"Simple Changes"

In the U. S. last year, some 250,000 people built new houses. Four million bought new automobiles.

What this fact proves about U. S. mores is debatable. What it proves about the U. S. construction business is entirely clear. The U. S. housing boom, hopefully anticipated long before construction reached its 1934 Depression low of 50,000 units a year from a 1925 high of 950,000 units, has signally failed to materialize.

In his message to Congress when it convened three weeks ago, Franklin Roosevelt promised soon to deliver another, discussing means of ending the current Recession. Last week he did so. Read to both Houses while the President was embarking on a fishing trip, the second message to the extra session took the form of a grand-scale ground-plan to revive U. S. industry by a nationwide housing drive backed by private capital. Said the President: "From the point of view of widespread and sustained economic recovery, housing constitutes the largest and most promising single field for private enterprise. Housing construction has not kept pace with either the needs or growth of our population. From 1930 to 1937, inclusive, the average annual number of new dwelling units constructed in the United States was 180,000 as contrasted with an annual average of 800,000 in the seven years prior to 1930. In addition, much of our existing housing has seriously deteriorated, or has been demolished.

"It is estimated that an average of 600,000 to 800,000 dwelling units ought to be built annually over the next five years to overcome the accumulated shortage and to meet the normal growth in number of families. In other words, we could build over the next five years three or four million housing units, which at a moderate estimate of $4,000 per unit would mean spending from twelve to 16 billion dollars, without creating a surplus of housing accommodations, and consequently without impairing the value of existing housing that is fit for decent human occupancy."

Under the National Housing Act of 1934, an individual could borrow up to $2,000 from a bank--with 20% of the principal guaranteed by the Government --to improve, repair or modernize his house. He could borrow up to $16,000 from a bank to build a new house--at 5% (in some cases 6%) interest, with the total mortgage guaranteed by the Government for a premium of at least .5% when the principal did not exceed 80% of the estimated value of the property. And ''V nited dividend corporations could get insurance on mortgages up to $10,000,000 on the same terms for large scale developments for rent to "persons of low income." The net results of all this propping and sharing of the sagging U. S. building industry were, admitted the President last week, "not satisfactory":

"The long-continued lag in building," said he, "is a drag on all industry and trade. . . . This industry, to a greater extent than any other, can put idle funds to work and thus speed up the circulation of the nation's money supply. . . . We must recognize clearly that housing will not be built if costs are too high in relation to the consumer's income. The fact that housing costs rose sharply--far too sharply--between September of 1936 and March of 1937 was primarily responsible for the downturn in housing and thus in recovery generally this year. . . . The sharp rise of wage rates and prices in this industry, just before the last building season, reduced by 100,000 to 150,000 the number of new dwelling units that competent authorities had estimated were in prospect for 1937.

"It is now clear that we cannot have a strong revival of housing construction on the terms that were exacted by industry and labor last spring. The rise in hourly wage rates and in material prices was too rapid and too great for the consumer to bear. A similar rise in costs likewise checked production and buying in other industries as well. . . .".

To "adjust the cost of housing to the consumer's means," the President proposed a series of conferences with builders and their employes to encourage the former to large scale year-long activity so that the latter might accept a lower daily wage for a larger annual wage, the oldest and thorniest problem in the building trades. The Government, he proposed, would take steps to make housing even more easily available to individuals and, for the first time, attractive to investors, by six "simple changes" in the Federal Housing Act, to wit:

1) Raising the insurable limit of a mortgage from 80% to 90% of a property's appraised value when it is under $6,000 which would mean that if an individual could persuade the bank his credit was good, he could move Jnto a $6,000 house for $600 down.

2) Reducing interest and service charges on insured loans from 5 1/2% to 5% net.

3) Making the mortgage insurance premium .5% on the "diminishing balance" instead of on the face value of the mortgage, cutting the premium to .25% on properties worth $6,000 or less whose mortgages are insured before July 1, 1939.

4) Limiting mortgages on groups of houses or apartments constructed under F.H.A. allowances to $1,000 a room and liberalizing provisions for chartering National Mortgage Associations which, specially regulated by the Administrator, would be enabled to finance large loans to limited dividend companies through the sale of housing bonds and debentures secured by insured mortgages. The RFC would supply $50,000,000 to such newly formed organizations "for capital purposes." Net effect of this amendment would be to encourage the development of large-scale, low-cost projects.

5) Making the present $2,000,000,000 total limit on insurable mortgages a limit on mortgages outstanding at any one time and eventually limiting insurance on mortgages to cases where application is made before building starts.

6) Reviving insurance on repairing and modernization loans, which ended last April.

The President suggested that Congress act on his proposals promptly: "The proposals which I am presenting for your consideration now are an important part of the program for increasing general business activity and employment during the coming year," As soon as it had been read, New York Senator Robert F. Wagner complied with the suggestion by introducing a bill embodying the Presidential recommendations--to which Congress, at first inspection, seemed favorably inclined.

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