United States. Temporary National Economic Committ.

Investigation of concentration of economic power; monograph no. 1[-43] (Volume no. 8) online

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^%]^ ^iloEf^^^l SENATE COMMITTEE x'RINT
ou session j



INVESTIGATION OF CONCENTRATION
OF ECONOMIC POWER



TEMPOKAEY NATIONAL ECONOMIC
COMMITTEE

A STUDY MADE FOR THE TEMPORARY NATIONAL

ECONOMIC COMMITTEE, SEVENTY-SIXTH CONGRESS,

THIRD SESSION, PURSUANT TO PUBLIC RESOLUTION

NO. 113 (SEVENTY-FIFTH CONGRESS), AUTHORIZING

AND DIRECTING A SELECT COMMITTEE TO MAKE A

FULL AND COMPLETE STUDY AND INVESTIGATION

WITH RESPECT TO THE CONCENTRATION OF ECONOMIC

POWER IN, AND FINANCIAL CONTROL OVER,

PRODUCTION AiND DISTRIBUTION

OF GOODS AND SERVICES



MONOGRAPH No. 8
TOWARD MORE HOUSING



Printed for the use of thv.
Temporary National Economic Committee




UNITED STATES

GOVERNMENT PRINTING OFFICE

WASHINGTON : 1940



TEMPORARY JNATIONAL ECONOMIC COMMITTEE

(Created pursuant to Public Res. 113, 75th Coug.)

JOSEPH C. O'MA'HONEY, Senator from Wyoming, Chaiiman

HATTON AV. SUMNERS, Representative from Texas. Vice Chairnuui

WILLIAM H. KINO, Senatw from Utah

WALLACE H. WHITE, Jr., Senator from Maine

CLYDE WILLIAMS, Representative from Missouri

B. CARROLL REECE, Representative from Tennessee

THURMAN W. ARNOLD, Assistant Attorney General

*WENDELL BERGE. Special Assistant to the Attorney General

Representing the Department of Justice

JEROME N. FRANK, Chairman

•SUMNER T. PIKE, Commissioner

Representing the Securities and E.xchan^e Commissiou

GARLAND S. FERGUSON, Commissioner

'EWIN L. DAVIS, Chairman

Representing the Federal Trade Commission

ISADOR LUBIN, Commissioner of Labor Statistics

A. FORD HINRICHS, Chief Economist, Bureau of Labor Stati.sties

Representing the Department of Labor

OSEPH J. O'CONNELL, Jr., Special Assistant to the General Co nsei

♦CHARLES L. KADES, Special Assistant to the General Cotinspl

Representing the Department of the Treasury



'Alternates



Representing the Department of Commerce

* * *

LEON HENDERSON, Economic Coordinator
DEWEY ANDERSON, Executive Secretary
THEODORE J. KREPS, Economic Adviser



Monograph No. 8
TOWARD MORE HOUSING

PETER A. STONE AND R. HAROLD DENT'^N

n



ACKNOWLEDGMENT

Tliis monograph was written by
PETER A. STONE

Coordinator, Construction Studies, Temporary National Economic

Committee

Chief, Construction Analysis Unit, Work Projects Administration

And

R. HAROLD DENTON

Economic Analyst in Housing, Department of Commerce

The Temporary National Economic Committee is greatly indebted
to these authors for this contribution to the literature of the subject
under revie\^ .

The status of the materials in this volume is precisely the same as that
of other carefully prepared testimony when given by indimdual uvin esses;
it is information submitted for Committee deliberation . No matter, what
the official capacity of the witness or author may be, the publication of
his testimony, report, or monograph by the Committee in no way signifies
nor implies asse7it to, or approval of, any of the facts, opinions, or recom-
mendations nor acceptance thereof in whole or in part by the members
of the Temporary National Economic Committee, individually or
collectively. Sole and undivided responsibility for every statement in
such testimony, reports, or monographs rests entirely upon the respective
authors.

(Signed) Joseph C. O'Mahoney,
Cftuirin^n, Temporary National Economic Committee,

III



TABLE OF CONT



PART I

SOME ECONOMIC ASPECTS OF HOUSING

Pag*

Letter of traiisiuittal 5tiil

Summary and conclusions — -^ XV

Housin,'? finance -■- . — ^ - :- xvi

Collusive practices — ■ xviii

Research , xix

Public housing ^^■^

CHAPTER I

Construction and the general economy . _.__^i_-;vLi- 1

Volume and emplo.yment '.....- .. ..!.. 2

Relation to other industries. — - — .-.-_-^ - ^ — -_ ■, - r-. 3

Investment outlets^ .. _...,li_. _ ■^._'.. _ . _ - . — ^ - _ .;_ - _.__^ — - 8

CHAPTER II

Trends in nonresidential and public construction ...... ^ -_,... 11

Private nonresidential builcjing — ... - — H

Private utilities eonstruction — ... .1 _ ...^ — .-. 14

Public construction . .._.-' — . _ _ . .'. _ . - - ,; - _•- _ - - - 16

CHAPTER TTI

Market factors and needs in residential building. ,.. 19

Population requirements . 20

The estimated need versus the current rate of building ... . 21

Relation of incomes to rents and costs... __ _ — _ — - — 22

Rent and ownership ..- — - 27

CHAPTER IV

Operation of the building industry - -. - 31

Real-estate dealers . .......... 33

Architects and engineers _ ; - 34

Contractors J. _...-_._.^. - ...- 35

Subcon tractors ...z. _ 36

Material dealers and manufacturers. . _ - — - - 38

Local building ordinances ^ 39

Financing and related functions . . , 39

CHAPTER V

Housing costs ^ - 41

Labor ..-.. - 47

Materials .-._. 59

Collusive bidding practices 69

Fees and ixiisc^llaneous costs '. ^ 72

CHAPTER VI

Housing finance 77

Interest rates 1 • ^0

Government lending activities - 83

V



VI TABLE OF CONTENTS

CHAPTER VII Page

Land, taxes, and building codes 93

Land 93

Taxes 97

Building codes 99

CHAPTER VIII

Technical trends 103

Economy of design _.. 103

Research in design and materials 105

Prefabrication 108

CHAPTER IX

Public aid to housing 111

The limited dividend and tax exemption 111

Subsistence homesteads 112

P. W. A. housing. 114

United States Housing Authority 116

W. P. A. housing . 117

PART II

THE RELATION OF PRODUCTIVITY TO LOW-COST HOUSING

Letter of transmittal 121

Introduction 123

Construction in the national economy 125

Organization of the building industry 126

Productivity and costs ^ , 130

Need for scientific industrial research 141

Recommendations- 145

Appendix A ■. 149

Appendix B .. 153

Appendix C ■ ,.-. 1j65

Appendix D -173

Appendix E 1 175

Index 207



SCHEDULEJOF TABLES, CHARTS, AND EXHIBITS



TABLES

PART I



Fags

I. Estimated volume of private nonresidential building, 1925-38-1.- 11

II. Volume of commercial building- — 37 Eastern States- - - 12

III. Private utilities construction by tvpes, 1925-38 15

IV. Public construction in the United' States, 1925-38 : - - - 17

V. Residential construction and total construction in the United

States, 1925-38 19

VI. New nonfarm residential building in the United States, estimated

volume, 1920-39 23

VII. Distribution of nonfarm families by income groups, 1935-36 24

VJII. Number and value of liomes constructed in the United States in"

1938 relative to income groupings 25

IX. Building costs per room on rental housing 42

X. Break-down of costs on a $4,800 house for sale in 1939 43

XI. Financial statement of basic house 46

XII. Average annual wage payments and percentage skilled workers of
all wage earners, bv manufacturing industries and the construc-
tion industry, 1929- 52

XIII. Residential building activity and average wage rates of skilled

workers in 1936 55-50

XIV. Indexes of costs iu the construction of a standard 6-room frame

house 60

XV. Lumber costs at Chicago, 111., code period January to March 1934_ 65

XVI. Land costs on multifamily residential construction 95

XVII. Allowance to be added to glass size ordered for finished window

openings . 104

XVIII. Maximum cost of constructions for samples submitted for testing

in National Bureau of Standards research program 106-107

PART II

A. Comparison of net earnings and expenditures of the United States

Steel Corporation, 1904-38 149

B. Income and operating expense per room per month, and operating and

capital costs in relation to gross annual income, for 39 New York
apartment buildings^ — 1937 : 150

C. Prices of five principal construction materials — 1937 151-152

CHARTS

PART I

I. Value of all construction, 1919-39 3

II. Manufacturing emplovment, durable and nondurable goods group

1 923-39 i 4

III. Emplovment and pav rolls, steam and hot-water heating apparatus

and 'steam fittings, 1923-39 - -*- - ^

IV. Employment and pay rolls, lumber — sawmills, 1923-39 5

V. Employment and pay rolls, luinbe*- — millwork, 1923-39 6

*VI. Emplovment and pav rolls, structural and ornamental metalwork,

1923-39 -' 6

VII. Employment and pay rolls, brick, tile, and terra cotta, 1923-39 6

VII



VIII SCHEDULE OF TABLES, CPLVIITS, AND EXHU'.ITS

CHARTS— Continued

PART I — continued

VIII. Employment and pay rolls, cement, 1923-39 ■ . 7

IX. Employment and pay rolls, plumbers' supplies, 1023-39 7

X. United States Steel Corporation earnings a,ud new construction,

3-year moving average, 904-38 13

XI. Effect on monthly carrying charge of a 20-percent reduction in labor,

materials, and interest and amortization 48

XII. Comparison between building-materials prices and all commodities

wholesale prices, 1913-37 , 58



I. P>ct«il and wliolesale prices of portland dement 153

II. Retail and wholesale prices of short leat \;ellow pine 154

III. Eetail and wholesale prices of Douglas fii _\ 155

IV. Retail and wliolesale prices of common brick__. 156

V. Retail {ind wliolesale prices of hollow tile 157

VI. Retail and wholesale prices of steel reinforcing bars 158

VII. Retail and wliolesale prices of stru'-tural steel 159

VIII. Retail and wholesale prices of cruslied stone- 160

IX. Rett! il and wholesale prices of building sand ! 161

X. Reta 1 and wliolesale prices of hydrated lime 162

XT. Retai' and wholesale prices of cast-iron soil pipe 163

XII. Net effect upon housing costs of identical reductions in each.

component 176

XIII. Proportion of national income spent for homes and automobiles.- 178

XIV. Major participants in the construction of a single family house in

an urban area ^ ■- - - faces 178

XV. Distribution of employers and employees by size of business con-
cern, contract construction industry, 1938 .- 181

XVI. Distribution of work performed, bv location, contract construction

industry, 1935 '- 183

XVII. Sales distribution of manufacturers in selected industries, 1935. . . 185

XVIII. Sales' distribution of wholesalers in selected kinds of business, 1935- 186
XIX. Sales distribution of manufacturer's wholesale branches in selected

kinds of business, 1935 187

XX. Labor processes required in house construction faces 18£

XXI. Average inventory value of equipment per employee in the con-
tract construction industrj^ 1929 193

EXHIBITS

PAHT II

1. Net effect upon housing costs of identical reductions in oacii

component - 175

2. Proppftv valuation of new single-familv liomes insured by F. H. A.

during 1938 , - _ - - - 177

3. Annual income of F. H. A. mortgage borrowers during 1938 — new

single-family homes - 177

4. Family incom.es in the United States, 193.5-36 178

5. Percent of the national income produced by the contract-construction

industry 178

6. Percent of th ir 1929 income produced by major industry groups 179

7. Same as chart 14 - . 179

8. Number of employers and emplo\'ees in the contract-construction

industry, 1938 _" -' - - 180

Distribution of employers and employees in the contract-construction

industry by size of business concern, 1938 180

9. Value of work performed by contract-construction establishments,

1935 182

10. Same as chart 16 182



SCHEDULE OF TABLES, CHARTS, AND EXHIBITS IX

EXHIBITS— Continued

PART II — continued

Page

11. Includes charts 17, 18 and 19 184

12. Branch offices of contract-constructioy establishments, 1929 188

13. Membership in trade associations of contract-construction establish-

ments whose volume of business exceeded $25,000 in 1929 188

14. Number of national and interstate trade associations in the construc-

tion field classified by major industrial groups, 1938 188

Number of national and interstate regional trade associations in the
construction field classified according to the percent which their
membership represents of the total number of firms in the industries
covered bv them 1937-38 189

15. Same as chart 20 . 189

16. Productivity in l)last furnaces, 1929 190

17. Index of i)roductivity in the electric-lamp industry 190

IS. Index of productivity in the autolnobik-tire industry 190

19. Index of productivity in leather industry.. ^^ 191

20. Average inventor^' value of equipment in the construction industry by

class of establishment, 1929 191

21. A few examples of union restrictions upon apprentices 194

22. Full text of the statements referred to in the text regarding Baltimore

and Pittsbiu'gh plumbers . 195

23. Full text of the jurisdictional agreement over the installation of

Acoustone 195

24. Actual time reductions on various carpenter operations 195

25. Savings through planning on 30-house project -_. 196

26. Detailed data regarding several of the cases involving building mate-

rials dealers before the Federal Trade Commission 196

27. Number of people engaged in retail distribution of building materials

and new automobiles, 1935 200

28. Indictments which have been returned and civil suits which have been

instituted in the building industry imder the current program of the
Department of Justice under the antitrust laws . 200

29. Outlay for research $215,000,000 in 19.39 202

30. Excerpts from testimony of Ropert L. Davison, director of housing

research, John B. Pierce Foundation, New York, before the Tem-
porary National Economic Committee, July 13, 1939 204



PART I

SOME ECONOMIC ASPECTS OF HOUSING

By

PETER A. STONE



XI



LETTER OF TRANSMITTAL

Hon. Senator Joseph C. O'Mahoney,

Chairman, Temporary National Economic Committee,

Washington, D. C.

My Dear Senator: Idle men and idle money are problems, indus-
trially and regionally, of greatly varying intensity. ^Iiile the whole
economy suffers, the malady is one leaving some parts of the economy
unaffected whUe others are afflicted with unusual severity. To a
surprising extent the problem of depression is one of inactivity in
construction and housing. To no small degree the job oi getting idle
men back to work and of finding an outlet for idle funds is one of
reviving .home building.

Accordingly, the Temporary National Economic Committee, after
holding extensive hearings from June 27 to July 14, 1939 (reproduced
in Part 11, Hearings Before the Temporaiy National Economic Com-
mittee) requested that a systematic analysis be made of the factors-
impeding home building. Such an analysis is presented in this
monograph .

The first part — that written by Mr. Peter A. Stone— was done
directly under committee auspices. It pays particular atte^ilion to
the factors that cause monthly carrying costs of a house to be high,
relating these not only to original costs but to financial and sei-vice
charges, and interest rates.

The second part — that by Mr. R. Harold Denton of the Department
of Commerce — analyzes the factors which make the capital outlays
of housing high, relating them to low productivity. Both studies
emphasize the need for technical housing research, standardization of
materials, shnplification of buLlding codes, and enforcement of antitrust
legi^-^^lation.

In the preparation of this monograph a particular debt of gratitude
is due to numerous experts m government and industry who gave it
the benefit of their experience and knowledge. In addition to special
assistance on occasions too numerous to mention from officials in all
departments of government and from manufacturers and builders,
these studies have been critically reviewed by Air. Corwin D. Edwards,
Economic Consultant, Antitrust Division, Department of Justice;
Mr. Thomas C. Blaisdell, Assistant Director, National Resources
Planning Board; Mr. Miles L. Colean, formerly Assistant Adminis-
trator, Federal Housmg Administration, and presently Research
Director, Housing Survey, Twentieth Century Fund; Mr. Morris
Miller, assistant general counsel. United States Housing Authority;
Mr. Thomas S. Hold en, vice president, F. W. Dodge Corporation;
and Mr. Joseph B. Mason, eastern editor, American Builder. Their
numerous suggestions have been of inestimable benefit. Special
acknowledgment is likewise due to Miss Marguerite Milnor, editorial
assistant on the staff of the Temporary National Economic Committee,
and Mrs. Hannah Esibill upon whom fell the major burden of prepar-
ing the manuscript for publication.

RespectfiUly submitted.

Theodore J. Kreps,

Economic Adviser.

September 10, 1940. xm



SUMMARY AND CONCLUSIONS

There are four principal -clivisioiis of the construction industry,
which had the following relative dollar volume in 1930:

Percent

Private nonresidential building 16. 8

Private ^■esidential building. . -. 20. 4

Private utilities construction ^- 29. 2

Public construction 33. 6

Total - - 100.0

About three-eighths of the total volume was private building, and the
remainder was utilities and public construction. During the years
1925 to 1938 the total ranged from, about 3 to nearly 12 billion dollars a
year. At present the volum.e is halfway between the high and the low
point, or. about $7,000,000,000 annually.

Public construction, as a result of Federal grants, is the only
division of the industry which has recently m.aintained an annual
expenditure equal to that of the 1920's. Annual expenditures of the
other divisions of the industry range from, one-fourth to one-half
of their former levels. Hence the construction industry affords the
largest single unexploited outlet for investm.ent funds — outlets for
which are so necessary to maintain a proper balance in our economic
system..

Although nearly all sections of this mdustry could use investm.ent
funds to advantage, the greatest need lies in the field of residential
construction. There is a need particularly for the rehousing of
4,000,000 fam.ilies which cannot be profitably housed in new con-
struction at present costs but m.ust depend upon the use of second-
hand houses when they have becotne depreciated to the point where
they fall into the category of slums. These fam.ilies are in the income
group eeirning less than $1,000 a year. Manj^ fam.ilies in the group
above this category— those earning from. $1,000 to $1,500 a year, of
which there are over 5,000,000 in nonfarm areas — also require new
houses which are not now bieing constructed, and these fam.ilies m.ust
also depend upon depreciated houses built for the upJDer-incom.e group,
although there is an annual need for at least 350,000 to 400,000 m.ore
units than are now being built in the price class below $4,000.

In order to prevent a recurrence of conditions which cause so large
a proportion of the urban population to live in undesirable quarters,
t is necessar}' that new construction be in groups of houses in con-
trolled and properly planned neighborhoods to obtain the largest
possible recreational spaces and other am.enities which our techniques
now provide. Ideally, the most desirable m.ethod of providing bal-
anced residential construction is through private enterprise. But the
present set-up of the industry is geared to build houses prim.arily for the
incom.e group earning $2,000 or m.ore per year. We build largely for
this limited group because the hom.e-building industry has followed
traditional practices and failed to keep up with the progressive

XV



XVI SUMMARY AND CONCLUSIONS

ni.ctliods that have enabled other industries to exten,d their markets to
low-mcome groups. The provision of homes today .is ' largely de-
pendent upon a haphazard grouping of sm.all, independent units
lacking capital, and- upon traditions, custon\s, and restraints of one
kind or another that are difficult to break. Moreover, many of the
raw materials of the industry are concentrated in a few hands with a
controlled and inflexible pricing system.

The m.ajor elements that go to m.ake up the costs of a finished home
are land, labor, m.aterials, and financing, to which must be added
taxes and operating costs. Each of these involves com.plicated
questions which m.ust be answered before the whole problem, of
supplying low-cost housing can be solved. Nor can all of the problero.s
involved be solved by Federal legislation. As m.uch can be done
locally to remove restrictions and encourage progress in buildmg as
can be done nationally.^ Im.provements in the factors involving
local police power — such as proper building and zoning ordinances and
their intelligent adm.inistration — may be as effective in aiding progress
in building construction as national laws affecting m.ortgages. Re-
straints practiced with the connivance of local officials m.ay easily
offset Federal antitrust laws. Lack of planning of city facilities can
create new slum.s faster than Federal subsidies can dem.olish them..

Another im.portant area for non-Federal attention is the widespread
divergence of State laws applying to m.ortgages. In those' States
which require heavy foreclosure fees and long repossession periods the
margin of equity m.ust of necessity be greater than in States where
foreclosure costs are low. While Federal agencies have advised and
proposed uniform title, lien, and foreclosure laws,' the decision to
adopt them, rests with the States.

HOUSING FINANCE

The most serious restraints in the field of housing finance either
have been eliminated or the machinery has been set up for their
elimination. Through the Federal Housing Administration the risks
in lending, at least on single-family houses, have been reduced almost
to insignificance. There has been a reduction in effective interest
rates accordingly. Wliether these interest rates can be lowered still
further depends upon competition with other forms of investment.
The return on F. H. A. -insured loans compares favorably with any
other form of investment offering similar security.

A great deal has been accomplished in making financing easy for
those who can afford to own homes valued at from $4,000 to $6,000,
or with incomes of from $2,000 to $3,000. Further, a start has been
made toward making more money available for homes costing about
$2,500, which, because of land prices and tax problems, the industry
can produce only in outlying districts away from the centers of
population.

There is one field, however, in which little progress has been made;
that is low-rental housing by private industry. ^Tiile idle funds are
abundant, it is still difficult to find private investors willing to assume
a portion of the risk in providing equity funds. The F. H. A. insures
75- to 80-percent loans on rental housing on a mortgage cariying a 4

• Thomas S. Holden, vice president, F. W. Dodge Corporation, comments that much more can be done
locally to remove restrictions and induce progress in building than can be done nationally.



SUMMARY AND CONCLUSIONS XVII

percent interest rate plus 0.5 percent insurance. Apparently there
is no difficulty in obtaining loans at these terms wherever commit-
ments to insure are made by the F. H. A.

The F. H. A. could increase the amount of low-rent housing in much
the same way that the volume of loans for individual homes was in-
creased, namely, by increasing the mortgage ratio to 90 or even 95
percent of the total property value and reducing interest rates. A
90-percent loan may be just as safe from an insurance point of view
as a 75-percent loan carrying a higher interest rate, provided the
interest rate is decreased proportionately. The safety of the loan is
measured by the ability of the borrower to meet the periodic pay-
ments; and the size of the periodic payment rather than the ratio of
i loan to value determines the ability of the borrower to meet his
"obligation. The amount of the periodic payment depends not only
upon the size of the lo^m but upon the rate of interest and the period
ot amortization. For instance, on a project costing $1,000,000 with
, a 75-percent loan and an interest rate of 4% percent, plus 0.5 percent
insurance, and starting with a 2-percent amortization, $52,500 is re-
^quired to meet the initial annual payment. If the loan ratio is raised
to 90 percent and the interest rate is reduced to 3 percent, the amorti-
zation and insurance remaining the same, the first annual payment
amounts to $49,500. Certainly this latter obligation is a safer risk
than the former. Th theory of mortgage lending is that the se-
curity of the loan depends upon 'the margin between loan and value,
because recovery must be had through foreclosure; but for safety
mortgage insurance depends on the ability of the borrower to meet
the periodic payment.

Any question as to whether lenders would be willing to accept l0wer



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