SHOWDOWN OVER HOUSING
Stark, Frank
Showdown Over Housing By FRANK STARK TWICE in the last 25 years the boom-and-bust cycle in home construction and real estate has resulted in disaster. Today the real estate and construction...
...But again the building boom concentrated on the luxury trade, selling houses at inflated prices—and again came the crash...
...2The National Housing Agency estimates that ? some two-thirds of the non-farm dwellings needed in the next 10 years must be priced at $5,000 or less...
...With the death of L-41, the Office of War Mobilization and Reconversion threw a sop to aspiring home owners by announcing a six-point program to speed expansion of the construction industry...
...a house in Louisiana appraised at $5,000 for a soldier and bringing $10,000 in the open market...
...It can—but only if it takes to heart the lessons learned from the last great building boom of the early twenties...
...Veterans, too, are caught in the terrific squeeze...
...conversely the abolition of controls will send prices shooting up out of reach of these people, and their plans will have to be shelved...
...Building prices hit bottom, bounced back a bit, became stabilized—and then residential construction led the way to construction recovery...
...THE END of World War I appeared to be the signal for a housing boom...
...Bowles ought to know...
...But in their lust for quick profits they are pursuing a short-sighted policy of agitating for elimination of all inflation safeguards...
...A recent issue of Colliers cites a $4,500 bungalow in Kansas City selling for $8,000...
...The public was outpriced...
...THUS the stage is being set for runaway inflation by the very persons who will, in the long run, benefit least by it—the real estate and building groups...
...which is only a fraction of the potential market, the building industry priced itself almost out of the residential building business...
...A committee spokesman declared that the one and a half million servicemen who will be wanting homes may be forced into commercial loan bank financing where "they can pay for four or five years and still owe the cost of the home...
...Today the real estate and construction interests seem on the verge of pushing us into it again...
...The conclusion is inescapable—a tremendous opportunity awaits the building industry if it concentrates in the less-than-$6,000 field...
...In the last year of the war, annual volume of home construction was less than 200,000 units, and we entered the twenties with a real housing shortage...
...Prospective home buyers found their money deflated to the point where it would not go far enough to afford a new home...
...Because construction is of national importance, ev-ery citizen, regardless of whether he has a dream house in mind or not, must pitch into the fight to stave off building inflation and the groups supporting it...
...If Doakes and Jones want a prosperous postwar America based on a solid foundation, they will have to fight for it as they did for victory in war...
...15, members stating that millions of prospective home owners in the low-income groups would be seriously hurt by an uncontrolled housing boom...
...Real estate and building men know all this, too...
...This is the same Mr...
...By constructing homes for sale, a builder could carefully comply with all OPA regulations—and then charge all the traffic could bear...
...Mortgage foreclosures spurted from an already alarming rate of 116.000 a year in 1928 until by 1933 they were four times as high as they had been in 1926...
...Their glib assertion about their ability to bring prosperity to the construction industry, their wild protests against Government interference often obscure the true picture of housing in these United States today...
...Potter also pooh-poohed the inflationary danger in uncontrolled home building, claiming that (1) if customers will show a proper amount of sales resistance and use good judgment in having their building plans checked, there need be no runaway inflation in home building costs, and (2) "the idea that home construction costs are inflated beyond the rest of the economy is a fallacy . . . they are up around 30 per cent above prewar" (only 30 per cent, you who bought a house in Silver Spring, Maryland, in 1943 for $10,000 and sold it one year later for $17,-000...
...The industry had geared itself to handle only high-priced homes...
...A bill to give OPA control of prices over completed houses may soon be introduced...
...The joker in the deal, however, is the requirement that loans can be made only on homes where current prices can meet the test of "reasonable normal value...
...Administration men now concede that Potter is trying to get rid of OPA's authority to control contractors' fees—a move which would kill all of OPA's anti-inflation efforts in the building field...
...During the past five years only two and one-half million homes, 1,700,000 of which can be regarded as permanent, have been built—less than half the number of what normally might have been built in that period...
...THE WAR curtailed all but the most urgent home building and repairs, so that today millions of people want to either build or repair their dwellings...
...There is no doubt that these groups were instrumental in getting L-41 lifted...
...Today, with the real estate and building groups clamoring for elimination of all Government price controls over building materials and service, here are some salient facts to keep in mind: 1A recent Gallup Poll shows that more than half ? of those who intended to have houses built for them want them for less than $5,000, that about 13 per cent of those who are willing to pay more will not go higher than $7,000...
...The rest will be forced to trust to luck...
...One year after World War I, costs of residential construction had increased as much as they have increased during the last six years of the present war period...
...Anyone who analyzed newspaper aticles during the month of September could have seen how powerful pressure was organized and brought to bear upon Government agencies and Congress for the removal of all controls on rents and house construction...
...Yet, at a meeting of the Inter-Agency Committee on Oct...
...Many city families are living in worn-out or inadequately equipped houses today...
...By concentrating upon "carriage trade" homes...
...The issue was clear to all reporters present...
...It is believed no mere coincidence that the recovery from the crash of 1920 was spearheaded by construction, that the depression of the '30s was heralded by the collapse of construction beginning in 1926...
...But home planners found themselves stymied by building costs...
...One of the reasons given by his office was that lumber was becoming less scarce...
...Came the crash of 1920, when building materials prices crashed 46 per cent, when contractors who had stockpiled raw materials at inflated prices were ruined, when home building dropped off almost a third in one year, when employment declined...
...4 that it would attempt to forestall the lifting of L-41 on Oct...
...An Office of Civilian Requirements survey recently estimated that nearly four million families want to build now...
...If this demand for moderately priced homes is satisfied, construction can become the core of a sound, postwar prosperity...
...Nor is this tremendous demand due solely to war curtailments...
...If the industry can fill the tremendous demand for new housing, it can provide employment directly and indirectly for over four and a half million people —almost seven times the number directly employed by the automobile industry in its peak year of 1941...
...In addition, 1,400,000 servicemen's families have not yet established their homes...
...3 (after L-41 was lifted), it was admitted that lumber has become critically scarce...
...One of Potter's first acts was to agitate for the elimination of L-41...
...By the same token, a great disaster awaits it if it follows its traditional practice of overlooking this vast field in favor of the luxury-home trade...
...Certain segments of Congress, too, are awakening to the impending danger of inflation in home building...
...While builders and real estate men hailed the dropping of L-41, as the green light for proceeding on an all-out building program, Chester Bowles took quite another viewpoint...
...3According to a recent Architectural Forum, the ? millions of families who are good prospects for buying or building homes soon expect to pay an average price of $5,500...
...We face a highly explosive situation in the whole field of home building, home ownership, and rent control," OPA Chief Chester Bowles said the other day, "unless the real estate interests, the building industry, and the public join with the Government to meet the issue head on, the danger of inflation in this all-important field will grow rapidly...
...However, on Sept...
...While a few home buyers will have their homes built to order and will therefore get some protection from OPA ceilings, the majority intend to buy from builders and are helpless to prevent gouging...
...The Truman Administration, too, took cognizance of the importance of a full-blown construction program, when it created in the Office of War Mobilization and Reconversion an inter-agency committee to speed reconversion of the construction industry...
...As construction goes, so goes the nation...
...J. A. "Cap" Krug, chairman of the War Production Board, long agitated for elimination of all WPB controls as of Oct...
...Certain government agencies, such as the National Housing Administration and the Federal Housing Administration have given them support, both in the fight to retain L-41 and in the campaign for prices on completed houses...
...Potter is a former president of the National Association of Real Estate Boards, as well as the Urban Land Institute, a private organization devoted to city planning and development...
...His appointment was praised by President Joseph E. Merrion of the National Association of Home Builders, as "convincing evidence of OWM's intention to speedily convert the building industry...
...Even if the building industry builds at capacity rate it cannot fill this demand in less than 10 years,,let alone the need for repairs and maintenance of present buildings needing repair or modernization...
...homes up 5 to 100 per cent in North Carolina, 100 per cent in Atlanta...
...Potter who, after Bowles announced that he was going to ask Congress for price ceilings on completed homes, stated publicly that he would oppose Bowles...
...During the next 10 years there will probably be a net increase in the number of families of 420,000 annually in urban areas...
...When first passed, the home purchase provisions of the GI Bill of Rights seemed to offer veterans a fair deal...
...The key to this sequence of booms and busts is simply this: inflationary pressure sent home costs soaring out of reach of the great mass market of people who wanted moderate-priced homes...
...But the veterans will be no better off, for this new bill plays directly into the hands of the real estate groups which are pushing prices higher and higher...
...During World War I the volume of residential construction declined considerably from its 1909 peak of 580,000 non-farm units...
...other studies show that about one-fourth of all families will either repair their present homes or build Or buy a new one...
...Extremely interesting is the attitude of Hugh Potter, OWMR's construction coordinator and head of the Inter-Agency Committee to speed reconversion...
...Banks and lenders are already going above reasonable limits...
...Construction of farm homes has been almost nil...
...The House Small Business Committee announced Oct...
...These population shifts and readjustments add to the enormous home demand...
...you who bought a house in Arlington, Virginia, in 1942 for $6,000 and sold it yesterday for $10,000...
...Our entry into the war found us with a backlog dating back as far as World War I—making a total estimated need of seven million new non-farm homes...
...Thus, one month after the Japanese surrender, the outlook for a large scale building program of moderate cost housing was rather bright...
...At his press conference the next day he avoided making any comment on L-41, but announced that OPA was going to tighten its control on prices of construction materials and services—and that he was going to ask Congress for power to control prices of completed homes...
...After reaching a peak of $5,084,000,000 in 1925, dollar volume of residential non-farm construction began to slide down to the construction-industry bust of the late '20s and early '30s...
...Without the L-41 lid, there was no limit on what builders could charge for houses...
...This order restricted building materials to houses costing no more than $8,000...
...OPA, inadequate as it may have been on some scores, has gone all out for price controls on housing...
...17, the OWMR approved a recommendation of WPB to drop its L-41 order as of Oct...
...Mr...
...1—something which made shudders run up and down the spines of those who realize the dependence of price control on materials control...
...What is the Government doing to prevent the rising inflationary boom...
...The appointment brought little cheer, however, to the ranks of the anti-inflation people in Government...
...Can the building industry meet this stupendous challenge, so charged with major implications for America's future prosperity...
...Prices of used houses have jumped in some areas as high as 100 per cent...
...JUST AS important as filling the dire need of decent housing for millions is the necessity of a sound construction program for any national full employment policy...
...As chief of the agency responsible for keeping prices stable, he realizes the inflationary danger that would confront millions of people with moderate incomes suffering from an acute lack of housing if they were at the mercy of greedy, short-sighted real estate brokers and builders operating in a runaway market...
...the soaring price of building materials and speculative profits inflated the price of those homes which they did sell...
...But—if the price is even as little as $1,000 higher, more than 40 per cent of them, say they will put off building or abandon the idea com-' pletely...
...The 12 1/2 million non-farm homes needed now are twice the number of homes produced during the entire 1920 building boom...
...It was also admitted that only one-half of the 1,400,000 veterans to be released during the next few months will be able to find dwelling units...
...Not only have ceilings been placed on the major building materials and contractors' services which go into a house, with simple dollar-and-cent prices for each item, but enforcement staffs have been strengthened with additional personnel...
...The OPA fight for moderately-priced housing has not gone totally unnoticed by the public...
...such consumer groups as the American Association of University Women, the Parent-Teachers Association, labor groups (particularly the CIO), farm cooperative associations, and the National Grange are rallying to the cause...
...If inflation is allowed to take place in home construction, the entire economy will feel its effects...
...This requirement has proved to be such a farce in today's highly inflated home market that a bill has been introduced in Congress to loosen it...
...Joe Doakes, haberdashery salesman who lives in a one-room-Murphy-bed apartment, has as much at stake in the outcome of the fight as Pete Jones, who has $3,000 to invest in a home he has dreamed about for 15 years...
...THE MOST vociferous of OPA's opponents are the National Association of Real Estate Boards, the National Association of Home Builders of the United States, and the Producers Council, the latter manufacturers of building materials...
...Prices of building materials, which had risen 92 per cent above the 1914 levels by the time of the Armistice, continued to climb until by April 1920 they had skyrocketed 218 per cent above 1914 levels—and 65 per cent over November 1918 prices...
...The U. S. Chamber of Commerce has also joined in...
Vol. 9 • October 1945 • No. 42
