ADDITIONAL STATEMENTS AND INFORMATION SUBMITTED TO THE COMMITTEE ON THE SUBJECT OF HOUSING Statement of Charles F. Sander, National Legislative Counsel, Army and Navy Union VETERANS MUTUAL COOPERATIVE HOUSING CORPORATION Recommendations to the United States Senate and House Banking and Currency Committees from the Army and Navy Union, United States of America, endorsed by the United Veterans Board of New York City Membership: United Spanish War Veterans, Veterans of Foreign Wars, Disabled American Veterans, Catholic War Veterans, Jewish War Veterans, Army and Navy Union, United States of America. THE PROPOSAL ARTICLE 1. Veterans.-Thousands of veterans are without homes and apartments and are desirous for joining together for mutual ownership on investment in single homes and multiple dwellings. It is agreed that private capital cannot build homes and houses for profit due to the high cost for materials and labor. It is therefore proposed: ART. 2. Housing. It is proposed to join together groups of responsible veterans and form a mutual cooperative housing corporation under States housing laws-a nonassessable, nonprofiting stock corporation for investing in land and new residential homes and houses. ART. 3. Corporation.-The corporation shall have articles providing for the right to buy idle land, contract to build homes and houses, enter into agreement for mortgage loans, sales of bonds, and do anything and everything under the housing laws for the good and welfare of the corporation's stockholders. ART. 4. Investors.-The veteran investor shall join with other home-seeking veterans and organize a committee who is to follow the plan as laid down to wit: (a) Agree to fill out an application covering right for screening, character, job status, wages, financial responsibility, family number, rooms desired, terms agreeable, manner for accepting rules and regulations on management, etc. ART. 5. Private capital. The parties to the group will approach a financial institution interested in erecting new residential homes and houses under terms as put forth by the investing veteran group. 2. Contract terms shall be for the financial institution to buy land as recommended by the veteran group; erect the number of rooms as contracted for by the group; upon completion, agree to deed over in fee simple homes and multiple dwellings erected; terms acceptable to veteran investor, acceptance on the part of the insurer (the Government), approved by the State and municipality where erection of homes and houses take place. ART. 6. The Government.-Under laws of the Congress and Senate of the United States granting authorization and power for financial aid and assistance as made and provided for, incorporated in the NHA or RFC, parties to the agreement shall proceed for the purposes intended. Special agency shall be initiated by the Government for protection and benefits all parties to the agreement are entitled to. ART. 7. States, etc.-States laws shall be made effective on aid to the veteran investment, local laws for special concessions for economy, and other housing laws necessary to meet. ART. 8. Example.-A cost on investment per room based on today's estimate room cost of $2,000 per room (land and building), cost on management, operation, etc. (rough figures), fairly accurate, follows. Capital, $7,000,000. Improved land and building (3,500 all accommodation rooms). Corporation shares, 1,000 nonassessable, nonprofiting. Annual income 500 3-room apartments, monthly rent $40; annual income return (12 months) - $240,000 500 4-room apartments, monthly rent $50; annual income return (12 months) 300,000 Total annual income (1,000 apartments). 540,000 Annual management-operation cost Interest, 3 percent per annum, $4,000,000 mortgage.. 1. Taxes, assessed value $3,000,000, 3 percent per annum. 3. Repairs allow first 5 years' estimate per annum_ 4. Wages, executive and personnel per annum. 5. Insurance, liability, fire, per annum, estimated_ 6. Light service per annum_-. Total investment and management-operation cost_- Balance remainder at close of annual cost and investment__. $120,000 120, 000 60,000 90,000 35,000 20,000 30, 000 10,000 2,500 487,500 52, 500 Insurance fund set aside for protection to payment of mortgage and bonds rate of one-half of 1 percent from balance. ART. 9. Planning.-The corporate investment is applicable to groups of small homes, two-family houses, and multiple dwellings. ART. 10. Special.-Where special grants are had-10-year period of tax exemption on improvements made (only land taxable), deferment on interest covering equity bonds, cost per month on rooms is lowered. 2. Can be used for substitution for tax housing subsidies. SPECIAL FEATURES ARTICLE A. Classes.-There are three classes of the cross section of our American families; the first, those who must receive financial aid and assistance through tax subsidies for low-cost housing developments; the second, the middle-class American families whose wage income per week averages from thirty-five to fifty dollars, by mutual cooperative housing; the third need no help as they come under the high-wage bracket income-earning class, we treat with the majority, the second class. ARTICLE B. Capital.-Private capital cannot build at today's high cost for room construction unless room rental per month can be paid, equal to $20 a room. Under this plan millions of homes can be erected, financial institutions with billions lying idle can find a profit-sharing market for protective investment, the Government protected on insuring mortgages, protected on purchase of equity bonds for resale to the public, with the veteran investors able to meet the investment cost. A drop in material costs adds to the protection on lower rental investment in mutual cooperative housing; also special articles for unemployment, sickness, death; investment can be agreed upon for an absolute guaranty against loss on investment and homes; again developing character neighborhoods with an investment in the area is an attraction, placing the building industry in the security market will destroy speculation which creates high costs for rooms, the years for prospering business, creating steady employment with high-wage income for labor add to the feature for such operations, and the reduction in cost for crime, sickness, defeat of lowering the morale by family congestion should be taken into consideration for public and Government support and endorsement of the proposal. ARTICLE C. Agency.-In order to succeed in this enterprise it will be necessary to make a veterans division of housing a part of the agency (NHA or RFC) for the purposes intended-educational, service, and liaison. The committee respectfully urges this. A resolution now in the possession of the House World War Veterans' Affairs Committee chairwoman if enacted into law by the Congress and Senate of the United States, will provide the necessary laws and machinery to make the proposed veterans mutual cooperative housing corporation a decided success. Respectfully submitted. CHARLES F. SANDER, National Legislative Officer, Army and Navy Union, United States of Endorsed by United War Veterans Board, New York City, President C. F. Sander. HOW HONEST IS PUBLIC HOUSING? What about this housing business? Are we really short of housing? Can private enterprise produce sufficient housing? Do we need more Federal subsidies and guaranties? Do we need a vast public-housing program, like the Taft-Ellender-Wagner bill, passed by the Senate but not yet by the House? Whence comes the pressure for public housing? Let's look at the situation realistically. We are short of housing, but not nearly so short as propagandists assert. They say we need 10,000,000 new units. In view of the private building last year, the largest building year save one in our history, and since construction begun so far this year runs 20 percent above last year, 10,000,000 units is a fantastic exaggeration. This exaggeration is for a purpose a purpose we shall discuss presently. Sound studies in housing convince us we need no more than 1,000,000 new housing units. Can private enterprise supply them? Yes, provided that (1) Government action does not continue to inflate the dollar, thus raising prices above the means of purchasers; (2) Government exports do not deplete materials available for construction; and (3) Government itself withdraws as a major factor in housing. Those who advocate public housing, and those who advocate large-scale subsidies and guaranties, usually say "We must have low-cost housing. If private enterprise can't do it, then Government must." This reply assumes that private builders cannot produce sufficiently low-priced housing to meet the need. They can't do what they always have done. Let's see how the present situation came about. No solution can come out of ignorance. A sound solution may come out of facing facts. No builder can afford to spend $10,000 to build a house and then sell it for less than cost. What has made construction costs rise so sharply? The fundamental cause is the fault of Government itself. Government alone is responsible for the shrinkage in value of the dollar. The inflationary spiral (see council letter No. 175) cannot be laid at the door of American business. Since the publication of letter 175, 8 months ago, and despite efforts of large American corporations to keep prices down, the policies of the Federal Government have made inevitable further rises in the inflation spiral. If this trend is unchecked it will end in the ruin of the American economy. A second factor is the war-created shortage of materials and labor. New construction, normal for a growing population, lagged greatly from 1940 until very recently. When materials and labor are short, both are bid up in price by the law of supply and demand. This law, being one of nature's own, has never been repealed. Governments which pretend to repeal it, and act as if their policies have repealed it, sooner or later always come to grief. At any rate, the builders of America are not responsible for it. A third factor is the rise in the proportion of labor cost to the whole cost of construction. This is not the same as the rise of material and labor cost. It has proceeded from different causes. Two primary elements combine to fix the labor-cost proportion in housing construction. The first is the price paid to labor. The second is the actual productivity of that labor. If wages go up equally with other costs, and production remains constant, the proportion of labor cost remains the same. If labor cost rises faster and production remains constant, the labor-cost proportion becomes greater. But if the labor wage rate rises and at the same time labor's produetivity sharply declines, the labor cost factor swells out of all proportion and radically pushes up the final cost of housing. This is precisely what has happened. Private builders did not do it-it has been done to them. Labor productivity has been lessened by two devices: The slow-down and featherbedding. The slow-down needs little explanation. Men simply take longer to do the same work. Since they are paid by the hour, the labor cost relative to materials cost shoots up. Statistics and Economics of Housing, a Government publication, prepared this year for the use of the Joint Committee on Housing of the Congress, records certain of these practices. It shows, for example, that in 1940, on the basis of a survey of 64 cities in 28 States, it took 2.2 man-hours to install a toilet. In 1946 it took 3.6 man-hours-an increase of 63.6 percent. Built-in tubs and showers, installed in 6.1 man-hours in 1940, took 9 man-hours in 1946-an increase of 47.5 percent. The average number of radiators installed per day dropped from 6.9 to 4.6, a decline in efficiency of 33.3 percent. The average wages of plumbers have certainly risen more than 50 percent since 1940. But if the rise is calculated at only 50 percent, what does this mean? In the case of tubs and showers it means the actual labor cost due to the slow-down has almost doubled. In the case of toilets it has more than doubled. Slow-down practices are of two kinds-those indulged in by individuals and those ordered by unions. Many enlightened labor-union leaders oppose them. But it is easy to see why a certain type of union leader orders them; the job will take longer, the worker and the union will both make more money. That this skyrockets the contractor's costs and the ultimate cost to the consumer seems not to worry them. Featherbedding is similar (see council letter No. 174). It consists of doing unnecessary work or of doing over again work already done by somebody else or requiring payment for work not done. For example, carpenters in Chicago have refused to permit installation of factory-fitted doors. They must plane and fit doors themselves by hand. When hardware is included in factory-built kitchen cabinets they remove it, then reinstall it. In Cleveland, if window sash comes with glass installed, the glaziers methodically remove the glass, then replace the same panes. Other unions will not use factory-threaded pipe. They cut off the threaded portion, then slowly rethread it by hand. Railroads are forced to use larger crews than needed. These practices, the slow-down and featherbedding, are among the main reasons why building costs have risen so fantastically. There is nothing new about these practices. Council letter No. 19 (November 2, 1934) quoted Chancellor Berry, of New Jersey, as having said in a labor case in 1932: * 66* * * It is undeniable that construction costs on practically all major operations in the building trades ** have increased beyond all reason, as a direct result of the unlawful conspiracies and racketeering of unscrupulous labor leaders." So this sort of thing was going on 16 years ago. It took the backing of the New Deal to make these ridiculous and costly practices watertight, as they seem to have become. Meanwhile, union leaders in the building trades unofficially permitted New York City union men to go out on Long Island and accept work at a daily wage of roughly half the union "prevailing rate" in New York City. One thing must be remembered. Labor costs are a factor not only in the cost of the contractor but are hidden in each step along the line, increasing the price of materials before they reach the contractor. In 7 years the price of lumber has more than doubled-to the contractor. But a major element of the increased cost to him is increased labor cost, all the way from the first ax laid to the tree till the trucker delivers finished boards at the building site. So it is not accurate to say, for example, that "materials cost" in erecting a house is 46 percent, labor cost 35 percent, and overhead (including taxes and profits) 19 percent, as was stated in a recent survey. For most of the so-called "materials cost" is accumulated labor cost. The contractor, in turn, must pass this along to the home buyer. Probably total labor cost in the materials and the building of a house exceeds 75 percent. A fourth factor in housing is the financing. While interest rates on mortgage loans are probably lower than at any time in our history, private lending agencies are increasingly reluctant to make uninsured mortgage loans, because of the present inflated building costs. Formerly, Americans who wished to build would save, pay a good proportion in cash, then get a mortgage to cover the remainder. Today it is increasingly hard to get sound financial institutions to risk money on such loans. In the case of individuals prices may be so high that the buyers overextend themselves and cannot carry the load. In the case of builders, high costs often mean they cannot sell or rent the finished product at prices they must ask merely to break even. In this situation the Federal Government, through the Federal Housing Administration and the Public Housing Administration, has radically changed the picture. FHA is supposed to stimulate private building through loans and guaranties; PHA is designed to provide federally owned housing. We shall presently refer to other aspects of these agencies. Here we are concerned with the effect of Federal intervention on the cost of housing. The net effect of such Federal intervention is to raise the cost of housing. It is Federal policy to accept the exactions and conditions which organized labor lays down as the price of its services. It is also Federal policy not to question the votes which labor leaders pretend to be able to deliver to politicians who class themselves as friends of labor. Bureaucrats never hesitate to throw around the money the individual citizen knows he couldn't afford to spend. If the Federal Government were not thus in the picture, the law of supply and demand would inexorably adjust prices downward. Then if private builders could not sell at a profit because of high labor costs, they would cease to build until costs came down. Then labor would be idle until it was willing to work for reasonable wages, without slow-downs and featherbedding. Soon, then, labor would be willing to work for fair wages. Construction would commence. Houses would be sold and rented at prices people could afford to pay. Federal intervention prevents all this. Through FHA loans and guaranties, it supports the labor market at present levels. But it is able to do this only because it does not need to build at a profit, since it passes on the loss to the taxpayers, whose money it spends. Further, financial policies of the FHA have discouraged those who wish to erect reasonably priced housing. For example, FHA has been required by statute, in titles II and VI of the National Housing Act, to impose certain cost limitations on housing it guarantees. The limitation on new one-family dwellings is $6,000— on multiple dwellings $1,500 per room. Since present costs are above these figures, the effect is to force builders to construct apartments of more rooms at higher rentals, instead of the urgently needed smaller apartments. Thus, directly, Federal subsidies and guaranties increase the price of housing and help put smaller units in short supply. The foregoing account is necessarily brief and must omit many complex factors that have to do with shortages and distribution of materials and the effect of diverse building codes upon costs. Taken altogether they are important, but do not alter the essential picture we have drawn. WHAT CAN BE DONE? Three solutions have been offered: (1) More public housing. (2) More privately built housing, financed directly or indirectly by Federal funds or guaranties. (3) More privately built housing through incentives such as (a) less competition from Government; (b) reduced taxes on new construction at the munici pal and State levels, and reduced income tax on the income from new construction at the national level; and (c) more reasonable labor costs and elimination of slow-downs and featherbedding. The first solution-more public housing-is being urged now by pressure groups with axes to grind. When fully sharpened these axes can be used to decapitate private enterprise. The pressure comes first of all from 30,000 bureaucrats in FHA and PHA. Naturally, it is to their interest that we continue Federal intervention. The second pressure element is that of the barons of "union labor." They know very well that their own raising of the labor price has made it difficult for private builders to build adequately. They do not have the power to force unwilling builders to build, but they have had the power to force the Government to employ them on their own terms. A third pressure-most dangerous of all-is from those who seek to collectivize America. Many of them are in Government; many are outside, but have great influence on legislation and opinion. They are not confined to the Democratic Party. Some of the most powerful fighters for New Dealism in Washington today bear a Republican label. Some of the strongest advocates of free enterprise, who are implacable foes of collectivism, are Democrats. The aim of these leftist groups is not simply to get housing for everybody. but to involve Government to the amount of many billions in providing what the New Deal mentality calls adequate housing for millions of people who already have places to live. So it has resorted to fantastic public misrepresentations, intimating that Government and Government alone can supply the "needed" houses. Coupled with this has been some of the most devious and unconscionable political maneuvering ever seen in Washington. The forces working for unneeded, wasteful, extravagant spending of the people's money for public housing are engaged, knowingly or unknowingly, in a conspiracy to socialize our economy. In large measure they are getting away with it. We respect a Socialist who honestly says what he wants. But it is difficult to respect those who work to subvert the American free economy by indirection-by the pretense that they are absorbed in a humanitarian effort to provide proper housing-when every step they take is a step toward a Socialist goal not revealed to the public. |