrosion of mechanical equip- ment and ferrous piping systems have been achieved in public hous- ing by encouraging the use of the services of other government agencies and by disseminating information and data from other sources, such as the committee on steel pipe research of the American Iron and Steel Institute. For example, a system for boiler-water treatment de- veloped by the Bureau of Mines, has resulted in cutting cost to one- tenth of former amounts. Tenant maintenance Tenants in low-rent housing projects are expected to undertake a larger part of maintenance of their homes than is normally required of tenants in privately owned. dwellings. The extent of tenant main- tenance has gradually been increased as local authorities have found that tenants can successfully undertake many types of work not usually assigned to them. • The care of grounds was one of the first elements to be turned over to tenants. The mowing of front and back lawns, often with lawn mowers furnished by the project, is done by most tenants. They also generally undertake the fertilizing, weeding and watering of lawns, and the cleaning of sidewalks. Many of them go in for flower garden- ing and care for shrubbery which is generally furnished by the project. The care of grounds and walks is most easily assigned to tenants in row house projects where property limits are easily defined. On projects with small apartment buildings where the halls and stairs are shared by several families, the care of these spaces is as- signed to the tenants who undertake the work in turns. Newly developed methods for the control of household pests are so successful that this work can now be turned over to tenants with very sub- stantial savings in relation to the costs formerly incurred in the em- ployment of professional exterminators. An increasing number of projects rely on tenants for interior re- painting and upkeep. Details of their programs vary, but in general the project furnishes paint, drop cloths, and ladders, and instructs tenants in the work. In some projects only the walls are painted by the tenants, but it is found in most of them that tenants can do a good job on wood trim as well. The refinishing of floors is often done by tenants. The cost per room of repainting on a number of typical 96 HIGH COST OF HOUSING projects when the tenant does the work, as against the cost when project labor is used, are shown below: Camden, N. J. Long Branch, N. J Evansville, Ind. Toledo, Ohio. Columbus, Ohio.. Tenant painting Project forces painting $2.79 $19.38 3.50 20.00 5.00 15.00 4. 25 11.45 3.00 10.50 Programs of tenant maintenance do more than provide savings in operating cost. These programs create project-wide tenant interest and pride in the appearance of their homes. As a result, volunteer groups have often instituted "sprucing up" campaigns, gardening contests and other such activities, which both improve the appearance of the projects and results in lower operating costs. Labor arrangements for maintenance work Carrying out maintenance work with full-time mechanics is feasible only if project mechanics can undertake maintenance work in all of the building trades, and if wages can be paid on an annual rather than on an hourly basis. The cooperation of the Building and Construction Trades Depart- ment of the A. F. of L. in this connection was sought at an early date by the PHA. As a result of extended discussions, it was agreed that positions as "maintenance mechanics" would be set up by the local authorities; and that these mechanics could carry out repairs and maintenance in any of the separate trades, such as masonry, carpentry, plastering, painting, plumbing, heating, electrical work, etc. Under this arrangement these mechanics could work in any of these branches without complaint from the local unions having jurisdiction therefor. Since the inception of these agreements there has been no single in- stance of a jurisdictional dispute disrupting the management operation of a local housing authority. It was also agreed that maintenance mechanics could be paid on an annual rather than on an hourly basis. Under this arrangement the mechanics are paid a regular wage throughout the whole year, receive the usual holidays, and are also given annual vacations, and sick leave when necessary. By law such mechanics must be paid wages prevailing in the locality, as determined by PHA. The determina- tions thus made have resulted in very considerable savings in the cost of an hour's work. In Columbus, Ohio, for example, maintenance mechanics receive an annual wage of $2,662.40. Making allowance for 10 days' vacation and holidays, they work a total of 1,936 hours per year. The same number of hours, if paid for at the prevailing hourly rate for bricklayers would cost $3,872; at the prevailing rate for carpenters would cost $3,630; and at the prevailing rate for painters, plumbers and electricians, the same number of hours would cost $3,388. Positions as maintenance mechanics have proved attractive to skilled journeymen who have sufficient experience with the various trades to qualify for the work, and who prefer security and regularity of income. The setting up of the jobs of maintenance mechanics with the cooperation of labor has substantially reduced the cost of maintenance HIGH COST OF HOUSING 97 in low-rent public housing. As a result of this arrangement, repairs can be made immediately when occasion arises, and the unit cost of repair jobs is relatively low because of the little time lost in moving from job to job, because of familiarity with the project, and because of good working morale which is translated into lower unit cost. Insurance Local authorities are required to carry fire and extended coverage insurance and all of the usual types of liability insurance. The cost of both these types of insurance has been greatly reduced since the inception of the low-rent housing program. Competitive bids are secured from various insurers. The insurers have come to recognize the favorable nature of the risk offered by public housing projects, and in cooperation with regulatory bodies have set rates that recognize these favorable conditions. The loss ratios experienced by the insurers of public housing projects have been extremely low, due to a number of facts; (1) public housing projects usually consist of a number of buildings well separated from each other, which greatly reduces the possibility of any large-scale conflagration; (2) many of the public housing projects consist of fire- proof structures; in those which do not, special attention has been paid to fire-stop walls and other fire-resisting elements of design; (3) the maintenance of public housing projects is good; trash and rubbish are not allowed to accumulate and all possible fire hazards are elimi- nated; (4) constant superintendance and continued maintenance elimi- nate substantially all of the hazards which result in personal accidents with corresponding claims for liability. On the earliest low-rent projects, the insurance was originally placed in 1938 at rates, which resulted in a cost of $3.28 per dwelling per year for fire and extended coverage. These rates have been reduced year after year until in 1945 the corresponding rate for fire and ex- tended coverage was only $0.72-a reduction of 78 percent. The original liability insurance on these same projects was written at a cost of $2.98 per dwelling per year; the cost in 1945 was only $0.24 a saving of 92 percent. The cost of all the insurance coverages carried on low-rent projects amounted in 1946 to only $0.24 per dwelling per month or $2.88 per year. Vacancy and collection losses Owners of private property, in setting rents, usually make an al- lowance of 5 percent for vacancy and collection losses, and allowances. up to as much as 10 percent are not infrequent. In contrast to this, the actual losses in public housing projects through vacancy and collection have been almost negligible. Because of the fact that there is so great a need for decent accom- modations by families of low income, there are, except in the rarest occasions, no vacancies in public housing projects other than those incident to cleaning or decorating a dwelling at the time of change in tenancy. As a result the vacancy loss in 1946 amounted to only $0.06 per unit per month, or less than one-quarter of 1 percent of rent. Collection losses have been held to an even lower level. There has been excellent tenant cooperation in the prompt payment of rent, while the presence of mangement offices on the projects permits close super- vision and follow-up. As a result, collection loss in 1946 amounted to only $0.02 per dwelling per month or less than one-tenth of 1 percent of rent. } CHAPTER 8. FINANCING AND PROFITS Obtaining consumer loans FINANCING Ralph C. Limber, director of investment research of the National Life Insurance Co., states that no credit-worthy homeowner or rental project should have difficulty in obtaining financing upon favorable terms. Loan credit has been so freely available recently that there is a real question whether the excessive ease with which it can be obtained has not led to abuse. It is likely that the inflation in real estate prices has been at least augmented by this factor. Also, some borrowers may have been encouraged to borrow in excess of their ability to carry the required debt service. While mortgage credit remains in ample supply, there are indica- tions that many lenders are becoming fully committed. With large new-money security offerings in prospect, together with an active mortgage market, Mr. Limber feels it is not improbable that some tightening may develop in the mortgage field in the near future. Presumably this would take the form of becoming increasingly selec- tive toward borrowers, reducing amounts loaned, and shortening the term of loans, although there are no pronounced tendencies in these directions at present. Rates on single-family residential loans are most commonly 4 per- cent and 4½ percent. On larger loans secured by rental property, interest rates would probably average somewhat lower, because serv- icing and handling these larger loans is less costly. Recently there has been some hardening in short-term interest rates and long-term bond yields. Mortgage interest rates are usually more sluggish, but such changes as are occurring in recent months appear to be on the upward side. The Weekly Memorandum of the Central Hanover Bank of No- vember 24, 1947, comments that- real estate loans of leading life insurance companies increased 695 million dollars or 13 percent in the first 9 months of this year to 6.132 million dollars. During the same period, real estate loans of reporting member banks in 94 cities rose 826 million dollars or 33 percent to 3,316 million dollars, and those of all mutual savings banks increased 258 million dollars or 6 percent to 4,709 million dollars. During the full year 1946, real estate loans of leading life insurance companies increased 5 percent, of all commercial banks 52 percent, and of all mutual savings banks 6 percent. The actual market rates of interest, according to the FHA, do not point to a scarcity of housing funds available to consumers. The maximum interest rate established by FHA is not the required interest rate for insured mortgages. As a result of competition in the money market or in recognition of special characteristics of individual loan transactions, interest charges for many loans are less than the per- mitted maximum. Special tabulations of interest rates on current insuring operations under section 203, have indicated in 1939, 1945, 98 HIGH COST OF HOUSING 99 D and early 1947 increasing percentages below the maximum permis- sible rate rising from less than 3 percent in 1939 to more than 10 percent in early 1947. The latest study of this type indicates that for section 203 commitments issued during October 1947, 17 percent reported interest rates of less than the 4½ percent maximum authorized by FHA regulations. Recent reports from FHA field offices indicate that interest rates on other than FHA insurance mortgages are generally competitive with the financing costs for FHA insured mortgages. Aside from the 4; percent financing provided for in the GI bill of rights for the benefit of veterans on VA guaranteed loans, conventional mortgage loans are commonly available at interest rates of 4½ and 5 percent per annum. This estimate is close to the 4 to 4%½ percent quoted by the National Life Insurance Co. John H. Fahey, former chairman of the Home Loan Bank says, There is reason to question seriously whether any further reduction in current interest charges, the principal factor in financing costs, could be effected without jeopardizing the ability of savings institutions to attract savings funds from the public. Any such result merely would tend to accelerate the present inflationary spiral and increase, rather than reduce, the cost of housing. In fact, insofar as the control of credit can be utilized in the attack upon the problem of housing costs, it would appear that in most sectors of the real estate market the need for tighter, rather than easier, credit is indicated. Obtaining producer loans The Federal Housing Administration reports that during the past decade, the operative builder producing several hundred homes per year has constituted a significant part of the home building industry. As such organizations develop and establish for themselves a reputa- tion for financial responsibility, they also develop access to financing without direct pledge of properties under construction. There appears to be no good reason why such organizations could not eventually develop sufficiently to enable the accumulation of capital funds through stock sales in the open market. Such financial reliability and consequent ease of financing construction operations undoubtedly involves opportunities for cost reductions. The FHA comments, however, that the residential construction industry as a whole is made up of relatively small scale organizations. These business organizations are constantly subject to dissolution or reorganization in adaptation to the requirements of particular building situations. The builders unanimously agree that one of the most serious obsta- cles that prevents a marked increase in production is the difficulty they encounter in securing financial aid. A recent Fortune article, indicated that the nature of the building industry has long proved unattractive to large investors. The reason for this, according to the article, is that housebuilding with its archaic production methods is the one great sector of modern society that has remained largely unaffected by the industrial revolution. In describing the typical financing of a small builder, the article states that he ordinarily gets his money in progress payments-25 percent of eventual mortgageable value of the house paid on purchase of land, a further advance when house is "roughed in", another when the roof is on, and a last payment upon completion. J } 100 HIGH COST OF HOUSING If homes are to be produced by large-scale builders, this system is worthless. In Byrne's Harundale project, just outside of Baltimore, Md., $750,000 was invested in an inventory of building materials, $350,000 in equipment, $150,000 in shops for prefabricating. These figures, listed in the Fortune article, illustrate the necessary scale of financing on mass-production housing. FHA information pictures a similar situation, indicating that, because of their relatively small size and comparative fluidity of capital structure, building organizations, especially in the residential field, have had limited access to the security markets for capital funds. The American Bankers Association points out that it is an estab- lished plan of business that any new enterprise must furnish its own capital, either through individual contributions or through the issuance of equity shares. The repayment of this investment is from future earnings, which in most cases are long-term. A southern Federal Reserve bank recommends financial support, perhaps in the form of guarantees of loans, to types of residential construction embodying innovations. A western Federal Reserve bank would encourage the construction of multiple-family rental units, not simply single family dwellings. The FHA, it feels, should speed up and simplify the handling of applications for insured loans under section 608 of the National Housing Act. One method of encouraging building comes from the National Committee on Housing, a non-governmental organization. The Committee comments that under present conditions of inflated con- struction costs, few speculative builders will hazard such under- takings and investing builders are virtually barred. It feels that the greatest barrier at this time is the inability of investors to undertake, at present high construction costs, multi-family housing projects which after a short term of years will face the competition of new housing projects constructed at lower stabilized costs. To stimulate the construction of such large scale rental housing projects by private enterprise, the Committee recommends that present high construction costs should be permitted to be written off during the early years of the project. At the end of the inflated construction cost period when housing again becomes a competitive field, the projects would be, according to the committee, in a position to compete with the new construction. Mr. Louis Justement, an architect and town planner, believes that it is not realistic to expect investors in rental housing to take the risk of building on the basis of today's prices. Unwilling home purchasers are now compelled to buy, he says, in order to have a roof over their heads. Many of them will default, however, when the current housing emergency has passed if they find that lower prices have wiped out their equities. Speculative builders will likewise default when faced with the competition of better-built projects at lower prices. The Federal Government, he feels, should guarantee to make good the losses of purchasers of moderate-priced homes and investors in medium-rental housing begun during the next 2 years that would be due solely to a lowering of construction costs during the 5-year period ending December 31, 1952. The problem of the prefabricator According to the National Association of Housing Manufacturers, organized recently, the biggest problem facing housing manufacturers today continues to be money. They need it for working capital, HIGH COST OF HOUSING 101 because the housing manufacturing business takes a lot of money. In addition to the money which companies have spent for machinery and tooling-up, it is imperative that they obtain the large working capital required to finance their large mass production operations. In- ventory must be purchased, labor employed and production processes. performed, long before houses are completed and money starts to come in. Congress recognized that this was the basic problem by adding section 609 to the National Housing Act to make insured working capital loans available. When the housing and rent bill was pending in Congress in April 1947, Congressman Frank L. Sundstrom of New Jersey introduced an amendment to title VI of the National Housing Act with the purpose, as he stated on the floor, to, "stimulate the production of houses at moderate prices through the use of modern industrial methods." This amendment was adopted and became section 609 of the National Housing Act. In the Housing and Rent Act, which otherwise repealed the Veterans' Emergency Housing Program and extended rent con- trol, this was the one new housing program, and its purpose was to achieve lower housing costs through the application of modern tech- nology and large-scale operations. Section 609 provides for FHA insurance of working-capital loans to housing manufacturers. These insured loans are to be for an amount not exceeding 90 percent of the cost of manufacturing houses. Before a loan to a housing manufacturer can be insured by FHA the manu- facturer must- (a) Have actually sold the houses in advance and have binding purchase contracts; (b) Have a house which has been approved by FHA from a structural and quality standpoint; and (c) Have a plant and sufficient capital, along with the loan, to achieve the required production schedule. This new law has been on the statute books for more than 6 months. It has less than 3 months to run before it expires. As yet no loan has been insured by FHA, although a total of 14 applications have been filed with FHA by housing manufacturers for insurance of loans under section 609. Inquiries have been made by the Housing Manufacturers Associa- tion of representatives of the housing manufacturers who have been seeking financing to ascertain why they have been unable to secure such financing. They have replied that the FHA is unnecessarily strict and unrealistic in its requirements which, they say, defeat the purpose of the law. They state that FHA requires a housing manu- facturer not only to have a binding purchase contract with a dealer or builder, but also he must generally prove that his purchaser has all of the money on hand, or arranged for, so he can show that he will be able to pay for the houses to be delivered to him over a period of months. The National Association of Housing Manufacturers feels that FHA has not administered the law with sufficient realism to achieve its purpose. Instead, it is felt that overly burdensome and unrealistic requirements have been imposed-requirements which are discrimi- natory in comparison to FHA practices in the insurance of mortgages on conventionally built houses. Conventional builders, says the association, getting FHA mortgage insurance under section 603 or section 608 are not required to have high percentages of working 102 HIGH COST OF HOUSING S capital-in fact, those getting insurance under section 608 do not even have to have 10 percent. Yet before FHA will insure a loan under section 609 on a purchase contract with a housing manufacturer, the purchaser must generally show that he has cash or access to cash for the full purchase price of all the houses. Dealers have difficulty making payments for houses upon delivery, when their normal financing arrangements will not make the money available to them until the houses are erected, says this association. Some housing manufacturers have been making some of their pur- chase contracts on terms of sale which are comparable to those pre- vailing in other merchandizing operations. The FHA, they say, has been unwilling to approve such purchase contracts, unless all of the mortgage or construction financing arrange- ments have been made by the purchaser at the time the purchase contract is assigned to FHA in connection with the insured loan. This requirement is regarded by the manufacturers as generally unworkable. The housing manufacturers' representatives point out that the objectives of the housing manufacturing industry can be achieved only if the following actions can be taken concurrently rather than at different successive stages: (1) The manufacture of houses including the purchase of in- ventories and the fabrication, packaging, and shipment of houses; (2) The arrangement of financing and of ultimate consumer sales of such houses, including: the filing and processing of appli- cations for mortgage financing from financial institutions and for FHA applications for mortgage insurance; the arrangements for the sale of the FHA insured or other mortgages; and the making of sales by dealer-erectors to ultimate consumers. They believe that the present contemplated FHA policies on the eligibility of purchase contracts would require performance of the above actions at different successive time periods, which may result in a lapse of over 8 months from the time a purchase contract is signed until houses are delivered thereunder. This is so because under these policies a purchaser (under either a cash or credit purchase contract) would have to complete all his financing arrangements to pay for the houses at the time that he bought them. The manufac- turers feel that FHA would have all the protection it needs if such financing were arranged by the time the houses were delivered. Housing manufacturers have expressed the view that under section 609, FHA should be prepared to insure loans against the assignment of legal and binding purchase contracts with builders or dealer-erectors who make cash down payments and who have working capital or a line of credit sufficient to supplement their financing on the maximum volume of construction which would be under way at any one time. They feel that contracts with such builders or dealer-erectors are the kind that they would make as a matter of sound business. Likewise, they feel that it is the purpose of FHA insurance to make working capital available in connection with contracts made in the normal conduct of business, particularly where the houses are not to be delivered unless cash is paid upon delivery or adequate assurances of payment are obtained at the time of delivery. Since the FHA has already thoroughly reviewed the house and approved it, it is pointed out that the house package constitutes an important and basic security which is readily convertible into cash and therefore adequately assures repayment of the insured loan. HIGH COST OF HOUSING 103 Further FHA measures needed on machine-made housing They contend that insured loans to housing manufacturers is a type of housing finance which is not inflationary, because it is directed at getting housing costs down. The housing manufacturers regard it as an anti-inflationary measure in three important respects: first, because they contend that the houses which it produces are at a price which is at least one-third lower than the current price of comparable conventionally produced houses; second, because (as the report from the Housing and Home Finance Agency emphasizes), it exerts a downward pressure on the price of conventional housing, both new and used; and third, because rental housing can be produced through machine-methods in the same manner as single homes for sale, with the result that owners acquiring rental housing at an attractive, lower capital cost will be able to rent them at correspondingly lower levels. The principal immediate problem facing the new housing industry is to translate section 609 into a reality, so that the full pressure of the new machine-made housing industry can be directed to answering the nationwide question, "How can the costs of housing be reduced?" Besides putting section 609 to work, the manufacturers feel that the consumer's half of the financing job should also be done by making FHA mortgage insurance readily available to consumers who are anxious to buy these houses. In this field the FHA has taken many helpful steps, probably because it is an operation closer to the one in which it has traditionally engaged and for which it has earned a well- deserved commendation. However, the manufacturers suggest the following actions as neces- sary to gear the operations of FHA to the needs of the new industry and its new mass production, marketing and erection methods: 1. Housing manufacturers must be provided with the working capital they need to achieve the largest possible volume of low- priced house construction. Such financing they contend, is anti- inflationary, and will concentrate Government action in the area of greatest housing need-lower priced houses for sale or rent. To achieve this objective, they say, FHA must make section 609 a working reality by signing contracts for the insurance of loans. The objective should be to make working capital available in sufficient volume to utilize the full productive capacity of housing manufac- turers, thus, meeting urgent consumer demands. Section 609 is a part of title VI which expires the end of March of this year. It is essential that this legislation be extended for a period of at least 2 years, so as to assure the continuing availability of work- ing capital for the production of low-priced housing through machine methods. 2. FHA should establish a procedure in the local FHA offices for the speedy and mass processing of applications and inspections, in keeping with the speedy, mass operations of the new industry. 3. Home purchasers must have FHA insured-mortgage financing available to them under title VI to enable their purchase of lower priced houses, including those houses produced by machine methods. The FHA should take steps to assure procedures and attitudes in its field organization which are keyed to the mass production, marketing, and erection operations of the new industry. 4. FHA must examine the planning requirements of its insuring offices, and eliminate any variations for which there are not climatic or other comparable justifications. This is the proper approach instead of the present one which requires a housing manufacturer to 104 HIGH COST OF HOUSING • T comply with the maximum planning requirements imposed by any of its offices, even though there may be no justification for local variations. This point was identified by Kiplinger's Magazine as one of the Governmental stumbling blocks to the housing industry in an article in the January 1948 issue: "The Federal Housing Administration (FHA), which guarantees. private housing loans recently issued nation-wide standards for manufactured houses. But many local FHA offices enforce varying standards that cannot be justified on grounds of differences in climate. Halls in houses in Texas have to be 4 inches wider than the national requirement. Utility rooms in Illinois must be larger than the size specified by the national FHA standard." 5. FHA must develop a new attitude and a new approach in which greater encouragement is provided for the initiative and the new vision shown by the new housing industry. While there have been many helpful suggestions and improvements in proposed designs as a result of FHA's review and consultations, there has been too much stifling of the new initiative and new methods that are a part of the great hope of the new industry. Representatives of the industry frankly admit that the way in which the FHA, both in Washington and in the field, approaches the handling of the industry's problems will spell either the success or failure of what many confidently regard as the only possible and lasting solution to the Nation's housing cost and production difficulties. 6. In its reviews, FHA should freeze designs of housing manufac- turers at a practical point to enable them to tool-up with confidence. It is not possible to require changes or modifications at later stages as this would be disruptive and inconsistent with mass-production methods. Nor is it feasible from a production or cost standpoint to subject the tooling for mass production to such changes, concludes the Housing Manufacturers Association. Title VI mortgage-insurance also expires the end of March of this year. At least insofar as lower-priced housing and rental housing is concerned, it is essential that this title be extended. Are profits exorbitant? PROFITS Among experts in the industry, opinions differ widely on this subject. One builder in Boston sums up the situation by saying that the price or the rent of houses built for sale or rent appears to be determined on the trading basis of what the traffic will bear. Further- more, he says that since the price or rent of a house is determined by what the traffic will bear, it would appear that savings in cost would, in times of frantic demand, merely increase the seller's profit. While most groups within the industry deny that profits are exorbitant, a few admit that profiteering exists. The Sheet Metal Contractors' National Association says: "Our association has received information indicating that some contractors are making too much profit." The Southwest Lumber Association merely says: "Of course, industry is doing very well in the sale of its products." But the organ of the National Lime Association recently indicated that there are a few manufacturers of building materials that have been gouging the public, the most notorious example of this being the case of lumber. HIGH COST OF HOUSING 105 The Southwest Lumber Association presents evidence that inflated lumber profits are made, not at the wholesale level, but elsewhere. It says lumber wholesaler's margins for the month of October 1941 and involving sales of $4,537,275.00 (1 month's sale) revealed gross profits of $387,674.00-a mark-up or margin of 9.32 percent. Levitt, the New York builder, claimed in a Readers Digest article that certain distributors make exorbitant profits. By breaking through distributor union restrictions, however, he has been able to clear $1,000 profit for his own organization on a $6,990 home and, in addition, pass on to the consumer two to three thousand dollars in savings. This points to exorbitant distributor profits. Even Levitt's profits seem exorbitant compared to those of other builders. Levitt's own admission of "at least $1,000" on a $6,990 home, or more than 14 percent, is above that considered equitable by other builders. Baltimore's important builder, Byrne, reports in Newsweek, for instance, that he operates on a 10-percent profit on a similarly priced house. Mr. George Levan of the United Electrical Workers, testifying before this Committee in Pittsburgh, termed the industry's profits "embarrassingly high." The seller's market in building, according to the findings of one of the Federal Reserve banks, has enabled contractors to operate on margins considerably greater than those formerly possible. Why are profits high? Contractors blame the inflation of their own profit margins on the suppliers. They claim that higher margins are necessary to protect themselves from loss when uncompleted houses must be temporarily abandoned for lack of materials. Sudden price increases have taught them to allow wide margins in negotiating contracts. Too many of them have recently had the experience, reports a Federal Reserve bank, of having their assets frozen in uncompleted dwellings. But no matter what arguments are presented to explain the larger profits admitted by contractors, almost all of the authorities agree that any savings which can occasionally be made by the contractor are practically never passed on to the consumer. While the contractors' profits are higher than usual, occasionally exorbitantly so, the worst profiteering in the industry seems to take place, according to experts, at the supplier and manufacturer level. The National Lime Association, again referring to the lumber situa- tion, says: "There is no bona fide reason for lumber to be selling at nearly three times prewar prices." Almost every other authority on the high profits of suppliers and manufacturers claims that such profit margins are not necessitated by marketing conditions. If the general economic situation does, here and there, enable them to reduce costs, the savings are not passed on, but are added to profits. Referring to possible lowering of mark-ups in the face of present demand, the Oregon Building Congress says: "There is not that much of a thrill in philanthropy for most businesses.' 11 An important eastern bank's report points out that the price of a less costly substitute for any building material is set not by its cost of production, but at the maximum at which it will compete with the material for which it is substituted. This, of course, merely indicates that the prevalent practice is to charge all the market can bear, regardless of the relationship of profits to costs. 69991-48- -8 CHAPTER 9. BUILDING CODE RESTRICTIONS THE BUILDing Code DILEMMA In the opinion of Robert R. Wason, former president of the National Association of Manufacturers, every municipal building code in the country is obsolete and ready for the junk pile. If there is one obstacle that has been retarding building progress more than any other it is this matter of building codes, claims Bror Dahlberg, president of The Celotex Corp. They must be changed if we are to bring about the building of modern houses at the lowest possible cost. As with so many of our regulations, building codes grew out of the need to insure safety of construction, points out Tomorrow's Town in a recent issue. But progress was not uniform. The gradual growth of building codes as we now know them was conditioned on the one hand by local habits and on the other by the lag between technical advances in construction and men's disinclination to change established methods of building. To the objective of safety has been added in more recent years the protection of health as an essential factor in building codes. Among the complicating factors, the most important, perhaps, is the widening gap between technical advances and traditional building practices. Prefabrication is one example. Others include the possibility of using lighter, less expensive framing and sheathing materials to lessen the cost of housing. It is this situation, continues the periodical, which has called forth the greatest controversies over the revision of building codes. Most codes are admittedly antiquated in that they make little provision for the use of so-called experimental methods and materials. Those who desire sweeping changes charge that vested interests including some trade unions as well as some suppliers of building materials are blocking progress by obstructing the revision of codes. From the other camp come charges that the proponents of change want to lower the all-important safety factor and throw the field open to all sorts of untested experiments. The Housing and Home Finance Agency points out that building code preparation is difficult and expensive. Some communities, un- able to pay for expert knowledge, copy the codes of larger cities with incongruous results. For economy and because of the many conflict- ing interests to be reconciled, codes are completely revised only at long intervals. A survey of 1,980 codes of varying scope made by the National Bureau of Standards in 1945 showed that 35 percent were between 10 and 20 years old, and that more than 30 percent were 20 years old. It is obvious that such a slow rate of change fails to keep up with technical advances. The National Association of Manufacturers, in a recent report, finds that codes are restrictive through their diversity. They are so nu- merous that even if each individually were satisfactory, the diversity of requirements from one town to another creates obstacles to the mass 106 HIGH COST OF HOUSING 107 production of uniform types of building material for a national market and to the development of centralized prefabrication of portions of structures. Variations in licensing requirements discourage the move- ments of contractors and labor from place to place and thus tend to restrict the construction activity of each locality to enterprises and workingmen resident there. Building codes, continues the National Association of Manufac- turers report, often contain excessive requirements which tend to make construction unduly costly as, for example, calling for brick walls and foundations 12 inches thick in dwellings where, according to the Department of Commerce, 8 inches would be sufficient. Fur- thermore, the enforcement of a code rests on inspection, and there are so many detailed requirements, which from a practical standpoint cannot all be met, that minor violations are likely to be frequent. Consequently, favoritism is possible, and at best there is conservative regard for existing methods, with conscientious inspectors distrusting new materials, new methods, and so forth. Many building codes too, points out the National Association of Manufacturers, contain provisions deliberately inserted to aid "in- terests.' Thus the provisions for the licensing of contractors and various subcontractors are generally inserted in order to reserve the geographical market for an organized group. Codes contain local requirements to establish preference for local enterprises and local materials, and they contain provisions requiring the use of certain materials or equipment. They specify construction methods and therefore restrict methods of construction to the detriment of new techniques. In this respect codes often reflect efforts to exclude new methods of construction through the insertion of rigid requirements and specifications which cannot be met by the new. methods, and codes containing these provisions are sometimes used deliberately to harass those who make innovations. Finally, land-use regulations, while helpful, are at times so worded as not to permit of the best use of land and make for much more expensive "manufacture of land" than would otherwise be necessary, and also discourage the develop- ment of new project lay-outs, etc. SPECIAL PROBLEMS OF CODES The immensity of some of the markets to be gained or lost in code. revision is illustrated by Earl Huston, general sales manager of the Long-Bell Lumber Co. In the spring of 1947 an all-out fight against lumber was waged in New York City, he says: "Three organizations attempted to preempt the apartment building market" for other materials by agitating for legislation which would have limited brick apartment buildings to a height of three stories if they used wooden beams. Two other last minute attempts would have cut the height to four stories. But widespread opposition was aroused and none of these discriminatory bills was passed. Wood joist apartment build- ings can still be built to six stories in New York City. If these bills had passed, a market estimated by local lumbermen of 500,000,000 to 700,000,000 board feet per year would have been wiped out. For just such occasions, the National Lumber Manufacturers Association keeps a staff of code "minute men" (to use the terminology of the Wall Street Journal) in Washington, New York, Chicago, New 108 HIGH COST OF HOUSING Orleans, and on the Pacific coast. The Structural Clay Products Institute, the National Association of Master Plumbers, the cement people and other organizations concerned with construction are similarly equipped. The manufacturer of a radically new material who comes on this scene will encounter much opposition. In Chicago, says the Wall Street Journal, kitchen sinks have extra- large grease traps under them, suitable, building men say, for a restau- rant serving several hundred meals a day. This luxury does not cost much-$20 or $25-but when all the paragraphs like it in the 1,600 page rule book for building are added up, there is a $1,000 surcharge on a $10,000 house. The variety of code requirements in different communities inten- sifies the localism of the building industry. The big builder who otherwise might move from town to town clearing up housing short- ages with mass-production techniques is now kept out. H. L. Schaller, chief plumbing inspector of Miami (reports the Wall Street Journal) told the annual convention of the Florida State Association of Master Plumbers and Heating Dealers that prefabri- cated houses are the greatest threat to the plumbing trade in 25 years. The installation of plumbing pipes and fixtures in these prebuilt homes does not require the services of a master plumber. If prefabricated houses are put up on a wide scale a lot of plumbers will be forced out of business. The Ingersoll division of Borg-Warner Corp., has to make changes on practically every bome utility unit (a central plumbing and heat- ing core with bathroom and kitchen fixtures attached) because of variations in local requirements. For this same reason, most pre- fabricators will not ship any preassembled plumbing equipment with their houses, buying instead at retail from the local plumbing con- tractor who also installs it and reaps a profit from both sale and installation. Many new cost-reducing materials and methods are automatically barred in cities by the inertia of the code authorities. Light gage steel, reinforced gypsum, lightweight aggregate masonry block, ply- wood and metal skins for house walls, resin-bonded glues, prefabricated plumbing panels, BX electrical cable, and new insulating materials are denied to residents of hundreds of cities although they all proved. acceptable by Government tests. This situation prevails in locality after locality. According to the Detroit Builders' Association, building codes add costs without adding value. They create their own particular type of tight little monopolies such as that enjoyed by the plumbers and electricians. Under the Michigan State housing code, for instance, house plumbing can be installed only under the supervision of a master plumber. Therefore, a builder is barred from employing journeymen plumbers and buying plumbing material, despite the fact that every regulating and super- vising agency of Government holds the builder responsible for any defect in workmanship and material in a house. If builders were permitted to employ journeymen plumbers direct and to purchase and prefabricate materials, plumbing costs, which range up to 175 percent above 1940 levels, could be substantially reduced. On Octo- ber 14, says this association, a local builder was offered a carload of automatic water heaters for $57 each. His plumbers' price is $115 each. But the builder would save nothing by buying the carload HIGH COST OF HOUSING 109 蠱 ​because the plumber would only install them on condition that he receive his usual material profit as well as labor charges. There are 66 permit issuing agencies in the Detroit metropolitan area. All the component areas employ full or part-time building inspectors, but few of them have comprehensive codes created by local statute and available for examination. A goodly share of the codes are carried under the inspector's hat, says the Detroit Builders' Association, and are infinitely varied in declaration and interpretation. What you are permitted to do in Detroit, may be barred in Dearborn, and that which is allowed in Dearborn and Detroit may be and probably is barred in Berkley. Local codes, though minute in specification, are more often than not ambiguous on many points of construction, and therefore allow wide latitude in the exercise of power by local building inspectors. Therefore, consistency and efficiency are dependent upon personality, character, and temperament rather than on known exact engineering standards. If the administrative officials are intelligent and con- scientious, the code functions to protect the public health and safety with a minimum of friction and cost. If, on the contrary, the ad- ministrative officials are lax, stupid, inefficient, capricious, or dis- honest, the code is costly in operation and valueless in rendering protective service to the public. Norman W. Watkins, of the Allegheny County Home Builders' Association points out that the same restrictions are not applicable outside the city of Pittsburgh as inside the city. Walls do not have to be as thick, nor do foundations. The plumbing code too is different. Plumbing labor and material-outside the city costs possibly, $625, in the city $925. He claims that it costs 7%½-8 percent more to build a house in the city of Pittsburgh than outside. Getting a code change made is next to impossible in Alameda. County, Calif., according to a Wall Street Journal report. Here two layers of sheet rock are required on garage walls, while only one layer is required elsewhere. Installation of rough wiring in San Mateo County costs 300 percent more than in Alameda. In San Mateo, it is necessary to use the archaic knob and tube system of wiring even though builders claim to have proved to the building inspectors that wiring with nonmetallic insulation which is allowed in other places is good, if not better. On the whole restrictive codes add at least 20 percent to the cost, it is claimed. a According to a recent article in Collier's, in St. Louis and Denver the code favors brick; in Chicago it is plaster; in New York an expen- sive surplus of structural steel and extra traps and vents for plumbing. In Memphis the code favors frame construction, which Denver com- pletely outlaws. The building regulations of Birmingham, Ala., have been called the finest piece of propaganda the steel industry ever wrote, says this article. In such glassmaking towns as Toledo and Newark, Ohio, the codes encourage the employment of structural glass blocks. WHAT IS BEING DONE A national building code is not possible under the constitution, points out a recent article in Collier's. Only Massachusetts has a modern State code concerned with dwellings. Just a few months old, it opens the door to new products and processes for building houses 110 HIGH COST OF HOUSING wherever these innovations have proved themselves. building code is usually a local affair. Elsewhere a With the idea of welcoming new methods of building and new, efficient materials, Philadelphia, Cleveland, Denver, and Chicago are rewriting their codes, reports the Wall Street Journal. Pittsburgh has just completed the job. The Building Officials Conference of America, at work for 3 years on a basic uniform code, expects to have in another few months a model to which cities and towns throughout the country may look for guidance, reports the Wall Street Journal. It reports, too, that the Massachusetts Legislature in 1947 provided that builders can appeal from city rules to a State board of standards. The Wisconsin League of Municipalities is filling a gap in the code books of most of the State's cities by circulating recommended specifi- cations for prefabricated houses. The Southern Building Codes Congress, continues the Wall Street Journal, is continually studying the latest developments in home con- struction. Its 1947 edition model code provides for prefabrication. In the West, the Pacific Coast Building Officials Conference, whose recommendations are followed sporadically by 441 cities, has set up a laboratory for testing new materials and structural techniques. There is, feels the Housing and Home Finance Agency, already a sufficient framework in BMS-107 and supplementary "Performance standards" and in the uniform plumbing code now being completed by HHFA, in collaboration with other agencies, upon which to base a code for dwellings embodying the most up-to-date standards. The Building Officials Foundation, reports Look, was set up in 1946 to bring municipal building officials and representatives of the construction industry together in one organization. The construc- tion industry is subscribing $600,000 to finance the Foundation's attack on the code problem. Work on the basic building code was done by 70 of the Nation's outstanding building-code experts. A draft of the code was presented to the joint annual meeting of the Building Officials Conference and the Foundation at Columbus, Ohio last September. Architects, engineers, contractors, and manufac- turers are being given a chance to review the code before its final publication. The basic building code will be sent free to all cities of 10,000 population or more, and to any other town that is interested in build- ing regulations. The cost of rewriting the building code of a small city may be $10,000 or more. Already, more than 600 cities have expressed a desire to study the basic code. Many of them are known to be delaying changes in their present codes until the basic code is released. WHAT MIGHT BE DONE The usual written code is a sizeable and complicated volume, and according to the Detroit Builders' Association a practical workable code could be written in one paragraph, as follows: No one shall erect a building for human habitation, the structural parts of which shall be inadequate to serve the purpose intended. Such structure shall have not less than X square feet in each living room, not less than X square feet window space for each square foot of living area, and shall be designed and built in a manner to keep all living area, including basement and attic, free from the HIGH COST OF HOUSING 111 intrusion of the elements and shall have all mechanical equipment, plumbing, and electrical lines so installed as to be free of all foreseeable hazards. The builder of the house shall be responsible for all defects of materials or workmanship which may cause injury or threat of injury to the life, persons, or health of the occupants. Such a code supported by spot inspections, and rigid enforcement would, maintains the Association, save time and money for builders, consumers, and taxpayers, and would give home owners a far better measure of protection than they enjoy today. A soutnern Federal Reserve bank recommends the formulation of a Federal building code to be adopted by communities, building mate- rials producers and suppliers, and unions, designed to permit innova- tions in building techniques and in materials utilization which have been found desirable, but which are prevented by present building codes. A midwestern Federal Reserve bank agrees with practically all authorities that building codes should be revised to permit use of modern materials and eliminate restrictive requirements, and written in terms of standards of performance rather than of specific materials. The Housing and Home Finance Agency points out that the prep- aration and promulgation of a uniform dwelling code, based on true performance standards, and of the standards themselves, require continuing effort by many groups and collaboration by all interested parties in order to secure widespread acceptance. The United States Department of Commerce periodical, Domestic Commerce, has advocated a promotion campaign sufficiently aggressive to overcome public apathy and inertia and the resistance of specialized, self-interested groups. To a large extent, it feels, the solution lies not in the development of new techniques and the enactment of more law, but rather in perfecting and extending the application of existing law. State-enabling legislation should be amended where necessary to take full advantage of established methods. Provision should be made for the testing, inspection, and use of new materials and methods. Cod- ification of related laws should be given careful consideration. Immediate steps should be taken to obtain more adequate enforce- ment. Unbiased and competent assistance should be sought and utilized. The National Association of Manufacturers in a recent report has made the following detailed recommendations: 1. Repeal of local preference provisions.-Laws providing preference for local contractors or for building materials which have been made or purchased locally should be repealed, since the only purpose of this kind of law is to serve as the equivalent of a local protective tariff diminishing competition and tending to raise costs. 2. Repeal of licensing provisions. (a) Requirements that contrac- tors be licensed should be generally repealed, since these are devices through which a limited group of enterprises obtain exclusive rights. within the licensing area. Where necessary, building codes and systems of building inspection should be adopted or extended to replace licensing systems. (b) Workingmen license requirements should be held to a minimum since such requirements when perverted become devices to limit the number of men entering a trade and thus make labor scarce, or to discriminate in favor of local groups as against outsiders and inde- 112 HIGH COST OF HOUSING pendents. Consequently, except in crafts which directly affect public health or safety, laws which require that building trades workingmen be licensed should be repealed. In these excepted groups such laws should be systematically reexamined in order to eliminate them except where a clear public need is apparent. Insofar as licensing laws are retained, they should be safeguarded against the more obvious types of abuse by meeting the following types of requirements: All persons who demonstrate a satisfactory degree of competence should be eligible for license without regard to place of residence, nationality, length of previous training, financial standing, union membership, moral character, or other extraneous requirements. Competence should be determined through examination, which so far as possible, should be practical in character. Examinations should be held at frequent intervals and should be open to all comers. Licenses should be revokable only for cause and after formal public hearing. The authorities empowered to give examinations, grant or revoke licenses, or decide appeals should be public officials chosen without preferential consultation with any business or labor groups. 3. Removing inadvertent as well as abusive restrictions.-Restrictions due to excessive diversity of codes should be minimized through the development of model codes which can be generally adopted as a substitute for laws by the localities. The Pacific Coast Building Officials Conference, the American Standards Association, the New England Building Officials Conference, and the Southern Building Officials Conference are doing valuable work in this respect and should be encouraged. The same is true of the National Board of Fire Underwriters with respect to fire protection. 4. Performance codes are preferable to specification codes.-(a) Re- strictive effects are minimized by using performance standards in preference to specifications, since a code based upon performance standards is satisfied by any new development which can meet the prescribed tests, and codes based upon detailed specifications ordi- narily block the use of new materials or new methods. (b) For the proper development of codes based upon performance standards, it is necessary that authoritative standards of perform- ance be developed to meet the functional requirements of the structure- load bearing capacity, fire resistance, wind resistance, etc. This might be undertaken by the National Bureau of Standards of the Department of Commerce and perhaps the Forest Products Labora- tory of the Department of Agriculture or the American Standards. Association; whichever is selected should be aided by appropriate industry committees who would together develop and agree upon proper performance standards. Standards pertaining to safety and health as distinct from engineering might be handled through the United States Public Health Service. Its laboratory in Cincinnati for example is now working on the problem of evolving such standards. In order that tests might be made of new materials and new methods, there should be accepted standards for making tests to assure that a given material measures up to the performance required of it in the use specified. Such standards can be set by the American Society for Testing Materials or some similar organization. HIGH COST OF HOUSING 113 To avoid local uncoordinated systems of testing, the American Society for Testing Materials might, having determined the accepted standards, permit private and institutional laboratories to actually conduct the specific tests in accordance with uniform procedures subject to inspection and certification by the agency prescribing the standards. This would make the results universally acceptable, for a certificate of approval thus issued by any one certified private or institutional laboratory would be good anywhere in the United States. (c) Methods of code amendment should be simplified and should cease to require the slow process of action by the city council. Code writing could then proceed on a factual basis, and the cost of code. writing and revision, one of the prime causes of obsolete codes, could be made much lower than is now generally possible. That is because the performance type code would be less detailed and voluminous than the present typical specification code. Since per- formance requirements, being largely stated without reference to spe- cific materials, do not materially change over a period of time, the problem of amendment is reduced to modification (in the form of an annex to the code) in the enumeration of materials meeting the accepted requirements, and this could be handled by administrative bodies supported by such standardized tests as have been recommended above. (d) To accomplish the needed modification outlined above of over 2,000 local codes, the Council of State Governments, the American Municipal Association, the Conference of Mayors, and the Building Officials Conference of America could be the groups to maintain liaison between all those interested in code reform. 5. Safeguards against perversion of building codes. To enable per- sons suffering from a restrictive building code to identify its unreason- able provisions, the agencies engaged in preparing model building codes might aid and cooperate in developing and giving publicity to a check list of objectionable provisions designed for this type of use. This would enable those locally interested to understand the restrictive features contained in their codes and to attempt to take action to eliminate these undesirable features. 6. State reform and removal of local restrictions.-While private re- strictions are subject to the antitrust laws, restrictions given the sanction of local public authority by being incorporated in building codes are now usually immune to any public action except that of the local government. To remedy this situation, necessary State legislation should be passed to establish suitable reviewing authority, granting it jurisdiction to examine local building legislation, defining types of restriction which such local legislation may not contain, establishing procedures for determining that such restrictions are con- tained in particular local laws, and establishing methods for setting aside or modifying the laws which are found to be offensive. This might be done by giving a State official authority to receive complaints about local building legislation, investigate complaints regarded as substantial, and, after holding hearings, determine whether such local laws contain provisions establishing monopolies, unreasonable restrictions, etc., as defined in the enabling legislation. Where he found adversely to the local law, he would offer cooperation to the local authorities to modify it, but if within a stated period the . 114 HIGH COST OF HOUSING C objectionable features had not been removed, he would obtain in the State courts an injunction against further enforcement of these features and of any other portion of the law inseparable from them. NOTE ON BUILDING PERMITS An archaic building permit system increases costs in three ways. The first is the time wasted in various places determining what the re- quirements are. The next is in forcing contractors, construction workers, and equipment into idleness while permits are pending. The third is in the arbitrary standards or capricious alteration of permit regulations which needlessly modify the work (sometimes very costly) of the architect. It is doubtful to what extent these expensive factors prevail throughout the industry. For small residential buildings, the delay, according to the Bureau of Labor Statistics, is seldom more than a few days at most. Quite commonly the builder is allowed to proceed before the issuance of a permit, at the risk of making revisions neces- sary to conform to the building ordinances. In a few localities, the delay due to sudden changes in permit requirements has been responsible for considerable waste and disrup- tion in planning operations. The Detroit hearings of this committee revealed that approximately 5,000 rental units planned for construc- tion in the Detroit area will not be built because local planning com- missions and zoning boards, principally those of the city of Detroit, have zoned practically all multiple housing out of existence. Even where land in the Detroit area was specially zoned for multiple housing, builders who have optioned land and prepared plans, fortified in the knowledge of existing zoning regulations, claimed they found the zoning changed when they attempted to obtain permits. In the metropolitan area of Detroit, it was pointed out at the hear- ings, whenever there is a turnover of city, village, and township offi- cials, it usually results in a new set of regulations for builders or a new interpretation of existing regulations. Increased costs for the builder, increased prices for the consumer follow, and rarely is there any added value. The Building Officials Conference of America recommends that upon the filing of an application in a building department for a per- mit, a person charged with the responsibility of constructing a struc- ture shall file with the application an executed affidavit to the effect that the proposed structure will be built in conformity with the pro- visions of the Building Code. Upon completion of the work, the person who executed the affidavit should be obliged to file an addi- tional affidavit which, in effect, would state that the work conformed with the provisions of the Building Code. The person filing the affidavit should be required to supervise the progress of the work. This procedure would result in dangerous abuses were inspection of plans and buildings neglected entirely. But costly delays in starting construction might be minimized if the affidavit system were allowed to operate whenever building outpaces inspection. To reduce costs all along the line, including high costs attributable to building permits, the most progressive practices suggest that all building regulations be consolidated in one place, or in one publication, so that the requirements may be known in advance, and planning and construction can proceed without costly delays. CHAPTER 10. TRADE RESTRAINTS INTRODUCTORY "Why can't we have houses like Fords?" asks Thurman Arnold, former Assistant Attorney General, in a recently published article in Look. For a long time, he says, we have been hearing about mass production of marvelously efficient postwar dream houses, all manu- factured in one piece and distributed like Fords; yet nothing like that has happened. When a Henry Ford of housing tries to get into the market with a dream house for the future, Mr. Arnold continues, lined up against him are a staggering series of restraints and private protective tariffs. At the threshold of this blockade are the labor organizations, com- pletely immune from the antitrust laws. Because of a Supreme Court ruling, hod carriers can prohibit the use of ready-mixed con- crete; electrical workers can refuse to install ready-made equipment until the wiring is ripped out and put in again; builders can be denied the use of mail-order-house plumbing; spray-gun painting can be pro- hibited. The list could be extended, he says, but the point is this: The Henry Fords of housing cannot get started as long as the law gives, in effect, immunity to organized drives to preserve obsolete. methods and prevent mass production. But we will not get houses like Fords simply by removing labor restrictions, Mr. Arnold goes on. A house is a tangle of goods and services, all contributing to block mass production; it is hard to say which is the worst obstacle, because the situation differs in different cities. Some building-material producers fix prices either through private arrangements or through trade associations. The patent racket is widely used within the industry; patents are used to control prices and sales methods, to limit the amount of certain products, and to gain control of unpatented products. Some material distrib- utors try to raise the price of their services by secretly agreeing on price mark-ups; others try to make sure that all business passes through their hands and that no new methods are introduced on which they can make no overcharge. Their weapon has been the boycott. Some manufacturers have had to pay the distributor a commission even when the customer bought direct from the manufacturer. The Antitrust Division of the Department of Justice found that some contractors tried to get their share of the pie by forcing low bidders to raise their bids or withdraw, or tried to keep the contracting work for themselves by refusing to use material bought from any source except themselves. Labor assisted by frequently refusing to supply labor when the contractors' ring wanted it withheld. On top of all this, according to Mr. Arnold, the Henry Fords of housing must fight lobbies trying to put through legislative restraints on the industry. Many building regulations, he asserts, are nothing more than protective tariffs; licensing and registration of contractors 115 116 HIGH COST OF HOUSING • have become a means of keeping price-cutting contractors in line; fire and health requirements have become legal boycotts to choke off competition. Politicians have frozen archaic building techniques into legal codes that discourage modern construction and new materials, says the Wall Street Journal. For example, an important Midwest State is "off limits" to prefabricators because a 1919 law requires extra high ceilings. Spokesmen for the Housing and Home Finance Agency assert that distribution of integrated equipment units such as a utility core which combines the plumbing assembly, the heat source, and the hot-water supply, is now fraught with difficulties that offset the advantages and savings that might be derived from their installation. The use of such equipment is permitted by some municipal building codes and prevented by others. In some jurisdictions licensed plumbers and steamfitters will install such units for a charge equivalent to that collected if every separate part were sized and assembled at the site. In other areas the elements will be partially dismantled and reas- sembled. In still other localities builders are not allowed to have them installed at all. Uniform building regulations throughout the country and uniform labor policies,. free of artificial obstructions, will be necessary to overcome these obstacles. Data on restrictive practices were published over a year ago in a Senate Small Business Committee report. Since the passage of the Clayton Act, the report states, the Department of Justice has acted against restrictive practices by instituting approximately 674 cases. Of these, 160 or about 24 percent have involved some parts of the construction industry. The number of antitrust cases in the construction industry in comparison with total antitrust cases from 1914 to 1945 is shown below in table 41. TABLE 41.-Antitrust cases in the construction industry as compared with total anti- trust cases instituted by the Department of Justice from Oct. 15, 1914, to Oct. 15, 1945 Antitrust cases 1 Antitrust cases 1 Year Construc- tion indus- Total try Oct. 15 to Dec. 31, 1914. 1915. 1916. 1917. 1918 1919_ 1920_ 1921. 1922 1923 1924 1925. 1926_ 1927_ 1928 1929 1930- Year Construc- tion indus- try Total 1 2 1931 1 7 1932. CO LO 3 5 1 2 1933 11 3 23 1934 9 1 10 1935 6 3 4 1936 9 2 11 1937. 8 15 26 1938_. 13 8 22 1939. 14 38 5 10 1940.. 59 91 2134332 15 1941.. 17 105 14 1942.. 6 74 12 1943. 3 38 14 1944. 25 21 1945. 13 10 Total. 3 23 160 674 1 In this list, criminal and civil suits on the same subject are considered as separate cases. Source: Antitrust Cases in the Construction Industry: Report of the Special Committee to Study Prob. lems of Small Business; U. S. Senate, Sept. 12, 1946. HIGH COST OF HOUSING 117 A tabulation of the construction cases by products is shown in table 42. Table 42.-Antitrust cases in the construction industry classified by type of product Oct. 15, 1914, through Oct. 15, 1945 Product Number of cases Product Number of cases Air conditioning. Asphalt. 621 Bentonite. 1 Magnesite Metal lath…. Mineral wool.. Brick and clay. 1 Pipe.. Cast iron soil pipe. 1 Plaster Cement. 12 Plumbing. Chimneys.... 1 Electrical fixtures. 19 Refrigerators. Sand and gravel. Gas ranges-- 1 Sheet metal. Glass.. 9 Slate... Gypsum. 4 Stone.. Hardboard. Hardware- Ironite. Lumber and lumber products. Marble 1 Tile 35 12212 3 Terra cotta- Other 5 Total.. 1 5 1 1 2 9 3 6 3 1 3 13 3 6 160 Source: Antitrust cases in the construction industry: Report of the Special Committee to Study Prob- ems of American Small Business, U. S. Senate, Sept. 12, 1946. The report lists the following typical restraints: Patent restraints as applied to building material; Bid depositories and collusive bidding on construction con- tracts; Restraints in distribution, including boycotts of competing channels of trade; Price and other controls through trade-association activities; Labor restraints either in the labor field alone or manufacturers of material; Price leadership and price formulas. Most of the cases involve several types of restraints. The report indicates that extensive evidence of restrictive practices exists. REASONS FOR AND CONSEQUENCES OF RESTRICTIVE PRACTICES "Why", asks Thurman Arnold, "does the housebuilding industry put up with labor restrictions?" "I have a strong suspicion," he says, "which has been proved a number of times, that it is because powerful firms in the building industry are using labor to keep out competition." The National Association of Manufacturers recently stated that the various local elements which comprise the construction industry have sometimes sought to eliminate competition by attempting to segregate the local market and to retain local jurisdiction of what they regard as their particular sphere of activity. The established local groups have frequently joined together in opposing innovations which cut across local and jurisdictional lines. The manufacturer of building materials has found that even though he is a national producer the ultimate disposition of his product depends on local conditions and influences over which he has prac- tically no control. The building material dealer, according to the National Association of Manufacturers, also has followed restrictive practices at times in order to maintain his place in the channel of distribution. This enhances his operating margin. Because of his 118 HIGH COST OF HOUSING + desire to retain an assured place as an agency of distribution, he has sometimes attempted to restrict development of new types of distri- bution methods: for example, mail-order houses. He has also tried sometimes to keep the local market isolated and even to engage in construction activity at the job site. The contracting groups, generally speaking, have also shown some tendency to try to reserve the local market for themselves against outside contractors or contractors that have been engaged in closely related lines of activity. A committee of the National Association of Manufacturers recog- nizes the existence of restraints which militate against economy and the ability to sell housing in quantity. The association believes these restraints work against the public in three ways: First, they raise the cost of construction directly through many increases in the prices charged for materials and services. Convinced that their own price policies will not affect the volume of building, some groups in the building industry charge the most that the traffic will bear. An aggregate of price-raising devices has an appreciable effect upon the cost of building and hence upon the volume of building activity. Second, such restrictions as exist prevent reductions of building costs by delaying or preventing the introduction of new materials and new methods. When a new method or material is proposed, it is often found likely to run counter to the working rules of the unions and the practices of the contracting groups. In some cases it is eliminated by boycott and in others by its inconsistency with the rigid requirements of local building codes backed by local groups. The direct effect of such restrictions is to forestall the adoption of improved technological methods that are already known. The indi- rect effect, however, is even more important. Technical change in the building industry can be undertaken only by those willing to struggle with some of the most powerful groups in the industry. The natural tendency of this is to divert the interest of manufacturers, inventors, architects, and innovating contractors from improvement of methods to other less dangerous ways of achieving success. The third and most important consequence of restriction is to retard improvement in the organization of the building industry itself. No. great progress in the techniques of construction can be attained as long as the unit of production is the single house, separately planned and undertaken one or a few at a time, and so long as builders must be called upon to cut, fit, and assemble the numerous parts of the house as separate handicraft operations. Progress depends primarily upon the simplification and standardization of parts (to avoid the waste of labor and material at the site); the availability of sub- assemblies of materials (to save time and labor at the site); the development of repetitive operations and the greater use of power tools and mechanized methods (to increase the productivity of the individual workman). Representative Ralph W. Gwinn of New York charged in a recent speech that labor unions acting either alone or in combination with contractors and suppliers of building materials have managed to achieve total monopolistic control over the building construction of whole cities and even of considerable areas adjacent to these cities. HIGH COST OF HOUSING 119 The National Association of Manufacturers points out that labor has participated in restrictions because of a community of interest with other elements in the industry. It has collusively used its bar- gaining power to obtain union recognition for the personal gain of union leadership; it has assisted in promoting localized work and pre- venting prefabrication, and has aided in fixing prices. 1 According to American Housing unions in the face of seasonal and cyclical unemployment have frequently helped to enforce restrictive agreements of subcontractors or suppliers in the hope of protecting their jobs and earnings. The Federal Works Agency indicates in a recent memorandum that the persistence of some restrictive labor practices may be traced to building codes in the amendment or revision of which labor may have an active interest. The Agency indicates that labor at times has been able to prevail upon code authorities to legalize restrictive labor practices. The local character and disorganized set-up of the building industry, according to Charles Abrams, legal advisor to the New York City Housing Authority, have helped to prevent code changes. Contrac- tors, he says, are disorganized and not too directly affected by the higher costs which result from such codes; the consumer is only a single individual acting alone, and usually comes into contact with the product only after it has been completed; therefore, the organized worker has a better chance of resisting code changes and acting against them. Make-work practices LABOR RESTRICTIONS Labor, the National Association of Manufacturers says in its recent report, has followed a pattern of restrictive practices to maximize restraints designed to prevent the use of cheaper materials, improved equipment, or more efficient methods. Thus it has insisted that local materials be used and that work be done locally and on the job site. It has opposed prefabricated materials and has refused to use labor- saving devices, as, for example, pre-cut threaded pipe. It has, moreover, exercised restraints designed to compel the hiring of useless and unnecessary labor. This has been accomplished by lavish specifications for the finished structure and by requiring the hiring of extra men and limiting the performance of the workers each day. While few, if any, of these practices are Nation-wide in their appli- cation, where they do exist, they contribute directly to the excessive cost of construction, says the Federal Works Agency. Some of the restrictive practices which have come to the attention of the Agency are: limitations on the amount of work produced per day; refusal to install prefabricated materials or materials produced in nonunion shops; resistance to the introduction of improved methods or equip- ment such as limiting the width of paint brushes, prohibiting the use of paint sprayers, portable power saws, trimming equipment, lock and hinge mortising machines, and other mechanical aids; feather- bedding, such as insistance that journeymen of one trade stand by while certain work is being done by other trades, that one engineer be assigned to each piece or two pieces of automatic equipment, that 1 The Twentieth Century Fund, New York, 1944. 120 HIGH COST OF HOUSING · high-priced journeymen perform tasks which could be done satisfac- torily by apprentices or unskilled labor, etc. An indication of what such restrictions are costing American home buyers is given to the Wall Street Journal by Martin C. Huggett, vice president of Chicago Metropolitan Home Builders Association. He estimates that if all make-work practices were eliminated by Chicago unions it would be possible to cut 10 percent from the con- struction of an $8,000 or $9,000 house. The cost of apartment building in New York is increased by a requirement of the metal lathers that all reinforcing concrete rods 'must be bent on the job. "If we could bring in rods already bent, as builders do in some other cities," a large contractor reports to the Wall Street Journal, "we could cut labor costs on this item by 50 percent." In Philadelphia it is reported that union rules more than double the cost of unloading plumbing supplies at the construction site. These rules require that skilled plumbers, paid $2.25 an hour, unload all materials. Laborers who would normally do such unloading get $1.10. The David O. Bohannon Organization of San Francisco recently tried to short-circuit the conventional plumbing installation method by using the Ingersoll unit. This unit consists of a steel frame "core" in which all piping for both bathrooms and kitchen fixtures is assembled at the factory. When delivered to the building site all the plumber has to do is attach the various fixtures to their connections. Bohannon estimated installation of this unit would require only 1%½ days, compared with 5 days for the conventional system, and would cost about $72. But the master plumbers demanded an installation charge of $300. So Bohannon is not using the prefabricated unit and buyers are paying more for houses, reports the Wall Street Journal. In Boston, the painters' union prohibits the use of brushes more than 4 inches wide. Ernest Johnson, secretary-treasurer of the city's Building and Construction Trades Council, told the Wall Street Journal it would not be physically possible for the workman to push a bigger brush all day. But out West, adds the Journal, the Los Angeles union allows a brush 6%½ inches wide to be used on most surfaces, while in Philadelphia union rules call for a 5-inch brush and Chicago limits the width to 42½ inches. The Wall Street Journal points out that make-work practices are most common in cities where American Federation of Labor construc- tion unions are strongest. Builders who criticize these abuses argue they are quite a different thing from legitimate union aims such as raising wages. Open-shop towns such as Baltimore and Atlanta, by contrast, are free of make-work tactics, say builders. Practical Builder estimates in its May 1947 issue that the following increases in total cost of homes built in Chicago are added by restric- tive labor practices: Carpenter trade: Refusal to permit factory fitted doors, windows and frames, including glass, hardware and priming, and weatherstripping- $79 Refusal to install factory built wood cabinets with hardware applied. Hardware must be removed and re-applied on job_- Refusal to permit factory cut bridging. Must be cut on job----- 4 HIGH COST OF HOUSING 121 Mason trade: Insist on hiring a bricklayer who stays on all foundation work, who merely inspects, but does not work- Slow-motion bricklayer practice, reducing efficiency by 60 percent, and production from 1,000 brick per day in 1940 to 600 per day present average_ Lathing trade: Handling 30 bundles of wood lath per day, or equivalent 100 yards of gypsum lath, as against previous 60 to 65 bundles. When com- pleted, lathers leave job, generally between 2 and 2:30 p. m., and draw 8-hour pay for 62-hour work or less--- Expensive delay finding out whether any lather can work following day. Monopolistic rule makes contractor call union at end of every day to get release of men for next day's work... Insisting building must be entirely enclosed during 6 months of year, regardless of weather conditions, or lather won't work (included in unit windows) –– Prefabricated cornerites not permitted. All corner heads must be shaped on job.. Plastering trade: $16 110 10 10 Must be shaped on job Requiring a steward on each job to check work. Requiring 3 coats of plaster, though not required by code, when 2 coats have been proven entirely satisfactory-- 38 90 Requiring plasterer to do brush coat on cement foundation walls, taking job from cement finisher_ 30 Situation (in Chicago) preventing use of drywall construction_. Requiring buildings to be entirely closed and heated with permanent heating plant, regardless of weather, for 6 months of year. Requiring corner beads on splay angles. 15 15 Job now assessed 5 percent on wages for retirement fund and propa- ganda... 10 Plumbing trade: Requiring cast iron sewer pipe under basement floors, and 5 inches from foundation walls, even though codes permit clay sewer pipe-- Plumber takes over at point 5 inches from foundation walls, though sewer digger could lay clay tile as quickly, efficiently, and more economically Reports that all pipe over 2 inches in diameter must be cut and threaded on job. 25 Code restrictions, influenced by unions, make jobs elaborate and expensive, beyond requirements of Bureau of Standards___ Refusal to install pre-assembled plumbing or roughing-in unit fabri- cated in factories_ 100 25 Requiring that plumbing journeymen carry in fixtures, rather than laborers_ 8 Refusal to install fixtures unless approved by unions and handled by master plumbers.. 20 Requirement that a union plumber ride with truck driver on materials delivered to jobs-- 30 50 10 Concrete laborers: Refusal to handle ready-mixed concrete- Painting trade: Refusal to permit spray painting.. Limiting size of brush to control coverage per day (alternate) Cleaning up done on job time, usually 20 to 30 minutes (10 minutes sufficient). Insisting (some Chicago metropolitan areas) on contract covering all rooms in all houses of a complete project, or will not take contract.. Insisting on 3 coats (some areas) of paint where 2 is proved sufficient.. The Practical Builder reports that in Philadelphia union require- ments call for an oiler to accompany each machine at $1.35 per hour. Flat roof work used to be 8 to 10 houses per day, but has now slowed down to 6 houses per day. Normally a mason used to lay a perch of stone per hour, or 8 per day; mason now lays 6 perches per day. 69991-48- -9 122 HIGH COST OF HOUSING In Natchez, Miss., the magazine reports, according to union rules every man must be paid the same wage regardless of his ability or his willingness to work. This tends to create laxity on the part of the good men and in general slows down all the work to a snail's pace. In a previous issue the Practical Builder reported that in Cleve- land, Ohio, bricklayer production was held down because very old men were doing the work. Bricklayers were telling manufacturers of block to make smaller size units, as they did not want to handle heavy block. Bricklayers would rather lay brick, as this means more time consumed on the job. In Kansas City the Practical Builder found that truck drivers employed on the job, even though their work might occupy only half of their time, were not permitted to do any other work. A Federal Reserve bank reports comments that building codes and labor unions are the greatest factors in high building costs. In both Minneapolis and St. Paul, building codes restrict the use of new im- proved building materials and labor unions tend to put a limit on output, although in the suburban areas building codes have not restricted the use of new materials. Moreover, one of the large contractors in the suburban areas reports that unions have not placed a limit on the output of their workers. This source believes that holding down of output per worker by unions may be somewhat exaggerated. Harry C. Bates, official of the Masons International, A. F. of L., has challenged the builders to produce any union agreement which limits labor's output. He blames the builders for lack of "efficient management" which he claims has been chiefly responsible for the slow-down and high costs. "Put the materials on the job and you'll get a full day's work," he asserts. Masons have had agreements with responsible associations of contractors for 40 years and in that time these contractors have never charged them with limitation of output, declares Mr. Bates. Masons have no contract with any contractors calling for curtailment of production. According to a report in the weekly, Labor, Mr. Bates challenges anyone to offer proof that union agreements are responsible for high costs of building. These charges have been made time and again, he states, but they are just a smokescreen to cover up excessive costs and profiteering in many building materials. According to Labor, Mr. Bates and other building trades union leaders ask if unions are responsible for high home costs, why is it that in many cities, where residential construction is almost entirely open shop, costs are at least as large, if not larger, than in cities where home building is unionized? In Washington, they say, where home construction is practically all open-shop, the cost is second highest in the Nation. Charges made against the plumbers were answered by President Martin P. Durkin in Labor, as follows: Plumbers have no restrictions and will handle any power machinery the con- tractor chooses to supply. Also, plumbers lay down no rules as to the number of men required. The employer is sole judge of that. Durkin also denied the charge that the union resists installation of prefabricated plumbing lay-outs. He termed the charge "fantastic." The fact is, he said, plumbers have members working in the prefabri- cating plants producing these units. On many large jobs, prefabrica- tion of units is done right on the site. HIGH COST OF HOUSING 123 He also denied the claim that costs are increased because the plumb- ers insist on unloading plumbing supplies delivered at the construction, site. Such a practice, he explained, usually means a saving to the contractor, because plumbers know all the fixtures by size and know where they are to go. If laborers were given the task, plumbers would have to direct them anyway and that would simply duplicate the wage expense. To the charge that labor is less productive than before the war, Richard J. Gray, president of the A. F. of L. Building Trades Depart- ment, replied that we went through 8 years of depression, when hand- made work and boondoggling were encouraged. Then came 5 years of war, with the "cost-plus" type of contract under which employers hired far more workers than necessary in order to increase their fees from the Government. They profited by wasting manpower. Thus, we have gone through a 13-year period when low production was encouraged. That cannot be corrected overnight. It is unfair to blame labor for the situation, said Gray. Instead of management blaming labor, or vice versa, the solution is for both to get together and try to work out the problem cooperatively. According to L. M. Raftery, secretary of the Painters, as reported in Labor, the size of the brush depends on the type of work painters do. On some types, the 4-inch is the most feasible and efficient; on others, a larger brush is used. Contrary to all stories, the union has no limit on the size of the brush to be used. He asserts also that the union has no ban on spray guns but does insist that where they are used the workers be protected against inhaling the fumes and under- mining their health. He denies that the spray is cheaper than brush- ing, emphasizing the time required to set up and clean the equipment and the amount of paint lost in the air. According to Labor, Prof. Corwin D. Edwards of Northwestern University, who headed a Department of Justice study of the home- building industry from 1939 to 1944, discovered only two local attempts to limit work. Mayor O'Dwyer, of New York City, in a recent issue of Labor, referred to a report put out by the New York Building Congress. "Labor unions in the building industry have not opposed labor-saving devices," the mayor said. "This report of the building congress shows that labor has not been restricting production, but is generally giving 'a fair day's work for a fair day's pay.'' Restrictions on training Labor has practiced restrictions in the amount of labor available for construction work through closing the union against outsiders, limiting admission to the union, or requiring very high initiation fees, says the National Association of Manufacturers. Restriction on apprentice training, the Wall Street Journal points. out, chokes off the supply of manpower. While union officials say they have taken steps to liberalize apprentice training, many builders. contend these programs are "woefully inadequate. Excessive union initiation fees and limitations on the number of apprentices admitted are among the practices noted by the Federal Works Agency. Life magazine, describing the manner in which the A. F. of L. has curtailed the supply of building labor, cites the case of a veteran who 124 HIGH COST OF HOUSING wants to become a carpenter in Los Angeles. He is now studying at a trade school under the GI bill. His next step will be to try to find a contractor who is willing to hire him at the standard beginner's wages of 80 cents an hour and then to get the carpenters' union to enroll him as an apprentice. Any prospective employer will look him over carefully, because contractors say that even the best of beginners can scarcely earn their pay. If he does find an opening, he will spend 4 years progressing from simple carpentry tasks to the more expert ones. At the same time he will go to formal classes 144 hours every year. His pay will increase to $1.12 an hour the second year, $1.39 the third, and $1.65 the fourth. At the end of his apprenticeship he will be a full-fledged journeyman at $1.90 an hour. In sharp contrast to the A. F. of L. apprentice system, Life continues, is the radical method used by a new CIO building union in Evansville, Ind. Its contract with a local contractor provides that he can use as many as 10 apprentices for every journeyman. Apprentices are shoved along as rapidly as possible. Since all craftsmen belong to the same union, there is no bickering over who does what job. The union permits the contractor to use labor-saving devices such as an Army surplus tractor which moves as much earth in a day as seven men could move with shovels. As a result he is able to put up houses even more efficiently and on a much larger scale than his father, another radical builder who uses a special crew of CIO men who can do all building tasks rather than just one specialty. In 7 years the son has put up 3,000 houses, more than half of all the new ones built in Evansville. A Cleveland contractor with 40 carpenters, investigated by the Wall Street Journal, says he is supposed to have 8 apprentices, but he has only 5. "I try repeatedly to get more from the union," he complains, "but they send them out when they get good and ready." To counteract the union's limited apprentice policy, reports the Wall Street Journal, Philadelphia builders plan to start their own training program with the cooperation of the Philadelphia school district. The builders maintain they can turn out plasterers "good enough to do rough work" in 3 months. Union apprentices take 4 or 5 years to become established artisans. However, Joseph F. Burke, president of the Philadelphia Building Construction Trades Council, asserts unions consider their apprentice program sufficient to take care of replacement needs, and adds that unions must protect themselves against a flood of men which at some future time would endanger the livelihood of the membership. Charges that the unions are holding back the training of mechanics were denied by William F. Patterson, director of the Department of Labor apprentice training service, who testified in Labor, the union weekly, that the difficulty is with the contractors. Only 50 percent of them are participating in the program, he revealed. Other labor practices Added to other union barriers, says Thurman Arnold, is the juris- dictional strike. This means that if a new union is formed which is interested in new methods, the old unions can gang up and destroy it. If two great steel companies were to gang up to destroy an independent concern, the law would provide a remedy but when a combination of unions goes after another union, there is nothing to do but join the mourners. HIGH COST OF HOUSING 125 Labor, says the National Association of Manufacturers, has sought to maximize the employment of particular labor groups, and the rival claims for jurisdiction have resulted in many jurisdictional strikes. Moreover the complex organization of the craft unions with their various jurisdictional lines has resulted in substantial restrictions upon the efficiency of the construction process, since as many as 20 different crafts may be employed in the construction of a residential building, each craft with its own foremen and its own peculiar working rules, and each jealous of its jurisdiction. The result is decentralized management, with the necessary managerial coordination impossible. Consequently, technical changes are difficult because they are incon- sistent with the preservation of the jurisdictional rights of the different craft unions working on the job. The Federal Works Agency has found unions issuing journeymen cards to incompetent or partially trained workmen, and reluctant to permit the discharge of incompetent workmen. The National Labor Relations Board is reported by the Building Products Institute to have asked the Federal District Court of Kansas to grant an injunction under the Taft-Hartley Act against the car- penters' union and the Kansas City Building Trades Council in order to halt a secondary boycott against a firm attempting to erect 15 prefabricated houses in a Kansas City suburb. The National Association of Home Builders says that in what is believed to be the first case in which a housing employer has brought charges against a union under the Taft-Hartley Act, the Harnischfeger Corp. of Milwaukee filed charges of unfair labor practices against the carpenters' union. This prefabricated house manufacturing firm charges the union persuaded contractors not to purchase or erect its houses and says the union refuses to handle them. In support of its charges the corporation declares it has a letter from the carpenters' district council stating that members of the carpenters' union have been joined by members of all building trades unions and will erect only prefabricated houses which bear the union label. Suggestions A midwestern Federal Reserve bank. recommends local action to revise those provisions in building codes and union rules which increase costs unnecessarily and promote low productivity of site labor. A second recommendation from a Federal Reserve bank is registra- tion of union "work rules" and prohibition of such rules as are un- reasonably restrictive and contribute to increased costs without ac- complishing desirable objectives for workers or the community. This recommendation is tied to the suggestion for enforcement of antitrust legislation to prevent restrictive practices by building materials pro- ducers and suppliers. The National Association of Manufacturers reports itself in favor of continuous, honest enforcement of the Federal antitrust laws. It also feels the need for more systematic and consistent use of State anti- trust laws. It further recommends that restriction of commercial competition by labor should be unlawful under the antitrust laws upon the same basis as similar restrictions by business, whether labor acts alone or in collusion with business. When the legality of specific types of restraint of trade depends upon the identity of the restraining group instead of the character of the restraint, labor should enjoy no 126 HIGH COST OF HOUSING special immunity to engage in practices which business groups may not undertake. The tightness of jurisdictional claims, adds the association, should be relaxed by organized labor in order to help eliminate jurisdictional disputes. The incentive to jurisdictional strikes can be further diminished, it believes, by measures to stabilize employment at relatively high levels. Employing groups should stand ready to discuss with labor unions the possibility of arrangements designed to promote the regularity of employment and at the same time to relax jurisdictional claims. The Jurisdictional strikes, moreover, should be prevented through Federal legislation outlawing them, says the association. employer would make the initial decision as to who shall do what work, and any dispute arising out of his decision could be processed through the normal grievance procedure, in accordance with the collective bargaining agreement, including voluntary arbitration in appropriate cases. With respect to the Government as an employer, jurisdictional disputes affecting important public projects or projects affected with a public interest should be handled by giving the Government the power to obtain an injunction to prevent stoppages while the dispute is handled through the regular grievance procedure. Anyone damaged by jurisdictional strikes could recover damages from the union calling the strike. Unreasonable labor practices by labor unions, the association asserts, should be outlawed by legislation designed to prohibit un- reasonable restraints upon trade and working rules in labor practices. To this end, the Federal Government should enact a law forbidding restraints by labor that require an employer to use inefficient methods of production or distribution, and unreasonable restrictions upon the use of materials, machines, and equipment. Such restraints, whether contained in collective bargaining agreements or union bylaws, should be deemed contrary to public policy and declared unenforceable. They should also be considered as excluded from the area of legally required collective bargaining. Unions attempting to restrict produc- tion should be considered guilty of an unfair labor practice, depriving them of the benefit of labor laws. MATERIALS DISTRIBUTION The Nation's biggest home builder has been forced to the ridiculous expedient of setting up a retail store, just to sell things to himself which manufacturers will not sell to him directly, reports the Wall Street Journal. This is the consequence of methods of distribution that are either basically inefficient or applied arbitrarily without regard to the size or nature of the transaction. Moreover, when an item is in extremely short supply, as are nails for example, the custo- mary channels of distribution may be disrupted and the price inflated through the operation of a "gray market." This is carried on by individuals or firms outside the regular channels, who seize the oppor- tunity for quick and exorbitant profits at the expense of builders and the home-seeking public. The Federal Housing Administration has found that the most desirable trade practices vary from locality to locality, depending on local industrial relationships, geographic location in relation to HIGH COST OF HOUSING 127 sources of production for various building materials, and the size and character of building operations undertaken in each locality. Retail methods in wholesale transactions Not all builders are in a position to buy directly from the manu- facturer. Builders agree that the jobber or dealer has a useful func- tion in the industry as it is set up today. For one thing, the Wall Street Journal points out, he provides credit for the small builder who cannot finance his operations. But when a builder has sufficient capital and operates on such a scale that he does not require these services and can buy his maerials in carload lots, he feels he should be able to buy directly from the manufacturer. The auto maker who bought his motors, tires, and spark plugs at the local accessory store would end up with so expensive a product that few people could buy it. Yet, according to the Wall Street Journal, that is the system used to distribute housing materials from manu- facturers to builders. The average American house builder buys his raw_materials—lumber, roofing, electrical supplies, insulation-from local retail material dealers. Even the rising "General Motors" and "Henry Fords" of the industry can't buy direct from material manufacturers. If a builder could buy all his materials direct from the manufactur- ers, his $7,500 home would sell for $6,000, asserts William J. Levitt, New York builder. He says his company pays $229.50 for a washing machine which costs the local dealer about $160 and the distributor about $110. Yet that washer comes direct to his warehouse from the manufacturer's plant in the Midwest, bypassing both the distributor and dealer. He feels there is no good reason why he should not be able to buy that washer for the same price as the distributor since it does not cost the manufacturer any more to sell to him direct than it does to sell to the distributor. According to a recent article in Fortune, Levitt buys everything at prevailing prices from a local building-materials dealer called the North Shore Supply Co. All conventions against direct dealing with the manufacturers are thus respected. But Levitt & Sons is the sole owner of North Shore Supply. This means that at least one of the mark-ups that go to pyramid building costs has been eliminated. Last June, Levitt opened its own lumber mill at Blue Lake, Calif. The Blue Lake mill not only eliminates the manufacturer's mark-up of about 30 percent, by value, of the materials going into the Levitt houses, but also makes it possible to precut the lumber at the mill and ship it directly to the building site. For ordinary building materials the Byrne organization at Harun- dale, Md., according to Fortune, has negotiated direct purchase con- tracts with suppliers, although this has usually involved arrangements with local building materials dealers. Kaiser Community Homes, attempting to build houses by the thousand in southern California, suggests according to the Wall Street Journal, that building operations would be much more economical if more materials could be bought directly from manufacturers. As it is now, builders must buy electrical materials, glass, hardware, ply- wood, hardwood flooring, cement, rock and gravel from distributors. Roland Wallace of the Wallace Construction Co. of Atlanta says that if he did not have to pay full retail prices for plumbing fixtures 128 HIGH COST OF HOUSING he could cut at least $400 from his present $1,200 plumbing bill for each house. A large New York builder who uses Briggs plumbing fixtures tells the Wall Street Journal that he has the fixtures shipped direct from the Briggs plant to his warehouse. Yet he has to pay the jobber's price, although the only thing the jobber does is bill him and collect the money. Another aggressive home builder quoted by the Wall Street Journal says the system robs any mass-producer of housing of the economies which would flow naturally to him in any other industry, such as auto-making. If economies through mass purchasing could be realized in a normal fashion he feels that many a smart little builder today could find plenty of capital to become a big builder. With materials representing much more than 50 percent of the cost of the average house, the policy of most material makers to sell only through roundabout channels contributes heavily to high building costs, according to the Wall Street Journal. "If the present method of getting materials from the manufacturer to the builder were less restrictive," declared one big eastern contractor, "we could save 20 to 25 percent on the cost of materials." A southern Federal Reserve bank agrees that the distribution sys- tem needs to be revised so that quantity buyers can obtain building materials direct from distributors, thereby eliminating exorbitant middleman profits. A case in point cited by the bank occurred last winter when plaster was needed to complete a large group of houses. There being none available locally, through an intermediary a deal was consummated with a lime supplier in Ohio to furnish 30 tons at 75 cents per bag. No box cars were available for the shipment, and it became necessary for the Charlotte builder to charter two 15-ton trucks to haul the plaster. At that point, the Ohio company gave notice that their product could be distributed locally only through the authorized dealer in Charlotte, which increased the cost to $1.50 per bag, plus hauling expense. The manufacturer's point of view The National Lime Association asserts that for the most part the present method of distribution of building materials could hardly be improved. On most building materials the association says, the product goes through only one hand after it leaves the manufacturers and reaches the builder. Naturally, the middleman is required in the picture so that the materials may be stocked locally. Selling through dealers, argues a Johns-Manville spokesman, pro- vides day-in and day-out service to everybody at the lowest possible cost. If the producer had to take on the services now provided by dealers, such as credit and trucking, prices would be pushed up so that there would be no saving by buying direct. It is not practical, he feels, to deal with the builder half the time an the dealer the other half. M. P. Nickerson, general manager of Westinghouse Electric's apparatus and supply division, is quoted as saying: Our wholesale distributing organization-Westinghouse Electric Supply Corp.-distributes its products for the building industry only through electrical contractors. We have not been confronted with a demand from builders to buy electrical wiring materials direct, and we don't expect to be confronted with such requests because we don't believe builders can economically buy their own wiring materials and hire their own labor for making the installations. HIGH COST OF HOUSING 129 Our conclusion is based on the belief that the existing practice of an electrical contractor buying his materials and providing a complete installation service could not have been maintained through the years were it not the most economical way to handle this type of work. General Electric affirms it will sell only to electrical wholesalers. "It's the only possible way to get distribution," said a representative, who added: "If we sold direct we'd need 50,000 salesmen." In defense of the distribution system for plumbing equipment, the sales manager of American Radiator-Standard Sanitary Corp.- argues: This experience has proven that the master plumber, because of his knowledge and ability, is the person best fitted to make a plumbing installation. He is a member of the community, and a man who can be relied upon for sincere help on plumbing and heating problems. A Crane Co. spokesman in Chicago affirms that it sells through its own branches and wholesalers only. He says the builders' complaint is an old one; builders want to get price discounts on volume pur- chases, but without performing the functions of a wholesaler (storage, transportation, and sometimes partial fabrication). Asserting that his company still will sell none of its products direct from the factory, a representative of the Kohler Co. refused to give any justification for the present distribution methods for the whole industry. He merely said that apparently it was the best system proved by years of experience. The present methods of merchandising and distribution in the lumber industry are defended by the Southern Wholesale Lumber Association. First of all, the association says the average sawmill operator is primarily a manufacturer. Very few are merchandisers in any sense of the word. Moreover, the average volume of produc- tion is not sufficient to warrant the employment of a competent sales staff. Consequently they depend upon wholesaler channels. The wholesaler frequently undertakes contracts for millions of feet of lumber that no one mill could possibly supply, thus making it pos- sible for numbers of operators, especially small mills, to make sales that otherwise they could not enjoy. Probably the greatest service he performs is that of financing, it is asserted. Most of the smaller mills must have immediate cash for their product at time of shipment. This the wholesaler supplies; also in many cases he advances funds to operators for timber purchases, pay rolls, equipment, and supplies. No person with any knowledge of the lumber industry, the associa- tion asserts, would question the need for the services and facilities of wholesale lumbermen. For example, the small lumber yards through- out the Nation having no acquaintance or contract with the manu- facturers located far away have always depended upon wholesalers for their lumber. Large retailers can afford to put men in the field to contact and buy directly from the mills, whereas the small retailer simply must depend upon the so-called middleman to obtain his supplies. The railroads and freight-car builders have for many years looked largely to wholesalers for their lumber because it would be almost impossible for any one mill to supply the many different items. required for the construction of a modern freight car. And there are many others in industry who look to the wholesaler for their supplies. This point of view is upheld in a letter from the Hemphill-O'Neill Lumber Co., wholesalers on the west coast. This firm markets the 130 HIGH COST OF HOUSING • product of some 30 to 50 small sawmills (depending on the season of the year), 80 percent of which produce nothing but rough lumber and many of which can cut only short lengths, 14 feet and under. Aside from ties and other railroad and car material, this production has to be put through a remilling plant for resawing and surfacing before it can be used for construction purposes. Railroads and car builders have found it practically impossible to deal with these small mills because of their unreliability in shipments and also because they are mostly located out in the woods, without telephone service. Those buyers rely almost entirely on the wholesaler to assemble this lumber on railroad sidings and see that it is loaded. Many of these small mills. know nothing about ordering cars or loading them properly, and as most of them are not located on the railroad they have no facilities for loading cars. Wholesalers supply all this in the shape of docks, loading crews, inspectors, et cetera. Wholesalers arrange for ship- ment of the remainder of the production of these mills to the remilling plants, where the lumber is made into commercial items suitable for the retail trade and which they sell after it has been refined, paying the mills the proceeds less the remilling charges and the wholesalers' commission. Another function wholesalers perform, which they feel to be most vital to small mills, is financing their operations through loans for the purchase of timber and equipment and for operating expenses. the present time the Hemphill-O'Neill Lumber Co. has more than $100,000 loaned out in timber purchased for these mills and in loans and advances to the mills whose product it handles. On these loans it gets 6 percent interest on the unpaid balance each month, and expected to lose several thousand dollars in 1947 because of in- efficiency or dishonesty on the part of some of the operators it has financed. The spokesman for the company adds that many large mills with a capacity as high as 250,000 board feet in 8 hours have found it to their advantage to sell their output through wholesalers. Operations like Long-Bell and Weyerhaeuser on the west coast, he is sure, have a selling cost considerably greater than the wholesalers' commission which the other smaller operators pay. The gray market A Federal Reserve bank memorandum points out that while dis- tribution methods contribute to higher costs, with a substantial margin of profit added at every level, these methods have been supplanted in some cases by the even more expensive gray markets. For instance, junk dealers, instead of selling scrap through the usual channels, are trading scrap for nails and selling the nails at fancy prices. Nails are a short-profit item and manufacturers in times like these give preference to other items with more mark-up. At the hearings held in Miami by the Joint Committee on Housing, a representative of the local builders' association complained that the costs of materials often are excessively high because much of the supply does not flow through the regular channels of distribution and is offered at a greatly inflated price. In addition, he said, the quota for materials shipped to Florida, and especially the Miami area, is disproportionately low, which necessitates going out of the area for materials and shipping them at greatly increased costs. HIGH COST OF HOUSING 131 Examples of material prices, he continued, will show that nails, which should sell between $4 and $5 per keg, are now costing between $10 and $15, with the especially scarce item of rock-lath nails selling as high as $35 per keg. The local price of cement is 90 cent per sack retail, yet it is necessary to pay $1.30 per sack because of the addition of out-of-the-area freight rates. Rock lath, which should sell between $28 and $30 per 1,000, is being sold as high as $60 and $70 per 1,000. The National Committee on Housing believes that nails are going to gray market distributors instead of to traditional distributing channels because: (1) Many manufacturers of nails in their endeavor to secure scrap steel have paid for it in nails and not in cash. Then the scrap steel people put these nails into the gray market. (2) Many prefabricators who have curtailed production or closed down are now putting upon the market at high prices products which they were holding in warehouses. (3) Steel manufacturers are not producing the nails that the market requires because nails are not a profitable item of production. With regard to gypsum rock lath, which is a plaster base, a repre- sentative of the committee reported that fuller production could be anticipated by December when two new plants were expected to be in operation in the East, but he pointed to the fact that because of present depleted stocks these plants were not expected to take care of current needs and still build up dealers' stocks. Suggestions The National Committee on Housing makes the following recom- mendations for Government action to encourage increase in supplies of millwork, nails, and gypsum rock lath: (1) Millwork.-The Office of Defense Transportation should assign boxcars for delivery to millwork manufacturers in priority second to grain. Congress should extend the export and transportation controls of the ODT which would otherwise expire on February 29. Reliable estimates place the boxcar requirements of the millwork manufac- turers at 75 to 100 cars per day (depending upon the variation in the supply of pine shop lumber). The production of pine shop lumber should be enlarged and chan- neled to millwork manufacturers in greater measure so that they will get a greater proportion of the supply than they now do. At the present time wood container producers and others are demanding and getting a much larger proportion of the pine production than they ever had before the war. (2) Nails. Steel manufacturers must be prevailed upon to throw more of their production into nails. The Housing and Home Finance Agency or the Office of the Housing Expediter should find out the effect upon nail production of the premium payment program insti- tuted last year and then cancelled. Recommendations for further use of premium payments should be made to Congress upon the basis of information which this investigation of facts will disclose. The gray-market situation should be investigated and Congress should be asked to place price controls on nails at their sources, at their wholesale and at their retail outlets and prohibit unequitable barter arrangements. 132 HIGH COST OF HOUSING (3) Gypsum rock lath.-Inquiries should be made to ascertain the ability of plants making gypsum rock lath to fulfill future require- ments. If they seem inadequate, the industry should be urged to expand further instead of holding down the supply to cater to a short supply market. A Government agency should investigate the extent to which the paper shortage affects the gypsum supply. In addition to these specific recommendations, the committee points to the absence of any officially designed agency to gather material such as the National Committee on Housing gathered through the kind cooperation of trade organizations and individual firms in the industry; and to the necessity of keeping in constant touch with these factors which affect so vitally our economic situation and our social necessities. The chairman of the Subcommittee on Housing Costs of the Joint Committee on Housing called a meeting on December 17 in the Senate Office Building which was attended by heads of 26 firms representing 95 percent of the nail supply of the country. Here there was general agreement that much could be accomplished by producers policing the distribution channels, bringing nonintegrated producers (i. e., those not producing their own steel) up to capacity production, and channeling nails into the gray-market areas in an attempt to remedy supply and demand maladjustments. CHAPTER 11. COST REDUCTION TECHNIQUES INTRODUCTORY High labor rates, high material prices, and high charges for financ- ing, says a recent issue of the Scientific Monthly are usually blamed for the high costs of housing, but, even if these were lowered (as they have been in instances), houses built along traditional lines would still be excessively expensive because of the industry's inherent inefficiencies. Too much time is required to produce such houses— and time is costly. Usually, some 4,500 to 5,000 man-hours are required. Roughly two-thirds of this time is spent in processing and shipping the elaborate array of materials to a building site, the other third in putting them together as a structure. As pointed out by the Housing and Home Finance Agency, the kind of materials, the construction methods employed, and the size and shape of the house determine construction costs. It is in these fields that the most fruitful efforts can be made to lower production costs. Nathan Straus sums up the situation when he says this: The reasons we fail to get more houses is that industry is wedded to an antiquated, inefficient, but highly profitable way of doing business- and wants to keep it that way. While labor productivity in American industry as a whole has doubled in the past 40 years, productivity in home construction actually declined. The contractors, adds Mr. Straus, have usually winked indulgently as the unions have adopted featherbedding rules limiting the number of bricks men can lay in a day, outlawing technological progress, and barring paint spray guns and prefabrication techniques. A recent issue of Fortune is even more emphatic in its condemnation. The housebuilding business it regards as medieval in its restrictive, guildlike organization, archaic in its production methods, inadequate. in its capitalization, and obscene in its politics. Fortune traces the principal disorders of the housebuilding business to the petty scale on which most of its 100,000 members operate. They are too small to make efficient use of labor. They have little capital, which means that they use little or no machinery, which in turn means that the basic techniques of housebuilding are the same as those used by the contractors who served Louis XIV. Now as then a rigid set of guild rules, some enforced by the builders themselves, some by the unions, and others by local building authorities, discourages any radical from introducing new methods, using labor more efficiently, or even buying his building materials wholesale at wholesale prices. The search for reform in the housebuilding business, continues Fortune, becomes primarily a search for large-scale operations. Efficient house production requires firms big enough to mobilize capital and organize production in systematic, repetitive operations. They must be big enough to assume full managerial responsibility instead of dividing it with subcontractors; to oppose strength to 5 133 134 HIGH COST OF HOUSING strength in dealing with labor; to buy supplies in quantity; to counter the rapacity of the suppliers of building materials; and to take the responsibility for making a fair price to the customer. Investment on such a scale is far beyond the reach of the ordinary builder who dreams of mass production, and it presents problems for the big operator as well. In southern California Fortune finds an adequate supply of men. who can think in adequately large terms. They are backed by financial institutions that are not frightened by the inevitable associa- tion of housing with real estate and do not consider all big home builders latter-day versions of Jim Fiske. Although Los Angeles building is extensively organized, jurisdictional strikes are unknown and working rules are relatively liberal. One reason is that the locals are young and may not have acquired vested positions and bad habits. Another reason is that management is strong enough to participate, with other branches of the construction industry, in effective collective bargaining and is able to make an issue of bad behavior. The Levitts, who are the largest house builders in the New York area, got over the initial hurdle, points out Fortune, because they had money to start with, and, on the strength of this and their proď- uct, have a line of credit with the Bank of the Manhattan Co. If the housebuilding business is going to have its revolution, large amounts of money will be necessary not only for financing the sale of the finished product, but also for financing the building operation itself. Stated in these terms, the answer is, of course, prefabrication or home manufacture, and large-scale site operations. Nevertheless, even small builders can do much to reduce costs. Moreover, many of the things they can do must be accomplished before mass produc- tion techniques can be effectively utilized. TECHNICAL RESEARCH Three broad types of investigation need to be carried on with respect to building construction, according to a memorandum pre- pared for the subcommittee by the National Bureau of Standards. These cover problems involved in the original design and construction of the building, problems concerned with its equipment, and problems of subsequent maintenance during the lifetime of the structure. Some examples of what has already been accomplished or is under way may help to point the way to further desirable investigations. For instance, work was done on the properties of reinforced brick masonry at the National Bureau of Standards as long ago as 1931. Some interesting data were secured, but any immediate application seemed doubtful for economic reasons. The Long Beach, Calif., earthquake changed this over night. When unit masonry is now used on the West coast in earthquake zones, mandatory requirements are in effect that it must be reinforced for safety and the data obtained at the Bureau are largely the basis for the specific requirements. Again, reductions in required thickness of masonry walls for dwell- ings have been effected in building codes over a period of years so that 8 inches is now generally called for as contrasted with the 12 inches previously required. Research has established with reasonable cer- tainty what are the factors controlling strength in compression in such 2 HIGH COST OF HOUSING 135 walls and has proved that the 8-inch wall is adequate for all ordinary conditions. Arbitrary reductions without the supporting evidence thus made available would have lacked public confidence. Today, a promising field for investigation has developed with respect to concrete. Previously thought of as a relatively heavy material, it is now appearing experimentally in types so light that in some cases it will float on water. Naturally, such a material is of interest to housing authorities who see advantages in a light and strong material having good qualities of fire resistance and insulation to heat and cold. There is very limited information on lightweight aggregates for concrete and particularly an almost total lack of re- liable design data relating to their use. At the present time, through concerted efforts of several Federal agencies, the subject is being systematically investigated. Lightweight, precast concrete roof and floor slabs, wall panels, and structural frames, columns, and beams appear to offer promise as elements in partially prefabricated build- ings but full advantage cannot be made of these products until more technical information becomes available on the factors affecting their strength and durability. Another instance of an approach to economy and efficiency through lightness is the so-called "sandwich construction" in which thin facing sheets of dense high-strength materials are combined with low-density core materials of foamed products or of a honeycomb structure made of impregnated paper or fabric. The same principle is even applied to concrete, with two thin surface layers separated by a core of light- weight insulating concrete. Light metals also provide a field for study with special reference to their behavior in construction. But questions arise as to suitable types of joints, protection from corrosion, effect of contact with ce- ments, mortars, and soils, and other problems. The construction of floor slabs of basementless buildings that will be satisfactory to the occupants is being retarded by the lack of reliable technical information on their structural stability, freedom from cracking, excessive moisture, and maintenance of comfortable temperatures. The possibility that great economy in materials and labor could be effected by the use of thin-domed floor panels of concrete instead of the common beam and girder reinforced concrete floor systems is apparent. This change of construction technique would logically call for the moulding of plywood form lumber into long-radius domed shape, an operation which would not be difficult with some of the types of hot presses now used for the fabrication of water-resistant plywood. Statistics of loss of life by fire, particularly in dwellings, furnish grim proof of the need for a better approach to requirements for fire-resistive construction. It is possible that some present-day requirements are in error and that the expenses caused by them could be reduced or applied more usefully in other directions. For instance, in the case of constructions requiring a prescribed fire resistance, many building codes differentiate between concretes made with aggre- gates of high silica content and those not so constituted. Fire tests of monolithic walls and monolithic fireproofing of concrete having Potomac River gravel aggregates indicate that the distinction is not properly drawn. The penalty against gravel concretes is a heavy one and if not justified should be lifted. 136 HIGH COST OF HOUSING The spread of fires to disastrous proportions in three hotels last year was facilitated by the failure of doors. Research on the fire resistance of doors, leading to designs of doors affording greater fire safety should be undertaken. While the ability of a house to resist the loads imposed upon it is more or less fixed in the original design and is not likely to change, a ceaseless struggle goes on against the elements which may result in gradual deterioration of its exterior surface. In the case of roofing, for instance, sunlight, moisture, heat, and cold start their attack from the moment the structure is completed. To resist this more and more effectively, investigations are going on which should not only improve the quality of old materials but should furnish much needed informa- tion about new ones. Through fellowships maintained at the National Bureau of Stand- ards by the Asphalt Roofing Industry Bureau, research is in progress to determine whether the felts and asphalts used currently produce roofings that are equal in value to those produced previously, and to enable the Government and the public to secure better roofings by developing specifications for felt and asphalt that will insure general up-grading of the finished products. Asphalt-prepared roofing con- stitutes such a large proportion of the total volume of roofing used in this country that this research needs to be augmented considerably by Government laboratory and field investigations. Among the new materials that have been offered recently in quantity and about which information is needed by agencies of the Government are: Aluminum roofing and siding products; felted and woven fabrics made of glass, for roofing and waterproofing; roofing units made of, an insulation board covering with light metal or asphalt-prepared roofing, to serve both as the roof deck and the roofing; bituminous- protected metal for roofing and flashing. These are only a few of the new products that have been presented to the National Bureau of Standards for evaluation. Evaluation is not too difficult, but it entails laboratory work by specially trained personnel with special facilities and equipment, supplemented by field work by personnel familiar with the behavior of conventional materials. The trend in housing construction toward smaller houses, more tightly built, has resulted in serious and widespread trouble through collection of water within the walls during cold weather. The mois- ture is not from leaky roofs or faulty weatherproofing on the outside, but from the condensation of vapor entering walls and ceilings from the inside. It is accompanied by paint failures and very rapid rotting of construction elements. Investigation has already brought to light much data on the causes of wet walls, and means of prevention have been developed for specific types of construction. However, the prob- lem is complicated and lack of information on feasible and economical means of preventing condensation is still hampering, greatly, the development of new methods of construction and the use of new materials. No simple cure-all to end condensation is to be expected. However, by developing complete data on the performance of available waterproof papers, wall finishes, and other sheet materials in old and new types of construction, investigation can find what steps are necessary to end the problem. The development of low-cost homes, prefabricated houses, and other departures from the old conventional constructions finds fiber building HIGH COST OF HOUSING 137 boards advantageous for a great many purposes, such as: Wallboard, sheathing boards, roof sheathing, subflooring, and rigid thermal insul- lation. Studies of the properties and performance of new and im- proved fiber boards, particularly in new methods of construction, are essential to orderly development. Prospective use of new forms of lightweight construction, either in prefabricated form or otherwise, has brought with it problems of suitable exterior finish in the form of paints and other treatments. Today the designer is typically called upon to provide heating for a small, basementless, tightly constructed and well-insulated house. The older conventional heating methods are in competition with floor furnaces, wall furnaces, chimney furnaces, panel or radiant heating systems, floor-line heating systems, electric heating devices, etc. The heat pump or reversed-cycle refrigerating machine has attracted much public attention as a possible means of improved convenience. and economy in heating. In this period of accelerated change, the time is obviously ripe for research in the heating field. Engineering data are either faulty or lacking on several heating devices or methods now proposed or in actual use. Although plumbing accounts for a considerable part of the cost of a building, reliable information concerning it is relatively meager. The amount of attention being devoted to it is almost infinitesmal as compared to work on strength of materials. At present plumbing requirements are the subject of official regulation in the form of plumbing codes which contain mandatory requirements as to how the plumbing must be done. Excessive provisions in some cases and lack of uniformity in requirements is believed to be causing unneces- would sary expense in many instances. Substantial economies undoubtedly result if codes were designed scientifically. The experiences of the National Bureau of Standards indicates that technical research requires intimate knowledge of construction con- ditions, adequate laboratory equipment properly staffed and housed, and continuous support from both industry and government. Under such conditions, an attack with the objective of developing more efficient and economical ways of using building materials can be carried on with the expectation that results will be comparable to benefits derived from research in other fields. TECHNOLOGICAL IMPROVEMENTS According to the Wall Street Journal, $1,000,000,000 is a conserva- tive estimate of the total in sheer waste that the building industry exacted from home buyers in 1947. This means that $1 out of every $5 spent for new housing was thrown away on make work and shirk- work labor practices, horse and buggy business practices, and obsolete building laws. Put in another way, this means that a $10,000 house could cost between $7,500 and $8,500 without cutting wage rates or reducing manufacturers' prices on building materials. Such a reduc- tion, claims the Wall Street Journal, could be achieved despite the fact that hourly wage rates have increased approximately 75 percent in the building industry since 1940 and materials costs almost 100 percent. A large Long Island builder operating in three different towns has to contend with three different building codes. Another in the San 69991-48— -10 138 HIGH COST OF HOUSING Francisco area says, "We don't 'deal' with labor. We listen to them.' A third, near Los Angeles, finds he has to buy all his building materials at retail. Summing up, the Wall Street Journal maintains that tech- nological improvements have been few because of union opposition, insufficient research by business, and repressive local laws. According to a southern Federal Reserve bank, the resistance to extensive innovation in constructive materials and methods is formi- dable. The conservation of consumers is fortified by the conservatism of lenders. Contractors are reluctant to adopt major technological or material innovations because they might require retraining of labor and the development of new avenues of supply; because of the resist- ance of labor, lenders, and consumers; and because of the rigidities of building codes. The risk involved, says the bank, may be excessive for private capital in view of the rigidities of consumer and labor habits and the inflexibility of labor requirements. Power tools Numerous tools are available for increasing efficiency. There are mechanical trowels, table saws, routers, portable electric saws, paint sprayers, ditch diggers, pipe threaders, bulldozers, cranes, and many others. A lock mortiser can complete 40 doors an hour for lock installations, compared with 4 doors an hour by a very fast carpenter. According to Edward Carr, president of the National Association of Home Builders, the foundation digger can dig footings even for small houses (provided the project is a large one) and can result in considerable savings in excavation charges. The ditch digger, used mainly in sewer and utility excavations, can dig 1,000 feet while a laborer digs 50. A pipe threader saves the salary of one man in a 14-home project in Bethesda, Md. In the same project a two-man paint spraying crew can cover the entire exterior of a two-story house in 2 hours, whereas if a brush were used, it is claimed, it would take nearly 2 days to complete the job. Another builder in the Wash- ington, D. C. area is saving up to $50 per house by using a power grader to grade yards. This same builder finds that paint saving from using the spray system on interior walls averages around $30 per house for three coats of paint. A portable electric saw is 10 times as fast as hand sawing, and also eliminates fatigue. Some builders have reduced cutting and handling costs of lumber by two-thirds through the use of mechanical devices. One company building a 1,400-house subdivision in Montgomery County, Md., has around $500,000 worth of equipment on the job. The Housing and Home Finance Agency sums up the situation in the following manner: Mechanized equipment has come into use in site operations and such use is increasing. Excavating, grading, and mixing machinery, mobile cranes are now used on small jobs. Electric saws, hammers, drills, and sanders are in use where resistance of labor groups does not prevent it. Cement and paint guns are also in use, though in fewer localities because of greater resistance by union labor. Universal use of all these mechanical aids to dwelling construction would show appreciable cost reductions. At present, where one or two mechanized processes are merely superimposed upon the tradi- tional manual system savings are not apparent. HIGH COST OF HOUSING 139 Precasting and new materials Significant technical improvements have come from large mills. which developed packaged windows, including glazed sash and com- plete frames, architectural details such as entrances, stair rails, cor- nices, kitchen cabinets, which could be shipped more easily and could be stocked in jobbers' or even large dealers' warehouses. These products have been used by conventional builders and incorporated into an otherwise handicraft process. Precast concrete joists and panels of both dense and lightweight concrete have been developed. in a form suitable for dwelling structures. Transportation costs. have prevented the widespread distribution of these products but some are adaptable for on-site casting. Compact back-to-back arrangement of kitchen and bath have made possible the prefabricated plumbing assembly which can be installed as a unit and connected to sewer and water lines without further fitting on the job. The potential savings in time and labor are considerable. Similar savings are possible in integrated heating systems where the placement of the heat source and outlets have been previously planned for simple and direct distribution of heat. Further study of this im- portant element of equipment can eliminate substantially all field cutting and adjustment. A host of new materials suited to precision manufacture has also appeared. Many types of insulation boards and fillers, impervious and wear-resistant surfacing materials in thin sheets, lightweight aggregates and foaming agents for lightweight concrete, have become available. Multipurpose panels are being marketed of shredded wood and plastic binding agents which afford structural strength along with high insulating characteristics from which an entire wall can be constructed, taking the place of the present studs, sheeting, vapor barrier, lath, and plaster. These new panel materials are susceptible to factory handling in large sizes for entire walls and partitions. The use of power tools, jig tables, glue presses, and spray painting is feasible for working elements in large sizes and point the way to great savings if their more general use can be encouraged. Elimination of waste STANDARDIZATION One-fifth of the expensive building materials carted to the average convential building site are later carted away as trash and "cuttings." This amazing waste in materials, according to the Wall Street Journal, is extended many times over when the accompanying waste in labor costs and trucking are considered. This immense wastage is caused largely by the industry's extensive use of nonstandard sizes, shapes, and grades of building materials. Each item is usually individually tailored for the house. The Wall Street Journal counted more than 200 sizes for interior doors, 8 com- binations of wood and steel door frames and jambs, each subject to 50 different finishes, and these may be used with at least 2 different types of lock. The moulding that goes around the door is carried in more than 200 varieties by lumber dealers. More than 1,000 varie- ties of lavatory and sink traps and 19,000 kinds of valves and fittings complicate plumbing. There are 150 strengths of window glass. 140 HIGH COST OF HOUSING The National Capital Housing Authority says its experience indi- cates there would be a material reduction in cost-due to savings in time and materials-if lumber manufacturers would produce a greater number of standard unit lengths of framing lumber. Progress in modular sizing has extended to brick and tile masonry, concrete masonry, wood doors and windows, metal windows, natural stone and structural wood, points out the Housing and Home Financing Agency. Elimination of waste where these products are used is sig- nificant for both material and labor. Greater uniformity of the finished house and shortening of the construction period are additional ad- vantages, perhaps harder to calculate, but no less real. The National Door Manufacturers Association is developing a set of modular door sizes. Of 18 producers on the West coast, 9 report their production is 100 percent modular. The National Clay Pipe Manufacturers are preparing standards for modular sizes of clay flue linings. The Structural Clay Products Institute is urging use of modular brick and the elimination of nonstandard sizes. However, the brick industry comprises about 664 manufacturers with 800 plants scattered through the country, so a complete national change-over has not yet been effected. In many important areas from 50 to 80 percent of brick now being produced is being made in module sizes. The Wall Street Journal points out, however, that in practice modular design has made so little headway since it was introduced in America about 8 years ago that few have heard of it. It is doubtful if 5 percent of building materials are produced on this basis today. The industry-engineered home A completely detailed scheme for standardization has been de- veloped in this country, sponsored by the Producers' Council, Inc., and the National Retail Lumber Dealers Association. The organiza- tions explain that the basis of the money savings possible in the industry engineered home (as it is called) is the design of the house which has been engineered throughout on a modular system. Under the modular plan, the dimensions of the house are coordinated to avoid waste of time, labor, and materials. Economies in manufacture of materials can be achieved, they say, through standardization resulting in greater demand for standard parts and a greater degree of mass production. This also means a savings in handling and ware- housing costs resulting from inventory savings at both the point of manufacture and dealers' yards. Savings in distribution result not only from lower inventories, but from the fact that every dealer can afford to keep all of the standard parts in stock all of the time. Labor-time costs resulting from de- livery delays will be reduced. Standardization makes possible a steady flow of materials to the job site. Distributors can provide further savings through packaging of materials, and through pre- cutting and preassembling prior to delivery. (Packaging, as used here, means the assembly of needed related parts and their delivery on schedule rather than the physical wrapping of items in a package.) HIGH COST OF HOUSING 141 The greatest savings can be realized at the construction site. The use of modular products enables the architect to design homes of materials that will readily fit each other according to plans. At the home site there will be less trial and error, less saving and cutting of materials, less waste time. The 4-inch unit of measurement is the module used in designing the industry engineered home, but the 4-foot unit of measurement has been used in designing interior space arrangement. The 4-foot unit of measurement includes the 4-inch module, but as many products are made in 4-foot widths, cutting and fitting of wallboard materials, for example, can be reduced by the use of 4-foot planning units. Studs 16 inches on center or 24 inches on center also are accommodated within the 4-foot unit, as well as the 4-inch module. Thus, stock sizes of standard materials will fit into these homes with a minimum of cutting and fitting. The next step in extending the process of savings is the proper incorporation of standard products in the house design. This is necessary if the advantage of the product correlation already accomplished is to be preserved. The design must accom- modate the principles if they are to be realized in the construction assembly at the job site. Otherwise, they may be largely nullified. To achieve cost savings requires consideration of assembly methods and practices as well as the relationships of one material to another on the over-all problem. As construction savings and efficiency were a primary goal of the program, the house plans were based on a com- bination of dimensions of length, width, thickness, and height which would permit the maximum coordination in the use of materials. While one set of dimensions might show large savings for a single material, it might also create installation problems for other materials or equipment resulting in a net loss. These factors were carefully evaluated. The plans finally evolved were those which appeared to offer the greatest total savings even though some other plans might reduce the application cost of a single material to a greater extent. (They may be obtained from the sponsors.) David S. Miller, president of the Producers' Council, says that the engineered housing carries the process of coordination to the point where the dimensions of the house are coordinated with the dimensions of the materials which go into it, wherever any advantage is gained by doing so, so that standard sizes can be used without waste of either time or labor. What has been done, it is claimed, is to bring together in one over-all pattern, all of the known and tested means of reducing the cost of building a home. None of the individual ideas is new, but bringing all of these ideas together in one coordinated plan is new, and it means lower costs. Mr. Miller announced recently the approval of a contract between the University of Illinois and the Office of Technical Services of the United States Department of Commerce, under which the OTS has made a grant of $45,000 for a study of methods of saving time in the assembly of small houses. The industry engineered houses have been chosen for that study. 142 HIGH COST OF HOUSING The following table shows the actual cost of an industry-engineered home: TABLE 43.—Cost of building an industry-engineered home in Baltimore, Md. (2A L-shaped plan 47–1, 768 square feet) Material: Sand, gravel, cement, bricks for chimney, blocks, lumber, millwork, hardware, paint, plaster board, wood shingles, roof and side wall, subfloor, hardwood floor, flashing, wood gutter, downspout------ $2, 800 Labor: Mason, carpenter__ Painting. Wiring and fixtures, electric connection_ Heating, oil floor furnace, 260-gallon tank_ Plumbing- Septic tank. Gas water heater. Papering Floor finish. Į 1 Cement deck, iron rail__ 1 1 Well, electric deep well pump- Lot---- Total_ 1 1 1 1 1 1 I 1 រ 1 I 1 1,500 150 250 250 800 150 150 150 100 200 $500 500 1,000 7,500 In furnishing these cost figures, the National Retail Lumber Dealers Association says that this was the first home constructed by the con- tractor and, therefore, probably no savings were effectuated. Savings should come when manufacturers produce materials to meet the specifications of this type of home and labor has become accustomed to the methods of assembling and construction proposed by this plan. The Association believes there is a bright prospect that the develop- ment of this method of construction will result in considerable savings, especially in the case of the builder who normally constructs only a few houses each year, and who is responsible for the largest volume of our new-home construction. SURPLUS AND TEMPORARY HOUSING It has been suggested that surplus and temporary war housing might be considerable help in alleviating shortages. However, the contribution that the War Assets Administration may make in the future to the housing program says WAA will be very slight. The inventory of available surplus property suitable for salvage and for utilization for housing has been reduced to a point where it no longer materially affects the housing picture. The costs to the purchaser of a surplus structure, of dismantling the building, hauling the material to its future site, and its re-erection are such, that surplus structures. can no longer offer serious competition to new construction materials now becoming available in ever increasing quantities. Any addition of any kind of dwelling, will, of course, increase the housing supply. In the opinion of the National Capital Housing Authority, however, temporary housing will provide an increase in a most extravagant way, and coincidentally it will: (a) postpone erection of an adequate supply of proper housing and (b) tend to create new slums when we already have expanding slum areas with which we are not now dealing effectively. HIGH COST OF HOUSING 143 Surplus materials already used in temporary housing would have contributed to the construction of permanent dwellings and therefore postponed the erection of permanent dwellings, states the National Capital Housing Authority. In the case of new temporary housing, this point is even stronger because so much more material and labor is used. Experience has shown, continues the Authority, that tem- porary housing is an extravagance. It is wasteful of money, materials and labor. In a city, it must be serviced with streets and utilities that, however sketchily they may be constructed, still are a major item. The sites must be developed. If the project is temporary, the greater part of these development costs is wasted, and, when the project is closed, and the land restored to its destined use, more money and labor must be expended to remove the temporary facilities. Temporary buildings are themselves cause of dissatisfaction to their occupants, and of apprehension to occupants of neighboring properties who fear the effect on their properties. To the extent this fear is justified, tax values are decreased. Also the temporaries require undue expenditure for repairs, maintenance and replacements. Temporaries are practically certain to result in financial loss. Either they will be removed before their revenues repay their cost, or they will remain until they become rundown, dilapidated liabilities to the community. Thus, experience shows that the erection of temporary housing will not be an effective stop-gap measure, that it will not lower effective demand, that it will not aid in cost reductions, but that it will tend to prolong high costs by utilizing materials and labor extravagantly and wastefully, and coincidentally it will postpone the erection of an adequate supply of proper dwellings. CHAPTER 12. PREFABRICATION BARRIERS TO PREFABRICATION The savings in cost in houses manufactured in a factory, says the Office of the Housing Expediter, come largely in the savings on that part of the house which makes up the factory package. Materials are purchased in quantity and are cut to standard pattern. There is generally a saying in the cost of labor for that portion of the house. All the advantages of assembly line production are gained. As of today, however, there are few examples of large scale or real mass production, and costs will not be lowered appreciably until it becomes a reality. Mass production will become a reality only when mass sales are effectuated. The principal bars to mass sales are (a) the public has still not fully accepted factory-built housing or at least that is the belief of some mortgage-financing institutions and (b) there still remains the gap in financing between the time the package leaves the factory and the time financing of the finished house is arranged for the ultimate consumer. No present Government or private home financing arrangement has been set up to bridge that gap. When the factory-built housing industry gets on its feet, there should also be an additional saving on erection. The factory-built unit provides easier and faster installation of plumbing and heating equipment and electrical wiring. When subcontractors become fully aware of this, savings will be effected in erection costs. The present unfamiliarity with factory-built units often forces subcontractors to estimate prices higher than on the more complex conventional unit, with which they are more familiar. According to the Wall Street Journal, a great disappointment of prefabrication has been its failure consistently to undersell conven- tional structures. The reason as seen by that periodical is that pre- fabrication cannot really prefabricate a complete dwelling. Labor groups, politicians, and businessmen with an interest in the traditional way of doing things have seen to that. Prefabricators usually turn out the shell of a house, which even in conventional construction is the least expensive segment. Plumbing, heating, wiring, and often even flooring have to be purchased and installed through subcontrac- tors who work on the site. Wages of the erection crew and charges by subcontractors pad prices in most cities. Three-fifths of the cost of a prefabricated house is often added after it leaves the factory. One prefabricator, for ex- ample, sold a home f. o. b. factory for a little over $3,000 and later received total cost figures on it of more than $10,000. Plumbing contractors' charges vary widely, often ranging from $360 to $650 on identical models erected in different towns. A midwestern prefabricator, now in bankruptcy, says: High charges by subcontractors ruined me. Because of restrictive municipal codes we couldn't send out much plumbing with our houses, just two bathroom fixtures. 144 HIGH COST OF HOUSING 145 A midwestern Federal Reserve Bank points out that when both the automobile and aircraft industries reached an output of 50,000 units they had reached a critical point; the application of mass-production techniques materially reduced costs. On the basis of this parallel drawn with other mass-production industries, prefabricators may be close to the brink of substantial reductions in their costs. A further examination of the development of prefabrication, how- ever, reveals obstacles which were not present in the automobile or aircraft industries. According to some observers, a revolutionary reduction in prefabrication costs cannot be made with the use of con- ventional building materials. These materials. limit the average prefabricator to a market radius from 200 to 300 miles from the factory. The use of lightweight materials especially plastics, will greatly extend this market radius, making possible a larger volume and the application of mass production techniques.. However, since a new house in many instances constitutes a life- time investment, the general public is very conservative in accepting new construction materials. Consequently, prefabricators may find it necessary, if they have not already provided for it, to launch an advertising and selling campaign extending over several years to over- come the public's prejudice against the use of new materials. The building cycle, say this same Bank, also hinders the prefabrica- tors in the adoption of mass-production techniques. The building industry is subject to larger swings in the cycle than any other in- dustry. Since the construction of houses involves the outlay of a large sum of money, home building is highly concentrated into periods when the public is confident of the future. Even though prefabrica- tors might materially reduce building costs, they could at best only moderate the amplitude of the cycle. Thus, prefabricators with a substantial amount of capital tied up in plant and equipment must be prepared to weather slack building seasons or develop plans to maintain a market during such periods. Prior to the war, prefabricators did not offer serious competition to the conventional building contractors. The cost per cubic foot was higher for practically all prefabricated houses of comparable quality than those built in the conventional way. Since the shell of the house constitutes only about 40 percent of the total cost of a completed house, since the war some prefabricators have processed more items which go into a house in an endeavor to reduce their costs. Some have included a complete line of plumbing, heating, and electric wiring. These materials are precut in the factory, reducing the cost of installation. On the basis of all the evidence available, prefabricated housing costs, most likely, will decline gradually during the next few years. No revolutionary changes in design or costs are anticipated during the present building boom. Consequently, prefabrication may not pull costs away from the historically rising trend, concludes a Mid- western Federal Reserve bank. To give an idea of the present status of the industry, the Pre- fabricated Home Manufacturers' Institute presents estimates based on surveys of their members. These figures represent something like a tenfold increase since prewar years: The 80 firms now in production represent about $60,000,000 in capital, and monthly pay rolls of about $1,800,000. In addition, 146 HIGH COST OF HOUSING these firms have about 1,800 authorized dealer erectors and consider- ably more planned for 1948. It is estimated that the dealers have about $36,000,000 tied up in capital for the purpose of erecting and selling these homes. The quarterly figures for shipments of prefabricated units, as given by the Office of the Housing Expediter, are as follows: First quarter-- 1946 5, 000 1947 Second quarter.. Third quarter- I 1 I Fourth quarter- 9, 100 11, 800 11, 300 37, 200 6, 800 8, 100 1 11, 300 1 10, 800 37,000 1 Prefabricated Home Manufacturers' Institute estimates. The small proportion of prefabricated houses to the total volume of homes produced is indicated by the limited numbers of prefabri- cated homes submitted as security for prefabricated FHA insured mortgages in prewar years, with somewhat increasing relative vol- umes of such structures during and since the war. Even in 1946, however, only 4.5 percent of the properties committed for mortgage insurance under the Veterans' Emergency Housing Program of sec- tion 603 involved prefabricated structures. While the Federal Housing Administration maintains sincere expectations that such special methods of construction as partial or complete off-site fabrication will eventually contribute significantly to reductions in construction cost, the accomplishments of this relatively infant industry are somewhat limited thus far. The Wall Street Journal mentions that the local bank is sometimes a bottleneck when financing is sought for prefabricated housing. Its board of directors may often harbor a prominent contractor or build- ing material dealer who does not like the idea of prefabrication. The National Homes Corporation recently found it desirable to create the National Homes Acceptance Corporation, which provides the dealer with money for building and the home owner with a mortgage. An article in a recent issue of the ORT Economic Review main- tains that there had been a frontal attack to develop genuine pre- fabrication of houses from materials specially suited for assembly line methods by the granting of low equity loans, research and devel- opment contracts to speed up experimentation, special assistance in obtaining scarce materials and machinery, and an interchange of ideas and a common pooling of effort among Government, industry, and labor, mass produced houses would now be rolling off the as- sembly lines in sizable and steadily increasing volumes. Let us not forget, it adds, that financial incentives to aid a new industry are in keeping with the best American tradition and practices. Comparable and more extensive aids have been provided for the aircraft, auto- mobile, and railroad industries. Table 44 shows the selling price of the typical house of each of 10 manufacturers. The factory package constitutes from 39 to 66 per- cent of the total selling price, or from only the shell of the house to wide sections shipped by truck and merely joined at the site. The table indicates how large a proportion of the costs are still incurred on the site. + HIGH COST OF HOUSING 147 Table 44.—Selling price and components of houses of 10 prefabricators Contractors American Fabricators, Inc... Fox Metal Products Corp General Panel Corp. of Calif. William H. Harman Corp.. Home Ola Corp. Knox Corp... Metal Homes Co.. Preco Corp... Prenco (C.D. Johnson Lumber Corp)…. Wadsworth Building Co. Percent distribution Location of sale Total Factory package Erection and nec- essary Land comple- tion Brinkley, Ark………. $7,227 50.5 36.7 12.8 Wheaton, Colo. 7,450 42.3 49.7 8.0 Los Angeles, Calif. 8,389 52.2 23.9 23.9 Wilton, Conn.. 8, 519 50.6 40.6 8.8 Chicago, Ill.. 8,750 42.9 45. 7 11. 4 Waynesboro, Ga. 5,990 52.2 35.3 12.5 LaCanda, Calif.. 9,050 46.4 29.3 24. 3 East Seattle, 9, 912 42.9 47.0 10. 1 Johnson Wash. Helensview, Oreg. Co., 10, 861 66.4 24. 4 9.2 9,000 39.3 54.0 6.7 Kans. (Kansas City). Source: Office of Housing Expediter. NOTE. This table shows the relative importance of the various items of cost. Comparison of the houses with each other should not be made, however, because of variations in size and in the composition of the factory package. The Office of the Housing Expediter finds it impossible to give any information relative to the profits at various levels of production and erection of the various factory-built units. Normally, the mark-up to the manufacturer is between 10 and 15 percent on the package. It is far more complicated, however, to estimate profits in erection and completion of the house because of the various subcontracts involved. There is a profit to the real-estate company on the land and a profit to the builder undertaking the erection, where both of these parties are involved. There are also profits on all subcontracting work, the most important of which includes the installation of plumbing and heating equipment and electrical wiring. ANALYSIS OF THE INDUSTRY The prefabrication industry says the HHFA, while currently making no dramatic demonstration in cutting the cost of housing, exerts a steady downward pressure on housing costs that in the long run will pay the ultimate consumer big dividends. The public benefits far more from the fact that this industry exists than is generally recog- nized. Over-enthusiastic proponents of prefabrication have fre- quently promised revolutionary results in cost-reduction-results which could be attained only be readjusting overnight the whole building industry to create a utopian setting for prefabrication. That this has not happened has tended to obscure the fact that the slower processes of evolution are at work, and that modern methods which increase efficiency and help press prices down are gradually gaining general acceptance. It is important to the consuming public that the building industry, with the cooperation of local and Federal agencies of Government, absorb new and better techniques in house construction as rapidly as orderly adjustment will permit. This is a field in which there is no controversy over the ultimate desirability of the objective. However, the means by which progress 148 HIGH COST OF HOUSING toward this objective may be accelerated must be examined with care, and choices must be made which will assure permanent progress based firmly on general acceptance, in the house-building industry and by the public. The following analysis of HHFA attempts a brief analysis of the prefabrication industry as it does and can affect housing costs. Nature of the industry The prefabrication industry includes a wide variety of enterprises For example, there are firms which produce and sell packages so com- plete that only the land and foundation need be provided at the site. On the other hand, a large percentage of the prefabricators produce and sell packages of panels and loose material sufficiently complete to permit erection of house shells, leaving it to the purchasers to pro- vide plumbing, wiring, equipment, and the like. Finally, a number of companies (not usually identified as prefabricators) merchandise packages of precut lumber and sheet materials. Some firms do all of the prefabricating work in their own shops. There are also firms which subcontract most of the fabrication of parts to others, confining their own efforts to collecting, crating, and shipping packages made up of the subcontracted items. There are a wide variety of production techniques, ranging from relatively primitive operations which do little more than transfer conventional construction methods to factory environment, to highly mechanized operations involving large capital investment in plant facilities. In the latter case, some firms are contemplating operations which approach the degree of mechanization found in the automobile, furniture, and similar highly organized industries. While a few com- panies have tooled up for large volume mass production, none have yet succeeded in establishing mass markets sufficiently substantial to sustain full production over any length of time. The HHFA tells us that a few companies are pioneering in the use of new materials, or of new structural concepts. One of the outstanding examples is the production of a lightweight but strong panel made by surfacing a honeycomb paper core with thin-gage aluminum sheets. This development offers promising potential savings in material costs. Another example is the preassembly of panels, components, and equip- ment into large three-divisional sections which are shipped out of the factory or assembly plant with all mechanical work, trim glazing, finish painting, completed and sometimes with even the furniture installed. This method, which has been pushed ahead further in England than in the United States, approaches the ultimate in factory fabrication of complete houses. Its potential importance therefore, cannot be underestimated. It also produces a truly demountable house of any desired size and quality, which opens up a whole new field of speculation regarding the significance of a house which is a movable commodity, separable from its site. Recently distinction has been drawn between prefabrication and industrialized house pro- duction. This is an arbitrary distinction which cannot be defined with any precision. The extent to which a factory operation is mechanized or industrialized is a matter of degree. Furthermore, at highly industrialized operation in a woodworking plant will bear no resemblance to one in which hot-rolled steel is the principal product. Fabricators of components are difficult to classify because their products merge rapidly into those now generally accepted as building HIGH COST OF HOUSING 149 materials or products. For example, complete shower stalls are now regarded by builders generally as in the same category as bath tubs. A few years ago prefabricated shower stalls were novel and would doubtless have been referred to as prefabricated components. Today a plumbing panel which encloses the drainage and supply pipes for a complete kitchen and bath is regarded as a special component. When units of this sort become widely accepted, they will undoubtedly be classed as building products. Types of components which can now be identified include plumbing panels, complete bathroom units, com- plete kitchen-bathroom units, closets and storage cabinets, standard floor, wall, partition and ceiling panels, various types of chimney flues, prefabricated stairways and the like. Not over three or four companies are regularly producing any one of the items mentioned, with the possible exception of standard panels. Dollar contribution of prefabrication to erected house Very little reliable information on this subject is available says HHFA, and what there is constitutes such a small sample of the whole industry experience that general conclusions drawn from a study of it entail some risk. As no valid information on the subject is available with regard to either fabricated components or site fabri- cation, they are not included in this analysis. It has been estimated that about 20 percent of the cost of the average small conventionally built house can be accounted for in manufactured products such as kitchen cabinets, kitchen and bath- room fixtures, heating plant, and the like, as distinct from such ma- terials as bricks, lumber, and nails. In contrast, tabulation of esti- mated cost break-downs developed by OHE in cooperation with 12 applicants for market guaranty contracts reveals that the average house package price f. o. b. factory amounts to about 58 percent of the retail price of the erected house without lot. Extremes range from a low of about 37 percent to a high of about 77 percent. As may be expected, the low extreme is represented by a relatively incomplete package that provides barely enough material with which to assemble the house shell, with a considerable portion of the material shipped precut but not preassembled. There is a rather wide gap between the average group and the one company attaining 77 percent factory cost. This is explained by the fact that this particular com- pany produces a house package in which the panels and other parts are preassembled in the factory into three, four, five, or six large sections which are shipped to the site, with all plumbing, wiring trim, and other features, factory installed. A good deal of research is needed to determine the optimum degree of factory fabrication indi- cated for various types of field conditions. Data available for analysis of cost break-downs on house packages has been secured from OHE market guarantee contract files. Indi- vidual companies are not identified in this analysis for two reasons. One is that the cost figures were submitted by companies in confidence, and the other is that all figures available are estimates made by the OHE staff from 6 months to a year ago and may not reflect the com- panies' current operations. Table 45 summarizes the unit cost break-downs of house packages derived from figures submitted by 12 companies. Table 46 tabulates the same information in percentages to total consumer cost of the erected house without lot. 150 HIGH COST OF HOUSING TABLE 45.-Summary of unit costs of prefabrication price ranges Package, total. Erection, total. Total cost, less land.. Direct Material. Package: Element of total cost Total From- To- Average $2, 269. 13 1, 150.00 4, 468. 19 1,243. 98 $5, 794. 57 3,824.00 7,702. 42 $3,460.67 2, 448. 27 5,908. 94 Direct labor---- Indirect labor. Other indirect. Administration. 63.60 3,081.00 1,060.29 2, 110. 37 451.08 65.36 604.39 183.82 116. 30 577.18 331.42 29.94 197.00 97.30 Sales expense.. 37.57 258.98 151.38 Profit.. 226.91 579.46 354.70 Erections: Direct material. 232.00 1, 905. 00 841.85 Direct labor. 422.00 1, 471. 44 820.35 Freight and delivery... 45.00 375.00 162.63 Indirect labor.. Other indirect. 31.50 125.00 86.03 Administration. Sales expense. Profit... Total, package and erection: Direct material. Direct labor. Total direct costs.. Freight and delivery. Indirect labor. Other indirect. Administration. 250.00 807.00 526.41 2,017.07 3,696.96 2,970. 23 947.44 1, 647. 29 1, 253. 48 3,062. 10 5, 250.20 4, 228. 09 45.00 375.00 162.63 65.36 604.39 183.82 50.00 659. 18 327.78 29.94 197.00 97.30 Sales expense- Profit.. Source: Housing and Home Finance Agency. 37.57 258.98 151.38 450.00 1, 192. 46 865.55 Table 46.—Summary of unit costs of prefabrication percentage ranges Total Element of total cost From- To- Averag Package, total. Erection, total... Total cost, less land.. $37.24 22.93 $77.07 $58.34 62.76 41.66 100.00 100.00 100.00 Package: Direct material Direct labor- Indirect labor. Other indirect. Administration Sales expense- Profit.. Erection: Direct material. Direct labor. Freight and delivery Indirect labor... Other indirect. Administration. Sales expense- Profit.. Total, package and erection: Direct material…. Direct labor - - - Total direct costs. Indirect labor….. Other indirect- Administration. Sales expense- Profit.. 20.42 46.83 35.20 1. 13 14. 10 7.48 1.07 7.84 2.89 1.89 7.68 5.20 .64 2.56 1.53 .56 3.44 2.46 1 3.72 7.71 5.92 4.88 31.26 14.21 7.81 26.17 14. 20 .90 5.48 2.78 .48 2. 43 1.49 3.82 14.36 8.84 42.96 58.05 50.00 14.58 27.30 21.22 61. 19 78.21 71.72 Freight and delivery-- .90 5.48 2.78 1.07 7.84 2.89 1.05 8.77 5. 23 .64 2.56 1.53 .56 3.44 2.46 9.23 21, 15 14.40 Source: Housing and Home Finance Agency. HIGH COST OF HOUSING 151 This is a very small sample, and the figures are very approximate, but within these limitations the following general conclusions can be drawn. The direct factory labor costs range from a low of 1.13 percent to a high of 14.10 percent. The low percentage is found in a plant which subcontracts virtually all of its fabrication, and therefore a fair median percentage would be closer to 12 percent than the average of 7.48 percent shown in table 2. Concerning cost reductions, HHFA says it is obvious that prospects of securing cost reductions through elimination of direct and indirect labor in plants are definitely limited. For example, cutting the direct factory labor cost in half would reduce the total cost of the erected house by 3 to 6 percent. Reduction of field labor costs, which range from a low at 7.81 percent to a high of 26.17 percent, perhaps holds more promise. On the other hand, the direct materials cost in the house package is, in every case, the highest single factory cost item. In most cases, this is true in the field as well. The prospect of savings here, both by development of designs which eliminate unnecessary material, and by reductions in unit materials prices through elimination of wholesale mark-ups are substantial. Indirect and administrative costs generally represent such small percentages as to offer little promise of cost reduction. It should be noted that allowances for factory sales expense are abnormally low in every case. Informed judgment on this subject has concluded that a factory sales allowance of 5 percent is essential to successful merchandizing in this field. Considered either separately or combined, the factory and field allowances for profit in this tabulation cannot be regarded as exces- sive, says HHFA. Actually, the average field profit of 8.84 percent is somewhat below that which is customary in the field of conventional building. This tentative analysis may serve to cast some light on the nature of the cost structure in this industry. A great deal of additional in- formation, plus intensive research is needed to clarify the picture. Cost figures of this kind are peculiarly difficult to secure because individual companies are understandably reluctant to reveal them. Volume of business Statistics on volume of business in the prefabrication industry are fragmentary and inaccurate. Various spot surveys for special pur- poses have been made, but the only attempt at securing regular periodic reports on industry-wide production was made during the year 1946, when prefabricators who secured priority assistance from the OHE were required to report weekly production. Even these figures leave much to be desired, says HHFA, as the definition of what constituted a prefabricated house changed several times during the period, and of course individual companies' packages varied so greatly that they were hardly comparable. With these limitations in mind, the following comments of HHFA on production may serve to bring the industry's volume of production into focus with the total volume of house construction. 152 HIGH COST OF HOUSING During the 1920's only a few firms were in production, and these were generally regarded as highly experimental operations. During the 1930's a few firms became well enough established to be generally regarded as going concerns. There are no production figures avail- able for this period but it is probable that total annual production was less than 50,000 units. Just prior to World War II, in 1940-41 the defense housing program gave the industry its first real chance to enter the field of mass produc- tion. It was during this period that demountable housing, most of which was produced by prefabricators of house packages, first ap- peared. This was also the period in which site fabrication was first tested on a large scale. During the war the demand for war housing, backed by Federal funds, created a large market for prefabricated houses, and a large number of firms now in existence got their start with Government contracts. During 1944-45 this culminated in the execution of Government contracts with about a dozen companies, several of them newcomers, for the production of 30,000 prefabricated houses, intended for lend-lease shipment to Great Britain. At the end of the war, the industry estimated that its produc- tion capacity was 150,000 units a year, and in the early part of 1946 estimates of its annual capacity ran as high as 300,000 units. How- ever, numerous factors have contributed to cutting actual production volume far below these estimates. During 1946 the 270 companies which secured priorities assistance reported a total production of 37,000 units. Comparable figures are not available for 1947, because the priorities assistance program was stopped on December 24, 1946. However, the Prefabricated Home Manufacturers' Institute, a trade association representing about 50 companies, estimates that total 1947 production is likely to equal but not exceed the volume achieved in 1946. The physical capacity of the industry today is estimated by PHMI to be about 120,000 units a year. However, in this industry, increase in physical capacity is easy and can be rapid under stimulus, as was demonstrated when a capacity to produce. 30,000 units of Govern- ment design, and for which no plant facilities had been developed, was created almost overnight, in the spring of 1945. This type of capacity is represented by relatively primitive operations in which tooling-up costs are low. The more highly mechanized operations, many of which are just now starting to produce, are probably capable of doubling the estimated physical capacity of the industry. How- ever, continuing support of, and expansion of this capacity is depend- ent on the establishment of mass markets capable of sustaining econ- omic production volume. This is not yet an accomplished fact. The complex factors which have prevented the industry from reach- ing its full physical capacity to produce are analyzed in some detail below. In summary, they include but are not limited to: (1) Diffi- culties in securing materials in sufficient quantities, and at sufficiently low prices; (2) difficulties in establishing sustained volume of sales; (3) difficulties in securing adequate credit. From these observations, says HHFA, it can be deduced that the industry is currently producing somewhere between 3 and 5 percent of the current housing being built in the country. However, we should recognize that most house packages represent only about 60 percent HIGH COST OF HOUSING 153 of the retail price of the houses erected from them. Package sales represent a gross annual business of about $150,000,000. It can also be deduced that, as barriers to full production are removed, the indus- try has or can rapidly attain a capacity to account for possibly 10 to 15 percent of the country's annual production of housing. How- ever, this is an unsafe assumption, for numerous reasons, a principal one being that the distinction between a prefabricated and a conven- tionally built house is likely to gradually fade as more builders switch to the use of prefabricated components and house packages made up of these components. Eventually, builders and the public generally may come to regard a complete house package as simply a combination of building products which conveniently fit into a house. In the last analysis, the true measure of prefabrication is the percentage that goes into any house. It would be far more accurate to grade housing in this way than to continue distinguishing between conventional and prefabricated houses. Purchasing power In the face of production goals ranging from 1,000 to 10,000 houses a year announced by a number of companies during the past year, HHFA says that the relatively modest plant producing one or two houses a day seems almost insignificant. Yet a large proportion of the companies actually producing and selling houses do well to average more than this daily volume over a year's time. Actually a plant averaging 2 houses a day, which approximates 400 houses a year, must reach a daily peak possibly double the daily average. This is a substantial enterprise, both physically and financially. The annual gross in such a plant will range between $800,000 and $1,500,000, depending on the unit price of the company's product. The purchasing power of such an enterprise is considerable. It buys almost all of its supplies in carload lots and should be in a position to command mill prices. That most companies find they must pur- chase through wholesale outlets is one of the industry's problems which will be discussed in more detail below. Relations with dealers There has been a good deal of discussion in the industry as to the relative merits of various sales techniques, says HHFA. Virtually all prefabricators of house packages sell their products either direct to dealer-erectors or to dealer-erectors through distributors. There are several cases where the distributor is the principal entrepreneur, holding a controlling interest in the production facilities. There are · isolated cases where the prefabricator erects his own houses and sells them at retail. Quite a few companies do this in the immediate vicinity of their plants, but dispose of the bulk of their production through dealers. There seems to be a cogent reason why most prefabricators sell to dealers. To dispose of 400 or more houses a year over a period of years requires a market with more absorbtive capacity than is usually found in one community. A large percentage of the com- panies, therefore, must operate within a radius of at least two or three hundred miles of their plants. Because building codes, mortgage practices, consumer tastes, land assembly, and development problems and the like, vary greatly even within such a small radius, the diversity 69991-48- 11 ་ 154 HIGH COST OF HOUSING of problems facing a company which attempted to produce, and also erect and sell prefabricated houses at retail, would be staggering. There is a nice question as to whether the combining of factory and field operations, where the latter are scattered over a large trade area, would produce economies sufficiently great to offset the increased cost of management. The debate over elimination of middlemen continues in this industry as in other merchandizing fields. The principal fact to be borne in mind is that the prefabricator must spend money to sell his product in a tough competitive field. As to whether he spends it by employing factory sales personnel on a salary basis or by paying distributors percentage commissions on sales, will depend on his analysis of numerous factors. Most prefabricators operate under franchise agreements which they execute with dealer-erectors or distributors. The typical franchise grants exclusive rights to the dealer within a specified territory, sometimes sets purchase quotas which dealers must meet, usually specifies the price the dealer pays for the house package, but leaves the retail price of the erected house and lot to the dealer's discretion, requires the dealer to conform with certain construction standards, but in nearly every case, specifies that the dealer is solely responsible to the purchaser of the erected house for its quality. durability, and the like. The franchise usually sets forth the terms of payment from dealer to prefabricator, sometimes requires the dealer to purchase, erect, and display a demonstration house for a specified period, and includes a guarantee by the prefabricator to the dealer covering the quality of the package contents for a period of, say, 1 year. While the dealer is encouraged, and frequently is required to adver- tise the erected house under the prefabricator's trade name, the pre- fabricator can be held responsible by the dealer or occupant who pur- chases the erected house only for those parts provided by the pre- fabricator. The buyer usually can reach the prefabricator only through the dealer-erector. Relations with lending institutions HHFA advises that the average prefabricator of house packages borrows money for capital plant investment and for working capital from the bank in his local community. Lenders regard this type of business as relatively risky, partly because it is novel, and partly perhaps because it competes more often than not with other enter- prises in the local building supply field which are substantial and of proved soundness. The RFC has participated in bank loans to numerous prefabricators, and during the past year, this participation was increased consider- ably under the ÕHE market guarantee program. However, there is little evidence to prove that this program has done much to build. general confidence among lenders generally in the industry's sound- ness as a credit risk, says HHFA. There is currently in effect legislation under section 609 of the National Housing Act, administered by FHA, which provides for Federal insurance of working capital loans to prefabricators. It is yet too soon to appraise the effectiveness of this device. The indus- try has been slow to take advantage of this credit source. Prefabricators also secure short-term credit from materials sup- pliers, the terms varying with the particular companies involved. HIGH COST OF HOUSING 155 Extension of credit by suppliers has been sharply curtailed during the past year, due to shortage of materials. Relations with suppliers of materials It has been stated that prefabricators of house packages buy materials and products in carload lots, and that they seek but fre- quently do not secure mill prices. This is explained in part by the way in which the building materials and products industry is organ- ized. For example, it is normal for the plywood mills to sell plywood through distributors to retail outlets, most of which are local lumber yards. This is a well established practice, and it is important to the plywood industry that mutual confidence, respect and understanding between the several levels of distribution be established and main- tained. When a prefabricator buys a carload of plywood from a mill, incorporates the plywood into prefabricated panels, and sells the panels to a local builder whom he has signed up as a dealer-erector, the normal trade channels set up for distribution of plywood have been completely bypassed. Both the plywood distributor and the retail lumber yard have been cut out. This is disturbing to plywood distributors, and tends to upset their relations with the mills. Adjust- ments will have to be worked out. In varying degree, this same problem faces the prefabrication in- dustry in purchase of other materials and products. In some cases, notably with plywood and steel, producers are unable to secure any materials at all because they are newcomers, and the old established suppliers are given precedence on the order lists. Competitive position re labor Prefabricators of house packages would logically expect to operate the year round, says HHFA. However, they frequently find it difficult to do so. The reason for this is that their shipments of com- pleted packages are just as dependent on the weather conditions at building sites as are the activities of conventional builders. House packages are bulky, and neither dealer-erectors, nor prefabricators, can afford to warehouse large numbers of packages for any great length of time. Few prefabricators are equipped to warehouse more than 10 days' normal production: In spite of this, most prefabricators of house packages do manage to keep producing for a good part of the year, and for that reason can offer labor something approximating an annual wage. Furthermore, they can offer more assurance of continuous employment in season, being free of weather conditions which plague conventional builders. These circumstances place prefabricators of house packages in a position to compete with other manufacturers in their communities for labor, and where conventional building labor is suited to the work to offer more secure jobs than local builders can provide. The latter advantage is offset to some extent by the tendency on the part of prefabricators to lower wages because of job security. As the latter does not always result due to the uncertainties mentioned above, there is some question as to whether the industry is premature in expecting labor to cooperate until more stable conditions have been established. 156 HIGH COST OF HOUSING 1 Competition for market Prefabricators of house packages, contrary to popular understand- ing, says HHFA, do not compete with conventional builders in sales; builders are usually their customers. They compete with either the retail suppliers of building materials and products or with both retail and wholesale suppliers, depending on whether they buy at mill or at wholesale levels. Because the great majority of builders are, by long established tradition, and because of their need for short-term credit in purchase of materials, closely allied with the numerous segments of the building materials and products industry, they generally regard prefabricated house packages in much the same light as do their suppliers. As the true nature of the prefabrication industry becomes more clearly understood in the building industry and by the public, and as it gradually becomes more firmly established, a corresponding change in the builders' viewpoint may be anticipated. While most prefabricators of house packages now regard local build- ing materials companies as poor distributors for their products, because they tend to favor sale of conventional materials, it is possible that this situation may also change in the event that prefabricators succeed in gradually easing the flow of raw materials from mill to consumer into new channels that lead through their plants. Sources of incentive to reduce house prices In the face of current market conditions, says HHFA, it is diffi- cult to locate incentives to price reduction in the building industry. Examination of this question as it relates to prefabrication leads to the following reasoning. Neither mills nor wholesale materials outlets have any particular incentive to see retail prices of houses reduced. Certainly there is little evidence that they are taking positive steps to that end. Most mills and factories which produce building materials and products are now operating at capacity, and wholesalers' order books are over- flowing. Prefabricators of house packages, on the other hand, are not generally in this position. Many of them are producing far below capacity chiefly because their sales are slow. While there are many complicated reasons for this, it can be argued that, of all segments in the building industry, the prefabricators of house packages have a definite incentive to see retail prices on houses erected from their packages lowered below competitive levels in order to speed up package sales and thereby boost production. Most prefabricators of house packages have so far found it im- practical to control retail prices of erected houses because they have had to offer dealers the incentive of a chance to make an extra profit in order to induce them to handle a novel product. As prefabricators find ways in which to extend credit to dealer-erectors, they will advance to a position where they can make more demands in return for credit assistance. If, as is contemplated by some companies, credit to dealers is expanded to provide complete mortgage service, their position will become very strong. Only strong companies can afford to go this far, at this time, and as strong companies in the industry are relatively few in number, early and dramatic results in reduction of retail prices on prefabricated houses cannot be expected. Neither distributors nor dealers in prefabricated houses have any particular incentive in today's market to see that retail prices are 1 HIGH COST OF HOUSING 157 · reduced. The principal attraction offered distributors and dealers by prefabricators of house packages is the opportunity to make a larger profit than is available in conventional construction. Under present conditions the dealer controls this situation, and makes the most of it. From his point of view it is best to make as high a profit per house as the market will permit. Only a surplus of houses will cause him to lower his prices. Hindrances to full production In summary, the HHFA states, there appear to be three main hindrances to full production, which in turn provides the incentive to reduce house prices, which now face the prefabrication industry. (a) Procurement of materials.-Everyone is plagued by materials shortages today, but the prefabricators are especially hard hit because most of them are new and have not yet been able to establish them- selves with suppliers. Beyond this, however, lies the more serious. and fundamental problem of changing the traditional systems of distribution. (b) The problem of sustained sales.-First there is the problem of consumer acceptance. Prefabrication acquired a bad name during the war because it was associated in the public's mind with the cheap little houses produced under government contract. The reputation is obviously undeserved, as a most cursory inspection of the current situation will reveal. A prefabricated house can be as flimsy or substantial as a conventional house. The vast majority of those now being produced compare favorably in every respect with the con- ventional houses in the same price class, and all of them sold under FHA mortgage insurance must pass tests far more rigid than are required for conventional houses. The public is gradually becoming aware of these facts, and most consumer resistance to prefabricated houses today is directed toward those houses which are novel in architectural appearances. It should be noted that novel appearance is not particularly related to pre- fabricated housing; it is found in conventional housing as well. For numerous reasons, however, it is less publicized in the latter case, and therefore tends to become identified with prefabrication. Another hindrance to sustained sales is slowness of local officials concerned with building codes and inspections to accept structural- innovations in their communities. While this is a serious problem and needs to be corrected, there remains a substantial market in un- restricted areas at numerous points throughout the country. The principal Federal agency having a direct effect on prefabricated house sales is the FHA, which issues mortgages covering prefabricated as well as conventional houses, and which also insures working capital loans to prefabricators. This agency decentralizes its operations to State and district levels. Its Washington staff is keenly aware of the prefabrication industry's problems, and is performing many useful services to help it get established. The FHA's field organization, which works closely with local officials, is understandably somewhat more conservative on the subject of prefabrication, and as it has no authority to accept unusual risks and therefore tends to follow con- ervative patterns established among lending institutions. This has had some effect on retail sales of prefabricated houses. 69991-48-12 · HIGH COST OF HOUSING 158 Responsible dealer-erectors are not easy to find, and without them a prefabricator cannot expect to make sales. The principal hindrances to securing dealer-erectors are: (a) finding incentives to divert them from conventional building and (b) finding persons with sufficient capital to pay cash or substantial down-payments on house-packages. Establishment of successful working relationships with local plumb- ing and electrical concerns requires many prefabricators to limit their package contents in order to make it possible for their dealers to sub- contract plumbing and electrical work. If plumbing fixtures, for example, are included in the prefabricator's package, the local plumb- ing firm may be reluctant to install them because there is no selling profit. Some local labor organizations object to importation of prefabricated material which they would otherwise handle. While many prefabri- cators of house packages have plants organized under AFL, this is not an assurance that an AFL local will readily accept work fabricated in such a plant. Perhaps the outstanding current hindrance to factory sales is however, the dealer's difficulty in paying for a house package in ad- vance. The usual practice on the part of the local bank in extending a construction loan to a dealer, is to advance him the amount required to cover the cost of the house package after it has been erected, not before. The period required by the dealer to erect the house package roughly measures the length of time over which he must tie up his own working capital, and the amount required is of course measured by the price of the package. A glance at table 1 above will indicate how substantial a sum is required for this purpose. A large number of the currently active prefabricators got their start during the war with Government contracts. Many of those which were active when priorities were in effect and that have since gone out of business were also in this class. Securing a Government contract does not require the kind of merchandizing skill that it takes to sell houses to individuals in a highly competitive field, and the lack of such skill is reflected in the relatively small allowances for sales expense shown on tables 1 and 2 above. The industry in general has a great deal to learn about merchandizing techniques, although a few companies have made remarkable strides in this field during the past several years. (c) The problem of credit. -This has been covered previously, but the highlights are repeated here. Lenders' confidence in the industry is weak because its prospects of materials procurement are also un- certain. Sales and materials procurement are uncertain in part be- cause the industry does not command substantial credit, says HHFA. This vicious circle is one that must be broken if progress is to be made. Members of the industry individually and through their trade associ- tions are using persuasive measures to establish confidence in their prospects. Other measures now underway are mentioned hereafter. Current measures to remove hindrances to full production (a) Several companies have launched interim financing plans to solve the credit problems of dealer-erectors. None has been opera- ting long enough to permit evaluation. (b) Section 609 of the National Housing Act, adopted July 1, 1947, provides for FHA insurance on working-capital loans to prefabrica- HIGH COST OF HOUSING 159 tors. This legislation has not been in effect long enough to permit evaluation. (c) Technical research in design and production, aimed at cutting costs is currently carried on by individual members of the industry. Few companies are equipped to adequately finance this work, which is unfortunate, as it is one of the most promis ng ways in which to pave the way for ultimate reduction in house prices. Neither of the in- dustry's two trade associations are yet substantial enough to finance this type of research, and policy considerations may tend to inhibit them from entering this field. (d) At least one company contemplates the establishment of a nationally advertised retail price of erected house without lot. If dealer-erectors can be offered incentives that make this an attractive proposition from their point of view, one of the industry's major problems will have been solved. It is yet too early to predict the success of this scheme. Fabricators of components There are no available statistics on volume of production in this segment of the industry. Even if there were, they would not be significant in terms of house production, unless they could be related in some way to the percentage of prefabrication going into all housing. There is some evidence that the most activity in this field occurs in the manufacture and sale of kitchen-bathroom units, kitchen units, bathroom units, and various types of plumbing panels and manifolds. There are no figures available, however, on volume of production. Most components are sold through appropriate wholesale-retail building-supply channels, and producers of components spend a good deal of their sales effort in showing retailers how their products com- pare in cost and quality with the comparable collection of conventional building materials or products which their components are intended to replace. This segment of the industry, while fully as promising as the house- package industry, is not nearly as well integrated as an industry, and is therefore difficult to analyze. Theoretically, fabricators of com- ponents should have less trouble creditwise, than house-package prefabricators, because they have better prospects of quickly estab- lishing markets, and because they can merchandize on a regional or national scale more easily. However, there are few tangible facts. In competing for purchase of materials and products, says HHFA, apparently fabricators of components face difficulties comparable to those of house-package prefabricators. The kind of sales competition faced by these companies is, however, somewhat different. They also sell to builders, but in most cases they must rely on retail outlets already in the building materials or products business to do the actual selling. For example, it is almost essential for the producer of a bathroom unit to sell through the local plumbing firm, as the latter will have to be called in to install and connect it to supply and drain- age lines. The local firm is not likely to cooperate, if the installation of a prefabricated bathroom means eliminating the prospect of a profit on conventional bathroom fixtures. The local building in- spector, who must depend on the plumbing firm to cooperate in pro- tecting the community's health through proper installation of sanita- tion by conventional methods, is sometimes heavily influenced by the plumber's attitude. 160 HIGH COST OF HOUSING There is a special incentive available to manufacturers of plumbing assemblies which should have potent influence on local plumbing con- tractors. Journeymen plumbers are scarce, and therefore installation of prefabricated plumbing assemblies offers contractors the chance to stretch their scarce labor resources over more jobs. This in turn reduces the time their working capital is tied up on any one job, and increases the number of profits they make on sales. In one case it is claimed that prefabricated kitchen-bathroom unit can be installed in one-fourth the time that it takes to install the equivalent fixtures and rough plumbing by conventional methods. It is unlikely that the incentive to reduce retail prices of complete houses is as strong among the fabricators of components as it is or should be among prefabricators of house packages. Development of sustained sales which in turn support full production is more likely to be dependent on meeting competition from comparable combinations of conventional products and materials. However, the downward pressure on house prices is still exerted indirectly by such competition and, as the variety of components grows, may eventually sum up to an impressive total. THE MACHINE-MADE HOUSE The so-called prefabricated building is more or less made in a factory located some distance from the house's eventual site. Some modern methods and assembly techniques are utilized but essentially the same materials (generally wood) and processes (nailing and sawing) as are used in the expensive tailor-made house continue to be used in the factory. Since the end of the war, however, an entirely new industry has begun to take form to produce machine-made houses in large volume. Basically the machine-made house has borrowed the tech- niques developed during the past quarter of a century in the mass production of automobiles. By using materials-mainly steel, aluminum, and stressed-skin plywood-which lend themselves to the high-speed processes of mass production, the industry is developing attractive, comfortable homes at prices well within the means of most home seekers, says the National Association of Housing Manufacturers. The association estimates that the companies in the industry which plan operations in 1948 can reach a peak rate in excess of 100,000 units annually at prices ranging from $6,000 to $7,500, assuming that the housing manufacturers can get the working capital they need to use their production capacities. These prices are for the completed house, excluding land, completely erected, and ready to move in. The association points out that, while there is widespread complaint about the inability or unwillingness of the building industry to root out the old practices and conditions which have caused high prices and low production, this is not true with the machine-made house where new and improved technology has eliminated the very basis of the com- plaint. An example of this is the old paint brush versus paint spray argu- ment. In the case of the new housing manufacturer he avoids the old argument because he may use materials such as porcelain enam- eled steel or aluminum which are protected from the elements by a mechanically applied protective coating. Again it is pointed out that the power saw often cited as an impor- tant technical advance because it works 10 times faster than a hand HIGH COST OF HOUSING 161 " saw, is pushed far into the background by electro resistance welding which achieves a rate of better than 100 feet a minute and is used by some of the new manufacturers. Carl G. Strandlund, president of the National Association of Housing Manufacturers, and also president of the Lustron Corp. of Columbus, Ohio, testified before the House Banking and Currency Committee that As an engineer and as a businessman, I believe that the use of these modern in- dustrial methods in housing is essential to fulfill our house needs. Only in this way can we produce housing in large volume at a price or rent which bears some reasonable humane relationship to the salaries and wages of the people. To all intents and purposes we are still building houses with techniques and materials that were popular in Biblical times. We simply cannot depend any longer on horse and buggy ways to build the millions of homes we so desperately need. How lower costs are achieved Mr. Strandlund also told the committee that there are three reasons why the new industry will produce houses at less than the cost of conventionally built homes. First, he stated, is the fact that the number of man-hours which go into a house produced by machine processes is substantially reduced, and that more unskilled workers can be utilized. Second, modern industrial and engineering methods will produce efficiencies that will result in greatly reduced costs as compared with handicraft methods. Third, the profits per house will be less because this new industry will apply the "big volume-small profit" kind of manufacturing technique. Analyses by housing manufacturers of a number. of different machine-made houses indicate that the total number of man-hours in the factory and on the site for a two or three bedroom unit averaging about 900 square feet is approximately 500 man-hours. This figure on factory and site employment compares with estimates in conven- tional building of 1,500 to 2,500 man-hours at the site alone. The reason for this dramatic saving of labor, and the resulting cost savings, is that in the new industry the highly accurate and efficient machine is made to do the work of the admittedly less efficient, less accurate artisan. The new housing manufacturers liken the conventional builders' present attempts to increase production and lower costs to a wagon builder's attempt to produce a 1948 model automobile using the same materials and techniques as were used for producing a Conestoga wagon. Two examples of the large extent to which the machine-made house is fully fabricated in the plant are those of Reliance Homes (Penn- sylvania) and General Panel (California). In the case of the Reliance Homes, the house is fully fabricated in the plant and shipped in seven completed sections. As a result it takes only 4 hours for a crew to erect this house which is largely of steel fabrication. In the case of the house of General Panel of California, which is a stressed-skin plywood machine production, the total work at the site in the erection takes only 85 man-hours. These are outstanding examples of the completeness of machine-made houses, in contract to some of the prefabricated houses where only a shell is produced. • The tremendous saving in labor costs in the machine-made house. has not prevented the building trade unions from embracing the new industry. The Architectural Forum reports in its December 1947 issue that the American Federation of Labor has signed a 2-year contract with the Lustron Corp. covering each of the three main 162 HIGH COST OF HOUSING building trades-carpenters, plumbers, electricians for both factory production and on-site erection of the Lustron all-steel porcelain enameled machine-made house. The Architectural Forum also states. that the Lustron contract is but one of a number of similar contracts signed with A. F. of L. unions. It is, moreover, the magazine states, "the first to provide officially for the reduction of the dozen trades customarily involved in house building to a basic three." Kiplinger's Magazine, in an exhaustive study of the housing situa- tion in its issue of January 1948, says that "A. F. of L. building trade- unions say that they do not basically oppose such houses (mass produc- tion houses) except the 'sleazy kind'." Kiplinger says that the new Lustron contract with A. F. of L. "not only streamlines the operation but helps to avoid jurisdictional spats." Wholly apart from these voluntary agreements between housing manufacturers and the A. F. of L., the housing manufacturing industry has a feeling of confidence that it will not generally be faced with labor difficulties in the erection of machine-made houses. This feeling is based upon their expectation that labor will have sufficient vision to foresee that the new housing manufacturing industry will become one of America's greatest industries and will provide large continuing year- round employment. An important advantage of the machine-made house over what the representatives of the industry term the conventional prefabricated unit is that it avoids most, if not all, of the criticism directed against prefabs. The advertised cost of the machine-made house to the ultimate consumer includes not merely four walls and a roof but the entire house erected ready for occupancy. When a Lustron house is quoted to the home seeker at $7,000 they say that is the entire cost he will pay, plus, of course, the land on which the house is erected. These are not estimated costs or problematical costs. They are actual costs, and include both the profit of the manufacturer and of the dealer- erector. Conservative consumers, says the National Association of Home Manufacturers, resist to a considerable extent the unconven- tional, unesthetic appearance of many of the so-called prefabs, but attractive styles have been adopted for the machine-made house, designed by some of the foremost architects in the Nation, whose services can only be afforded by mass producers. Just as an automobile manufacturer with the same basic chassis can offer a wide variety of cars, so does the machine-made manufac- turer (it is claimed) avoid the evils of overstandardization. The wide variety of architectural design and internal lay-out which can be achieved by housing manufacturers is illustrated by General Homes, Inc. This company produces an aluminum house and employs a modular system involving 4-foot panels.. The only limitation on the design of the house is width, which is determined by the size of the roof truss. Otherwise, the size of the house can be increased in 4-foot multiples by the simple insertion of extra wall sections. Thus rooms can be enlarged whenever the customer desires. Since partitions are completely independent of the main bouse structure (except for locat- ing channels), a great variety of floor plans can be obtained by different locations of the partitions. Even in the present relatively early stage of its development the company offers its customers house packages which include the materials for four different models of three-bedroom houses and two different models of two-bedroom houses. By varying HIGH COST OF HOUSING 163 the packages, numerous additional models can be achieved without retooling. Most machine-made house manufacturers plan extensive advertising campaigns in which the ultimate selling price, exclusive of land, will be featured. Their product generally contains several patentable features and through a system of franchising of dealers, control of the final selling price will be achieved. Again machine-made house man- ufacturers take a leaf from the book of the automobile manufacturer who controls within very definite limits the ultimate selling price of his car. The dealers of machine-made houses also recognize their stake in keeping prices down, because that assures them of a continuing mass market with large sales volume on which to earn profits. Another important similarity to the automobile-manufacturing industry, it is pointed out, lies in the fact that the machine-made house manufacturer is constantly striving to reduce his costs and his selling price. He does this to extend his market and is able to do it because the entire history of mass production proves that, as the expensive original engineering and plant tooling has been amortized, the full benefits and economies of the machine process come into full effect. Furthermore, every housing manufacturer anticipates reduction of at least $1,000 in his costs within a couple of years, on the basis of the increasing economies of mass-production methods. The new machine-made house industry is approaching the problem with a great deal of energy, considerable practical imagination, and more real application of modern production experience and methods. than have ever before been directed to the housing industry, claims the National Association of Home Manufacturers. This is the obser- vation of those who have watched the industry fight to force accept- ance of its basic idea that the need for housing has reached such pro- portions that it can only be met by the same mass-production methods which have enabled the automobile industry to turn out 5,000,000 to 6,000,000 units a year. However, the problems of the new industry are by no means over. Only a score of companies have actually started operations or are preparing the elaborate plants necessary for mass production. Suggested program of action The chief obstacle is the difficulty of overcoming the inertia of those who control materials, financing, and Government aid or approval. The reason for this difficulty is the inability of conventionally minded groups to change their entire house-building thinking rapidly enough to keep up with modern production advances. The important prob- lem today, it is felt, is to accelerate the acceptance of "the new look" in home building. The following program of action, says the associa- tion, if carried forward with energy and enthusiasm, will bring to the American people the benefit of volume production and low-priced housing through the use of modern industrial methods: 1. All Government agencies should exercise their powers to assist the effort to reduce housing costs. This includes assistance to the companies in the new housing industry who are struggling against so many obstacles in applying mass-production and marketing methods to housing. 2. In the development of voluntary or other arrangements for allocations of scarce materials, such as steel, action should be taken ་ 164 HIGH COST OF HOUSING } to assure an equitable allocation of such materials to machine-made and other lower priced housing. 3. RFC should continue to make loans to housing manufacturers for machinery, tooling, and other business purposes where the house to be produced has been approved by FHA as structurally sound. 4. The Administrator of the Housing and Home Finance Agency should continue his leadership within the Administration to assure that housing and other laws are administered in a manner which will give every possible encouragement to the reduction of housing costs. This necessarily includes not only the avoidance of discrimination against the new housing industry, but sympathetic and helpful ac- tions on the part of the Government in enabling it to overcome the many obstacles in its path. These obstacles include the stumbling blocks within the Federal Government in connection with aids on financing and procurement of materials. They also include the local stumbling blocks in the form of building codes and the ir restrictions. r CHAPTER 13. LARGE-SCALE SITE OPERATIONS EVALUATION OF THESE OPERATIONS The current activities of the principal site fabricators in this country have been reviewed in considerable detail in the August and September 1947 issues of Fortune magazine, in the pamphlet pub- lished by the Wall Street Journal, and in several recent issues of the Architectural Forum in which activities of specific companies, includ- ing the Byrne Organization, Washington, D. C., and Levitt Brothers of Long Island, are described and illustrated. The principal points brought out in these reviews are according to the Housing and Home Finance Agency: 1. Site fabricators compete with conventional builders in contrast to prefabricators of house packages, who usually sell their products to builders. 2. Site fabricators usually operate on a large enough scale to purchase materials in carload quantities. 3. Like prefabricators of house packages, they usually are unable to purchase at mill prices, but must instead pay wholesale, jobbers, and frequently retail mark-ups, even when materials do not physically pass through these channels, but are shipped direct from mills to the site. 4. Site fabricators, because they must invest in plant and equip- ment, and because they must buy large raw materials and equipment inventories in advance, need credit comparable to that available to manufacturing enterprises. However, lenders have not yet recog- nized this, or do not yet regard them as good risks, and public insur- ance of such risks is not available under existing legislation. This situation prevents many potential site fabricators from entering the field, and requires those that do enter to be armed with considerable cash. 5. The large-scale site fabricators have produced and are selling small houses at consumer prices considerably below the prevailing market. The incentive to undersell the market may lie in the need to secure a rapid turn-over of the large amount of working capital required in these operations. 6. Restrictive labor practices and outmoded building codes plague the site fabricator to a greater extent than they do the conventional builder. 7. Bigness is stressed as a major requirement for a successful site fabricator, one report indicating that a production of 200 houses for a period of 5 to 10 years should be regarded as a practical minimum. The Architectural Forum, in its November 1947 issue, reports that its research, based on figures of the Bureau of Labor Statistics, leads to the conclusion that builders of 10 or more houses a year now account for three-fourths of all United States house construction. Nine years ago less than half of the Nation's houses were built by this group. 165 • 166 HIGH COST OF HOUSING L Much remains to be learned about the optimum size of a house building operation, says HHFA. There is a big gap between the operation which produces 10 houses a year and one which produces 200. Where, between these extremes, the maximum volume of pro- duction will be attained, and where the most effective and widespread downward pressure on consumer prices will be exerted, cannot be accurately predicted now. However, it seems probable that for some time to come, the majority of builders will operate at or near the lower end of the scale. Therefore any increase in their efficiency, will result in marked benefit to the consuming public. The best answer to the high building costs in 1947 has been mass production not in the factory but on the site, says the Wall Street Journal. High labor rates, high material prices, and high costs of housing and high financing charges are usually blamed for the high cost of housing; but even if these were lowered as they have been in instances, houses built along traditional lines would still be excessively expensive because of the industry's inherent inefficiencies. Too much time is required to produce such houses and time is costly. Large builders, points out the Housing and Home Finance Agency, have broken down the chain of operations beginning with the excava- tion, and have trained a crew for each of several operations which are then performed repetitively, moving from one dwelling unit to another. Many dwellings are required to realize the potential savings of this technique, but variations in design for a single or multifamily project makes little difference. Where prefitting of lumber, prefabrications of wall panels, roof trusses, complete door and window assemblies, and stairs become practicable, it is apparent that these operations may then, at the convenience of the builder, be moved into the factory, sometimes at a considerable distance from the site. Where this is done a large shifting of labor may take place from the site into the fabricating plant, even though the dwellings to be produced are essen- tially traditional in their structure and appearance. Levitt Bros. EASTERN OPERATORS The Wall Street Journal reports that on-site fabricator Levitt Bros. of Long Island can put up a house for about $7 a foot, including land, and still make a sizable profit. Around most metropolitan centers, the cost figure starts at $10, and usually comes closer to $15. For custom-built houses, add another 20 percent or more. Unlike the average small-home builders, Levitt has its own lumber mill in Blue Lake, Calif.; a preassembling plant in Roslyn, Long Island; a cinder and concrete block plant, and thousands of dollars of heavy grading, and cement mixing, mobile equipment. Lately, steel kitchen cabinets have been hard to get, so the company is considering buying its own cabinet factory. Inventory at all times runs close to $5,000,000 and 70 private detectives are on the pay roll just to protect stock-piled supplies. Investment on a similar scale runs through the entire operation. The trench for the foundation is excavated by a trenching machine which costs $7,000. Since the foundation of each house occupies the machine for only 27 minutes, it takes a good many houses to make the use of the machine worth while. Similarly, back of the concrete HIGH COST OF HOUSING 167 L · slab, which is installed with a labor cost of about $55, is a $200,000 fleet of Transit-Mix trucks. On the site, Levitt's operation is a variation of the assembly line. Instead of the product, the men who move from job to job. The shell goes up first. Trucks from the Roslyn plant drop off at each location wire-wrapped bundles of lumber, precut to fit in walls, floor, parti- tions, and roof, all ready for the carpenter to nail up. Levitt always has between 2 and 3 million feet of lumber cut and bundled. This provides a steady flow of materials, and maintaining it provides work for crews on rainy days and in off-seasons. Year- round employment is a rarity elsewhere in the building trades, except where climate is ideal. Usually the season starts in late March or April and ends in November. The more difficult parts of the house are almost completely fabri- cated in the Roslyn factory. The plumbing systems, copper heating coils, cabinets, stairways, and other expensive items, are turned out quickly by workmen who perform the same repetitive actions day in and day out. Eliminated is the fumbling and figuring of the tradi- tional craftsman on the job. Like the small builder who puts up 5 houses a year, the big firm employs many subcontractors-50, in fact-but unlike the small builder, he sets their fees by negotiation rather than bidding. His subcontractors, who prepare the site, do the plumbing, the painting, and other tasks, do not work for anyone else. These subcontractors are really straw bosses, but unlike mere foremen, they have a direct financial stake in the results of their work. Levitt has been able to eliminate the last leg of the tortuous factory- wholesaler-jobber-retailer system of selling materials by setting up the North Shore Supply Co. from which he buys most of his materials at retail prices. This is merely a bookkeeping transaction, since North Shore is a wholly owned subsidiary, but it keeps him in good graces with those manufacturers who insist that their materials be distributed in this fashion. The Levitt house sells for $7,500, includes lot, electric range, auto- matic washer, a packaged kitchen, an oil-burning furnace, and radiant heating. It has four rooms, no basement, composition instead of hardwood floors, and rockboard walls instead of plaster. Levitt operates an open shop in a closed-shop area, and offers workers year-round employment at the same wage scale that other Long Island builders pay for only part-time employment. The Byrne organization Just outside Baltimore, the Byrne organization is using even more radical construction techniques. Entire walls and roofs are carted to location on trucks and huge cranes from nine nearby big Quonset huts, in which is done more than half of the work of building the house. In these sheds, steel roof frames are put together on jig tables. Mov- ing down an assembly line, sheathing and shingles are applied and the whole roof, in final shape, is completed in about an hour. In other Quonset huts, similar work is proceeding on other parts of the house. Complete wall sections of steel with fiber glass insulation and aluminum siding are assembled. Wiring and outlet boxes are installed while the wall is being finished. In another shop, plumbing "Christmas trees" and all the tubing necessary for Byrne's radiant 168 HIGH COST OF HOUSING heating system are preassembled ready for trucking to the site 200 yards away. Meanwhile, on the site itself, cement crews are busy preparing basementless foundations. When all is ready, trucks and cranes, bring wall sections first, then the roof, which weighs 4 tons. Within an hour after the roof is in place, welders have fused it to the walls, and the shell of the house is complete. The operation is staggered, so that trucks, cranes, and assembly lines are in constant motion. Last summer, 10 houses were going into place every day. Byrne pays union scale, but only plasterers and lathers are union members. Technological advances barred in many cities are utilized at Glen Burnie. Paint sprays, according to Byrne, do the job 10 times faster and at half the cost of a brush job. In the plumbing shop, by use of jigs and electric threaders, two men can turn out eight or nine complete house assemblies a day. Glazing, painting, and brick work are subcontracted, but all on a piece-work basis-$50 for laying 1,000 bricks, for instance-so that peak efficiency is insured. · Originally the price of two-bedroom houses on the project was $6,550 for the basic house, and $6,950 for the basic three-bedroom house. Since the project was launched, however, price rises have occurred, and the basic two-bedroom house now sells for $7,450 and the basic three-bedroom house for $7,950. Extras, such as brick exteriors, ranges, refrigerators, porches, shutters, venetian blinds, and other elements, raise the cost of the three-bedroom house on a 60- by 100-foot lot to a maximum of about $9,500. The three-bedroom house has an area of 988 square feet. All houses are of the same Cape Cod type, the only variation being in color and exterior treatment. The house has a steel frame, radiant heat, spun-glass insulation. The basic house has aluminum siding. A total crew of about 500 is employed on the project, and a 40-hour week is being worked. In November, more than 700 of the steel- framed houses were under roof and completed. The entire project. is due to be finished by next summer. The following tabulation shows the labor time necessary to com- plete each unit: A A Total shop man-hours per house Roof_ Walls Plumbing. Heating Carpentry Other shop- Total 1 1 t I 1 1 1 I I 1 1 1 I 1 Site man-hours Hours 55 Foundation including: 1 1 1 Partition framing and lath- ing... 45 Coils and slab_ 20 Walls and roof. 17 45 25 207 Other_. Plaster in and out Plumbing and heating. Painting - Total 1 I 1 1 Grand total__ Hours 125 25 65 225 47 60 250 797 1, 004 Communities Redevelopment Corp. The Nation's largest veterans' cooperative housing venture, a $58,000,000 project, was announced by the Communities Redevelop- ment Corp. Located near the 1939 World's Fair site at Flushing, HIGH COST OF HOUSING 169 F Long Island, the 55-acre apartment community will include 5,699 families of World War II veterans exclusively. Aided by officials of the Veterans' Administration, and New York City authorities, plans have been completed for 21 14-story apart- ments, as well as for an adjacent shopping center. One thousand three hundred and fifty apartments priced at $9,200 for 3½ room suites, and $11,600 for 5%½ rooms, financed by guaranteed veterans' loans, will be ready by the fall of 1948. The project will receive no direct financial aid from the govern- ment, or tax benefits from the city. WESTERN AND MIDWESTERN OPERATORS Kaiser Community Homes Kaiser Community Homes turned out more than 1,000 homes in 1947. Its original goal was 6,000 houses in 1946-47. Depending on location, the Kaiser home sells for from $8,950 to $9,950. The lower price prevails in outlying areas, the higher within the city where land costs more. It is a 5-room home, and has plywood for interior walls and ceilings instead of lath and plaster. The price includes a 60-by 100-foot lot, and a two-car garage. Storage walls running the full height of the bedrooms provide extra closet space. Taking a course between traditional and prefabrication building, Kaiser does about half its work in the field and the other half at its production-line plant in Los Angeles. Plant operations include fabri- cation of floor sections, wall sections, ceilings and cabinets, and pre painting in spray booths of all items to be exposed inside or out. In addition to this field-and-factory method of construction, Kaiser also builds projects employing more conventional methods. Homes built in these projects have regular plaster walls, and all work is done on the site. One such community is located in San Jose, and two others are in the suburban Westchester and Monterey Park area of Los Angeles. By trying both types of construction, say officials, the organization can determine which operations can be performed most economically in the field, and which in a factory. Material arrives by the trainload at the Kaiser plant, but the organization has had conventional expense in its buying. Lumber is about all that can be bought direct from mills. The rest-glass, elec- trical equipment, hardware, plywood, hardwood flooring, cement, rock and gravel-must be purchased from distributors. Ponty Built Homes Second in home construction volume in Los Angeles is Ponty Built Homes. Nearly everything is done on the site. The technique in- volves unloading a complete set of materials for each house in front of its foundation. "There is no central stock pile or distribution point," Ponty says. "This way, we save space and time that would be spent running back and forth." Rough plumbing work is an ex- ception. It is done in a temporary shop on the building area. Ponty completed around 1,000 homes in 1947-three-bedroom prod- ucts selling at an average price of $10,800. But he has had to go to the retail store for all the building materials he has bought. "Every- body along the line gets a bucketful of money out of materials before they reach us," says Mr. Ponty. 170 HIGH COST OF HOUSING འ The Bohannon Organization In San Francisco, Bohannon has long been using modern methods to erect homes. Operations include construction of schools, restau- rants, parks, stores, and community centers, as well as houses. "Our planning calls for a community, not just a string of homes that we build and leave sitting in the middle of nowhere," says Vice President Campbell. At Hillsdale, one of Bohannon's communities on the San Francisco peninsula, for instance, in order to encourage the Southern Pacific to service the settlement with commuter trains, he built a railroad station. The first construction step in a Bohannon operation is building a warehouse and lumber yard, where frames and other rough lumber can be pre-cut to patterns. A plumbing shop is also built. The rest of the construction work is done at the site, with the warehouse being used as an assembly and distribution point for hardware, shingles, tile, and linoleum. Getting a code change made is next to impossible— Mr. Campbell says— We have tried, but have been unsuccessful in changing the code in Alameda County, where two layers of sheet rock are required on garage walls, while only one layer is required elsewhere. Installation of rough wiring in San Mateo County costs us 300 percent more than in Alameda. In San Mateo, we have to use the archaic knob and tube system of wiring even though we've proved to the building inspectors that wiring with nonmetallic insulation which we're allowed in other places is as good, if not better. On the whole, restrictive codes add at least 20 percent to the cost of our houses. The Bohannon organization is completing about 900 homes, selling between $9,000 and $10,500-at least $1,000 below the nearest competition in the San Francisco area, it claims. When Mr. Camp- bell was asked how he dealt with labor in this closed-shop region, his comment was: "We don't 'deal' with labor. We listen to them." Gale Bradford Gale Bradford of Evansville, Ind., gives the following formula for a big operative builder: 1. A minimum population of at least 100,000 to be served. This eliminates small towns. 2. A large supply of labor free from restrictive practices. This eliminates the big ones. 3. Either $200,000 in cash or 200 lots and $50,000 in cash. 4. Sub- contractors of executive ability to handle plumbing, heating, and electric wiring. He explains: Because of the large organizational overhead, the cost of developing raw farm land and the low profit margin, operative building is most practical when geared for a minimum production of 200 houses a year over a period of 5 to 10 years. Only cities of 100,000 or more provide a ready market for this scale operation. The profit in operative building is in direct proportion to the production attained in a given length of time. In such a race against time and the weather there is no room in the set-up for jurisdictional disputes, work limitations, and craft distinctions, which exist in the established building trades-unions. Bradford's labor relations are unique. He has a contract with the CIO Construction Workers. Workers may perform more than one kind of job, receiving the pay applicable to work performed. As many as 10 apprentices can be used for one journeyman. There are no limitations on the amount of work each man can perform, and no restrictions on the use of paint sprayers, cement mixers, power saws or other labor-saving devices. 1 ! HIGH COST OF HOUSING 171 Bradford, like Levitt, has an integrated subcontracting arrangement. We look for competent foremen with energy and ambition, then provide the money for them to go into their own business, with us holding 51 percent of the stock in the new company. The subcontractor receives a good salary and has the additional incentive of 49 percent of the profit. He purchases his own mate- rials, and retails them to us at about 12 percent less than we could purchase them. elsewhere. Newton Emergency Housing Mr. Robert E. Vance, president of the Newton Emergency Housing Corporation, Newton, Iowa, has sent us the following information: We have just recently organized this company and started to build a trial lot of 13 houses. Our plans call for the construction, within the next year, of approxi- mately 200 small homes to be built in lots of 50. We had originally planned to bring into this community, one of the large opera- tive builders. We found that the cost per house under this kind of operation would be substantially higher than where our local contractors build a few indi- vidual houses. Whether this is due to premiums paid for labor and materials in order to achieve speed, or if it is due to excessive profits, we have been unable to decide. The volume of residential building that is required is not now being produced. Small contractors are not able to encompass the problems of site development, negotiations with lenders under FHA, and material procurement in a tight market. Neither can they secure the advance orders for individual units that are necessary to enable them to go ahead with a steady high volume of production without incurring excessive risks. These facts led us to the conclusion that building might best be stimulated by the formation of a community sponsored nonprofit organization to undertake these problems and assume the attendant risks. We have raised capital of ap- proximately $105,000 from local business and industry. The sponsors have agreed to accept their pro rata shares of the net fund remaining at the conclusion of the project, thereby underwriting any loss that may accrue to the corporation. It is not proposed to subsidize the housing through this fund, but merely to forego a promoter's profit as a public service, while acute shortages and excessive costs prevail. We propose to buy land and develop it into lots, plan houses to be built on these lots, and obtain commitments from the Federal Housing Administration to insure mortgages on the completed properties at the most favorable terms available. We will engage local contractors to do the building, probably upon a cost-plus arrangement, scheduling to each contractor the volume of work he is in a position to perform. When the houses are completed they will be sold at cost, with priority preference extended to World War II veterans. Comparisons of the cost estimates of our contractors, supported by detailed break-downs, indicate that the promotional profit on modest two- and three-bed- room homes must be running from $1,000 to $1,500 in neighboring communities. We hope to be able to save this for the buyer, as well as expedite the volume of construction by organizing and scheduling all available building facilities in the community. We are planning to use 4 basic floor plans in our 1948 schedule of 200 houses, and each floor plan will have approximately 12 variations in exterior elevations, siding materials, and positioning on the lot. Approximately 25 percent of the total schedule will be prefabricated houses. The buildings allocated to each building contractor will be alike in order to enable him to make use of mass cutting and other speed operations on the side. Reactions of contractors to date have been enthusiastic on this point. The principal bottle- necks so far have been the shortages and high prices of materials, and the short- ages, and low productivity of labor. Lumber, steel pipe, copper tubing and plumbing fixtures are all excessively high in price and difficult to obtain. Limita- tion of labor output, and the scarcity of young vigorous workmen in the building trades, represent a much greater cost factor than the wage labor rates. We hope the nonprofit public service feature of our operation will persuade labor to increase output on this project. Another relatively minor but very real production problem is the amount of paper work necessary to obtain FHA commitments. It would appear that this procedure could be simplified by permitting builders of large developments to submit drawings and specifications for each plan and modification thereof, and 172 HIGH COST OF HOUSING indicate on a master plot plan, by number, the building that is to be erected thereon. This might reduce by 50 to 75 percent, the number of duplications of drawings, specifications and loan applications required. The present procedure calls for two sets of all of these papers to be filed as to each individual house, regardless of the number of times an identical plan may be repeated in the project. LOW-INCOME HOUSING The Federal Government, says the Detroit Builders Association, has been in the residential building business for over 10 years. During that period, it enjoyed the use of practically unlimited cash and credit, and had at its command, every alleged advantage of mass purchasing, project building, skilled engineering service, and a large general staff of so-called experts. In short, it had all of the equip- ment needed to produce low-cost housing. Nevertheless, adds the association, it has yet to see a Federal housing project which has come within 25 percent of matching private costs in the same area in the same period. Such complaints are not infrequent. But no factual data to back them up have been brought to our attention. The following material does little to substantiate the charge. United States Public Housing Administration experience The principal means employed by local housing authorities and the PHA in securing economy in costs have been described in a memo- randum prepared for the Joint Housing Costs Subcommittee by the Public Housing Administration. The record of actual costs The average cost of the urban units built in the continental United States, most of which were put under construction during the years 1938-42, are as follows: All urban localities. In metropolitan districts: Over 1,000,000. 500,000 to 1,000,000– 250,000 to 500,000….. 100,000 to 250,000……. In smaller localities. Locality Net con- struction cost per dwelling Total devel- opment cost per dwelling $2,881 $4, 649 3, 128 5, 104 3,079 4, 972 2, 726 4, 448 2,723 4, 296 2, 474 3,884 The net construction cost of public housing, averaging $2,881, represents the cost of constructing the dwellings themselves and is a figure comparable with the items included in the building-permit figures for private construction. The construction cost has varied with the size of community, running from an average of $3,128 in the larger metropolitan districts down to $2,474 in smaller localities. The total development cost averaging $4,649, includes not only the cost of constructing dwellings, but also the cost of land, of old build- ings to be torn down where slum sites were used, site improvements and utilities, movable equipment, architect fees and local housing authorities' applicable overhead and carrying charges. The total costs ran from an average of $5,104 in the largest localities to $3,884 in smaller localities. HIGH COST OF HOUSING 173 Nearly half of the projects were built on slum sites, the cost of which is much higher than that of vacant sites both because of the cost of the land itself and because of the amount paid for the old buildings to be demolished. For example, in localities with populations of over half a million the use of slum sites instead of comparable vacant sites involved an additional cost of $961 per dwelling. In smaller communities down to 100,000 population the added cost averaged $724, and in still smaller localities slum sites cost $276 more than comparable vacant sites. These amounts are not costs generally incurred by private builders. Public housing has, in general, been developed at relatively low land densities. Particular attention is paid to securing construction which will be lasting and which will keep operating costs to a min- imum. Of the dwellings in all urban public housing projects in the United States, 69 percent had two or more bedrooms and 22 percent had three or more bedrooms; the median number of rooms per unit was 4.4. In contrast, the Bureau of the Census reports that in April 1947, the median number of rooms per unit for all tenant-occupied urban dwellings in the United States was only 3.9. New rental housing has even fewer rooms per unit. The cost of low-rent housing projects include reasonable fees for architects and engineering services. A recent study by an impartial board, of the projects constructed by the New York City Housing Authority, concluded that the public proj- ects "are, in our judgment, well built and in accordance with good current construction practice. They have been built economically." Since the local authorities have followed usual open competitive bidding procedure in contracting for their projects, the economies which they have achieved in capital costs have been primarily due to careful design and the use of materials which are most advantageous as to first cost without sacrifice of long life and low-maintenance expense. Since PHA has served hundreds of local authorities in the planning of nearly 200,000 low-rent dwellings, it has been able to develop technical facilities which would be beyond the reach of any one local authority. For the specific problems of each locality there have thus been available wide knowledge of the field of housing design and sound judgments based on very extensive experience. The soundness and workability of the results achieved by local authorities in their low-´ rent projects have been evaluated through continuing studies of occupied projects. Typical of these studies is a bulletin entitled "The Livability Problems of 1,000 Families." It reports results secured and conclusions reached after a survey, initiated in 1942 and resumed and completed in 1945, in which housing managers and tenant families were interviewed, and physical conditions subjected to on-the-spot inspection, with the aim of bringing to light deficiencies and inadequacies demonstrated by actual living experience. The PHA reviews the final plans, specifications, and bid documents of the local authorities before they are sent out for bids. The com- pleteness and clarity of these items is extremely important. Con- tractors are able to figure closely since they know exactly on what they are bidding, and the cost of extras due to incomplete and inaccurate documents is minimized. The construction bids obtained by local authorities are also reviewed before the award. The PHA in checking prices has established development cost control as a means of measur- ing the economy of local housing authority proposals. The control 69991-48—13 1 1 174 HIGH COST OF HOUSING comprises material by which a figure in dollar cost could be established for each of the major items of development cost. These development cost controls were broken down by geographic area and involved standards for the combined cost of acquisition, site, and site improve- ments; nondwelling building spaces and architectual, engineering administrative costs, carrying charges, and an allowance for changes and extras. Since annual cost is the true measure of ultimate cost, the problem of economical design consists in testing each element of design to assure that the debt service on its original cost, plus the annual costs of up- keep and replacement, are held to a minimum. Any saving in capital cost which might be achieved by the use of materials of poor quality, which would necessitate high maintenance and more frequent replace- ment expenditures, would be self-defeating. Consequently, in addition to establishing minimum standards of design and equipment, methods. have been devised by PHA for analyzing the comparative annual costs of alternative items of design, specifications, and equipment-methods of analysis which give consideration both to the costs of maintenance, repair, and replacement, and to debt service. These methods of analysis have sometimes resulted in recommendations to local authori- ties that items of higher initial cost be selected where the resultant economy in operation exceeds the increase in debt service. On the other hand, small savings in annual costs at the expense of considerable increases-in capital cost have not been approved. Continued scrutiny of every item of design is needed to hold capital costs to low levels, while at the same time achieving the economies in operating costs. Types of dwellings and site lay-outs It is traditionally believed that the most desirable home for an average family with children is a detached house set in its own private yard. Cost consideration, however, precludes the use of this type of housing. PHA recommends, wherever feasible, the use of row or group houses in which several dwellings are built side by side in one structure. Under this plan each family has a dwelling with its own separate entrance and with its individual plot of land for gardening, laundry-drying and outdoor recreation. Since the row houses used in public projects are only two rooms deep, each room has excellent outside light and ventilation, while the absence of windows overlooking the house next door gives as great or greater privacy than does a detached house. Of the 168,000 dwelling units constructed by local housing authorities, about 48 percent are in this type of group struc- ture. The extensive use of the row house is an important factor in the low capital costs which have been achieved in public housing. Econ- omy is promoted by the sharing of party walls which may often be reduced to sound-insulated and fire-insulated partitions. Plumbing costs are cut in many cases by the use of single plumbing stacks to serve adjoining units. Great economies are effected in site improve- ment because of simplified lay-outs of streets and roads, elimination of alleys and the shortening of all utility mains and branches. Finally, the land cost per unit is reduced to a fraction of that for detached houses, since 2 or 3 times as many row houses may be put on a given piece of land without sacrifice of adequate standards. HIGH COST OF HOUSING 175 Row houses permit important economies in operation in comparison with apartment buildings. Since each occupant has his own plot of land it is easy to require tenant maintenance of grounds; while the elimination of common stairs and halls does away with the need for janitorial services. Heating costs are less than in detached houses because of the small amount of exposed exterior walls. Where land costs have not been too high the local authorities have provided apartments for smaller families in buildings similar in design to row houses but with one dwelling unit above the other. In the case of old slum sites in the larger cities, however, the high cost of land generally makes row houses or flats of similar type too expensive, and in such cases multifamily apartment buildings have had to be used. Utilities The selection of the best combination of utility services, and the negotiation of favorable utility rates have permitted important econ- omies, both in capital cost and in operating expense. Utilities them- selves, including water, lighting, refrigeration, cooking, heating, and the heating of water amount to 39 percent of all operating expenses, in addition, debt service on the capital cost of utility systems and equipment, together with their repair, maintenance, and replacement all enter into over-all annual cost. In the design of low-rent housing projects great stress has, there- fore, been laid on selecting the combination and lay-out of utilities that will in each instance produce the lowest annual cost. The de- cision as to type of utilities affects every phase of project design-site plan, site engineering, type of dwellings, and plan of the individual dwelling units and firm determinations as to utilities must therefore be made before starting plans and specifications. Because of the many variables involved, the selection of utilities is an extremely complicated technical matter. It involves knowledge or sound estimates of the following factors: (a) The quantities of various alternative energies or fuels which will be used in operation of the project. (b) The best rates obtainable by negotiation for alternative utilities, and the lowest costs for various fuels. (c) Labor costs for such items as operating a central heating system, for reading meters and billing, or for checking on utility consumption, etc. (d) The initial cost and debt service for alternative utility. systems, including interior and exterior distribution systems, boilers, meters, refrigerators, stoves, etc. (e) The structural and site improvement costs and debt service thereon, required by alternative system, such as chimneys, gas vents, insulation against fire hazards, coal storage bins, additional drives for coal delivery, etc. (f) The annual cost of repairs, maintenance and replacement of both the utility system and incidental structural items, esti- mated over the expected life of the project. In order to assist local authorities, the PHA has provided a standard technique for making a complete utility analysis. The results of a typical analysis follows. 176 HIGH COST OF HOUSING In 1941 for project No. MICH-1-7-9 at Detroit, consisting of 1,704 flat and apartment dwelling units in two-and three-story buildings, three alternative combinations of equipment, fuel and energy were analyzed and compared, as follows: Scheme 1 Scheme 2 Scheme 3 Space heating. Domestic water heating. Coal. Coal. Gas. do do Types of plants for space and water heating. Central. Central Do. Individual. Cooking.. Gas. Electric. Gas. Refrigeration. Electric.. _do_ Electric. Lighting. -do -_do_ Project light and power. _do_ do Do. Do. In scheme 3, space heating calculations were based upon tenant purchase of gas at retail through individual meters; for all other uses, in each scheme, wholesale purchase of coal, gas, and electricity was assumed. Cost calculations were as follows: Scheme 1 Scheme 2 Scheme 3 Capital cost per dwelling unit. $722.00 $752.00 $629.00 Monthly cost per dwelling unit: Repair, maintenance, and replacement. 2.63 2.76 2.84 Fuel and energy- 4.60 4.92 3.43 Heating plant: Labor and miscellaneous. 1.28 1.28 Vacancy and collection losses. .25 .27 .19 Subtotal, project operating expense- 8.76 9.23 6.46 Debt service... 2. 21 2.30 1.92 Subtotal, economic cost to project. 10.97 11.53 Fuel purchases at retail by tenant. 8.38 4.59 Total economic cost.. 10.97 11.53 12.97 Conclusions: Scheme 2 was eliminated because it shows both a higher capital cost and a higher monthly cost than scheme 1. The following tabulation shows a comparison between schemes 1 and 3: Capital cost per dwelling unit. Debt service per dwelling unit per month. Total economic cost exclusive of debt service. ! Scheme 1 Scheme 3 Scheme 1 vs. 3 $722.00 2. 21 8.76 $629.00 1.92 11.05 +$93.00 +.29 -2.29 The saving in economic cost for scheme 1 so much overbalances its additional debt-service that it is demonstrated to be the preferable combination. Since it is the purpose of public housing to serve families of low income with extremely limited rent-paying capacities, any system of utilities which would produce low project costs at the expense of ma- terially increasing tenant charges would obviously be unsuitable. The utility analysis takes the form of a study of the comparative costs of the various utility combinations which appear to be feasible in the locality. The scheme which produces the lowest annual cost is se- lected, unless, as is the case in some instances, the capital costs involved HIGH COST OF HOUSING 177 are excessive, or in case there is a distinct advantage in the amenities of one combination with a correspondingly small additional cost. The large-scale nature of public housing projects presents opportuni- ties for economies in the wholesale purchase and delivery of heating fuel. Often this makes it possible to defray the labor and other costs incidental to central heating at the same over-all cost as would be involved in individual tenant-operated plants. Wholesale purchase of gas and electricity makes it possible to supply tenants with these services as a part of rent, eliminating the expense of monthly meter reading, billing, and collection. Wastage under this system is mini- mized by the use of check meters, and by fostering a cooperative spirit in the tenants themselves. Favorable rates for the wholesale purchase of gas and electricity have been negotiated with utility companies. This has been based on recognition by these companies of the advantages of steadiness of consumption, higher load densities, elimination of maintenance costs for project distribution systems, reduction in cost of obtaining new business, and the elimination of individual meter reading, billing, and collection. Reconciling livability and economy Dwelling structures naturally constitute the largest single factor in the capital cost of low-rent housing. It is in the lay-out of the dwelling units, and in the materials of their construction and finish that the problem of reconciling livability and economy finds its most profitable solution. Typical dwelling-unit plans developed by the PHA seek to permit the multiple use of space, and are characterized by elimination of superfluous areas. In general, separate dining rooms have been abandoned, and space for dining has been provided by increasing the area of the kitchen or, occasionally, of the living room. The Livability Study of 1,000 Families showed a wide acceptance by tenant families of use of the kitchen for dining. One- and two-story dwellings are almost invariably built without basements in recognition of the im- portant resultant savings in excavations, foundations, required depth of sewers, etc. Utility rooms adjoining the kitchen entrance com- pensate, in part, for the loss of basement storage space, and a laundry tray combined with the kitchen sink is installed in row houses, sup- plemented by outside clothes-drying space provided as an element of site planning. Study of room relationships permits minimization or elimination of halls and corridors. Economy in storage space is effected by functional analysis of the various categories of stored articles. Economy in plumbing installation is promoted by "back to back" location of kitchens and baths; chimneys are similarly grouped to serve adjacent units heated by individual plants. Minor devices for achieving economy and efficiency include the omission of closet fronts and doors, the use of wing partitions without doors between rooms and kitchens, door and window placement pro- viding maximum wall space for furniture, elimination of breaks and jogs in roofs, walls and partitions if introduced only for architectural effect, omission of parapet walls on flat-roofed structures, and im- provements in the design of thin solid partitions in structures having structural concrete floors. 178 HIGH COST OF HOUSING In selecting materials for construction and finish, emphasis is placed upon long life and the resultant economy of maintenance. Masonry exterior walls which do not require protective painting are preferred to wood. When possible, structural surfaces are used as finished surfaces, as when the undersides of concrete slabs are left unplastered for form ceilings. Finished hardware and plumbing trim of long life are obtainable at costs which are justified by economy in repair and replacement. Stained woodwork for interior finish usually presents operating economy in comparison with painted wood. Finishes for plaster surfaces are sought which will stand a maximum amount of washing and cleaning. In a few low-rent projects under construction in the last months of the prewar period, methods of on-site prefabrication were developed, and structural members such as roof trusses were devised that permit real economies in material. Representatives of the PHA have for some time played a leading role in working with the Bureau of Stand- ards, the Master Plumbers Association, and municipal code-enforce- ment officials on methods of simplifying and reducing the cost of roughing-in for plumbing installations. PHA has also participated in studies pointed toward a fundamental revision of the character of municipal building codes, which will place them on a performance basis rather than the traditional specification basis. Project design in any future program will doubtless give consider- ation to the principles of modular planning, which means the adoption in plans of a repeating dimensional unit corresponding to the standard sizes of certain building materials. PHA technicians have worked with representatives of the American Standards Association in the development of principles and suggestions to guide manufacturers in the adoption of uniform standard dimensions for brick, tile, windows, and other building units. Labor agreements Labor stoppages due to jurisdictional disputes, and increases in wage rates during the course of construction often add materially to a contractor's labor costs. On the basis of past experience contrac- tors must make allowances for these contingencies in bidding jobs. Assurance against these contingencies means lower bids and lower construction costs. With the active cooperation of the building trades unions, the PHA has been successful in obtaining such assurances. In May 1938, as a result of consultations with PHA, the building and construction trades department of the American Federation of Labor notified all local building and constructions trades councils that it was their policy that (1) no stoppage of work due to jurisdictional disputes on low-rent projects should take place until the building and construction trades department had full opportunity to adjust the differences be- tween the trades, and (2) that wage rates in effect at the time con- struction is started on any low-rent project shall be the rates at which construction of that project is completed. In order to make this policy effective it was necessary to obtain the endorsement of local building trades councils and local unions in the communities where projects are located. Sample resolutions adopt- ing the policies of the building and construction trades department were prepared for adoption by such local councils and unions. In the HIGH COST OF HOUSING 179 course of the low-rent housing program, resolutions of this nature were adopted by 170 building trades councils and by 2,200 local unions. Almost universal compliance with these policies was obtained. Although a few disputes resulted in strikes which involved the stop- page of work of some particular trade, there was no instance of a general strike which stopped construction on a low-rent housing proj- ect. The loss of man-hours work due to all stoppages in the entire program was less than one-half of 1 percent. Complete compliance was obtained in the matter of maintaining initial wage rates through- out the life of the projects. As a result of this cooperation by labor, contractors were able to make substantially lower construction bids than would have been possible otherwise. These results were achieved while conforming to the terms of section 16 (2) of the United States Housing Act of 1937 which requires con- tractors to pay prevailing wages in the locality as determined by the Government. The savings in labor cost which were made by assur- ances to contractors against wage rises and jurisdictional disputes, were then made, not by wage reductions, but by planning through cooperative agreements with labor itself for a continuous and efficient flow of work. The principles for cooperation with labor which were worked out in the low-rent housing program have, since that time, been widely recognized in the construction field. The principles of nonstoppage of work during jurisdictional disputes and the stabilization of wage rates during the period of construction were incorporated in an under- standing between the Government and the building and construction trades department of the A. F. of L. covering public construction activities during the war. New York City Housing Authority experience The New York City Housing Authority has described in a memo- randum prepared for this subcommittee what it has to combat to keep costs down, and what it has done in an effort to reduce costs. Building code restrictions.-Provisions of the building code have worked against the efficient and economical construction work in the following cases: (a) Use of copper tubing. (b) Use of H-beam piles. (c) Incinerator design. Eaxmple. It has been necessary to appeal on every project for permission to use our specially designed incinerator hopper door. (d) Exterior wall design. Example. It has been necessary to appeal on every project for permission to use non-load bearing tile which is incorporated in our standard design. It has seemed to us highly illogical that a completely fireproof building with much greater safety provisions in its component parts than for any other class of buildings should be penalized by the requirement of a higher fire-resistive rating for the exterior walls. (e) Limitations on concrete design. Example.-On each project, after appeal, we are permitted to use 11½- inch concrete columns instead of the 12-inch size called for, although the entire building profession recognizes the 11½-inch column as safe practice. Raw material.-At the present time the most critical items are as follows: Steel pipe, particularly smaller sizes. Steel sheets, of all gages. 180 HIGH COST OF HOUSING Reinforcing steel. Cast iron pipe. Cast iron radiation. Electrical conduit. Plywood. Motors. Gas ranges. Refrigerators. In this connection, says the New York City Housing Authority, it would be useful to know why it is easy to obtain extra-heavy black steel pipe at a time when the regular weight steel pipe, which, under normal conditions are used for their heating systems, cannot be secured. It is also worthy of note that enameled steel can be made available for special items, such as the combination back-splash and shelf for table-top ranges, recently advertised by one of our large department stores at a time when it is impossible to obtain the ranges themselves because of the lack of enameled steel sheets. Labor.-A tabulation of building trade wage rates for the periods 1940 and 1947 as paid on New York City Authority projects is in- cluded in chapter 6 of this report. This shows substantial increases. Two studies from contractors who have done work for the Authority both before and after the war, show a remarkable decline in labor efficiency of the key trades. These tabulations are included in chapter 6. Restrictive labor, practices.-Restrictions against the use of pre- fabrication are regarded as one of the most serious obstacles to the improvement in design and reduction in costs. They fall into the following categories: Jurisdictional disputes generally. Lack of a uniform workday among the trades. Lack of sufficient apprentices. Requirement for use of stand-by labor. Restrictions against use of spray painting. Restrictions against bending of reinforcing steel off the site. Cost-reduction techniques.-The following devices have been used: Use of over-size brick. Use of controlled concrete. Elimination of plaster on ceilings. Omission of double fireproof doors at incinerators by development of special incinerator door. Use of 8-foot ceiling heights. Cavity wall construction. Placing kitchens and bathrooms back-to-back to enable use of single plumbing stack. Use of 24-inch solid plaster partitions with a resultant saving in floor areas. Use of 6-inch nonload-bearing back-up tile for exterior walls instead of 8-inch load-bearing tile. Use of skeleton concrete framing instead of steel framing. The alternate recent bids on the $14,000,000 Lillian Wald construction contracts showed the concrete to be approximately 6 percent cheaper. Omission of plaster on concrete columns, except in living rooms. Use of 8-inch concrete foundation walls. Use of scissor stairs in tall building. Use of elevator type units as high as 14 stories as compared with the 3- and 4-story walk-up type units previously thought to be more economical. Elimination of full cellars under the buildings and the use of pipe spaces instead, wherever possible. Use of prefabricated assemblies wherever possible. For example: A complete door buck assembly including a saddle already welded to the buck and with one leaf of the door hinge already welded to the buck. HIGH COST OF HOUSING 181 Use of central heating plants. Maximum duplication of design units with a minimum number of types of buildings. Standardization of details and specifications. Present standard specifications are used from one job to the other, with a minimum of adaptation by amendments. Mass production during the construction techniques to the production of hous- ing. There is a second group of practices which represent a substantial saving but which may or may not be deemed desirable for projects of higher rentals: Omission of doors and hardware on all apartment closets. Omission of toilet seat covers. Elevator stops at alternate floors. Use of combination wall lighting bracket and outlet in bedrooms instead of ceiling fixtures and switches. Use of asphalt tile floors throughout. Elimination of showers and tile wainscoting in bathrooms. Increased use of exposed steam risers to form part of necessary radiation. Use of facing tile in public hallways instead of painted or papered plastered walls. Contractors and subcontractors. The New York City Housing Authority practice of prequalifying bidders reduces the hazard of having an incompetent or inefficient contractor emerge as a successful bidder. It is claimed that calling an open meeting prior to the taking of bids has given very good results. To this open meeting, all qualified bidders are invited to present their questions. This has reduced to a minimum misunderstandings, uncertainties, and potential claims. Average extra payments made on all construction contracts prior to the war was less than one-half of 1 percent. This is regarded as indicative of the success of the real understanding between the bidder and the authority. The practice of weekly job meetings at which current job problems are ironed out has also made for better working relationship between the authority and the contractors. The author- ity points out that it has been successful in getting lump-sum bids on large construction contracts at a time when other agencies, both public and private, have found it either impossible to get lump-sum bids or else have secured insufficient bids to afford true competition. It believes that the extent of supervision and coordination given to a job is above the average. One example is the use of its own corps of expediters in following up and securing materials, a practice which has many times resulted in keeping a job going when the contractor himself was literally unable to obtain materials. Surplus and temporary housing. The authority says that its records. indicate that had it been able to put the same money into permanent housing as it has put into emergency housing, it could have built permanent structures for very nearly the same cost as the emergency structures. The only possible justification is in the time element, and this saving has not been the weighty factor that it was expected to be. With the various agencies involved and the many delays en- countered, it took as long to get the emergency sites ready for tenants as to get the first building ready on a permanent housing project. The only field in which there has been a real saving of time is in the remodelling of old-law tenements, which was accomplished in about half the time of the emergency projects. Prices. Tabulations of actual bids on all bids on all New York City Authority projects are shown in chapter 3, of this report. These 182 HIGH COST OF HOUSING tabulations show clearly the rising trend in costs based on cost per cubic foot, cost per construction room, and cost per apartment. In the case of Gowanus houses, the 40 percent increase in the cost of heating over the previous heating bids for Lillian Wald houses (2 months earlier) brings very forcibly to attention what happens when a labor shortage is combined with a virtually black market in materials. SUGGESTIONS Fortune recommends that for an experimental period the Govern- ment might provide capital for new ventures in house building. The common denominator of the two big builders on the east coast was their extraordinary need for cash, and the Bank of America has been an instrumental force in opening the way for large-scale operations in California. The investment in plant and inventories is especially heavy for any approach to industrialized housing. The reluctance of most banks to finance such risky pioneering is understandable. The proposal is that $50,000,000 of RFC funds be ticketed for 5-year experiment in financing housebuilders who have a good reputation and a new idea, but who lack the money to go ahead. Fortune adds that whoever is put in charge of these loans should be told that his reputation depends not on getting the money back, but on getting 100 good men with at least 20 new ideas in successful operation by 1953. According to a southern Federal Reserve bank, it would be desirable to establish an environment conducive to expansion of the capital of the construction industry, and to the adoption of more efficient tech- niques of building, in view of the great need for additional construction and the likelihood that effective demand will remain substantially above prewar levels. This bank also recommends a program of public housing, permitting large-scale commitments to builders utilizing new techniques in construction, and providing assured markets for such construction. According to a midwestern Federal Reserve bank, construction costs could be reduced by increasing the efficiency of industry by larger scale operations, greater standardization of materials, wholesale buying of materials, precutting of lumber, etc. Another southern Federal Reserve bank regards improvement in labor efficiency as of prime importance. It recommends, particularly in the lower priced fields, a reduction of on-site labor by use of stand- ardized or prefabricated units of construction such as preglazed windows, door bucks, dry-wall plaster, plumbing and heating assem- blies, standardization of structural joists and studs. Raymond M. Foley, Administrator of the Housing and Home Finance Agency, maintains that the problem of housing costs is not so much a question of wage rates, so long as they are reasonable, as it is of productivity, and efficiency. The industry, he points out, is a complicated one, involving many handlings and transfers of goods. Consequently, the final figure in the process, the operative builder, has but small control of total costs. Mr. Foley maintains that if costs are to be reduced, producers and suppliers of materials must reexamine their profit requirements, and even their whole system of merchandising; land developers must remove unnecessary margins on home sites; labor must justify its wage rates with full productivity; HIGH COST OF HOUSING 183 subcontractors must remove any contingent margins calculated upon past uncertainties in the supply of materials; operative building must be satisfied with reasonable profits; cost-increasing restrictive practices, whether in building codes, Federal agency procedures, labor, or management, must be removed. Immediate action in these fields can prevent further rise of costs. Further development of such action will bring them down. Moreover, costs are not to be supported at unnecessarily high levels by financing devices which serve only to place a temporary floor under them and so avoid a real solution. Constant liberalizing of credit for home buyers is not a substitute for an attack upon home costs. A western Federal Reserve bank recommends that builders forget precedents and introduce "streamlined" methods of construction, with as much prefabrication as feasible. Because of the inertia within the building industry, this bank believes, the modernization of the industry should perhaps be started by the Government in an extensive low-cost housing program. Electus D. Litchfield, a prominent New York architect, points out that building contractors and labor have in the past entered into agreements for each other's benefit, with scant consideration of the effects upon the public. Labor, employer, and the public must unite in support of a charter designed to increase production and lower costs. The first step is to call a conference to prepare such a charter for adop- tion throughout the industry, guaranteeing to the public a full day's work for a full day's pay, and maximum production consistent with up to date technical advances, together with the protection of the health and rights of employees, the employer, and above all of the general public. 184 HIGH COST OF HOUSING ACKNOWLEDGMENTS The committee sought information from the following sources. Those from whom information was obtained are indicated by an asterisk (*): *Aluminum Association *American Bankers Association *American Cast Iron Pipe Co. *American Institute of Architects American Federation of Labor *American Institute of Planners *American Legion *Americans for Democratic Action, De- troit Chapter *American Society of Heating and Ventilating Engineers *American Society of Planning Officials *American Veterans Committee, Inc. *American Veterans of World War II *Anti-Trust Cases in the Construction Industry, report of Special Commit- tee to Study Problems of American Small Business, United States Sen- ate (1946) *Architectural Forum *Arnold, Thurman, former United States Assistant Attorney General (Look, April 1, 1947) *Asbestos Cement Products Association *Asphalt Roofing Industry Bureau *Associated General Contractors America, Inc. of *Bates, Harry C., Bricklayers, Masons, and Plasterers' International, A. F. of L. *Clague, Ewan, Commissioner of Labor Statistics *Collier's Magazine *Commerce, United States Department of Concrete Reinforcing Steel Institute Congress of Industrial Organizations, legislative committee *Connors, Edward H., Detroit Citizens' Housing and Planning Council Contracting Plasterers International Association Copper and Brass Research Association *Dale, Carl K., Columbus (Ohio) Con- crete Product Manufacturers As- sociation *Detroit Builders Association *Detroit Citizens Housing and Planning Council *Detroit Common Council *Detroit Free Press *Dodge, F. W., Corp. *Dow Service, Construction Cost Sur- vey *Edmunds, James R., Jr., architect *Enameled Cast Iron Plumbing Fixtures Association *Engineering News-Record *Fahey, John H., former chairman, Federal Home Loan Bank Board *Builders Association of Southern Flori- *Farmers Home Administration da *Federal Housing Administration *Building Officials Conference of Ameri- *Federal Reserve Bank of Boston ca, Inc. *Building Products Institute. *Business Advisory Council, Depart- ment of Commerce *Byrne-Moline Communities, Inc. *Byrne Organization *Carrier Corp. *Cast Iron Pressure Pipe Institute *Central Hanover Bank, Weekly Memo- randum *Chamber of Commerce of the United States Chamber of Commerce, Franklin, Okla. Chamber of Commerce, Fremont, Mich. Chamber of Commerce, Grand Haven, Spring Lake, Ferrysburg, Mich. Chamber of Commerce, Greenwich, Conn. *Chamber of Commerce, McAllen, Tex. *Chamber of Commerce, Meadville, Pa. *Chamber of Commerce, Miami, Fla. Chamber of Commerce, Spencer, Iowa Chamber of Commerce, Watertown, S. Dak. Chamber of Commerce, Waukegan- North Chicago, Ill. Civic and Commerce Association, Hec- tor, Minn. *Federal Reserve Bank of Chicago *Federal Reserve Bank of Dallas *Federal Reserve Bank of Kansas City *Federal Reserve Bank of Minneapolis *Federal Reserve Bank of Philadelphia *Federal Reserve Bank of Richmond *Federal Reserve Bank of San Francisco *Federal Reserve Bank of St. Louis *Federal Reserve System, Board of Governors of the *Federal Trade Commission *Federal Works Agency *Fitzpatrick, F. Stuart, Chamber of Commerce of the United States *Fortune *Goodenow, Louis, Detroit *Gwinn, Representative Ralph W., of New York. *Gypsum Association *John Hancock Mutual Life Insurance Co. Hardware Manufacturers Association Statistical Heating, Piping and Air Conditioning Contractors National Association *Hemphill-O'Neill Lumber Co., Inc., Chehalis, Wash. Home Builders Association of Atlanta, Ga. HIGH COST OF HOUSING 185 Home Builders Association of Greater National Retail Lumber Dealers Asso- Cleveland, Ohio *Housing and Home Finance Agency *Housing Expediter, Office of the Hyman, George, Construction Co. *Justement, Louis, Washington, D. C. *Justice, Department of *Labor (Labor Cooperative Educational and Publishing Society) *Labor Statistics, United States Bureau of *Life Magazine *Lockwood, Homer, Detroit, Mich. *Loeb Electric Co., Columbus, Ohio *Look Magazine *Mandeville Associates *Massachusetts State Board of Housing *Maytag Co., Newton, Iowa *McGraw-Hill Publishing Co., Inc. *Metropolitan Life Insurance Co. *Miller Homes, Inc., Detroit, Mich. *Moline Association of Commerce *Mortgage Bankers Association *National Association of Home Builders of the United States *National Association of Housing Manu- facturers *National Association of Housing Offi- cials *National Association of Manufacturers National Association of Master Plumb- ers ciation National Sand and Gravel Association *National Savings and Loan League National Warm Air Heating and Air Conditioning Association *Newsweek *Newton Emergency Housing, Newton, Iowa *New York City Housing Authority *New York Life Insurance Co. *New York Times Oil-Heat Institute of America *Oregon Building Congress Committee on Low Cost Housing Painting and Decorating Contractors of America *Peoria Housing Authority, Peoria, Ill. Portland Cement Association *Practical Builder *Prefabricated Home Manufacturers' Institute Producers' Council, Inc. *Prudential Insurance Co. of America *Public Housing Administration *Reader's Digest, The *Reconstruction Finance Corporation *Red Cedar Shingle Bureau *Robinson, Harold *Salemi, Neil R., Illinois State Housing Board *Scientific Monthly Association, Inc. National *National Association of Mutual Sav- *Sheet Metal Contractors' ings Banks *National Association of Real Estate *Southern Wholesale Lumber Associa- Boards tion National Association of Rural Home *South West Lumber Association Builders *National Association of State Savings, Building and Loan Supervisors *National Bureau of Standards *National Capital Housing Authority *National Committee on Housing National Door Manufacturing Asso- ciation, Inc. National Electrical Contractors' Asso- ciation National Electrical Manufacturers' As- sociation National Foundation of Lathing- Plastering, Inc. National Glass Distributors' Associa- tion National Hardwood Lumber Associa- tion *National Home and Property Owners Foundation *National Life Insurance Co., Mont- pelier, Vt. *National Lime Association *National Lumber Manufacturers As- sociation *National Oak Flooring Manufacturers' Association, Inc. National Ready Mixed Concrete As- sociation *Structural Clay Products Institute *Textile Workers Union of America *Thompson, Sanford C., president, Thompson & Lichtner Co., Inc. *Thompson, Wayne E., city manager, Richmond, Calif. Tile Council of America *Tuskegee Institute *Twentieth Century Fund *United Roofing Contractors Associa- United Automobile Workers, CIO. tion *United States Savings and League *Urban Land Institute *Usher, John, Ideal Heating Co. *Veterans' Administration *Veterans of Foreign Wars *Wall Street Journal *War Assets Administration *Washington Housing Association *Washington Post *Washington Star Loan *Watkins, Norman W., Allegheny County Home Builders' Associa- tion *World ORT Union UNIVERSITY OF MICHIGAN 3 9015 00758 3647