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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:
* 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 municipal 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.
The technique of the collectivist lobby is simple. It represents to the public that it is fighting the battle of "the people" against "selfish interests" and "monopolies.' It characterizes those who own property, or who represent them, as the "real estate lobby." It is not fighting the battle of the people at all, but is working to lay new burdens on the people. It has lured uninformed idealists to its support, but its main drive is to bankrupt and collectivize America. Instead of truthfully placing the blame for the present situation where it belongs on the financial policies of the New Deal administration and its unholy alliance with the labor barons-it blames that part which is hardest hit-the building industry. As if it were to the interest of any business to destroy itself by pricing itself out of the market.
"But," it may be said, "regardless of who is for it or against it, is not public housing for low-income groups a humane duty?"
The answer is "No." Not unless the individual is to abandon all individual responsibility. So-called public housing is detrimental to the welfare and future of the whole free economy of America. If it wins the so-called low-income groups stand to lose along with all other Americans. Their immediate benefit would be illusory, and would be followed by irreparable loss.
The whole theory of public housing is destructive of freedom. It is a bald application of the fine-sounding but deadly phrase of classical socialism: "From each according to his ability, to each according to his need."
Housing costs money. Low-income families placed in public housing pay a rental far below actual cost. Somebody has to pay the difference. Who does? "The Government pays," cry the collectivists.
Rubbish! Government never pays for anything.
It has no money of its own. Government merely handles the money of the people. In taking the money of taxpayers to meet the deficits on public housing it deliberately takes from some, lowering their standard of living, and gives to others-raising momentarily their standard. That there is no power granted or intended to be granted in the Constitution to redistribute the earnings of the people will never deter a bureaucrat who himself lives upon the earnings of those who produce. Parasites thus create parasites, and the process will probably go on until the number supported by the earnings of the producers becomes so great that the burden can no longer be carried. Then, when our economy breaks down, the collectivists will cry out, "We told you so." Capitalism can't do the job. Capitalism has failed."
The second solution-more Federal intervention-is often presented in combination with demands for some public housing. In general, the forces demanding it also demand public housing. Federal intervention in private building is advocated by bureaucrats who have their jobs to think of, labor barons who have maintenance of unreasonable labor costs to think of, and collectivists who have the bankruptcy of our free economy to think of.
To choose this solution is only to imagine that measures which have created an intolerably bad situation will, if continued and enlarged, cure all our troubles. It is like assuming that the way to cure a localized infection in an individual is to spread that infection throughout the entire body.
THE SOUND COURSE
In our judgment the third solution is the sound, American solution. Let Government withdraw from housing. After a short period of adjustment we shall see the law of supply and demand bring down the cost of housing, especially the exorbitant and fraudulent factors in the labor-cost element. We will then have the greatest period of housing construction America has ever seen. When the market is permitted to function freely millions of new, reasonably priced dwelling units will eventually be constructed.
This, however, is predicated upon two conditions. The first is that Federal purchases of building materials for European aid shall not be permitted to exhaust materials now in short supply here. If such excess purchases are made neither private enterprise nor the Government itself can build houses to meet our domestic needs. This is a matter squarely up to Government, and cannot be laid at the door of private enterprise.
The second condition is that Government shall not only abandon its intervention in housing, but remove the penalties represented by excessive taxation. This will make reasonable profits possible at lowered costs, and so provide the incentive without which no sensible man will risk investment of capital, effort, and brains.
The House should reject the economic idiocy of the so-called Taft-EllenderWagner housing bill, passed on April 22 by the Senate. The only building such measures can stimulate is building constructed at artificial costs which cannot in the long run be maintained, with ultimate disaster to purchaser, builder, and taxpayer alike. With ultimate disaster, also, to our system of American free enterprise.
Restore private enterprise, give it sufficient incentives, and there will be no housing problem in America.
LINCOLN WAS RIGHT
Abraham Lincoln, responding to Socialists of his day, said:
"Property is the fruit of labor; property is desirable; is a positive good in the world. That some should be rich shows that others may become rich, and hence is just encouragement to industry and enterprise. Let not him who is houseless pull down the house of another. But let him work diligently and build one for himself, thus by example assuring that his own shall be safe from violence when built."
Government housing is socialism-is one of the chief planks in the Socialist and Communist programs.
If our politicians and candidates for office continue to fall for this sort of stuff, then the houses of all of us, rich and poor alike, will be pulled down upon us in the general ruin of the Republic.
MERWIN K. HART, President, National Economic Council, Inc.
STATEMENT OF J. T. SANDERS, LEGISLATIVE COUNSEL, THE NATIONAL GRANGE 1. The National Grange recognizes that the housing shortage is one of the most acute shortages arising as an aftermath of the war. One of the greatest injustices facing the GI who so wholeheartedly gave of his utmost physical, mental, and spiritual capacity in the field was the injustice of having no decent house to live in when he returned, married, and tried to start a home of his
2. A farm organization with approximately 800,000 members living largely on family farms could not be oblivious to such great need as the current housing shortage. We therefore heartily approve of the general intent of S. 866, but are fearful that it does not provide the best way to meet this great housing need and yet preserve the freedom and economic safety of the future homes of our citizens.
3. We believe the rural housing situation is fully as acute a problem as is the urban housing problem. We believe the causes of this problem, both urban and rural, are such that easy credit or even private and public housing subsidies do not get at the roots of the problem. The real causes lie in a general postwar shortage of homes as a result of suspended building of homes during and prior to the war; to postwar inflationary forces; to high building labor costs; to current padded builders' and contractors' margins; and to antiquated building codes. Obviously cheap credit will not overcome these difficulties-indeed, will aggravate their burden to the young home owner. If this burden is shifted from the home owner by public subsidy, the burden and the aggravation is merely shifted to the future public. The problem will not be solved in this manner, although its acuteness may be relieved and pressure of shortages shifted to other needs or shortages than housing needs. The real, the only, solution lies in full economical production until shortages in general are eased.
4. Due to this situation as to the basic cause and nature of the problem, we are opposed to the general oversubsidization features of private and public building and the easy credit features of S. 866. But we especially feel that title VII, the farm housing subsidy provisions, are not the most acceptable approach to a solution of the farm home shortage.
5. The general subsidizing nature of this rural housing provision is indicated by the fact that the borrower needs to show only that his housing facilities are not decent, safe, and sanitary; that he does not have the resources to correct these; that he cannot get credit to do it; and finally, that if his and the farm's lack of earning capacity justifies it, the Government may, for the first 10 years of the loan, cover his annual interest and one-half of his annual payments
on the principal. All this is to be a loan not necessarily based on a first lien on the farm. Thus the Government assumes nearly all of the risk for the first 10-year period of the 40-year loan.
6. There is, however, a vital difference between placing an overburden of credit on a farm as a going business concern and on an overburden mortgage on a city home. A farm is both a business unit and a home. The home on the farm is the part of the investment that is not productive of farm income, yet the cost of the residence is an inseparable part of the farm investment. If this nonincome-producing part is overburdened with debt, it may drag the whole farm business down in foreclosure. The alternative to loss of the business to the farmer is to write off the debt as loss to the Government. Arrangements of this kind are not good for the farmer or the Government. We believe the farm housing shortage problem can, and should, be met by a safer and more businesslike way than is provided for in S. 866. We therefore recommend that this portion of the bill, title VII, be dropped.
STATEMENT OF AMERICAN BANKERS' ASSOCIATION ON S. 866, BEFORE THE HOUSE COMMITTEE ON BANKING AND CURRENCY
S. 866 seeks to effectuate its purpose by further liberalization of credit through establishing credit aids and new forms of Government guaranty to institutional leaders; through increasing direct Government financial aid to local public bodies and to farmers for farm housing; all of which would add to the present already adequate supply of money and credit. These measures are characteristic of a depression economy and should not be injected into the inflated economy that exists throughout the Nation today. The added liberal credit measures proposed by this bill would increase competition for building materials and labor, thereby adding to inflationary forces which may further increase building costs and add to the difficulty of building houses to supply the needs of the people who are intended to be benefited by this bill. Any increase in the cost of new construction will be reflected in an increase in the resale price of homes already constructed, thereby necessitating a further increase in the amount of mortgage credit to finance such transactions.
Private credit is adequate. The liberal credit devices proposed in this bill were first introduced in Congress over 2 years ago. In this period, without adoption of any of these devices, the four major institutional lenders increased their mortgage loans by approximately $10,000,000,000. The banks of this country have the capacity to continue to make sound loans to finance the building and the purchase of homes. Insurance companies, savings and loan associations, and other private investors also are financing a large volume of home loans. The mortgage loan capacity of these four major institutional lenders, namely, commercial banks, mutual savings banks, savings and loan associations, and insurance companies, is evidenced by aggregate savings funds of 107.7 billion dollars, as of December 31, 1947, while on this date their mortgage loans aggregated 31.7 billion dollars. No additional or new credit incentives or aids are needed to meet the demands to finance the home-construction industry.
Since 1945 there has been substantial progress made in the construction of homes. For example, new permanent nonfarm dwelling units started in 1945 were 209,300; in 1946 were 60,500; and in 1947, 849,000. Completions in 1947 were 834,500 units. In 1925, which was the highest previous period of homebuilding activity, there were 937,000 units started. Based on the number of units started during the first 4 months of 1918, namely, 257,000 units, which is an increase of 25 percent over 1947, the indications are that building activity for the year 1948 will exceed all previous records.
More liberal credit, as proposed in this bill, will not produce any more housing. Although building materials are in greater supply today than at any time since VJ-day, it is questionable whether productive capacity and available manpower could further support any substantial expansion in the present record volume of construction. Furthermore, there is a possibility that materials necessary for home construction may again be in limited supply as a result of the present national defense and European recovery programs. Therefore, the effect of the enactment of this bill would be to exert an inflationary pressure on prices of housing without in any way increasing the supply of housing.
The proposals contained in this bill, particularly those for direct assistance in the form of loans and grants for slum clearance, public housing, and farm housing, should be considered in relation to the over-all fiscal policies of the