The summer of 1932 was, in fact, associated with a wave of more favorable psychology, following the war-loan conversion scheme and the Lausanne Conference. This "convalescence of confidence" released a large volume of spending power hitherto pent up by fear, but it was the confidence of the consumer. Residential building picked up; factory building did not. Registrations of private cars increased; those of commercial vehicles did not. The explanation is that when confidence returned to the consumer in the autumn of 1932 he had more money to spend. According to Colin Clark's calculations, the total of wages and salaries, which on the average of the years 1924, 1926, and 1927, was £2,207 millions, had fallen in 1932 only to £2,143 millions-a fall of £64 millions. But Mr. Feavearyear has calculated that between 1924-27 and 1932 the expenditure of the public on food, clothes, liquor, and tobacco had fallen from £2,115%1⁄2 millions a year to £1,797 millions, a fall of £3181⁄2 millions a year. Caution is necessary in basing precise calculations on relatively small differences between large numbers which may themselves be subject to an appreciable margin of approximation. That there has been a large increase in the "free" margin of purchasing power, however, is scarcely disputable, and the figures as they stand suggest that the wage and salary earners of the nation, after buying their food, drink, tobacco, and clothes, had something like £250 millions a year more left over in 1932 than in 1924-27. The value of all the dwelling houses built in a year, even at the present rate, is probably less than £200 millions, while the value of the total of new private cars registered is only about £50 millions a year. The increases since 1932 are, of course, considerably smaller in each case.

The causation of a complicated phenomenon such as the housing boom cannot be explained by any one fact. The reduction in building costs and in interest rates and the return of confidence undoubtedly all contributed to the boom. Confidence, in particular, was perhaps more responsible than any other element for the fact that the boom started precisely when it did. But the fundamental fact, without which the others would have been futile, is almost certainly to be found in the increased purchasing power of the mass of the consuming public. And that in turn was due to the great reductions in the prices of food and clothes. In a second article an attempt will be made to apply this analysis to prospects for the future.

THE HOUSING BOOM-II

(From The London Economist, November 2, 1935)

In last week's Economist we discussed the extent and origins of the housing boom. We reached the conclusion that although falling costs of building, lower rates of interest, and reviving confidence had all played their parts in its generation, the dominant factor was the great increase in the purchasing power of the mass of the population, due on the one hand to the comparative stability of wages and salaries and on the other to the great reductions in the cost of food and clothes. The boom was thus due to a real increase in the demand for houses and not primarily to any of the factors entering into the price of houses. It remains to apply this conclusion to future prospects.

The factors of smaller importance may be eliminated first. Though building costs already show a slight upward tendency, following recent increases in wages, it is unlikely that changing costs will perceptibly influence the volume of building in the immediate future. The course of interest rates is unpredictable. The tendency may be slightly upward, but the building society mortgage rate is one of the "stickiest" of interest rates and any rapid return to the pre-1932 level seems most unlikely. "Confidence" is the most elusive factor of all. Commercial opinion, however, has been remarkably unperturbed, recently, by the menaces of the international situation and the disturbing factors incident to a general election. Summing up, we may conclude that tendencies have become, on the whole, slightly adverse to a continued increase in building activity, but the change, if any, is very small. And if the argument of our first article is correct, only a major reversal of trend could materially affect the volume of building.

Attention may be confined, therefore, to the prospective demand for houses. This springs from two causes-desire for new houses and ability to finance their purchase. Widespread publicity by the building societies of their financial facilities may have influenced recent events under both headings, but since 1932, at least, the really decisive factor has been the great reduction in the prices of the necessities of life. Are food prices likely to rise rapidly or substantially? Disequilibrium in world agriculture is unlikely to be speedily overcome, and, although

British food prices are at the mercy of agricultural protectionism, it is unlikely that any government would be ill-advised enough to engineer a substantial increase in the price of food in general. Cheap clothes are the result of cheap textile raw materials and far-reaching technical developments in the clothing trade. and salaries, on the other hand, are again on the upgrade. On balance, public ability to buy new houses does not seem to be seriously threatened.

Wages

What of desire? In the volume on housing in the 1931 census reports, the registrar-general estimates that, in 1931-41, the increase in "families" will require 771,000 more dwellings. (The "family" in this sense does not necessarily refer to any particular degree of consanguinity, but merely to a group of persons living together.) Allowing 300,000 for rehousing of slum dwellers and 100,000 for ordinary replacement, the registrar-general reaches a total of 1,200,000. If additional houses are built to provide separate dwellings for all families and to restore the percentage of vacancies to the normal pre-war level, a maximum estimate of 1,700,000, or 170,000 a year, is reached. The Economist (March 31, 1934) made an estimate not of the prospective firm demand for houses, but of the need for houses if a certain standard of housing were to be attained, the standard being the housing of the whole population "within a generation from the present in dwellings, large, sanitary, and pleasant enough to make decent living possible." In the two decades 1931-51, this envisaged 1,020,000 houses for overtaking the existing shortage, 714,000 for the prospective increase in the number of families, 1,000,000 for slum clearance, and 3,760,000 for obsolescence, making a total (for England and Wales) of 6,594,000, or 330,000 a year.

The actual rate of construction in the 4 years April 1931-March 1935 was, on the average, 249,000 houses a year, and in the last 2 years of the period 297,000 houses a year. This greatly exceeds the registrar-general's figure and approaches the "ideal maximum" of the Economist. Of the latter, moreover, more than half was due to replacement, and there has been no indication in the last 4 years of any significant increase in the numbers of houses demolished. Slum clearance is increasing, but over the 4 years has probably been below the registrar-general's figure. The proportion of vacancies, though not easily ascertainable, does not seem to be increasing rapidly. None of these factors-replacement, slum clearance, increase in vacancies-has been responsible for the boom. One is driven to conclude that an unexpectedly large increase has occurred in the number of families-i. e., of units requiring separate dwellings. The registrar-general estimated an increase of 771,000 families in 10 years, but there has been an increase of nearly 1,000,000 in 4. This most significant social phenomenon is explainable only by a widespread tendency for families to "split"-for married children to cease living with their parents, for mothers-in-law to set up for themselves, and for lodgers to move into flats. A movement such as this, with its roots in the social life of the people, is not likely to come to a sudden end. But the 600,000 or so families that have appeared since 1931 in excess of the number predictable on the basis of birth and marriage rates, represent something like 6 percent of the total number of families. On general grounds, we can scarcely assume the indefinite continuance of so rapid an increase.

If the social movement behind the housing boom were to decline and disappear, the normal increase in families could be accommodated in less than 100,000 houses a year-a rate of building only about one-third that of the present. Where is a continuing demand for the other 300,000 houses to come from? The most obvious answer is-from slum clearance and the abolition of overcrowding. Since present programs do not envisage building at this rate, there is the strongest economic argument for speeding up current efforts and widening contemporary definitions both of slums and of overcrowding.

There is, however, another potential string to the housing bow. In Great Britain the present rate of replacement is almost negligible. The demolition of a dwelling house in order that another may be erected on its site is the rarest of Occurrences. This general attitude is reflected in the registrar-general's estimate of housing requirements, which allows 10,000 houses a year for the replacement, through obsolescence, of 10,200,000 existing dwellings-an average expectancy of life of a fraction over 1,000 years! Nobody, however, would maintain that the average of housing accommodation in this country was satisfactory or even adequate. In many respects-including sanitation, amenities, and external and internal appearance we are far inferior to many nations with a lower general standard of living. Replacement has been discouraged by successive factors: A rapidly expanding population, the post-war shortage of houses, and, finally, improved transport facilities, which have encouraged extra-urban building. These reasons are losing force today, but the rate of replacement will probably increase very slowly, since the price differential between old and new property

is not nearly large enough to make demolition and rebuilding economic except in special circumstances. Official intervention to buy up old properties is undesirable, since it would tend to maintain their market value, which is the opposite of what is desired.

The outlook is, then, for a decline in building activity. The increase in families will probably taper off slowly. A really vigorous policy of housing for the poor could do much to fill the gap, but even at its maximum it would hardly amount to 200,000 houses a year. The other potential source of demand for houses is through obsolescence. It is not inconceivable that we are on the verge of far-reaching developments in building technique which will materially reduce costs and accelerate obsolescence and replacement. In their absence, however, it is unlikely that increased replacement demand can develop rapidly enough to maintain the present level of building. On the other hand, most of the phenomena discussed in this article are slow moving. A sudden reduction in building activity would presuppose either a rapid increase in food prices or a collapse of confidence. And there is every reason to hope that we shall avoid both.

QUALITY BUILDERS CAN DEVELOP LOW-PRICE HOUSE BUSINESS ON INDUSTRY SCALE

(Address by John W. Laing, chairman of directors of John Laing & Son, Ltd., of London, England, before the joint luncheon meeting of the New York Building Congress, Inc., and the Committee for economicand Social Progress, Inc., held at the Hotel Astor on Wednesday, September 29, 1937)

I am visiting your land to learn as much as ever possible, and appreciate very much all the kindness shown to me and am very pleased to reciprocate, as far as I am able. You have asked me to speak on housing in Britain, and gladly do I respond to the invitation.

I consider that the providing and building of homes for the lower-paid middle class and the manual worker is the highest national service that the building trade can render.

This opinion is an unbiased one, as my own firm not only employs between 1,000 and 2,000 men on housing, but has under construction at the present time aerodromes, factories, office blocks, and a hospital, of a total value of about $20,000,000. Of the many varieties of work, however, there is none that gives such pleasure as the developing of estates and building the smaller type of house for sale.

To avoid the use of the word "Britain" too often, when I say "we" it is short for Britain.

Since the war, we have built about 3,000,000 houses, of which 2,000,000 were by private enterprise and 1,000,000 were subsidized by the Government and municipalities, who usually employ building contractors to construct the houses for them. Recently private enterprise has built about 250,000 houses and the municipalities 60,000 each year. The private enterprise houses are generally sold for owner occupancy, while the subsidized houses are let at a weekly rent. There was in Britain, a generation ago, a group of pioneers, one of whom Sir Raymond Unwin, I am very pleased to see in this meeting. These made prominent endeavor to arouse in Britain a housing spirit. As a result of their labors people of good will of all political parties are now united in a housing spirit. Although there may be changes of government, no party desires to alter our housing program; which is that every family must have a healthy home to live in, that we cannot afford the disease, crime, and other evils which result from slum housing.

There is a small minority of the families of Britain whose incomes are so low that they cannot afford to pay the commercial rent for a healthy home and we cannot afford to let them live in unhealthy houses and therefore some subsidy is necessary in their cases.

If we were beginning our housing program over again we could avoid some of the errors which were made.

1. At the beginning our subsidy houses were built too expensively and about half the national subsidy of housing was caused through the first 200,000 houses built. After that time, the architects, the builders, and the workers have worked together. The architects design economical, healthy houses and builders have adapted their businesses for housing and the workers through continuity of employment have become more efficient. Then houses are being produced economically.

2. With regard to private enterprise houses, it is realized now that these could have been improved if there had been greater collaboration between architects and builders so that the houses built by private enterprise should have simple beauty.

3. Every care should be taken to insure that private enterprise provides good quality homes.

4. If we had known at the beginning as much as we do now, the builders and the representatives of the Government would no doubt have met and the builders would have stated what was the cheapest house that private enterprise could provide, and a more or less definite line would have been drawn as to what income people should be helped by subsidy and what income people could be catered for by private enterprise. The importance of deciding this line is that uncertainty as to what property will be subsidized hinders enterprise.

A working family cannot afford to pay more than a quarter of their income for their house. In Britain, private enterprise can provide a good home for $4 a week in the provinces and $5 in London. Probably in America, $6 per week would be your most economical figure. Thus it should be realized that private enterprise could cater for all classes with an income of $24 or more per week, while those with incomes below that might require to live in subsidized houses. Before leaving the subsidized house, I might mention that the average rent in Britain for a four-room municipal house, consisting of a living room and three bedrooms, working kitchen, a bathroom, and a good garden, is $3 per week in the provinces and $4 in London. This can now be provided by the municipalities without a subsidy owing to increased efficiency and cheaper interest for loans. So all subsidies have been withdrawn except where providing houses for the very poor who cannot afford to pay even these rents and for such they have a reduced rent system where it is an absolute necessity.

Thus in Carlisle, which is my native town, the rent is where necessary reduced to one-fifth of the family's income less 12 cents per week off this rent for each child of school age, with a minimum rent of $1.25 per week. Thus, an old couple with $6 a week income gets a small but healthy home for $1.25.

If builders of repute and capital would undertake private enterprise housing on a large and efficient scale, I believe it would be found that they could cater for 85 percent of the small house group, leaving only 15 percent to be dealt with by subsidy. Regarding the subsidy house, you can consider whether it is in your national interest that these subsidies should be given to the municipalities and they organize these houses, or if it could be done better by limited dividend housing companies.

We do strongly recommend that as far as possible workers' homes should be in the form of houses rather than apartments or tenements and that the latter should only be adopted where it is absolutely necessary, that the worker should be housed very near to his work, in the center of a large town.

Beautiful homes and gardens only cost two-thirds as much as tenement homes and the man who is housed in the tenement is not nearly such a good national asset as the man with a separate home and garden.

We will now leave the question of subsidized houses and consider private enterprise which should deal with the bulk of the small-house trade provided that substantial builders would lay themselves out for this class of work.

Some good builders consider that housing is beneath their dignity but I submit this is not so. The firm with experience, capital, and character can honorably do the work. They can buy in bulk both land and materials and employ reliable, skilled workmen giving them continuity of employment and be satisfied with a reasonable profit, thus producing good houses almost as cheaply as the poor-class builder does bad ones. It will be found that purchasers, even of the smallest house, will buy good quality although it is somewhat higher priced.

If more of you quality builders take up the work, as I hope you will, have a definite system of inspection, let your head inspector be a high-salaried man, next to a director, and his duty be to insist on quality. In selling all your houses, undertake to maintain them in every way, except damage through sheer abuse, for a year and even after that time if any defect caused by bad work or materials should become apparent, don't hesitate to make it good. These services cost very little but they do increase confidence.

Keep your men on housing employed as regularly as possible, and do everything to encourage their interest in the work. We have found that regularity of work has reduced the labor costs 33 percent.