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Full text of "Investigation of concentration of economic power. Hearings before the Temporary National Economic Committee, Congress of the United States, Seventy-fifth Congress, third Session [-Seventy-sixth Congress, third Session] pursuant to Public Resolution no. 113 (Seventy-fifth Congress) authorizing and directing a select committee to make a full and complete study and investigation with respect to the concentration of economic power in, and financial control over, production of goods and services .."

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Northeastern University 

School of Law 








Public Resolution No. 113 
(Seventy-fifth Congress) 


PART 11 


JUNE 27, 28, AND 29, JULY 6, 7, 11, 12, 13, AND 14, 1939 

Printed for the use' of the Temporary National Economic Committee 

1244W1 WASHINGTON : 1940 



(Created pursuant to Public Res. 113, 75th Cong.) 

JOSEPH C. O'MAHONEY, Senator from Wyoming, Chairman 

HATTON W. SUMNERS, Representative from Texas, Vice Chairman 

WILLIAM E. BORAH, Senator from Idaho 

WILLIAM H. KING, Senator from Utah 

B. CARROLL REECE, Representative from Tennessee 

CLYDE WILLIAMS, Representative from Missouri 

THURMAN W. ARNOLD, Assistant Attorney General 

•WENDELL BERGE, Special Assistant to the Attorney General 

Representing the Department of Justice 

JEROME N. FRANK, Chairman 
•LEON HENDERSON, Commissioner » . 

Representing the Securities and Exchange Commission jf^D 

GARLAND S. FERGUSON, Commissioner /JT) 

•EWIN L. DAVIS, Commissioner, Representing the Federal Trade Commission (T2 

ISADOR LUBIN, Commissioner of Labor Statistics ■ , 

•A. FORD HINRICHS, Chief Economist, Bureau of Labor Statistics ^*- ) 

Representing the Department of Labor 
JOSEPH J. O'CONNELL, Jr., Special Assistant to the General Counsel «— * 

•CHRISTIAN JOY PEOPLES, Director of Procurement' £0 

Representing the Department of the Treasury ~3I 

RICHARD C. PATTERSON, Jr., Assistant Secretary *"^f 

Representing the Department of Commerce 
JAMES R. BRACKETT, Executive Secretary 


' Resigned from Committee July 1, 1939. 







Testimony of — Page 
Altman, Dr. Oscar L., Securities and Exchange Commission, Wash- 
ington, D. C 5042-5055 

Binns, Arthur W., president, A. W. Binns, Inc., Philadelphia; Pa._ 5357-5377 
Bodfish, Morton, executive vice president, United States Building, 

and Loan League, Chicago, 111 ■ -50#4-,5112 

Bruere, Henry, president, Bowery Savings Bank, New York City. 5112-5129 
Davison, Robert L., director of housing research, John B. Pierce 

Foundation, New York City 4975-4997, 53 1 7-5340 

Dawson, Allen, Smith & Dawson, Chicago, 111 4997-5007 

Ecker, F. W., vice president, Metropolitan Life Insurance Co., New 

York City 5129-5142 

Eckstein, Henry J., president, Foresta Factors, Inc., New York 

City 5281-5303 

Fahey, John H., Chairman, Federal Home Loan Bank Board, Wash- 
ington, D. C • 5380-5406 

Fitzgerald, H. W., Newark, N. J 5057-5063, 5072 

Lambert, GeVardB., Princeton, N.J. _. 5303-5315 

Lubin, Dr.. Isador, Commissioner of Labor Statistics, Department of 

Labor, Washington, D. C 4935-4972 

Meyne, Gerhardt F., Chicago, 111 5245-5257 

Parker, Wm. S., Boston, Mass 5235-5245 

Rogers, R. R., vice president, Prudential Insurance Co., Newark, 

N. J 5055-5057, 5063, 5081 

Schnitman, L. Seth, consulting economist, New York City 5015-5040 

Smith, Carleton A., Smith & Dawson, Chicago, 111 5007-5014 

Straus, Nathan, Administrator, United States Housing Authority, 

Washington, D. C . . 5407-5431 

Thorp, Dr. Wfllard, Department of Commerce, Washington, D. C. 5171-5235 
Tracy, Daniel, International Brotherhood of Electrical Workers, 

Washington, D. C 5260-5280 

Walker, Wallace, assistant general 'counsel, Home Owners' Loan Cor- 
poration, Washington, D. C 5168-5170 

Westbrook, Col. Lawrence, Westbrook Associates, Inc., Washington, 

D. C •_ 5340-5357 

Wood, Robert E., Chairman, board of directors, Sears, Roebuck & 

Co., Chicago, 111 ". 5162-5168 

Statement of — 

Arnold, Thurman W., Assistant Attorney General of the United 

States, Washington, D. C ■. 5144-5162 

Kreps, Dr. Theodore J- economic adviser, Temporary National 

Economic Committee, Washington, D. C 5432-5459 

O'Connell, Joseph J., Jr., Treasury Department, Washington, 

D. C 1 . 4933-4935 

Construction employment 4935 

Volume of construction -. 4943 

Available housing and housing needs 4949 

Factors of housing costs and need for lower costs , 4975 

Costs of a single-family house near Chicago ■ j . - 4997 

Collusive practices in the Chicago area 5007 

Relation between capital costs and annual costs 5015 

Distribution of mortgages and sources of home financing 5042 

Analysis of the factors determining interest rates 5055 

Effect of reduction in capital cost as compared to similar reduction in 

interest rate ' _ ^ 1 5057 

Methods and practices of building and loan associations 5084 

Savings banks participation in mortgage financing : 5112 




Insurance company investments in housing 5129 

The economic purpose of antitrust enforcement in removing restraints of 

trade in building 5146 

Summary of the principal restraints of trade in the building industry 5147 

Producers of building materials 5148 

Distribution of building materials 5149 

Contractors 5150 

Labor _• . , __ 5150 

Legislative restraints of trade 5150 

Economic effect of removal of restraints in the building industry 5151 

Procedures now available to attack restraints of trade in the building 

industry 5152 

The use of the civil procedure 5154 

Cooperation with private industry _' 5154- 

Necessary procedural amendments 5155 

Conclusion 5156 

Effect of restraints on housing costs in Chicago 5162 

Costs of title examination and insurance., 5168 

Structure of construction industry 5171 

Concentration of material manufacture 5203 

Residential real estate taxes as compared to cost of municipal services 

rendered 5235 

Collusive practices in the building trades in Chicago 5245 

Role of labor unions in residential construction 5260 

"Yield Insurance" as a stimulant to low-cost housing 5281 

Plan to finance rental housing 5283 

Plan for slum clearance 5283 

Objectives of the yield-insurance plan 5285 

. Necessary legislation for yield-insurance plan 5285 

The "Lambert Plan" for low-rental housing. 5303 

Causes of high rents ; 5304 

Incentives 5306 

Municipal taxes 5306 

Methods of operating plan 5306 

Actual demonstrations to date •__ 5307 

New Brunswick project 5308 

Conclusion 5308 

Effect of technical research on housing costs 5317 

Plan for construction of cooperative housing with public aid 5340 

Rehabilitation of slum areas with private capital. _' 5357 

Activity of Home Loan Bank Board in reduction of financing costs 5380 

Federal Home Loan Bank System 5381 

Federal Savings and Loan Insurance Corporation 5385 

Home Owners Loan Corporation 5385 

Operations pf the three agencies 5389 

Interest rates and service charges 5390 

Where home ownership savings can be made 5400 

Activity of United States Housing Authority in providing subsidized 

housing for low-income families _ ; 5407 

Summary of testimony on the construction industry 5432 

Schedule and summary of exhibits III 

Tuesday, June 27, 1939 4933 

Wednesday, June 28, 1939 4975 

Thursday, June 29, 1939 5041 

Thursday, July 6, 1939 5083 

Friday, July 7, 1939 5143 

Tuesday, July 11, 1939 5171 

Wednesday, July 12, 1939 5259 

Thursday, July 13, 1939 5317 

Friday, July 14, 1939 5379 

Appendix 5461 

Supplemental data 5588 

Index I 


Number and summary of exhibits 

at page 

on page 



Chart: Construction employment for years 1925-40. 
ported by statistical data on p. 5461 in appendix 

Chart: Manufacturing employment, durable-and non-dur- 
able-goods group for years 1923-40. Supported by 
statistical data on p. 5461 in appendix 

Chart: Employment and pay rolls, steam- and hot-water- 
heating apparatus and steam fititngs for years 1923-40. 
Supported by statistical data on p. 5463 in appendix 

Chart: Employment and pay rolls, lumber sawmills, for 
years 1923-40. Supported by statistical data on p. 5465 
in appendix 

Chart: Employment and pay rolls, lumber millwork, for 
years 1923-40. Supported by statistical data on p. 5467 
in appendix 

Chart: Employment and pay rolls, structural and orna- 
mental metalwork, for years 1923-40. Supported by 
statistical data on p. 5469 in appendix 

Chart: Employment and pay rolls, brick, tile, and terra 
cotta for years 1923-40. Supported by statistical data 
on p. 5471 in appendix 

Chart: Employment and pay rolls, cement, for years 1923- 
40. Supported by statistical data on p. 5473 in appendix. 

Chart: Employment and pay rolls, plumbers' supplies, for 
years 1931-40. Supported by statistical data on p. 5475 
in appendix 

Chart: Value of all construction for years 1919-39. Sup- 
ported by statistical data on p. 5476 in appendix 

Chart: Volume of construction from Government funds for 
years 1925-38. Supported by statistical data on p. 5476 
in appendix 

Chart: Residential units provided for in new nonfarm con- 
struction for years 1920-39. Supported by statistical 
data on p. 5476 in appendix 

Chart: Urban nonrelief families by income, percent distrir 
bution for years 1935-36. Supported by statistical data 
on p. 5477 in appendix 

Chart: Family income, percent distribution, Chicago, Port- 
land, Oregon, Mobile, and Beaver Falls, Pa., for years 1935- 
36. Supported by statistical data on p. 5477 in appendix. 

Chart: Percentage of family income spent for housing for 
years 1935-36. Supported by statistical data on p. 5478 
in appendix 

Chart: Ratio of rent tp family groups, by income groups, 
Portland, Oregon, Mobile, Beaver Falls, Pa., for years 1935- 
36. Supported by statistical data on p. 5478 in appendix _ 

Chart: Percentage of families renting, by income groups, 
Portland, Oreg., Mobile, Beaver Falls, Pa., for years 1935- 
36. Supported by statistical data on p. 5478 in appendix. 
845. Chart: Rented units lacking selected facilities, percent of 
total rented, by income groups, Portland, Oregon, Mobile, 
Beaver Falls, for years 1935-36. Supported by statistical 
data on p. 5479 in appendir 

















































Number and summary of exhibits 

846. Chart: Houses city families can afford and houses built, 

1938. Supported by statistical data on p. 5479 in ap- 

847. Chart: Summary of annual requirements for nonfarm 

dwellings in the United States, for the years 1938-39. 
Supported by statistical data on p. 5479 in appendix — _. 

848. Chart: Distribution of families by income groups and dis- 

tribution of rental by rent groups 

849. Chart: Break-down of necessary construction by price 


850. Chart: Distribution of families by income groups and dis- 

tribution of new dwellings in the United States, England, 
and Wales for the years 1930-37 and 1934-35 

851. Chart: Proportion of national income spent for homes and 

automobiles for the years 1921-37. Supported by statis- 
tical data on p. 5480 in appendix 

852. Table: Cost of construction of single-family homes in Long 

Island and New Jersey for the years 1936 and 1938 

853. Chart: Results of reduction in materials, labor, and in 

interest and amortization 

854. Table: Costs on a $4,800 house sale 

855. Chart 1". Building costs per room. Chart 2: Housing costs 

per room per month. Supported by statistical data on 

p. 5482 in appendix-. 

856: Chart: Financing, mortgage and equity of housing projects. 
Supported by statistical data on p. 5482 in appendix 

857. Chart: Effect of a 20 percent reduction of building cost on 

housing cost per room, Hillside Housing, N. Y. Sup- 
ported by statistical data on p. 5482 in appendix _". 

858. Table: Amount of mortgages on one-to-four family homes 

held by various lending agencies, and amount and percent- 
age of such holdings insured by the Federal Housing Ad- 
ministration, 1935-37 , 

859. Table: Absolute and percentage distribution, by lending 

agencies, of new mortgage loans on one-to-four family 
nonfarm homes, 1935-38 

860. Table: Absolute and percentage distribution, by lending 

agencies, of new mortgage loans on one-to-four family 
nonfarm homes, 1935-38 

861. Table: Estimated amounts of mortgage loans made during 

each year, on one-to-four family nonfarm homes,' and 
distribution of this total between loans for construction 
and for other purposes, 1925-38 

862. Table: Distribution by new homes and existing homes of 

new mortgages accepted for insurance by the Federal Hous- 
ing Administration through December 31, 1938 _. 

863. Table: Effective interest rates charged by savings and loan 

associations in 1931, all lenders in 52 cities in 1934, and 
Federal savings and loan associations in 1936 

864. Letter, dated June 30, 1939, from Miles L. Colean, Assistant 

Administrator, Federal Housing Administration, to Rep- 
resentative Clyde Williams, re certain misapprehension in 
Mr. Schnitman's testimony in relation to the rental hous- 
ing operations o:' the Federal Housing Administration.... 

865. Statement of Morton Bodfish, executive vice president, 

United States Building and Loan League, re roll of savings 
and loan associations in financing homes. 

866. Cases in the housing field instituted by the United States 

under the antitrust laws, 1892-1931 

867. Complaints and orders concerning building industry issued 

by the Federal Trade Commission 

at page 













on page 
















1 On file with the committee. 



Number and summary of exhibits 

at page 

on page 














Release by Attorney General Cummings, dated May 18, 
1938, re statements to be issued by the Department of 
Justice throwing light on the prosecution policy with 

respect to antitrust laws 

Report of Central Housing Committee on "Land title pro- 
cedure, with particular reference to the legal costs of Home 

Mortgage Loans," August 18, 1936 

Chart: Major participants in the construction of a single- 
family house in an urban area ■ 

Record of contacts made by home owner and general con- 
tractor during construction of house 

Chart: All construction activity, new work, maintenance, 
and repairs 

Table: Contract construction industry, number of estab- 

. lishments — work performed, and number of employees, 

by kind of business, 1935 

Chart: Number of employers and employees, contract con- 
struction industry, 1938. Supported by statistical data 
on p. 5504 in appendix 

Chart: Distribution of employers and employees by size of 
business concern, contract construction industry, 1938. 
Supported by statistical data on p. 5504 in appendix 

Table: Distribution of construction corporations by total 
assets, 1936 ^ _ _. 

Chart: Average inventory value of equipment per employee 
in the contract construction industry, 1929. Supported 
by statistical data on p. 5505 in appendix 

Chart: Distribution of work performed, by location, con- 
tract construction industry, 1935. Supported by statis- 
tical data on p. 5506 in appendix 

Table: Retail dealers in lumber, building materials, and 
hardware — number of stores, amount of sales, and number 
of stores by size of store, by kind of business, 1935 

Table: Wholesale distributors of construction material- 
number of establishments and amount of sales by type of 
operation for selected kinds of business, 1935 

Table: Wholesale merchants and industrial distributors of 
construction materials — number of establishments, amount 
of sales, and number of establishments by size, for Selected 
kinds of business, 1935 

Chart: Sales distribution of wholesalers in selected kinds of 
business, 1935. Supported by statistical data on p. 5508 
in appendix • 

Chart: Sales distribution of manufacturer's wholesale 
branches in selected kinds of business, 1935. Supported 
by statistical data on p. 5509 in appendix 

Chart: Sales distribution of manufacturers in selected in- 
dustries, 1935. Supported by statistical data on p. 5509 
in appendix 

Table: Estimates of freight revenue and value of com- 
modities transported by class I steam railways, 1936, car- 
load traffic t 

Map: Indicating counties in which hardware was produced 
in 1935 

Map: Indicating planing-mill products by counties in 1935- _ 

Map: Indicating counties in which cement was produced in 

Map: Indicating counties in which glass was produced in 

Map: Indicating counties in which sheet-metal work was 
done in 1935 

































1 On file with the committee. 



Number and summary of exhibits 

at page 

on page 







Map: Indicating counties in which stoves, ranges, and 

warm-air furnaces were produced 

892. Chart: Selected industries producing construction materials 
during 1937 . 

Chart: Selected industries producing construction materials 
in 1937, relative production of the 4 leading companies 
in each specified industry, 1935 

Table: Selected industries, producing construction materials, 
1937, used as basis for "Exhibits Nos. 892 and 893" 

Table: Building materials mined. Relative production of 4 
leading companies in the building materials industries, 
1935 and 1937 

Series of tables on products by kind, quantity, and/or value 
for all companies and for 4 leading companies- in the United 

States for the year 1937 

897. Chart: Plumbers' supplies, relative production of the 4 lead- 
ing companies producing specified products for the year 
1937. Supported by statistical data on p. 5541 in ap- 
pendix j 

Chart: Plumbers' supplies, 1937, products classified accord- 
ing to the proportion of the leading companies' productic . 
to the United States total. Supported by statistical df „a 
on p. 5544 in appendix 

Chart: Roofing, built-up and roll, asphalt shingles, etc., 
relative production of the 4 leading companies produc- 
ing 'specified products, 1937. Supported by statistical 
data on p. 5544 in appendix 1 

900. Chart: Roofing, built-up and roll asphalt shing'es, etc., 

products classified according to the proportion of the lead- 
ing companies, production of the United States total, for 
1937. Supported by statistical. data on p. 5546 in ap- 

901. Chart: Asphalted felt base floor ; coverings and linoleum, 

relative production of the 4 leading companies producing 
specified products for the year 1937. Supported by sta- 
tistical data on p. 5546 in appendix 

Chart: Asphalted felt base floor covering and linoleum, 
products classified according to the proportion of the 
leading companies, production to the United States total. 
Supported by statistical data on p. 5547 in appendix 

Chart: Frequency of appearance of the same companies 
among the 4 leading producers for the year 1937 

Table: Distribution of products in certain building materials 
industries, classified according to the proportion of the 
leading company in United States total production, 1937__ 

Chart: Common brick, relative production of the .4 leading 
companies in selected industrial areas for the year 19S7. 
Supported by statistical dita on p. 5548 in appendix 

Chart: Planing mill industry, relative production of the 
4 leading companies producing specified products by 
selected industrial areas for year 1937. Supported by sta- 
tistical data on p. 5549 in appendix 

907. Chart: Planning mill industry, relative production of the 

four leading companies producing specified products by 
selected industrial areas, for the year 1937. Supported 
by statistical data on p. 5549 in appendix 

908. Chart: Planning mill industry, relative production of the 

four leading companies producing specified products by 
selected industrial areas, for the year 1937. Supported by 
statistical data on p. 5549 in appendix 





































Number and summary of exhibits 

at page 

on page 

909. Table: Products by kind, quantity, and/or value for all 

companies and for four leading companies in selected areas 
in the United States, basis of "Exhibits Nos. 906, 907, 908,,. 

910. Chart: Selected construction materials, relative production 

of the four leading companies producing specified prod- 
ucts, for the years 1935 and 1937. Supported by statisti- 
cal data on p. 5552 in appendix , 

911. Table: Number of national and regional trade associations 

in the construction field classified by major industrial 
groups, 1938 

912. Table: Number of national and regional trade associations 

in the construction field classified according to the percent 
which their membership represents of the total number of 
firms in the industries covered by them for the years 
1937-38 . 

913. Table: Number of national and regional trade associations 

in the construction field classified according to the percent 
which their members' volume of business represents of 
the total volume of business in the industries covered by 
them, 1937-38 . 

914. Table: Number of national and regional trade associations 

in the construction field classified according to the amount 
of their yearly expenditures for the years 1937-38 

915. Chart: Trend of wholesale prices in the United States, Janu- 

ary 1929-March 1939. Supported by statistical data on 
p. 5554 in appendix 

916. Chart: Building materials, wholesale price movements of 

specific subgroups, 1926-39. Supported by statistical 
data on p. 5555 in appendix 

917. Chart: Building materials, wholesale price movements of 

specific commodities for the years 1926-39. Supported 
by statistical data on p. 5559 in appendix 

918. Chart: Wholesale prices, common building brick, for the 

years 1926 to 1940. Supported by statistical data on 
p. 5559 in appendix 

919. Report on the income and cost survey of the city of Boston, 

1935. E. R. A. project number X2235-F2-U46, submitted 
by the City Planning Board, Boston, Mass 

920. Excerpts from letters to Henry J. Eckstein, president, Fo- 

resta Factors, Inc., New York, N. Y. re the "Yield Insur- 
ance" plan __i 

921. Test calculations to examine probable typical experience 

under the Yield Insurance Plan for financing rental-housing 

922. Appears in Hearings, Part X, appendix, p. 4927 

923. Chart: Cost break-down of $2,500 house, Long Island de- 

velopment for the year 1936 

924. Chart: Showing advantages of the park-living plan 

925. Table: Significant comparisons of costs and equities of a 

house financed under conventional methods and under the 
park-living plan 

926. Architects drawing of proposed low-cost housing project in 

Duval County, Fla 

927. Architect's drawing in greater detail than "Exhibit No. 926" 

of proposed low-cost housing project in Duval County, Fla 

928. Schedule of cash requirements and resources 

1 On file with the committee. 






















C 1 ) 












Number and summary of exhibits 

Photograghs of lantern slides, showing methods of slum re- 
habilitation. 24 are on file with the committee and 8 ap- 
pear in the text 

Chart: Public-housing legislation in the States as of May 8, 
1939 1 

Chart: What Are Housing Costs? Net-construction cost, 

dwelling-facilities cost, "over all" costs 

Chart: Cost trends per dwelling unit, U. S. Housing Author- 
ity aided proiects under loan contract 

Chart: Income levels in American life. Supported by statis- 
tical data on p. 5565 in appendix 

Chart: Estimated average value of all dwellings, 1936. 

Supported by statistical data on p. 5566 in appendix. 

Chart: Estimated average monthly rent of all dwellings. 

Supported by statistical data on p. 5566 in appendix 

936. Table: Price increases in the most important individual build- 
ing materials, periods of price inflexiblity, for the years 

1929, 19P-6, and 1937 

Table: Pi ices of 5 principal construction materials in 27 

States as of June 15, 1937 

Chart: Wholesale price of galvanized steel sheet and auto- 
mobile body sheets, for the years 1926-38. Supported by 

statistical data on p. 5569 in appendix 

Chart: Exchange value of iron and steel and nonresidential 
construction for the years 1929-38. Supported by statis- 
tical data on p. 5569 in appendix 

Chart: Exchange value of brick and tile and new homes built 
for the years 1929-38. Supported by statistical data on p. 

5570 in appendix 

Chart: Exchange value of lumber and new homes built, for 
the years 1929-38. Supported by statistical data on p. 

5570 in appendix 

Table: Cost of labor and materials for construction of the 
same standard house in 26 specified cities, ratio of percent 
increase in materials to percent increase in combined costs, 

for the years 1936 and 1937 

Table: Average wage rate paid to union and nonunion skilled, 
semiskilled and unskilled employees in the building trades 
in selected cities according to type of construction, in 1936_ 
944. Table: Labor cost ratios and hourly wage payments, educa- 
tion buildings erected with N. I. R. A. funds, 1933-36 

Unnumbered. Table: Percent change in wholesale prices of build- 
ing materials, 1929-September 1939 

Unnumbered.. Table: Index of hourly wage rates, June 1, 1939 — 
953. Table: Net rate of earnings by kind of investment and net 
rate adjusted for changes in market value for calendar year 


Unnumbered. Letter, dated July 6, 1939, from H. W. Fitzgerald, 
statistician, Prudential Insurance Co., to the 
committee re comparative savings in a 20-percent 
reduction of the cost of labor and materials and a 
20-percent reduction of the interest charge on the 


Unnumbered. Letter, dated July 18, 1939, from H. W. Fitzgerald, 
statistician, Prudential Insurance Co., to the 

committee, on same subject as above 

Unnumbered. Table: Effect upon annual housing costs of identi- 
cal reductions in various components 

Unnumbered. Chart: Net effect upon housing costs of identical 
reductions in each component 









at page 










on page 






















TUESDAY, JUNE 27, 1939 

United States Senate, 
Temporary National Economic Committee, 

Washington, D. C. 

The committee met at 10:45 a. m., pursuant to adjournment od 
Wednesday, June 21, 1939, in the Caucus Room, Senate Office Building, 
Representative B. Carroll Reece presiding. 

Present: Representative Reece (acting .chairman), Messrs. 
O'Connell, Lubin, Arnold, and Brackett. 

Present also: Willis J. Ballinger, Federal Trade Commission; 
Thomas C. Blaisdell, Securities Exchange Commission; Theodore J. 
Kreps, economic consultant to the Committee; and Peter A. Stone, 
coordinator of construction studies for the Committee. 

Acting Chairman Reece. The committee will please come to order. 

The committee is beginning a very important study which deals 
with construction. Mr. O'Connell, would you care to make a pre- 
liminary statement in connection with this before calling the first 

Mr. O'Connell. Yes; I should like to make a statement before 
the first witness is called. 


Mr. O'Connell. This morning the committee starts a series of 
hearings involving the construction industry, with particular emphasis 
being given to the field of the privately financed construction of 
residential housing. 

In previous hearings before the committee, particularly the one 
involving a study of investment and savings, 1 the necessity for finding 
outlets for the productive investment of the accumulated savings of 
individuals was stressed, it having been urged that no substantial 
recovery can be had unless such savings are, in one way or another, 
put to work producing what are commonly referred to as "capital 
goods." Throughout this hearing the role that the construction 
industry, through an expansion in activity in the housing field, could 
play in furnishing a large outlet for accumulated savings was adverted 
to again and again by the various witnesses. By a process of elimina- 
tion it was made to appear that housing offers one of the most fertile 
fields for possible utilization of these accumulations of individual 

' See Hearings, Part IX. 



savings through the expansion of private enterprise operated for 

With this in mind the committee felt that this would be a peculiarly 
appropriate time to examine into this very important industry and to 
ascertain, to the extent possible within the time available, the obstacles 
which at the present time play a part in preventing expansion in the 
industry, with a view to determining what steps may be taken which 
would be calculated to produce the expansion essential in this field. 
Bearing in mind the almost universal truth of the statement that the 
solution of a problem is inherent in the correct statement of it, it is 
our hope that through the testimony of a series of witnesses, all well 
qualified to speak as to one or more segments of this very complicated 
industry, the committee will be acquainted with most, if not all, of the 
major problems affecting it and will be brought to a realization that 
the problems are many but not insurmountable, and that concerted 
action on several fronts can aid in bringing about the desired end, that 
being substantial expansion in the field of construction through the 
better utilization of our material resources, our labor supply, and our 
stored up savings awaiting investment in productive privately owned 
and operated enterprise. 

As I have indicated, our general approach to the problem will be 
to scrutinize the industry with a view to ascertaining what the imped- 
iments are to an expansion in the industry, particularly when viewed 
in the light of the tremendous unsatisfied demand for housing which 
we hope to demonstrate exists. This necessarily focuses our attention 
on cost — the cost of materials, the cost of labor, the cost of the other 
elements that enter into the original capital cost of the house, and the 
cost of finance and other factors that determine the amount the owner 
or renter of dwelling accommodations is required to have available 
at periodic intervals after the accommodations are ready for occu- 
pancy. This latter method of measuring costs, the importance of 
which is too often overlooked or minimized, involves a consideration 
of annual costs as distinguished from original or capital cost. If it 
can be demonstrated that such costs are too high, either absolutely or 
in terms of the market for the commodity being produced, it is obvious 
that our attention will then center on what may be done to reduce 
such costs and thereby to satisfy to some extent the present unsatisfied 
demand for dwelling accommodations. 

In general, it may be said that the witnesses will discuss the im- 
portance of the industry and its position in the national economy, the 
present inventory of housing and the need for replenishment of it, the 
extent to which the need is now being met, the various items of cost 
that enter into the construction and operation of a house, whsther 
built for investment or for speculation and the various sources of 
money available for financing the construction of housing, whether 
equity money or mortgage money. The discussion will then turn to 
the character of the industry itself, and the great number and variety 
of persons and functions involved. We will then take up the effect of 
local real-estate tax rates, of foreclosure costs and other nonlabor and 
material costs, the scope and deterrent effect of certain labor practices, 
as well as of the price policies of producers and suppliers of materials, 
the deterrent effect of the provisions of local building codes and of 
what are commonly referred to as collusive combinations in restraint 
of trade. The position of organized labor in the building trades with 


respect to the matters under 'discussion will then be developed through 
a representative or representatives of labor. 

A number of affirmative suggestions for improvements will be 
elicited from witnesses who feel they can contribute to a solution of 
our problem, after which witnesses will be called who will discuss 
with the committee the part that Government has played in the 
housing field, particularly in more recent years, and will give the 
committee a clear and concise picture of the existing relationship 
between public and private housing. 

It is then proposed that another member of the committee will 
summarize the material that will then have been presented to the 
committee after which the hearing will be brought to a close. 

One other thing I think might be pointed out, that in one rather 
important respect this hearing differs from other hearings presented 
before the committee. Prior hearings have been under the auspices 
of one or another of the various executive departments represented on 
the committee, and have been put on as a result of the collection of 
material by such departments or agencies. This hearing is a com- 
mittee hearing as such. The material which is to be presented has 
been collected by persons working for the committee, and in that 
respect it differs from the hearings heretofore had. 

My connection with this hearing is merely to assist the committee 
by to some extent taking the lead in eliciting information from the 
various witnesses who will be called. 

Acting Chairman Reece. Who will be your first witness? 

Mr. O'Connell. The first witness, and I believe the only witness 
for today, will be Dr. Lubin, who will discuss the general background 
of the industry on a statistical basis and will help to give us a starting 
point from which to continue the more detailed information which 
later will be presented. Dr. Lubin has been previously sworn. 


Mr. O'Connell. I don't believe it is necessary that Dr. Lubin be 
qualified, since I believe we all know his qualifications to discuss the 
things he is going to discuss. 

Dr. Lubin. In discussing the importance of the construction 
industry to the American economy I have prepared materials which 
attempt to bring out the importance of the industry in terms of the 
employment it affords directly to the workers of this Nation, and in 
terms of the employment it affords indirectly to those industries 
which produce things that are used in building houses and other types 
of structures. Having brought that fact out, I shall then proceed 
to raise the question as to what the needs for housing are in the 
United States and what effect building programs which would meet 
our ininimum requirements would have upon employment, both 
directly on the side of construction and indirectly in the mines, 
factories, forests, and on the railroads of the country. 


Dr. Lubin. I want to start first, Mr. Chairman, with a picture of 
r^ployment in the construction industry since 1925. This chart, 


entitled "Construction employment," portrays the course of employ- 
ment in the construction industry for each year, by month. 1 You will 
note that the peak of employment in the construction industry occurred 
in 1928. In the month of August 1928, the construction industry 
of this country employed approximately 2,400,000 workers. 

Dr. Lubin. You will note further that employment in this industry 
in 1933 fell to the point where only 656,000 people were being em- 
ployed, which means a drop of approximately 73 percent from the 
peak period of 1928. I want to emphasize specifically that the peak 
occurred in the summer of 1928, because of the fact that in most other 
industries the peak occurred a year later. 

From 1933 to 1936, employment in the construction industry has 
increased rather perceptibly, but has reflected a decrease in 1937 
and 1938. In the peak month in 1936 the construction industry 
employed approximately 1,600,000 workers which is two-thirds of the 
employment peak in the twenties. The average in the late twenties 
ran about 1,800,000 a year, the high and low, of course, varying from 
month to month with the seasons of the year, and I think it is rather 
important that we point out that fluctuation from one season to 
another will run as high as 25 to 30 percent. 

The employment situation is still at a point substantially below 
the average maintained in the middle twenties. In. the peak year 
1936 only 54 percent of the decrease in employment reflected from 
1928 to 1933 had been regained. However, taking the peak month of 
1938 as a measure of the recovery, only 37 percent of the decrease has 
been regained. 

Mr. O'Connell. Dr. Lubin, would you care to explain the source 
of material that is exhibited on the chart, for the record? 

Dr. Lubin. The figures are figures of the Bureau of Labor Statistics 
for 1930-38 and the W. P. A. for 1925-29. 

Mr. O'Connell. Do you wish to offer the chart? 

Dr. Lubin. Yes, sir. 

Acting Chairman Reece. It will br admitted. 

(The chart referred to was marked "Exhibit No. 828" and appears 
on p. 4938. The statistical data on which this chart is based are in- 
cluded in the appendix on p. 5461.) 

Dr. Lubin. The effect of these fluctuations in employment upon 
the economy and particularly on those industries that depend upon 
construction for their existence, is evidenced by the charts that will be 
presented at this point for insertion into the record. The first chart, 
which is called "Manufacturing employment — Durable and non- 
durable goods group," portrays very vividly the fact that the durable- 
goods group of industries reached an imployment peak in 1937 which 
was equal to that of the peak of 1929. The materials that go in£o 
the construction of buildings are, of course, durable materials. In 
other words, all of the industries that depend upon construction for, 
their existence are included among the durable-goods group of 

Mr. O'Connell. Are they also included in the first chart entitled 
"Construction employment"? 

Dr. Lubin. No. "Exhibit No. 828" is construction employment, 
namely people employed on the site of the construction. The 
1,800,000 people were engaged in actual construction work as dis- 
tinguished from these other people who are included in the other 

i B-xs "B.-hlbit No. 828", infra, p. 4938. 


charts as employed in the manufacture of the materials that go into 
the building industry. 

Mr. O'Connell. I notice that the recovery in the durable-goods 
field in 1937 is much more substantial than in the construction 

Dr. Lubin. Well, you note further that the peak of employment in the 
durable-goods industries came in the fall of 1929, which was the year 
after the peak of employment that occurred in the construction industry. 
(The chart referred to was marked "Exhibit No. 829" and appears 
on p. 4938. The statistical data on which this chart is based are 
included in the appendix on p. 5461.) 

Dr. Lubin. Now the significant thing about this chart showing 
employment in the durable-goods manufacturing industries is the fact 
that these industries, durable-goods industries, reached their peak in 
1937 and that peak was equal to the peak of 1929. But you will note 
in this chart, also, which depicts employment in the steam and hot- 
water heating apparatus and steamfittings industry, an industry that 
depends entirely upon the construction industry for its existence, 
that employment never got above 90 percent of where it had been in 
the predepression perio d . 1 

Dr. Lubin. Or, if you look at the lumber-sawmill industry, an 
industry which, again, is dependent for the most part on construction 
for its existence, you will find that employment never got beyond 70 
percent of where it had been in the predepression period. 2 

Mr. O'Connell. The charts to which you have just referred — do 
you intend offering those for the record? 

Dr. Lubin. I should like to when I finish the discussion. Or we 
might go a step further. Lumber-mill work; employment in that in- 
dustry in 1937 reached a level about 65 percent of where it had been in 
the predepression period. 3 Or if you look at structural and ornamental 
metalwork, employment reached about 95 percent of its predepression 
level. 4 In brick, tile, and terra cotta the picture was quite similar; 
employment in 1937 getting to a point about 70 percent of where it 
had been in the predepression level. 6 Cement reached about 75 per- 
cent of its previous employment levels. 6 Plumbers' supplies reaching 
about 87 percent of its predepression level. This chart starts in 1931, 
but the average for the predepression level is this 100 line which covers 
the years from '23 to '25. 7 

Mr. O'Connell. Well, then, Doctor, as I understand it, the charts 
to which you have just referred, which involve commodities used 
almost exclusively in the construction industry, follow the general 
pattern of the first chart that you showed? 

Dr. Lubin. Very definitely, and I think the significant thing to 
bring out — I would like to bring out at this point — is the fact that 
despite the fact that the durable goods industries as a whole during 
1935, '36, '37, showed very marked increases, in fact so great an in- 
crease in '37 that they equaled the levels of 1929, this group of indus- 
tries that are a part of that larger group never got back to the '29 
levels. In fact, never got back to the lev. <s of 1923-25, which in 
effect means that we have had a lack of balance in the economy 

' "Exhibit No. 830", p. 4939. 
» "Exhibit No. 831", p. 4939. 
» "Exhibit No. «32", p. 4940. 

* "Exhibit No. 833", p. 4940. 

* "Exhibit No. 834", p. 4941. 

* "Exhibit No. 835", p. 4941. 
I "Exhibit No. 836", p. 4942. 



Exhibit No. 828 


1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 ° 


Exhibit No. 829 

Manufacturing Employment 
durable & nondurable go.ods group 

1923 ~25 = WO 

index Number. index 













is Gr 


v 6 






s Gro 


u s 

1923 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 




Exhibit No. 830 


hyfei Numbers Indat Numbers 





u s 








.1 .- 


t RO 


1923 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 


Exhibit No 


Inner Numbers 


1923-25 ■ 100 Me, Numbers 





60 \ 



















1923 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 


124491— 40— pt 11- 



Exhibit No. 832 


Index Numbers lnde< Numbers 











S^ /v^ 



1923 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 


Exhibit No. 833 


ledei Numbers 1923*25-100 Inder Numbers 



u ; 


















1923 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 




Exhibit No. 834 


IndtM Nitmbts 1923 - 25 ■ 100 Mti Numfrs 





















' ROL 




1923 1924 1925 1926. 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 


Exhibit No. 835 



lmmt*tntm 1923-25-100 ***' Numbers 


u s 




























■* A 7 \ 

/ ^ 

1923 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938, 1939 1940 




and a very important group of industries that were not furnishing the 
employment and consequently the purchasing power that was required 
to maintain the economy at the level at which it was operating. Or 
you might put the reverse argument, namely, had these industries 
unproved proportionately to the improvement in other durable goods 
industries, 1937 would have seen employment in durable-goods 
industries far in excess of where it actually was. 

Mr. O'Connell. So that, generally speaking, the durable-goods 
industry reached a level in 1937 about equal to '29, but that the por- 
tion of durable-goods industry that was directly involved in the con- 
struction industry was far below the average for the durable-goods 

Dr. Lubin. Exactly. I should like to put into the record these 
charts which show employment and pay rolls in the construction- 
goods industries, the charts being designated as steam and hot-water 

Exhibit No. 836 


Mm tamte* 1923- 25 "100 Mi <toMrt 











o s 

1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 


hearing apparatus, lumber-sawmills, lumber-millwork, structural and 
ornamental metalwork; brick, tile, and terra cotta; cement, and 
plumbers' supplies. 

Acting Chairman Reece. They may be admitted. 

(The charts referred to were marked "Exhibits Nos. 830 to 836" and 
appear on pp. 4939-4942. The statistical data on which these charts 
are based are included in the appendix on pp. 5463-5475.) 

Dr. Lubin. Now, a second evidence of the importance of the con- 
struction industry to our economy is shown by the fact that the 
construction industry — and again I want to limit that to the actual 
construction business, and exclude construction materials that go 
into building — the construction industry as such in 1929 employed 
about 5K percent of the total gainfully employed nonagricultural 
workers of the country. It was the largest single employer of labor 
in America. 

In 1938 the importance fell to the point where only 4 percent 

Acting Chairman Reece (interposing). Dr. Lubin, would you mind 
stating just what activity you include by construction industry? 


Dr. Lubin. Include building of residences, building of nonresidential 
buildings, repairs, alterations, and changes in existing buildings, high- 
ways, roads, streets, and so forth. 

Acting Chairman Reece. Dams and construction of that kind? 

Dr. Lubin. All sorts. 

Mr. O'Connell. Both public and private? 

Dr. Lubin. Public and private; yes. Now, as I say, the importance 
of the industry declined between 1929 and 1938. Whereas in 1929 the 
industry employed 5 % percent of those people who had jobs outside 
of agriculture, in 1938 it only employed 4 percent of that group. But 
a still more significant index of its importance is the fact that whereas 
construction activity contributed about 4 percent of the national 
income that was created in 1929 — between 1933 and 1935 the industry 
only contributed 1.6 percent of the national income. 

And there, again, I want to make clear that I am talking about 
the actual services and goods created through the construction in- 
dustry. Now if, however, you include with the services and income 
contributed by the construction industry the goods that the industry 
brings into being, namely, those materials that it uses, you win 
find that the construction industry consumed about 15 percent of 
the products that were created in the United States between 1919 
and 1935. In other words, the industry itself, through its own con- 
tribution and through the consumption of other goods, accounts 
during this period for about 15 percent of the commodities that were 
produced in the United States. Of course, there is no other industry 
that even approximates that amount. 

(Mr. O'Connell assumed the chair.) 

Acting Chairman O'Connell. Do you have comparable figures for 
years since 1935 on that point? 

Dr. Lubin. There is nothing available since 1935. 


Dr. Lubin. Now, the next problem that confronts us, having shown 
the importance of the industry in the national economy "in terms of 
employment, and the contribution the industry makes to the national 
income, is the value of this construction over a period of years, par- 
ticularly during the last decade. It will be noted, and I want to 
repeat that this includes the value of all construction, which includes, 
as I said a minute ago, alterations and repairs as well as new con- 

In 1919 the industry was at the point where it was producing about 
$6,000,000,000 worth of products. During the next 6 years it almost 
doubled the volume of its product and maintained that level for about 
5 years. Since that time, however, its product has fallen to the 
pomt where in 1933 it .produced $3,230,000,000 worth of building, 
dams, roads, houses, and so forth, as compared to $11,800,000,000 in 
1925. Today, based upon the figures for is estimated that 
the industry will produce about $8,000,000,000 worth of product, 
which means that it is about two-thirds of the way back to where it 
had been during this period from 1925 to 1929. 

Now if you break your construction down into the various types 
you will note that residential building, which in 1925 aggregated 
$5,202,000,000 in value, fell to the point where in 1933 it had reached 



a level of $392,000,000, a drop from five billion two to three hundred 
and ninety-two million dollars. On the other hand, private non- 
residential construction, which at its peak in 1929 was valued at 
$4,500,000,000, fell to the point in 1933 where it aggregated slightly 
less than one billion— $936,000,000, to be exact— whereas public con- 
struction, which reached its peak in 1930 and aggregated $3,000,- 
000,000, again reached a peak in [1938 where it was $3,700,000,000. 
In other words, whereas before 1930 residential building was con- 

Exhibit No. 837 






12 - 


Xw Total 





— _ ^=-— 








Private No* -Residential 



' \ 

^s,^ Pueuc^X" 

1919 1920 




sistentiy higher in value than nonresidential construction, since 1930 
residential building in volume has been" consistently lower than pri- 
vate nonresidential construction. In contrast, public construction, 
which before 1930 was consistently lower than private construction, 
has now reached the point where it is higher than either private 
nonresidential construction or private residential building. 

And again I would like to point out this fact, that in 1930 public 
construction in the United States aggregated about $3,000,000,000. 
That was the high point for which any records are available. That 
expenditure for public works declined regularly and fell to a little less 
than two billions in 1933 ; started increasing, reached a point of three 
billion two hundred millions in 1936; fell again in 1937 and in 1938 
aggregated three billion seven hundred millions, which was higher than 


any other year for which information is available. But I would like 
to emphasize that that peak of 1938 was only $700,000,000 greater 
than the peak for 1930. 

I would like to point out one further thing. The volume of construc- 
tion, as will be noted from this chart, does not follow the general curve 
of business activity. You will note that the peak of construction in 
the United States was reached in 1925. From that time on there has 
been a gradual decline in total construction to the low point of 1933 
with a gradual increase since. 

You will note further that' total construction does not reflect the 
general down-turn in business that occurred in late 1937 and early 1938. 
You will note that the only type of construction that reflects general 
business activity is nonresidential, which includes garages, factories, 
buildings of that sort, which followed pretty closely the line of general 
business activity and reflects the marked turn of 1937-38. 

Acting Chairman O'Connell. Do you want to offer that chart? 
Dr. Lubin. Yes, sir. The chart is entitled "Value of All Construc- 

(The chart referred to was marked "Exhibit No. 837" and appears 
on p. 4944. The statistical data on which this chart is based are 
included in the appendix on p. 5476.) 

Dr. Lubin. Now the question arises as to what effect Government 
building, Government construction, has had upon the general con- 
struction picture and this chart which I should like to offer for the 
record, entitled "Volume of Construction from Government Funds," 
gives the picture of what has happened to Government construction 
from 1925 to 1938. The chart is divided into three parts; the black 
part, solid black, representing State and local expenditures; local 
Government including counties, municipalities, and other subdivisions. 
The hatched part, cross-hatched part, represents that part of the 
construction that took place in that period of time, which was provided 
for by Government assistance, and by Government assistance I mean 
loans, grants, grants-in-aid, that were given by the Federal Govern- 
ment to the State and local subdivisions of government. 

(The chart referred to was marked "Exhibit No. 838" and appears 
on p. 4946. The statistical data on which this chart is based are 
included in the appendix on p. 5476.) 

Dr. Lubin. I want to emphasize that these figures do not include 
C. W. A., F. E. R. A., or W. P. A. construction. In other words, it is 
all construction financed in whole or in part with Federal funds exclud- 
ing those three agencies, C. W. A., F. E. R. A., and W. P. A. 
Mr. Arnold. Why do you exclude them? 

Dr. Lubin. The purpose of excluding them is to cover primarily 
that construction which was undertaken by private contract rather 
than including that undertaken primarily to provide work relief; 
in other words, the Federal Government, State and local governments, 
under P. W. A., under loans made under the R. F. C. and otherwise, 
for the most part have their construction undertaken by private 
contractors. Such work is usually done under private contract, and 
the thing that I want to emphasize is the part that has been played in 
creating direct employment in private industry. 

These figures, of course, would look quite different if we included 
such work as was done by W. P. A., F. E. R. A., and C. W. A. Those 
people, however, that were employed on those jobs were employees of 


the Government at the moment they were employed, whereas, the 
people who were employed on these structures were virtually entirely 
employed by private contractors. The amount of force account work 
done either by the ^Federal Government, States, counties, municipali- 

Exhibit No. 838 




2500 r- 



1000 - 




- 2000 


- 1000 





ties accounted for one-fifth of the total employment in recent years. 
The point that should be emphasized here is that if you take the 
total amount of construction that is financed with Government funds, 
omitting the three agencies that I specified a minute ago, you will note 
that between 1925 and 1931 the average amount spent was $2,404,- 
000,000. Between 1932 and 1935, however, the average amount spent 


per year was $1,880,000,000. The average for the last 3 years, 1936 
to 1938, was $2,110,000,000. In other words, during the last 3 
years the average amount spent per year on construction that was 
financed with either Federal, State, or local money was actually less 
than in the period from 1925 to 1931. 

As a matter of fact, in 1925 the Governments of this country — 
Federal, State, and local — spent $2,181,000,000 on construction. In 
1930 they spent $2,726,000,000 on construction. The maximum that 
has been spent since 1932 m any one year was $2,194,000,000, which 
was in 1938. In other words, there is a difference of almost 600 millions 
between the maximum spent in any year since 1931 and the amount 
spent in 1930, which means, of course, that even Federal expenditures 
thus far have not, in any single year, made up the void that was 
created by the cities and States and counties cutting down the expend- 
itures that they were making in the twenties. We still huve failed to 
fill in that void which occurred as a result of retrenchment by State 
and local governments, despite the Federal contributions, which you 
will notice increased very markedly during this period of time, the 
average contribution between 1925 and '31 being about $95,000,000 
a year; the contribution between '32 and '35 being 406 millions a year, 
and between '36 and '38 averaging 629 millions. 

If we break-down our chart on construction into residential units 
that were provided for in the so-called urban areas of the country, 
and by urban areas I mean so-called nonfarm areas, if we take our 
construction figure, ;a,ke out residential units and break them into 
their various constituents, you will find that the construction industry 
of America during the twenties created approximately 700,000 new 
dwelling units in the nonfarm areas. 

Acting Chairman O'Connell. You mean per year? 

Dr. Lubin. Per year. The peak, of course, again having been 
reached in 1925. 

In 1925, in fact, the American construction industry built 937,000 
nonfar.i dwelling units. By 1933 that number of 937,000 had fallen 
to the point where the industry was producing 54,000 units, a decline, 
you will note, to about 5 percent of where it had been in 1925. 

In 1935, 10 years later, the industry only produced 144,000 units, 
as compared to 937,000 units in 1925. In 1936 the number rose to 
276,000; the next year to 286,000; and the estimate for 1938 is 347,000. 
In other words, the industry is still operating at less than 40 percent 
of its contribution to the economy in terms of dwelling units provided 
in nonfarm areas as compared to the preceding decade. 

If you take the decade as a whole, the decade of the twenties as a 
whole, we are just about half-way back, right now, as compared .to 
the average for that whole decade. If you take the peak point of the 
last decade we are slightly more than a third of the way back to where 
we were. 

Now the interesting question is what we are going to do in 1939. 
We estimate that during 1939 we will produce about half as many 
houses as we did in 1924-25. In other words, we estimate that we 
will produce something'between 400,000 and 425,000 nonfarm dwelling 

In that figure there is an estimate of about thirty to fifty thousand 
dwelling units that will be created by the United States Housing 
Administration, so that the net contribution by private industry, pri- 



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vate investment, tothe building picture ought to run around some- 
thing between 375,000 to 400,000. 

It is interesting to note that the picture of construction so far as 
nonf arm residential units are concerned varies in different parts of the 
country. You will note, for example, that in the Northeastern States 
construction is about back to one-third of its high point of the past 
decade. On the other hand, in the North Central States construction 
is' back to about 25 percent of the high of the last decade. In the 
South, however, where in excess of .100,000 units were provided last 
year, they are back to about half of where they had been during the 
active period of housing construction, and in the West they are about 
on the same basis as the South, namely just about half-way back to 
where they were at the peak of the last decade. 

If one compared the situation today in these various parts of the 
country with the low point of the early part of this decade, you will 
find that in the North Central and Western States, about nine times 
as: many nonfarm residential units are being provided for as at the 
low point of 1933. In the Northeast and South, about six times as 
many dwelling units are being provided for as at the low point of the 
early part of the decade. 

Acting Chairman O'Connell. Doctor, you wouldn't have any com- 
ment to make or any answer to the differences in degree of activity 
in the various sections? 

Dr. Lubin. I think various factors are involved there. I think the 
farm program is an important factor; I think the work of the Federal 
Farm Security Administration is a factor; I think the relative degree 
to which various parts of the country felt the down-turn of 1937-38 
is an important factor. 

(Representative Reece resumed the chair.) 

Dr. Lubin. That down turn was not evenly distributed. It came 
earlier in some parts, of the country than it did in others; it never 
went down as fast or as far in some parts of the country as it did in 

Mr. O'Connell. Would you care to offer that chart? 

Dr. Lubin. This chart, entitled "Residential Units Provided for in 
New Nonfarm Construction," is offered. 

(The chart referred to was marked "Exhibit No. 839" and appears 
on p. 4948. The statistical data on which this chart is based are included 
in the appendix on p. 5476.) 


Dr. Lubin. Having depicted the course of housing construction 
since 1920, both for the country as a whole and for the various parts 
of the country, the question arises as to what kind of housing has 
been available to the American family; and secondly, what kind of 
housing is needed by the American family. And this chart, Mr. 
Chairman, which I should like to submit for the record, entitled 
"Urban Nonrelief Families by Incomes," depicts the incomes of the 
American family, and this income, of course, in the last analysis deter- 
mines what kind of houses these people can afford either to buy or to 



(The chart referred to was marked "Exhibit No. 840" and appears 
on this page. The statistical data on which this chart is based are 
included in the appendix on p. 5477.) 

Dr. Lubin. Now you will note from this chart that 7 percent, 
roughly, of the American families — and incidentally these are non- 

Exhibit No. 840 




$500 $|000 $l50 ° $ 2000 $ 3000 $ 5000 


$1000 $1500 $2000 $3000 $5000 OVER 



relief families; there are no families in this picture who have received 

relief during the year covered, namely, '35 and '36 

Mr. Arnold (interposing). At this point will you state the per- 
centage of relief families? This is the entire country, isn't it, of 
nonrelief families? What is the percentage of relief families? 


Dr. Lubin. The Work Projects Administration estimates that at 
present about 15 percent of the families in this country are being 
aided by one or more of the various public work, relief , and assistance 

It will be noted that in the United States as a whole approximately 
7 percent of the nonrelief families had an income of $500 or less in 1935- 
36. Twenty percent had incomes of between $500 and $1,000; 24 
percent had incomes of between $1,000 and $1,500, which gives you a 
total of 51 percent of the families of this country having incomes below 

Xou will note that once you get above the $1,500 income group 
the spread is rather marked. Eighteen percent of the families have 
incomes between $1,500 and $2,000, about the same proportion have 
incomes between $2,000 and $3,000; 9 percent have incomes of 
$3,000 and under $5,000, and a little over 4 percent have incomes of 
$5,000 and over. 

If you take these families by groups and ask yourself how much 
they can afford to pay for rent, you can get an index of the type of 
housing that must be provided for the American people if such 
housing is to be provided within the income that is available to 

I want, however, before moving into that segment #f the picture, 
namely, how much these people can afford to pay for rent or for houses 
that they can purchase, to point out that this distribution of families 
by income which represents the Nation as a whole does not portray the 
variations that are found as you go from city to city, from geo- 
graphical area to geographical area, or as you look at the picture 
that exists in cities of different sizes. 

Merely for illustrative purposes I have broken down the income 
picture of families of four different cities, a large metropolitan cityj 
Chicago; a large city but not a metropolitan city, Portland, Oreg., 
representing the west coast; a middle-sized city, Mobile, Ala.; and a 
small industrial town, Beaver Falls, Pa., and you will note the con- 
trast between the distribution of income in these cities as compared 
to the national picture shown here, and it is particularly noticeable 
that even between these different cities there is a marked difference 
in the concentration of these incomes. 

I should like to submit this chart entitled "Family Income, Percent 
Distribution 1935-36," for Chicago; Portland, Oreg.; Mobile, Ala.; 
and Beaver Falls, Pa. 

Acting Chairman Reece. It may be admitted. 

(The chart referred to was marked "Exhibit No. 841" and appears 
on p. 4952. The statistical data on which this chart is based are 
included in the appendix on p. 5477.) 

Dr. Lubin. The significant thing that should be pointed out is 
that in Chicago about 3 percent of the families have an income of 
$500 or less, in Mobile 5.3 percent have incomes of under $500, in 
Portland, Oreg., 3.8 percent have incomes of under $500. 

If you move to the next category, namely, those families that have 
incomes of between $500 and $1,000, you will note that in Chicago 
11.6 percent are in that income bracket, whereas in Portland, Oreg., 
14 percent are in that bracket, whereas in Mobile, 21 percent are in 
that bracket, and in ' Beaver Falls 17 percent. In other words, 
there are proportionately twice as many families in Mobile, Ala., 



proportionately, that have incomes between $500 and $1,000 as in the 
city of Chicago. 

If you get to the $1,000 to $1,500 group, you will find that in Beaver 
Falls, 33 percent of all the families have incomes in that bracket; in 
Chicago, however, about 21 percent have incomes in that bracket; in 

Exhibit No. 841 




40 i 1 40 



30 - 
20 - 

















30 - 
20 - 


oujhh mmm wmmm mmarn i^an ^^m — 







- 20 

- 10 

$3000 $5000 





Portland, Oreg., about 25 percent; and in Mobile approximately 22 
percent. In other words, in a small city like Beaver Falls, which is 
taken at random, we find that 53 percent of the families have incomes 
of $1,500 or less; in a city like Mobile, Ala., 49 percent of the families 
have incomes of $1,500 or less; in Portland, Oreg., on the other hand, 
the number is much smaller, only 42 percent having incomes of 


$1,500 or less, and in a metropolitan area like Chicago, only 36 percent 
have incomes of $1,500 or less, illustrating in part the fact that the 
ability to purchase or rent homes will vary from city to city with the 
distribution of family income in those cities, so that in attacking the 
problem of what sort of structures should be provided for the families 
of the United States, our approach will have to be based entirely 
upon what the conditions are that prevail in each community. 

If you get to the $2,000 and $3,000 income group, you find that in 
Chicago, for example, a fourth of your population are in that group 
and accordingly can afford to pay relatively higher rents and relatively 
higher prices for their homes. On the other hand, in Portland, Oreg., 
the proportion is about the same as in the other group, $1,000 to 
$1,500, namely 22 percent. In Mobile, Ala., on the other hand, only 
one family in five has an income between $2,000 and $3,000, whereas 
in Beaver Falls, approximately one family in six has an income of 
between $2,000 and $3,000. 

Mr. O'Connell. Doctor, in that chart too are relief families ex- 

Dr. Lubin. Relief families are excluded from all these charts. 

Mr. Arnold. That is, the under $500 families are those that can 
exist on that amount without relief, families of two? 

Dr. Lubin. What you find, as a matter of fact, is that they use up 
their savings, receive gifts, they receive help from their friends and 
relatives, they go into debt. As will be shown on the chart showing 
rentals in this area, 1 there were cases where they spent more on rent 
than their actual total income. 

Mr. Arnold. That is interesting, because those under $500 families 
not on relief are really a charge on the income of some of these other 
families of $500 to $1,000 and $1,500 to $2,000. 

Dr. Lubin. And in some instances they are a burden on the people 
in the upper brackets who happen to own the property in which they 
happen to live and which they don't actually pay rent for. 

Mr. O'Connell. In other words, I suppose they are potentially 
relief people too. 

Dr. Lubin. Yes ; no doubt. 

Mr. O'Connell. They are to the extent they are living on savings 
and accumulations of the past when those are exhausted. 

Dr. Lubin. In the sense that they go into debt in order to live. 

Acting Chairman Reece. To what extent do you find the rentals 
vary in those different cities? 

Dr. Lubin. I am coming to that in just a minute. 

Mr. Arnold. Just another question that you may not be able to 
answer. I should imagine that there is a very much larger percent 
between $1,000 and $500 of the families that couldn't live on their 
income? Isn't that a fact? 

Dr. Lubin. That will vary again by the size of the coi imunity 

Mr. Arnold. Could a family of two in Chicago live on $1,000? 

Dr. Lubin. A lot of them are doing it. 

Mr. Arnold. When you get down to $750 certainly they are living 
beyond their income. 

Dr. Lubin. Yes; in those instances as a matter of fact up to $1,700 
in Chicago the average family incurs a deficit before the year is over 
and incurs that deficit either by getting into debt or by using past 

1 See "Exhibit No. 843," infra, p. 4956. 


savings to break even. About $1,700 is the break-even point for the 
average family in Chicago. By and large, the average family doesn't 
spend more than it actually has to spend — when I say actually has to 
spend, I mean in terms of its income for the year in question. 

Exhibit No. 842 












-I 30 

The question is, how much of this income that we have been show- 
ing goes for rent or to cover the cost of housing as such. In this 
chart, which I should like to submit for the record showing the per- 
centage of family income spent for housing, there is revealed the fact 
that the family that received $1,000 or less per year in income in 


1935-36 spent about 23 cents out of every dollar for housing; the 
families that had incomes between $1,000 and $1,500 spent about 17% 
percent of the income for housing; the families with incomes between 
$1,500 and $2,500 spent about 16 percent of their incomes for housing; 
the families with incomes between $2,500 and $5,000 spent 14.4 per- 
cent for housing; the families that had incomes of $5,000 and over 
spent 10 % percent of their income for housing. 

(The chart referred to was marked "Exhibit No. 842" and appears 
on p. 4954. The statistical data on which this chart is based are in- 
cluded in the appendix on p. 5478.) 

Mr. Arnold. That chart is headed "Spent for Housing." Do 
you mean other charges in addition to rent? 

Dr. Lubin. It should say "housing." It means not only whatever 
rent is paid, but the actual carrying costs of property that was owned 
by these individuals. 

If you take this additional picture and break it down into its con- 
stituent parts, taking these same four cities we showed a momen,t 
ago, namely Chicago, Portland, Oreg., Mobile, and Beaver Falls, 
you will notice the tremendous variations that exist in the propor- 
tions of the incomes of these families that go to cover housing costs. 

In the city of Chicago the average family that had an income of 
under $500 spent more than $500 for rent ; in other words, they spent 
for the year. 1935-36, 116 percent of their actual income for rent. 
Now you ask how they did it. They begged, they borrowed, they didn't 
pay : their rent.: In other words, this was the obligation they in- 
curred; the rental charge for them, if they paid it, was about 16 per- 
cent m 3 than the actual total income of the family. 

In Poi 'and, Oreg., of every dollar of income of families that had 
less than aJOO in that year, 64 cents went for rent; in Mobile, 43 cents 
out of every dollar went for rent, and in Beaver Falls, 63 cents out of 
every dollar went for rent. 

As you get' \to the higher-income brackets, the importance of that 
factor becomes less and less, but even in the $500 to $1,000 income 
group rental is a very important factor in the family budget. In 
Chicago a family with an income of between $500 and $1,000 spends 
35 cents out of every dollar; in Portland only 24 cents; in Mobile 
only 21 cents out of every dollar, and in Beaver Falls 23 Cents out of 
every dollar. 

Mr. O'Connell. This chart is purely rent rather than housing as 
in the last chart? 

Dr. Lubin. Yes. These are actual rentals. 

Of course, the relatively small percentage that goes to rental in 
some of these cities is a result of various factors. Rents are lower, and 
one of the questions I think that would be expected to be answered before 
these hearmgs are over is what accounts for this difference in rental 
levels. Is it land values, is it tax values, is it cost of construction, is 
it type of housing that is available? 

One can go down the list here and get to the $5,000 income group 
group and find that in Chicago out of every dollar about 13 cents goes 
to rent, in Portland only 9% cents, in Mobile about 9% cents out of 
every dollar, and in Beaver Falls about 7 cents out of every dollar. 

I do want to reemphasize the fact that in the group which has in- 
comes of $1,500 or less, anywhere from 16 cents to $1.16 out of every 
dollar of family income is a rental-housing item. 

124401 — 40— pt. 11 3 


Mr. O'Connell. Would you offer that chart for the record? 

Dr. Lubin. That is "Ratio of Rent to Family Income, 1935-36." 

Acting Chairman Reece. It may be received. 

(The chart referred to was marked "Exhibit No. 843" and appears 
on this page. The statistical data on which this chart is based are 
included in the appendix on p. 5478.) 

Exhibit No. 843 

RATIOofRENTto family income 








*I000 $1500 *2000 


$1500 *2000 *3000 


$3000 *5000 
a under a 

*5000 OVER 


Acting Chairman Reece. I believe you stated earlier that it is 
your desire that all these charts be admitted to the record, is it not? 

Dr. Lubin. Yes. 

Acting Chairman Reece. You will see that they get in, and they 
will all be admitted. 

Dr. Lubin. Yes. 



In discussing this question of housing one has heard considerable 
discussion as to building homes to be sold to workers. Your problem 
of housing for the American family is much more than the problem ot 
building individual houses to sell. Your problem for the average 
family in this country is a problem of providing housmg that he can 

Exhibit No. 844 


















■ Hill 

UNDER' *500 *I000 *I500 *2000 *3000 


$500 $ I000 *I500 *2000 *30CjO OVER 






rent, at least if the experience of the American people at the present 
time is any criterion. Now it may be that they wiU change their 
living habits and can be persuaded to move from the category ot 
renters to the category of purchasers. . 

- iDr Lubin. I want to emphasize the fact that m a city lifce 
Chicago you have anywhere from 64 to 85 percent of your population 


living in rented quarters. In the city of Portland, Oreg., even in the 
$3,000 income group, approximately one-third rent their homes. 
When you get'to the $1,000 group over 60 percent live in rented quar- 
ters. In a city like Mobile, Ala., three-fourths of the people earning 
$1,000 dollars or less live in rented quarters and about a third earning 
more than $3,000 live in rented quarters. In a small industrial city 
like Beaver Falls, two-thirds of the people earning between $500 and 
$1,500 live in rented quarters and a third earning over $3,000 live in 
rented quarters. 

In other words, the American family in the lower-income group is 
predominantly a family that lives in rented homes and not in homes 
that they own themselves. 

(The chart referred to was marked "Exhibit No. 844" and appears 
on p. 4957. The statistical data on which this chart is based are 
included in the appendix on p. 5478.) 

Dr. Lubin. If we take these same cities for which we have noted 
the distribution of income and for which we have noted the percentage 
of income that goes to rent, and for which we have noted the percentage 
of families that live in rented homes, if you take the structures in which 
these people live in these cities you will find, as evidenced in this 
chart, entitled "Rented Units Lacking Selected Facilities," that a very 
important percentage of these families are living in quarters that can 
be defined as substandard quarters. 

(The chart referred to was marked "Exhibit No. 845" and appears 
on p. 4959. The statistical data on which this chart is based are 
included in the appendix on p. 5479.) 

Acting Chairman Reece. Doctor, do you expect to give any defini- 
tion of substandard houses? 

Dr. Lubin. Yes, I shall ; definitely. If you define as substandard a 
dwelling which is unfit for human occupancy or in need of major 
repairs, you will find that there are approximately 4,000,000 sub- 
standard dwelling units in the United States today, and that is the 
minimum estimate 

Acting Chairman Reece (interposing). I* had in mind particularly 
what constitutes a substandard house with reference to facilities in 
the house. 

Dr. Lubin. Well, let me put it this way. There are various esti- 
mates of substandard depending upon the definition that you use. If 
you use as your definition a house that is not fit for human habitation, 
and of course there again your criteria may vary, but a house which is 
so run down that it is unsafe to live in or unhealthy to five in, and if 
you include in that definition houses that require major repairs — 
you will find that approximately 16 percent of the dwellings of the 
United States, about 4,000,000 of them, will come within that category. 

If, on the other hand, you use as substandard the criterion of a house 
that has no bathroom at all, you will find that over 5% million houses 
come within that category. 

Mr. Arnold. You mean that these 4,000,000 substandard houses 
are all without bathrooms, private bathrooms? 

Dr. Lubin. That, plus the fact that they are so in need of major 

Mr. Arnold. For instance, in New York City, in some of those 
tenements, they might have a bathroom but would be substandard 
for other reasons. 



Dr. Lubin. If ^rou take these various cities 

Mr. Arnold (interposing). One question. You say "selected facil- 
ities." Does that phrase mean any particular selection? 

Dr. Lubin. Yes. In this instance we have arbitrarily taken certain 
facilities; namely, running hot water, indoor toilet, and electric lights. 

Exhibit No. 845 




































































$500 $1000 $1500 $2000 $3000 
a UNDER a under a under a UNDER a UNDER 
$1000 $L500 *2000 $3000 $5000 



us at 




In these cities we have attempted to measure the number of dwell- 
ings that lack any one of those things or that lack one or more of those 
things. In other words, that chart depicts the percentage of the total 
rented units that; lack either running hot water, indoor toilet, electric 
lights, or both or all three. 

Mr. Arnold. This chart does not include houses out of repair, or 
anything of that sort? 


Dr. Lubin. No, it does not. These others would be in addition to 
it. You will note that in Chicago, for example, in this income group 
between $500 and $1,000, 44 percent of the renters live in dwelling 
units that have no running hot water or no electric lights or no inside 

In the city of Mobile, Ala., 84 percent of the families in the income 
group between $500 and $1,000 lack one or more of those facilities. 
In the city of Beaver Falls, 69 percent of the families between $500 
and $1,000 lack one or more of those f acuities. 

Or, if you move to the higher-income groups, between $1,000 and 
$1,500, in Chicago one family out of every four lacks one or more of 
those three facilities. In Mobile, Ala., two-thirds of the families, 64 
percent to be exact, lack one or more of those facilities. In Portland 
"only 13 percent lack those facilities, and in Beaver Falls, 47 percent, 
almost every other family, lack one or more of those facilities. 

It is only when you get to the income groups of around $3,000 and 
$5,000 where the relative number of families that don't have all three 
facilities is insignificant. 

In Chicago, 4 percent of the families with incomes between $3,000 
and $5,000 lack one or more of those faculties; in Portland, only 2 per- 
cent; in Mobile, 10 percent. If you get into the income group of five 
thousand and over, every family in Chicago with that income has all 
of these facilities, every family in Portland has all of these facilities, 
and 4 percent of the families in Mobile do not have them. 

In other words a large segment of the American families, both in the 
largest cities and the smallest cities, is still living under conditions 
which do not meet what we might call a standard housing condition, 
namely, conditions which afforded a private toilet, and running hot 
water and electric lights, and other conditions of housing which lead 
to healthful living and to safe living. 

That raises the question as to what we are doing for these families 
in the construction field. The percentage, as I say, of families in the 
$500 to $1,000 group, or even in the $1,000 to $1,500 group, in Chicago, 
in a city like Mobile, in a city like Beaver Falls, Pa., of families that 
are living under conditions without these various conveniences is very 

Now, in this chart, entitled "Houses City Families Can Afford and 
Houses Built, 1938," on the assumption that most of the houses built 
in 1938 would have these minimum conveniences, we have attempted 
to get some idea of what provision is being made for these people who, 
as shown a minute ago, today do not have these so-called minimum 
conveniences which can be considered as a necessity to maintaining a 
decent level of housing. 

(The chart referred to was marked "Exhibit No. 846" and appears 
on p. 4962. The statistical data on which this chart is based are 
included in the appendix on p. 5479.) 

Acting Chairman Reece. Before you go into that chart, Doctor, 
may I ask another question in regard to the preceding chart? It 
isn't necessary to display it again. 

If One of the facilities included, that of running hot water, should 
be changed to running cold water, would that very materially affect 
the percentage? 

Dr. Lubin. I think it would in certain areas, yes, very definitely. 


Acting Chairman Reece. Some people do think- 

Dr. Lubin (interposing). The fact is, I think we could give you 
some figures as to just what effect it would have upon the percentage. 
The percentage would still be very large in the sense that a very 
appreciable number of people in this country would still be found to be 
living in homes that have no running water at all, and these are non- 
farm families, families that live in towns, villages, or larger cities. 

Acting Chairman Reece. In making up a definition of minimum 
facilities, and these three facilities are included as a minimum, is the 
difference between running hot water and running water sufficient to 
justify a house being below standard because it has running water 
instead of running hot water? 

Dr. Lubin. Well, of course, there again you get to the question of 
your criteria of American living. I mean, is it reasonable to expect 
that an average American family should have available to it, in its 
home, running hot water? 

I personally think yes. I think that it is not at all unreasonable 
to expect, for any family to expect, that it should have running water 
available to it, running hot water available to it in the event it wants 
to take a bath or do any cleaning or anything of that sort. Now 
of course there are a lot of people who think that even bathing isn't 
necessary to maintaining a decent standard of living, and they will 
say, therefore, hot water isn't necessary, but 

Acting Chairman Reece. By the three niinimum facilities you 
outline — they don't include bathrooms in any case, however? 

Dr. Lubin. No. Of course if you take the case of bathrooms, if 
you are going to use bathrooms as a basis for measuring substandard 
housing, then you would find 5% million homes in the United States 
substandard; every fifth house in this country is substandard on that 
basis. Or if you take lacking hot water, lacking electric lights, lack- 
ing bathrooms and things of that sort, take any two or more of those, 
and you may get up to over 7,000,000 substandard houses. Now 
I have attempted to deal with the minimum possible criteria that I 
could figure out, and if you take just those houses that are in need of 
major repairs, or those houses that are unfit for occupancy because 
of safety or health conditions, you get down to 4,000,000. 

Now, that is the minimum number of substandard we can think of. 

Mr. Arnold. Do you have the figure for all three? 

Dr. Lubin. No. 

Mr. Arnold. You gave me the figures for two and I thought you 
might have the figures for three. 

Dr. Lubin. Granted that your criteria will vary with different parts 
of the country and different economic income groups, you still get to 
the point where you find 4,000,000 of them which are substandard, by 
the most stringent test, namely, unfit for human habitation or in need 
of major repairs. Getting back then to the question of what pro- 
vision is being made for these families, I should like to insert for the 
record this chart showing houses city families can afford and houses 
built in 1938. 1 

The figures for "Houses built" are based on preliminary data from 
the Bureau of Labor Statistics Building Permit Survey. They exclude 
houses selling for less than $2,000 and for more than $10,000. Our 

1 Previously entered as "Exhibit No. 846," infra, p. 4962. 



Exhibit No. 846 









$4000 $6000 


$6000 $8000 






data at these extremes of the price range are pretty sketchy, and the 
range from $2,000 to $10,000 is all that is necessary to make the point 
which I wish to bring out. 

The figures for "Houses city families can afford" are derived as 
follows:: We know the distribution of families by income, and we 
know the income of families purchasing new one-family houses by 
means of F. H. A.-insured mortgages last year. These F. H. A. 
figures show the price of houses bought by families having a given 
income. With exceptions noted later, we have taken all the families 
at a given income, and assumed that the same proportion as shown 
by F. H. A. could afford houses at $2,000 to $4,000, $4,000 to $6,000, 
and the like. This was done for each income group, and then the num- 
bers were added for each price of house, and were put on a percentage 
basis by price of house. For example, if three-fourths of the $1,000 
to $1,500 income families buying houses under the F. H. A. plan paid 
from $2,000 to $4,000, and the remainder paid more-than $4,000, and 
if there were 3,300,000 families receiving $1,000 to $1,500 income, 
it was assumed that 2,475,000 could afford a $2,000 to $4,000 house 
and that 825,000 could afford one costing $4,000 or more. In the 
next higher income group, $1,500 to $2,000, 40 percent of the families 
buying houses under the F. H. A. plan paid $2,000 to $4,000, so it 
was assumed that 40 percent of all families in that income range, or 
1,050,000, could afford to live in homes costing $2,000 to $4,000. The 
2,475,000 was added to the 1,050,000 and to numbers derived in a 
similar manner for other income groups to give the total number of 
houses costing from $2,000 to $4,000 which families of all income groups 
could afford to five in. The same procedure was followed for each 
price of house class and the numbers were put on a percentage basis 
and charted. They are the black bars, designated "Houses city 
families can afford." 

This method may give a conservative picture of what families 
can afford, because the F. H. A. has definite standards for mortgages 
it will accept for insurance and the mortgages actually accepted in 
many cases exceed the minimum which F. H. A. would just barely 
accept. On the other hand, some of the families included as being 
able to afford a house might not be eligible for an F. H. A. insured 
mortgage, due to instability of income, lack of adequate down pay- 
ment, and so forth. This might offset the conservative tendency of 
the estimates mentioned above. "Houses city families can afford," 
id summary, is based on the average experience of F. H. A. in 1938, 
rather than on the minimum which would make a mortgage eligible 
for F. H. A. insurance. 

I mentioned earlier that all families were not included. There are 
about 14,000,000 urban families who receive no relief whatever during 
the year. About 12,000,000 of these have incomes of $750 or more 
per year. But a large family, living in a city in which food costs are 
high, could not afford to buy or rent a house costing $2,000 on an 
income of $750 without skimping on food to the point of endangering 
health. Accordingly, a further reduction of about 270,000 families 
has been made to allow for such families. It was pointed out earlier 
that our data on houses built were not good enough to present for 
the highest priced houses — those costing $10,000 or more. In order 
to maintain comparability, we have also excluded some 320,000 
families who could afford houses costing $10,000 and more. This 


leaves about llK million (11,400,000) families that presumably could 
afford to pay the rent or the purchase price of houses worth from 
$2,000 to $10,000. The price of houses they could afford is shown 
in the chart, in percentage terms. 

Approximately 48 percent of the families in the cities could have 
bought houses between two and four thousand dollars in the sense 
that their incomes were sufficient to justify their buying houses in 
that category, two to four thousand. However, only 20 percent of 
the houses that were built were in that category. Or to put it another 
way, in the four to six thousandjdollar house group, approximately 
37 percent of the families in the cities had income sufficiently large 
either to buy or rent such houses. However, only 32 percent of 
the houses built that year were for that category. 

In the six to eight thousand dollar group you just get the reverse 
situation. Twelve percent of the city families could afford to buy that 
kind of a house, but 32 percent of the houses built were in that cate- 
gory, and when you come to the eight to ten thousand dollar group, 
3 percent of the families could afford that kind of a house, and five 
times as many houses were built for that group. In other words, 
] 6 percent of the houses were built for the group. To make the thing 
still more clear, of the various people in the city, various families in 
cities, taken as a whole, approximately 48 percent of them could 
afford, in terms of their income, to buy or to rent a house which 
would sell for from two to four thousand dollars in 1938. 

Acting Chairman Reece. Now, in reaching that determination, 
Dr. Lubin, have you taken into consideration not only the ability of 
these families to buy a house the price of which ranges from two to 
four thousand dollars, but also their ability to maintain it, particularly, 
pay taxes on it, which becomes a very important item in the cities? 

Dr. Lubin. That is why I said specifically it made little difference 
whether they bought it or rented it. In other words, 48 percent of 
the people could afford to five in homes whether they rented or bought 
them. If they rented of course they paid taxes and maintenance 
indirectly through the rent; could afford to live in homes that cost 
between or sold between two and four thousand dollars in that year, 
and yet of all the houses the building industry built, only 20 percent 
were in that category. 

Mr. Arnold. Is this chart cumulative? Does the first black line 
include the others? 

Dr. Lubin. No. 

Mr. Arnold. The total percentages of those black lines on the 
chart are 100, aren't they? 

Dr. Lubin. Yes; but you must remember we haven't got anything 
less than two thousand, and have nothing more than ten thousand. 
The $2,000 to $10,000 equals 100 percent. 

Mr. Arnold. Then I would probably misinterpret the chart 
if I said that only a few percent can't afford to build houses. That 
isn't what the chart means, is it? 

Dr. Lubin. The chart says that 48 percent of the families in the 
United States can afford to either buy or rent houses that sell between 
two and ten thousand dollars, whereas in 1938 only 20 percent of all 
the houses built were in that category. 

Mr. O'Connell. Doctor, may I interrupt you a minute? Con- 
verting the two to four thousand dollar figure into the incomes of the 


families that can presumably afford to buy that type of house, I was 
under the impression that that black line represented persons whose 
income was in the group ranging from about $1,000 to about $1,750 
a year. 

Dr. Lubin. Yes. In other words, the practice is this, that on the 
average a fellow who has an income of less than $1,000 a year could 
afford to buy a house which would sell for about 2.9 times his income; 
in other words, if his income is about a thousand dollars a year he 
shouldn't pay more than $2,900 for.a house. On the other hand, if 
you get to $3,000 a year, the theory is that he ought to be able to 
spend about twice his income for a house. 

Mr. Arnold. I begin to see. In other words, if we had proper 
credit facilities, amortization charges, these people could afford to 
buy a house, but under present conditions a family with an income of 
$1,000, or say seventeen hundred fifty, can't afford to buy any. I 
don't know where they would get the money. 

Dr. Lubin. As a matter of fact, the fellow who has an income of 
$1,500 a year, if he bought a house in a given category he might be 
spending less for rent than he is spending today, may he not? 

Mr. Arnold. If the credit facilities are properly arranged. You 
are thinking of a plan by which he can amortize his payment. 

Dr. Lubin. Of course I think the difficulty arises out of the fact 
that we are talking about buying houses, because these figures are 
based upon sales in 1938, but the fact still remains that whether you 
deal with sales, buying houses, or renting a house, I mean the house 
that one lives in, that somebody else owns, if that owner purchased 
the property the picture would be the same. In other words, the 
man who bought a house to rent to somebody else would be working 
On that same basis, namely that if he was going to buy a house to 
rent and he was going to pay between two thousand and four thousand 
dollars for that house to re-rent, the probability is that something 
just under 50 percent of the families in the United States could afford 
to rent that house. On the other hand, the actual number of houses 
built in that category was only 20 percent of the total, you see. 

Mr. O'Connell. So, generally speaking, I take it you think the 
chart indicates that in terms of supplying the needs or at least the 
potential purchasing capacity of families in the lower income groups, 
say from $1,000 up, that the present operation in the industry is such 
that the major bulk of the construction is for people in the higher- 
income groups. 

Dr. Lubin. In other words, if you get into the upper-income brack- 
ets, you find that about 3 percent of our families can afford to buy 
houses between eight and ten thousand dollars. Last year 16 per- 
cent of the houses' built were for those families. On the other hand, 
you get to the four to six thousand dollar houses, 37 percent of our 
families can afford to live in those houses, but only 32 percent of 
the houses built were for that group. 

If you get down to the two and four thousand dollar house nearly 
half of the families we have included can afford only to live in that 
kind of a house — nothing better. But only 20 percent of the houses 
built last year were for those families. 

Mr. O'Connell. Even on an absolute basis, more houses were being 
built for the higher-income groups than for families in lower-income 


groups, although percentagewise there are more families in the lower- 
income groups, is that correct? 

Dr. Lubin. Plus the factor that you are building more homes m 
that higher-priced class than the percentage of the population justi- 
fied being built. Whereas in the lower, cheaper houses, lower-cost 
house, you weren't building anywhere near as many percentagewise 
as the population would have justified your building. 

All of this leads up to the question as to what we might expect of 
the building industry and what effect an increase in building construc- 
tion, particularly housing construction, would have upon industry as 
a whole. As I attempted to point out, the building industry has not 
kept pace with industrial activity as a whole. Both in actual em- 
ployment of people on construction as such and in the employment 
of people in making the materials that go into housing there has 
been a tremendous lag, a very important lag, between activity in in- 
dustry as a whole and those industries that depend upon construction 
for their existence. The industry has not been producing units as 
fast as the number of families in this country has been increasing. 
To be sure, in the twenties the industry overdid it; we built many 
more units than we needed. The result is that you had very high 
vacancy rates in 1929 and 1930. The failure of the industry to pro- 
duce after 1930 in a sense resulted in filling up that void so that by 
now the number of vacancies in the United States is very, very small, 
estimates running around 2 percent, which is a very low vacancy rate 
for the United States as a whole. In other words, we have reached 
the point where we no longer have the surplus to use up, the surplus 
which was created in the twenties, and if we are going to maintain 
the standards of housing in the United States we must markedly in- 
crease the number of dwelling units that are created for our families. 

If one were to look into the future and attempt to estimate just how 
much home construction we need in the United States, I think we 
would find a picture something like this: that we can expect that 
during the next 10 years there will be added to our population in this 
country each year an average of about 280,000 new families. Those 
280,000 new families will have to be provided with some form of 
dwelling unit or other. During the next 10 years we can look forward 
on the basis of past experience to about 45,000 dwelling units being 
destroyed annually through demolition; in other words, the average 
should run between 40,000 and 50,000 dwelling units per year which 
will be taken out of circulation in the sense that they will no longer be 
available for habitation because of demolition. That does not include 
the many thousands of units that will be demolished by the United 
States Housing Administration, because there such units as will be 
destroyed will be replaced by U. S. H. A. housing units. 

I am not going to make any allowance for fire destruction, on the 
theory that conversion of nonhousing units into housing units wili 
offset the number of units that are destroyed by fire; in other words, 
I am trying to arrive at the minimum possible estimate as to the 
needs of new housing units to be constructed in the next 10 years. 
That minimum is based on the assumption that we will maintain the 
same vacancy rate as at the present time; in other words, all we will 
be doing, if we create 325,000 units, will be making these units avail- 
able and at the same time keeping the vacancy rate down to 2 per- 
cent or less than that, which means that the amount of choice avail- 


able for these families will be relatively limited as compared +0 what 
it has been at other times. 

Mr. Arnold. It doesn't mean the reconstruction of the 4,000,000 
uninhabitable houses? 

Dr. Lubin. I am coming to those in just a moment. 

If you build 325,000 units a year in the next 10 years, you will 
have in all probability a gradual decline in the standard of housing 
in this country; it won't be very marked, but there still will be a 
slight decline in the standard of housing available to the American 
. people — because the 45,000 demolitions, in my opinion, will not take 
care of the houses becoming obsolescent each year. All you will be 
doing will be to take care of these 280,000 new families and replacing 
those houses taken out of circulation through demolition. 

Bear in mind that each year more houses become obsolescent. You 
want to remember that more than half the houses of this country are 
over 25 years of age and one-fourth are over 50 years of age. The extent 
to which obsolescence affects those houses of course depends upon the 
way they have been built, the materials out of which they have been 
built, and their location. But on a 325,000 new unit basis, taking 
housing as a whole in the United States, we will be witnessing during 
the next 10 years, if we don't do better than that, a gradual decline 
in the standard of housing that is available to our people. 

I said a minute ago that we estimate a minimum of 4,000,000 sub- 
standard houses in the United States, and among those 4,000,000 — 
I should say dwelling units rather than houses — are included only 
those that are in need of major repairs or those that are unfit for 
human habitation. 

If you assume that you want to get rid of those houses and make 
other dwellings available for our population, over, say, a 20-year 
period; in other words, if you assume that you are going to replace 
those houses on a 5-percent basis (you are not replacing houses that 
are going to become substandard in the next 10 years, you are only 
going to replace those houses that are already substandard) you are 
going to take 20 years to do it, which means a 5-percent replacement 
of existing substandard houses. If you did it on a 20-year basis you 
would have to replace 200,000 of those units each year. You add 
those 200,000 units — and certainly that is a conservative estimate — 
to your 325,000 that you have got to have to maintain housing for 
your new families and for those houses which are destroyed through 
demolition — and you get a minimum requirement of 525,000 units 
per year for the next 10 years. With 525,000 additional units for 
the next 10 years, there will hardly be any increase in the standards 
of the American people in terms of their housing. 

Compare that situation, namely a minimum requirement of 525,000, 
just about to hold your own for the next 10 years, with the situation 
that prevailed in the twenties. As I said earlier, between '20 and '29 
we built 700,000 new nonfarm units every year. During the last 9 
years we have built only an average of 190,000 units a year, and as I 
said previously, in a single year, 1925, we built as many as 937,000 
new units. 

Last year we produced 345,000 units. We estimate something 
around 400,000 to 450,000 for this year, of which 50,000, something 
between 30,000 and '60,000, will be United States Housing Adminis- 
tration units, which in many instances will only replace other units 


that they are going to destroy. So that even if 1939 turns out to 
be as good as we expect it to be or hope it to be, I may say as good 
as the most optimistic people expect it to be, and we build 400,000 
units through private mvestment, there still will be a shortage of 
125,000 units if we are going to hold our own. In other words, we 
will be shy 125,000 units that will have to be produced if we are to 
stay at a level equal to what prevails right now in the United States 
in terms of general housing standards. 

It is quite evident from figures that have been submitted thus far 
that if we are going to build these 525,000 units, at least half of them 
must be built at a price of something less than $4,000 if they are to 
become available to that portion of the income receivers who need 
housing. As I stated a minute ago, approximately half our families 
cannot afford to live in properties that cost more than $4,000. There- 
fore, I have made some estimates of what these 125,000 additional 
units that should be produced next year, if we are merely to hold 
our own, would mean in employment if we did produce them. 

If we did reach that level, which is 125,000 units more than we figured 
we were going actually to build, what would it mean to workers, 
what would it mean to industry, what would it mean to the economy 
as a whole? We estimate that 100,000 single-family dwellings that 
cost $3,000 to produce will give jobs to 82,000 men for a whole year 
on the site, that is a full-time job for 40 weeks at 40 hours a week, 
which is more weeks than most building workers ever work in a year. 

In producing these 100,000 units at $3,000 apiece, the lumber 
industry will be called upon to furnish three-quarters of a billion 
board feet of lumber; the brick industry will be called upon to furnish 
approximately 800,000,000 bricks; the cement industry will be called 
upon to furnish .about 3,000,000 barrels of cement; the steel industry 
will be called upOn to produce about a quarter of a million tons of 
steel; the paint industry will be called upon to produce about 3)000,000 
gallons of paint. These are just a few of the major items^ that go 
mto building. 

To produce the brick and the lumber and the cement and the 
steel and the paint and the other things that go into building these 
houses which will be sold for $3,000, will create employment for 
122,000 more men for a full year, meaning that on thisTmsis of 100,000 
additional dwelling units costing $3,000 to produce, the net increase 
in employment will be equal to 204,000 man-years, which means 
full-time employment for 204,000 people. 

As a matter of fact, the building year for the building-crafts worker 
is a lot less than 40 weeks, but assuming now that we could give him 
40 weeks of employment and so have the industry organised that we 
could keep him steadily employed for 40 weeks in the year, to produce 
100,000 units to sell at $3,000 each would create employment for over 
200,000 people for a 40-week year. 

If we filled this void, in other words if we could reach 525,000 
units, which we have to reach if we are going to maintain housing 
on our present levels, if there is to be no further deterioration in our 
housing standards, we could, if we could find some way of getting 
those extra 125,000 houses produced during the coming year to 
sell at $3,000, create jobs for more than 250,000 men for a 40-week 
year; in other words, they would have 40 weeks of steady employ- 
ment at 40 hours per week, which of course in terms of the effect 


upon industry itself and upon employment in other industries is 
terribly significant. In other Words, there are jobs waiting, in a 
sense, for over 250,000 people right now, and these jobs will be created 
if we just do the minimum that we have to do in housing to keep 
our housing standards from deteriorating during the next year, and 
if we can do that for each year thereafter for the next decade at least. 

Acting Chairman Reece. These charts which you have displayed 
this morning indicate a demand for houses, and the charts which 
you displayed in the previous study indicated ample capital available 
with which to construct them, 1 and at other times in the study, and 
as is generally known, there are ample building craftsmen without 
work and ready to be employed. It would seem interesting to me 
as to why construction is not under way through the employment of 
these various factors. 

Dr. Lubin. Mr. Chairman, I thiDk Mr. O'Connell can probably 
answer that question better than I. In other words, the purpose 
of these hearings, as I understand it, is to find out, in view of the 
fact that we are needing these houses, in view of the fact that invest- 
ment capital is available, why we aren't having them. Apparently 
there are dozens of factors in the picture that Mr. O'Connell is going 
to attempt to bring forth for the record. 

Mr. O'Connell. I hope to. I might say that Dr. Lubin's testi- 
mony was not intended to indicate explicitly any particular answer 
to the problem, but rather to indicate what I believe he has, and that 
is a need for an expansion in the construction industry in the resi- 
dential housing field. I think from his testimony and from some 
of the charts that he has indicated the inference might be drawn that 
under present conditions in the industry, with particular reference to 
the prices and various factors that go to make up the cost of a house, 
the cost of owning or renting a House, the industry is not so geared, 
the prices in the industry are not such as to make it possible for per- 
sons in at least the middle third of our income group — by that I 
mean people who make between $1,000 and $2,000 a year — to either 
buy or rent adequate dwelling accommodations. 

The inference that I took from one of the charts which Dr. Lubin 
discussed was that the need is there in terms of a desire, an unsatisfied 
demand on the part of persons to own or rent dwelling accommodations 
which are not now available to them because of the price of adequate 
dwelling accommodations, and my thought is that over the course of 
this hearing we will develop, with that in mind, the different things 
which, in the various factors that go into the cost Of a house, have 
brought about conditions which made it impossible for the persons 
in the lower-income groups to acquire or to rent adequate dwelling 
accommodations. I think the emphasis throughout the hearing will 
be substantially in the price of the various factors that go into the 
cost of a house. Dr. Lubin had not intended to indicate directly 
what he thought was the solution of the problem created by the need 
he indicated this morning. 

Acting Chairman Reece. I shall patiently await further develop- 

Mr. Arnold. Again, I notice a lot of people can afford houses at 
$2,000. I assume that means total cost, including land. What are 
the chances of buying a house and lot in most cities for $2,000? 

• See Hearings, Part IX. 


Mr. O'Connell. I might say as far as your committee can tell, 
there is very little chance. 

Mr. Arnold. Of course the other part of the chart which still 
bothers me is the houses city families can afford, and when you tell 
me that the family of $1,000 income can afford to buy a $2,000 house, 
and at the same time tell me that they can't break even on less than 
$1,750, you must mean that you could sell them that house and they 
would go without an automobile or without a doctor's bill or some- 
thing like that. They can afford it only in that sense. 

Dr. Lubin. Afford it only in this sense, that a man with an income 
of $1,500, if he lives within his means, can afford to spend so many 
dollars per year for rent. 

Mr. Arnold. That would mean he mustn't go to the movies, he 
mustn't buy one of these second-hand cars which are keeping new 
cars flowing on the market 

Dr. Lubin (interposing). He might. All we can 'say is this: Here 
is a pattern of American living. A family that breaks even, we will 
say at $1,700, spends its money in such a way, and they may have a 
car and may not. They do go to the movies. Of that total income, 
approximately twenty-odd percent goes to rent. If you get down 
into a low-income group, the fact is that right now he is paying 50, 
60, 70, or 100 percent of his total income for rent, and granted that 
if a man with a $1,500 income bought a house for $2,000, and say his 
total cost of maintaining that house was $200 a year, that is about 
$16 a mont i rent, isn't it? — on that basis he certainly, of course, to 
break even will have to forego a lot of the things you mentioned. 
There is no doubt about it. 

Mr. Arnold. But you are pointing out he would have less expendi- 
ture for rent than he has now if he did buy a $2,000 house under these 
ideal conditions. 

Dr. Lubin. Definitely. His rental'cost would be down. 

Mr. Arnold. In that sense it is not very contradictory. It does 
assume, however, a $2,000 house, and it does assume ideal conditions 
of financing. 

Dr. Lubin. Yes. 

Mr. O'Connell. Are you through, Doctor? 

Mr. Blaisdell. Dr. Lubin, if I followed your testimony correctly, 
you are indicating furthermore that if we could solve this problem of 
relationship so as to enable houses to be built, we are also solving in 
part the problem of the income to buy those houses or rent them. 

Dr. Lubin. Yes. In other words, the mere creation of 250,000 or 
more full-time jobs in itself will create income for other people to rent 
houses who couldn't afford to rent them in that category at the 
present time. ; 

Mr. O'Connell. I had several questions that I thought you 
would be in a position to answer in view of your knowledge of the 
subject, though they don't relate particularly to the charts which you 
have been discussing this morning. If there are any of these ques- 
tions that you would prefer not to answer, if you haven't the informa- 
tion available, just skip them. 

Thinking in terms of the building-trades workers and persons who 
are engaged in the construction industry generally, have you any 
information as to what the average hourly earnings are of the various 


persons involved in the building industry on a relative basis, or 

Dr. Lubin. We have. In the Bureau of Labor statistics more 
than 10,000 building contractors report to us each month on actual 
employment and actual pay rolls and the number of hours these men 
worked, so that we have a pretty good sample of just how many 
people are working in the building industry and what they are actually 

The last figure that I have is for the month of May, that is last 
month, and the average actually earned per hour for these building 
workers, and that includes skilled and unskilled, the average for all 
of them combined, was 95 cents an hour. 

Mr. O'Connell. That is all persons engaged 

Dr. Lubin (interposing). Actually at work on these various 

Mr. O'Connell. Have you any comparative figures as to how that 
would compare with prior periods? 

Dr. Lubin. Well, it is slightly higher than it was the year pre- 
viously; I think about 4 cents an hour higher than in 1938 — no, it is 
4 cents higher than 1937. At that time it was a little over 90.5 cents. 

Mr. O'Connell. Have you anything going further back? What 
about 1'929? 

Dr. Lubin. I don't have any average hourly earnings of these 
workers for 1929. They are available; I could get them. 1 

Mr. O'Connell. How would these average hourly earnings com- 
pare with other industries? Have you anything on that — such as 
the durable-goods industries? 

Dr. Lubin. If you take the durable goods industries, which are 
more or less comparable, the average hourly earnings last month for 
industry as a whole were 72.5 cents. That includes, of course, all 
workers in those industries, skilled and unskilled, men and women, 
large plants and small plants. They actually earned 72.5 cents in 
May 1939, as compared to about 95 cents for the building trades 

Mr. O'Connell. And the 95 cents includes skilled, semiskilled 
and unskilled, so there would be quite a wide range between the 

Dr. Lubin. Correct. 

Mr. O'Connell. Of course, in terms of full-time employment, on 
the basis of an average wage of 95 cents it would mean how much? 

Dr. Lubin. If these building tradesmen with jobs in May had full- 
time employment 50 weeks, 40 hours a week, 2,000 hours a year, it 
will give you about $1,900, a little over. In other words, if they 
worked every day in the week, every week in the year, and only had 
2 weeks off the whole year, which of course is unknown in the industry, 
they could only have earned $1,900 on the average for all the workers 
in the industry. 

Mr. O'Connell. Have you any information on what they actually 

Dr. Lubin. We have very little information on actual earnings for 
recent years. As a matter of fact, the only information we have on 
actual earnings for building-trades people is for the State of Ohio. 
Those figures, however, only give the actual yearly earnings of every 

< Subsequently submitted for the record, see appendix, p. 5588. 
124491 — 40— pt. 11 4 


worker who was on the pay roll every one of the 12 months of the 
year, you see. It doesn't make provision for those people who only 
had 3 months'' work or 5 months' or 6 months', and those figures 
only go back to the period of the twenties, and they have come through 

1935, and I think the significant thing is that even in the twenties, 
when you had your building boom on, your construction workers in 
Ohio who were on the pay roll every month of the year, all 12 months 
of those years — it didn't mean they had 12 full months' work, but 
they had some work in each of those months — had average earnings 
of $1,668 in 1929. That was the peak that they ever got. 

Now, getting back to your former question as to how that compares 
with others, if you take that same basis of calculation, namely people 
who work in each of the months of the year, in 1929 in Ohio in the 
steel industry, there you have a better comparison than in the manu- 
facturing industries as a whole, because you have no women employed, 
you have more varieties of skill. When you compare building trades 
with manufacturing you are comparing men who work on certain 
types of skilled work with other people, some of whom are women 
who do routine work, a lot of unskilled people who do just routine 
jobs of one sort or another, and I think the fairest comparison is to 
compare building-trades workers with people who require training to 
do their jobs, and adult males to do the job. If you compare the 
actual earnings during the boom period in 1929, the average was 
$1,668 in construction, and in the steel works and rolling mills it was 
$1,928. In other words, you had about $260 more earned by the 
average steel worker than you had by the average construction 

If you compare it with all manufacturing in Ohio, the comparison 
was $1,500 in all manufacturing, with $1,668 in construction, but you 
want to remember that that $1,500 includes women and also some 
unskilled and semiskilled people who are in these factories. 

Mr. O'Connell. I hadn't mtended going very much into detail in 
this, because this raises the whole question, I take it, of the per-hour 
wage versus the annual income of the persons who do get the hourly 
wage, which is in some cases quite high. 

Dr. Lubin. I might go back to the previous question you men- 
tioned on the average hourly earnings. On July 1, 1938, which is the 
last date for which we have the rate.for unskilled workers, the entrance 
rate for unskilled workers, the building trades in the country as a 
whole paid about 59 cents an hour for the unskilled worker in that 
industry. If you take 59 cents and multiply that by 2,000, it shows 
you, assuming 2,000 hours means 50 weeks of work, 40 hours a week, 
no days lost for rain, accident, or anything else, a man couldn't earn 
more than $1,200 a year if he worked every day of the year, virtually; 
and you want to bear in mind that such studies as we have made in 

1936, for example, show that more than 20 percent of the people in 
the building trades earn less than 50 cents an hour. More than 20 
percent of the people in the building trades earn less than 50 cents an 
hour, and there are many, many people in the building trades even 
at the current wage rate, who, if they had full employment, couldn't 
earn more than $1,200 a year, and we know they don't have full 

Mr. O'Connell. I think that is all. 


Acting Chairman Rbece. When the committee recesses it will 
recess until tomorrow morning at 10:30. 

Mr. O'Connell, do you care to make a statement about what your 
procedure shall be at that time?. 

Mr. O'Connell. Tomorrow morning and tomorrow afternoon we 
expect to call several witneses who will testify in detail as to the costs 
that enter into the construction of houses, both large-scale rental 
housing and individual one-family houses, whether built for invest- 
ment or for sale. The witnesses that I expect to appear will be a Mr. 
Schnitman, from New York, who is the former chief statistician of 
F. W. Dodge Co.; Mr. Dawson, a builder from Chicago; and Mr. 
Davison, director of the Pierce Foundation, which has done a sub- 
stantial amount of research in that field. I believe that tomorrow 
will be taken up with that type of background material, after which 
we will go into in more detail the particular items that go into both 
capital and annual costs in connection with housing. 

Acting Chairman Reece. The committee will be in recess;- 

(Whereupon, at 12:55 p. m., a recess was taken until 10:30 a. m., 
Wednesday, June 28, 1939.) 



United States Senate, 
Temporary National Economic Committee, 

Washington, D. C. 

The committee met at 10:40 a. m., pursuant to adjournment on 
Tuesday, June 27, 1939, in the Caucus Room, Senate Office Building, 
Representative B. Carroll Reece acting chairman. 

Present: Representative Reece (presiding), Senator King, Repre- 
sentative Williams, Messrs. Henderson, Lubin, O'Connell, and 

Present also: Miss Grace W. Knott, Department of Commerce; 
Gordon Dean, Department of Justice; Lowell J. Chawner, Depart- 
ment of Commerce; Theodore J. Kreps, economic consultant t r the 
Committee; Thomas C. Blaisdell, Jr., director of studies, Securities 
and Exchange Commission; Peter A. Stone, coordinator, construction 
studies for the Committee. 

Acting Chairman Reece. The committee will please come to order. 
Are you ready to proceed, Mr. O'Connell? 

Mr. O'Connell. I am. Mr. Chairman, I want to say a word or 
two before calling the witness. Yesterday Dr. Lubin gave the com- 
mittee a general over-all picture of the construction industry and of 
the part played in it by residential housing. If any one thing stood 
out in his testimony it was, it seems to me, that at the present time, 
for whatever reason, the construction industry is doing practically no 
residential building in a price range that can be met by families hav- 
ing an income of less than $2,000 a year. 

When it is remembered that a majority of our families fall within 
this group, the significance of this calculation can be readily per- 
ceived. Today witnesses will be called who will develop somewhat 
in detail the elements of cost which enter into residential construction, 
and the importance of each, using individual homes or apartment 
houses which have actually been constructed to illustrate the points 
considered. The first witness this morning will be Robert L. Davison. 

Acting Chairman Reece. Do you solemnly swear that the testi- 
mony you shall give in this proceeding shall be the truth, the whole 
truth, and nothing but the truth, so help you God? 

Mr Davison. Yes. 



Mr. O'Connell. Will you give your name to the reporter? 

Mr. Davison. My name is Robert L. Davison. I live on Long 
Island; my business address is 40 West Fortieth Street, New York 



Mr. O'Connell. Mr. Davison, you are, as I understand it, the direc- 
tor of housing research of the John B. Pierce Foundation of New 

Mr. Davison. Yes. 

Mr. O'Connell. Would you tell us briefly what the John B. 
Pierce Foundation is and the type of work or research that it does? 

Mr. Davison. The Pierce Foundation is an eleemosynary organiza- 
tion doing research in the fields of heating, ventilating, and house 
comfort for the benefit of humanity. They are doing work at New 
Haven in physiological and psychological effects of heating and 
ventilating; that particular research is under Dr. Winslow. My work 
is largely in New York City, concerned with new construction methods, 
new materials, and any economic and social studies which have bearing 
"on new materials and construction methods. 

Mr. O'Connell. I take it the economic studies to which you 
refer are broader than cover merely plumbing, heating, and electric? 

Mr. Davison. Oh, yes; the income groups. 

Mr. O'Connell. Just one more question along that line. How is 
the John B. Pierce Foundation financed V 

Mr. Davison. A sum of money was left by Mr. John B. Pierce for 
research in the fields I mentioned. 

Mr. O'Connell. Very good. Now before we start to discuss in 
detail the cost data which I understand you are going to present to 
the committee, referring generally to your economic studies, what, if 
anything, have your economic studies indicated as necessary for an 
expansion in activity of the field of residential housing? 

Mr. Davison. Well, now, I will speak from the charts, if I may. 

Mr. O'Connell. Very well. 

Mr. Davison. As a result of Mr. Lubin's testimony yesterday. we 
changed the dates that we had on this particular graph so as to make 
them the same dates that he gave on the charts he used yesterday; 
that accounts for the using of the red here instead of cross hatch, but 
we will submit for the record the cross hatch that will be in black and 

Mr. O'Connell. Will you give us the title of the chart to which 
you are now referring? 

Mr. Davison. That is "Summary of Annual Requirements for 
Non-Farm Dwellings in the United States (Exclusive of Shortages) 
for 1938 and 1939." 

(The chart referred to was marked "Exhibit No. 847" and appears 
on p. 4977. The statistical data on which this chart is based are 
included in the appendix on p. 5479.) 

Mr. Davison. These black bars, the part c* the chart which consists 
of the black bars, were taken from the market survey made by the 
National Housing Committee. That particular survey had a group 
of outstanding authorities that went over the material and checked 
on it. For example, Dr. Lubin was on the committee, and Maurice 
Leven, of the Brookings Institution, and Richard Mayer, of American 
Radiator. We had quite a committee on that, so that the data, I 
think, are quite authoritative. 

The cross-hatched bars are based on the F.H.A. percentages of 
loans that they were making for houses in various price classes. 

Mr. O'Connell. For what year; 1938? 



Exhibit No. 847 





FOR 1938 AND 1939 

$20 UNDER $30 


$30 UNDER $50 


SOURCE: Annuol requirements from "The Housing Morket", published by the Notional Housing Committee, Woshlnglon, DC, December, 1937 
Dwelling units constructed from Bureau of Labor Statistics estimates, distributed according to FHA loons In 1938. 


Mr. Davison. 1938. Previously I had the data for the average, 
1930 to 1937, but in order to have the same date that Dr. Lubin was 
using yesterday I made that change last night, using the other figure. 

Before going into detail on the chart I had better explain the basis 
we are using in this. "We are assuming in this housing market study 
that this is taken from that a man can pay 1 week's income for 1 
month's rent, and that the carrying charge on a house is roughly 
12 percent a year. 

Now, in speaking of rent, we mean rent or rent equivalent if a house 
is bought. We don't differentiate, in giving these figures, between 
rental housing and houses which are bought. We are just taking the 
carrying charge and speaking of it as rent or rent equivalent. 

Mr. O'Connell. You are assuming that 12 percent a year is neces- 
"sary, whether the house is rented or owned? 

Mr. Davison. Yes; that was the assumption in the report, and I 
think it is a correct assumption. In some cases it may be slightly 
under that, if it is an owner house, but not below 10 per cent, in my 
opinion, and for rental houses in many cases will have to be more 
than 12 percent a year. 

Mr. O'Connell. In terms of annual income what would that mean 
in general, in your opinion, that a man could pay for a house in terms 
of his annual income? How many times? 

Mr. Davison. In terms of annual income we are assuming in this 
housing market study, and I am throughout this entire discussion, 
throughout this testimony, that the man can pay twice his yearly 
income for his house. 

Mr. O'Connell: In other words, that a man with an income of 
$1,500 a year could afford to have a $3,000 house? 

Mr. Davison. Yes. 

The rough rule of thumb which makes it easier to understand these 
charts is 1 week's income for 1 month's rent, and the cost of the house 
is 100 times the monthly rental or carrying charge at which you are 
buying. That figures out the same as this 12 percent, so whenever 
I speak of rentals under $10, or rent between $10 and $20 a month, 
that would be a $1,000 to $2,000 house, and if it is $10 a month rent 
that would be suitable for a man getting — 

Mr. O'Connell (interposing). $500 a year. 

Mr. Davison. $500 a year or $10 a week. 

Acting Chairman Reece. If I may, how do you estimate the various 
expenses that a man would have to bear who was making a salary of 
$1,500 a year, but purchased a house at twice the amount of his salary, 
$3,000 a year? As I understand you, it is estimated that 12 percent 
is necessary' for maintenance, repair, and carrying the house along. 

Mr. Davison. Yes. 

Acting Chairman Reece. Then how do you estimate taxes and 
insurance? What I have in mind is, if a man buys a house, in addition 
to the payments, if he doesn't have it all paid for or if he has it all 
paid for, now much will he have to put out? 

Mr. Davison. This 1 percent a month, or 12 percent a year, 
includes taxes and amortization. I will give you the exact figures on 
that. Interest at 5 percent, plus 20-year amortization at 3.2 percent 
plus taxes at 2 percent, plus maintenance at 1.6, plus special assess- 
ments at 0.7, plus insurance at 0.5, equals 12 percent a year. That 
is what we figured is the carrying charge on an owner occupied house, 


and it would be about the same on a rental, though it might be a 
little bit higher on a rental house. 

Mr. Henderson. Could you give the chairman some idea of what 
material, what statistics and experience you have taken into account, 
for the assumption you have made on various interest rates and the 
like? You have dealt pretty widely with all statistics that are avail- 
able in making those computations, have you not? 

Mr. Davison. Yes. Well, that is based on the collection of a good 
many estimates from a great many sources. For example, your 
Washington Sanitary Homes here in the Washington Sanitary 
Housing, that have been operating about 30 years; they are running, 
I think, about 1 percent a month of the cost, and there are a great 
many others. They run very close to that. Of course that is a 
rule of thumb. You may vary a little bit up or down, but I think 
you will have to have at least 1 percent a month to cover all the 
charges. Frequently it looks when you start as if- it were going to 
be less than that, and then a special assessment, comes along, or 
something of that character, and I don't think it is safe to consider 
the cost of owning a home at very much under 1 percent a month. 

Mr. O'Connell. At present rates. 

Mr. Davison. Yes. 

Acting Chairman Reece. The item that impressed me particularly 
from my own observations is the question of taxes and also insurance, 
because in some localities the tax burden upon real estate has become 
very burdensome. 

Mr. Davison. That question of taxes is one that we can spend a 
whole day on. I have some graphs here that go into that thing. 
If any of the homes were to pay their share of taxes, their real share, 
their proportion of the taxes from the standpoint of service which 
they get, or lineal, foot in relation to the cost of utilities, or any basis 
you want to set up,_they would be very much higher than they are 
shown here. 

Mr. O'Connell. I might say that I think Mr. Davison had in 
mind, too, that we are going to go more in detail in connection with 
such things as real-estate taxes later on. 

Acting Chairman Reece. Very well. 

Mr. Davison. But in taxes the small homeowner doesn't pay what 
he gets in services, so when you get into that subject it makes the 
situation very much worse than I am going to show here, so I think 
we can ignore that as far as I am concerned. 

There is really a wonderful opportunity for the building industry 
if they will only switch from building high-priced homes into the 
low-priced field, and that is the thing that I particularly want to em- 
phasize today in various ways. 

These black bars illustrate the market in the various income groups, 
and the cross-hatched ones the building that is suitable for those 
income groups. We see here that for houses renting for $10 a month 
that is suitable for a family with a $10 a week income, there is practi- 
cally no building; there is only one-tenth of 1 percent, according 
to the F. H. A. breakdown, that would be suitable for families getting 
under $20 a week. Then when you come into the $20 to $30 group 
there is a very small amount of new building in comparison with the 
market for that rental group. In the $30 to $50 group the'building 
in 1938 exceeded what we estimated to be the market in that par- 


ticular group; probably it was largely around $45 to $50 rental, or 
the $4,500 house up to $5,000. Then here in the $50 rental or rent 
equivalent class, and up, or the $5,000-and-up house, there was over- 
building by about four times as much building as we estimated there 
was a market for. 

Mr. O'Connell. The interesting thing to me in the chart, if I 
understand it correctly, is that the cross-hatched lines indicate that 
substantially no buildingis being done in the price range below $3,000 
in original cost, which converted in terms of annual income would 
mean available for persons having an income of $1,500 a year or less. 
Is that correct? 

Mr. Davison. There is very little. 

There are several reasons why that is happening. In the past, the 
building industry has always catered to this $50-and-up group, the 
$5,000-and-up group Going to this other chart 

Mr. O'Connell. What is the title of that chart? 

Mr. Davison. "Distribution of Families by Income Groups and 
Distribution of Rental by Rent Groups." 

Mr. O'Connell. Do you intend offering that chart for the record? 

Mr. Davison. Yes. 

Acting Chairman Reece. It may be received. 

(The chart referred to was marked "Exhibit No. 848" and appears 
facing p. 4980.) 

Mr. Davison. One reason — there are several reasons, but one reason 
the building industry has been building this high-price class is that 
in the past that was their real market. There are only a third as 
many people in this $3,000-up class which buys the $5,000-and-up 
houses as there were back in 1929, and there hasn't been much come- 
back in that class up to date. There are less than a third as many 
people paying $50 a month rent and up as there were in 1930. 

The building industry has been building for that class and they 
haven't yet worked out the techniques and gotten into the habit of 
building for this lower group. If they will get into this lower group 
I believe there is a very great market for them and I want to speak a 
little bit of the magnitude of that market. 

In this graph here [indicating "Exhibit No. 848"] I have tried to 
relate on the same horizontal line all the factors that come from income. 
For example, here you have your $3,000 a year income and you have 
your rental group on the same line, and then we come to this section, 
this third column in the graph — column headed "Shortage" — which 
shows where the shortages exist in housing. 

.'.Mr. O'Connell. I am afraid this type of presentation won't be 
very intelligent in the record because it won't be very possible in 
terms of a printed record to relate what you are saying to the par- 
ticular lines on the chart to which you refer. The chart is rather com- 
plicated and I wonder if it wouldn't be possible without discussing 
the chart so much in detail, to explain generally the significance of 
the chart in terms that would be understandable to people that would 
read the record without having to read the chart. Could you do that? 

Mr. Davison. I shall be very glad to do that. I had this written 
out in "a way that would have been intelligent in the record, but when 
I tried to give it verbally it is quite difficult to give it comprehensively. 
I will just speak of the significant factors in this and not try to go into 
it in detail. 



Mil iso a up 


: , - 

1 ,. ..'.'".".' U 


Exhibit No. 849 

1929 030 . 

1932 1933 

1934 1935 

1936 1937 

1939 1940 


124491— 40— pt. 11 (Face i>. 40S1) 


The housing-market survey that I spoke of on which this is based 
showed there were no shortages for houses renting or rent equivalent 
of over $30 a month in any of the census districts. There may be 
some local cases, local communities, where there is a shortage. There 
is, however, a current demand, differentiating between shortages and 
current demand, shortage having been built up over a period of years 
and current demand being the demand that comes along each year, 
and they estimated that in this $50 class and up the current demand 
was 50,000 units a year, shown in this other graph by this black bar. 

Without going into further details on this graph, I should like to 
show the significance of it when it is related to volume of construction 
that somebody might set up as an objective. 

On this third chart here, which we might designate as price classes 
necessary for any determined volume of residential construction, the 
black line on this graph is taken from Bureau of Labor Statistics 
index of total dollar volume of residential construction over the 
period from 1919 up until 1938. 

The bar chart here shows the dollar volume that might be obtained 
in various price classes. If you wanted to reach a dollar volume equal 
to the peak of the 1920 to 1929 period, you would have to supply all of 
the current demand in every price class, that is getting down into 
rent or rent equivalent of $15 a month, and you would have to make 
up all shortages in all price classes in x year. 

(The chart referred to was marked "Exhibit No. 849" and appears 
facing p. 4981.) 

Mr. D aviso?;. It is going to be very difficult with this reduction 
in the number of people having high incomes to reach the total dollar 
volume that you had back in 1925. Now if you approach it from 
another angle, if you wanted to reach a volume of 525,000 dwelling 
units a year, which was the figure given by Dr. Lubin yesterday, you 
would have to build; — take care of the estimated market in the $50 
rental or rental equivalent class, and up ; you would have to take care 
of the 30 to 50, the 20 to 30; you would have to take care of all current 
demand in the under $20-a-month rent, that is under $2,000 house, 
and you would have to in addition take care of 10 percent of the short- 
ages in the $20 to $30 a month rent, or rent equivalent class; that is 
the two- to three-thousand-dollar house. 

■ Now you can reach that volume of 525,000, but only in my opinion 
if the building industry will get into the low-price field. That was 
what I wanted to emphasize from these two charts, and I have neg- 
lected going into a good deal of detail on it. 

Mr. O'Connell. Then, Mr. Davison, I take it this is just approach- 
ing it from a little different angle, but getting to the same result, as the 
material presented by Dr. Lubin yesterday, 1 to the general effect that 
such construction as we have at the present time is not geared to the 
market in the sense that it is not available at a price which can be 
met by people in the so-called middle-income groups, isn't that correct? 

Mr. Davison. That is right. There is nothing contradictory 
between the two. The only point, as I was saying, further emphasiz- 
ing, that they have to get into low-price class in order to get that vol- 
ume of 525,000 a year, confirming and further emphasizing his view. 

Now this graph showing the distribution of new construction in 
relation to distribution of families by income groups shows that the 

1 Supra, pp. 4935-4973. 


new construction forms an inverted pyramid, with more than 50 
percent of your construction for the top-income group ; 50 percent of 
your construction for the income group that is about 8 percent of the 
population, and running down into the smallest amount of construc- 
tion for the smallest-income group. Now as an indication that it 
might be possible to have new construction somewhat related to dis- 
tribution of families by income groups, I have this chart also showing 
the distribution of families by income groups in England and Wales 
and the distribution of new construction in those two countries, which 
shows that actually in the highest-income group they didn't build as 
large proportion of new buildiDgs as there were people in that highest- 
income group in relation to the whole number of families; and that the 
greatest proportion of their construction in England was for the low- 
est-income group. 

(The chart referred to was marked "Exhibit No. 850" and appears 
on p. 4983.) 

Mr. O'Connell. Mr. Davison, as of what year is that chart pre- 
pared for both the American and the English experience? 

Mr. Davison. The United States, the income is 1935, and the new 
dwellings are the annual average for the years 1930 and 1937, 1930 to 
1937, as from the market survey of the National Housing Committee. 
This other graph is one that I had made 2 years ago by an economist 
in England to show what was happening there; it was made for this 
particular study and then it was checked by Captain Reece, who is 
an outstanding authority in England on housing. He made some 
slight correction in the figures as prepared by this economist in 

I can't say offhand exactly what the years were for England, but 
it was about the same period as covered by this other study. 

Mr. O'Connell. Thank you. I think that is sufficient for those 
charts, unless you have some questions. 

Mr. Henderson. Mr. Davison, let me see if I can recapture what 
your testimony and charts up to date seem to show. You have shown 
first that currently there is practically no building of new homes on a 
basis to reach the lowest-income groups, which constitutes by far the 
largest potential market ; that there is for the $50 rent or rent equiva- 
lent group what amounts to an oversupply of building, and that 
probably in your last two brackets is represented the kind of con- 
struction that is going on today in the United States (referring to 
"Exhibit No. 846"). 

Then going over to your other chart in which you have undertaken 
to estimate what is necessary for the United States to get back to the 
level of construction we had in the highest peak of the twenties, you 
show that Unless this great market for the low-income group is tapped 
somehow, it is impossible to think in terms of getting that volume of 
construction of residential homes (referring to "Exhibit No. 849"); 
and then in your final chart you have shown that England's success 
in the construction field and the large stimulus to recovery which 
they got from housing, has come from their ability to bring demand 
for the low-income house into line with the cost of building the house 
(referring to "Exhibit No. 850"). Is that a fair summary? 

Mr. Davison. That is, and I thank you very much for summarizing. 
I can write a thing clearly when I am dealing with statistics, and I did 
write it so it is quite clear, but when I try to talk it I am just lost. 




It is such an involved subject, it is almost impossible to make it clear, 
except as Mr. Henderson has done it. 

Mr. Henderson. I suggest, since you know, this thing so much 
better than we do, that you forget everything about those charts and 
that microphone and tell us what is on your mind when you come to 
the next part of your presentation. 

Mr. Davison. Then I will do that. 

Mr. Chawner. May I ask a question, Mr. Davison, particularly 
with regard to this relationship between income and current building 
operation, and the housing of people? Do you think for families, 
Mr. Davison, of incomes under $1,500, that they could be more com- 
fortably housed in perfectly new nouses than in older houses with a 
little more space, but not necessarily new ones? That is, in other 
words, by building houses for lower-income classes can you house 
them as comfortably as has been true in the past by their occupancy 
of older houses? 

Mr. Davison. Well, now, there is nothing in housing that you can 
give a straight answer to. It is terribly hard to talk about. For 
example, we show that a great many of our shortages are in the South 
and you are having a rapid increase in population in certain districts 
in the South due to mills moving down there and the opening up of 
textiles, and so forth, and in those sections you don't have the second- 
hand houses; and also on account of the time possible to build houses 
at low cost. In northern districts and districts where the factories 
may not be increasing so rapidly, why the second-hand house is the 
answer, but you can't give any one answer that will cover the country. 
It may be « F 0-50, I don't know; certainly, a very large percentage of 
the shortages are in the South. 

Mr. Chawner. I have heard some criticism of the English program 
from that point of view ; namely, that it has resulted in rather poorly 
built houses which in a few years with current depreciation will not be 
suitable even for occupancy of some of the lower-income families; 
that an attempt to provide new buildings directly in proportion to 
current incomes of families hasn't been entirely satisfactory. 

Mr. Davison. I think it hasn't been entirely satisfactory, but I 
think we could make it very much more satisfactory than we have. 

Mr. Henderson. Let me ask you, Mr. Davison, right in line with 
your last statement, are you optimistic or pessimistic about the 
ability of American's technical equipment, with its various reservoirs 
of capital funds, and its skilled labor, to construct adequate housing 
for the low-income groups? 

Mr. Davison. Well, again I will have to answer that in two phases. 
I think that there is no problem particularly technically in getting 
into this group here. 

Mr. O'Connell. What income group is that? 

Mr. Davison. The 20- to 30-a-month rent or rent equivalent, the 
two-to-three-thousand-dollar house. I think we have the knowledge 
in this country — it may. not be very general — but we have the knowl- 
edge at the present time and you can get into that. Houses are being 
built in that group right now. I have a record of quite a few houses 
that are being built throughout the country in that group. Now 
when you get down under $2,000 you have again two answers to it. 

Mr. O'Connell. Just a minute. When you speak of the $20-to 
$30-a-month or the two- to-three-thousand-dollar house, that converted 


into annual income, using your formula, the value of the house being 
twice the income would mean an income group of between one thous- 
and and fifteen hundred dollars a year, so I take it it is your belief 
that it is entirely reasonable to expect that with the means at our 
command we can reach an income group of between one thousand and 
fifteen hundred dollars a year? 

Mr. Davison. Yes; that is largely — it isn't technical so much as it 
is a matter of psychology, you might say. 

Mr. O'Connell. Isn't it to some extent a matter of cost reduction? 

Mr. Davison. To some extent, but the cost reduction would come 
from changed psychology on the part of people all along the line. 

Mr. O'Connell. Probably come from a variety of things? 

Mr. Davison. It isn't so much lacking the technical things as 
psychology after this market survey was made. We had a meeting 
and Herb Nelson sent out letters to the realtors throughout the 
country and asked them what they were selling under $3,000. Ninety 
percent said it couldn't be done and 10 percent said they were doing it, 
and making money. And some of those were in the North. 

Mr. Henderson. That is Nelson of the Real Estate Boards? 

Mr. Davison. National Association of Real Estate Boards. Now 
10 percent of the men were making money doing it and the other 90 
said it couldn't be done, and the technical facilities of the country 
were the same for both groups. It was largely a matter that some 
people had changed their habits of thought and were trying to get 
into low-price fields. 

Of course there are some districts where you can't do it. 

Mr. O'Connell. To the extent that prices are too high, or that 
they can be reduced, it is a more concrete thing to operate on than 

Mr. Davison. Oh, you want to reduce prices, but it isn't always 
due to prices, and as an illustration of that I want to offer a graph of 
the automobile industry. 

(The chart referred to was marked "Exhibit No. 851" and appears 
on p. 4986. The statistical data on which this chart is based are 
included in the appendix on p. 5480.) 

Mr. Davison. Here is the curve showing the volume of private home 
building from 1922 to 1938 and this dotted line here shows the total 
volume of high-priced automobiles sold, and you will notice that the 
high-priced autos follow very much the same curve as housing, and 
since most of our housing was high-priced housing, you might say 
high-priced automobiles and high-priced housing had the same char- 
acter throughout that entire period. But the automobile industry 
was one of the leaders in coming out of the depression, but that was 
due to the fact that they also made low-priced cars. ^You notice how 
different the volume of low-priced cars was from r the]volume of high- 
priced cars. 

The costs of steel and rubber and everything in the high-priced cars 
are about the same, but they are making a different product in the 
low-priced field and they have a little different method of handling 
the thing, and I think that that is what you have to do in housing. 
The housing industry has to do the same as the automobile industry. 
They have got to have a lower-priced product. If the automobile 
industry hadn't a low-priced automobile they might be here today 



trying to find out what was wrong with the automobile industry in 
that it wasn't following the curve of all the other industries. 

The trouble with housing is that they haven't got into this low- 
priced field. 

Senator King. Isn't there a great deal of difference in the cost of 
the construction of houses in the large centers and in the rural districts, 
For instance, I was reading last evening an instance which illustrates 
what may be done by persons who are willing to work. A man and 
his wife lived in the city, and owing to ill health they moved to Ten- 
nessee, or Kentucky, I have forgotten which, and acquired a few acres 
of land which was barren. They had $50, and in 4 or 5 years they had 
constructed a house with their own efforts, very comfortable; they 

Exhibit No. 851 


UNITED STATES. 1921-1937 




:nger cars over $750 

te residential construction 

















1 * 




1322 1923 1924 I92S 

1927 1926 1929 1930 1931 1932 1933 1934 1935 1936 1937 

were making a living, they had a number of cows, a good many pigs, 
and all of the necessities and some of the comforts of life. They 
simply illustrated the genius and courage of some of the Americans. 

Isn't it a fact that in many of the cities people are losing that initia- 
tive, and in the country, too, whereas if there be a revival of some of 
that fine spirit of the pioneers we would have no trouble about the 
housing problem particularly in the rural districts? 

Mr. Davison. I think that is partly true. It certainly is true that 
you can build cheaper in the country than you can in the city, but the 
building industry is getting pretty technical and it is very difficult 
today for a man to go out with his ax and build his house, and un- 
economical in most cases. But I will agree that it is a lot cheaper to 
build in the country. 

The next point that you wanted 

Mr. O'Connell (interposing). I think you have probably taken 
enough time to this, which I hoped we would get over a little more 


quickly than we have. I think we are through with the charts, and 
I would like to go into the detail of some of your experiences in con- 
nection with the cost of individual homes. 

Mr. Davison, I take it that in connection with your research work 
with the Pierce Foundation you have made certain technical studies 
as to the cost of single-family homes for the purpose of determining, 
or with the result of having determined, the various elements that 

Exhibit No. 852 




4 rboms 

4 rooms 

4 £ ro oms 

5 rooms k garage 

6 rooms, garage S: 

no base. 



no basement 





1938 . 


L. I. 




Excavation & 













) 185.00 

| 172.00 

| 379.00 

j 477.00 

Lumber k 












labor & 




317 .00 



387 .00 


Lath & 

in carp. 

in carp. 





k lmbr. 

& lmbr. 
















. 180.00 


















' 235.00 




















) . 





) 42.00 

) 60.00 
















Plans, surveys, 


water k sewer 








Misc: extra 

equip., over- 

head, insur- 

ance, etc. 



. 134.75 












Land, streets. 

walks, land- 









Gross profit 


638 . 12 

737 .84 


236 .00 



Sales price 








May 1«39 

went into the making up the cost of such single-family homes. Is 
that correct? 

Mr. Davison.. Yes; we have studied quite a few projects in the 
low-cost field in various parts of the country, and I have put on here 
just a few of the projects that are somewhat comparable. 

(The chart referred to was marked "Exhibit No. 852" and appears 
on this page.) 

Mr. Davison. In this first column we have a four-room house with 
no basement, built by a Long Island real estate developer. The 
124491— 40— pt. 11 5 


house was advertised to sell at $2,500. Out of something over 200 
houses they built, only 2 of them were sold at this price. It was 
really a come-On to get people out to this project, and then they would 
sell a little more expensive house. 

There is a point of interest, I think, right there, in that by the 
addition of a basement and 3 feet more frontage to the property they 
were able to get $400 more for the house, and it only cost the developer 
$200 more to put that basement in and 3 feet more of lot and a couple 
of other things. 

One of the problems in trying to get at low-cost housing is the fact 
that people, after you get the basic house, will pay about $2 more for 
every dollar that is added in the way of luxuries, and the real-estate 
men know that. I don't blame them; I would do the same thing. If 
by'taking a basic house and adding a dollar I could get $2 more for it, 
I would be foolish if I didn't do it, but that is one of the things holding 
back the development in the low-cost field. 

Mr. O'Connell. I take it that is one of the things about which we 
can hardly expect to do anything. If by making improvements in the 
so-called basic house at one cost they are able to sell it at a sub- 
stantially higher price, that is just good business. 

Mr. Davison. I think it is something that it would be possible to 
do something about. I don't know that this is the time to bring it up. 

Mr. O'Connell. I don't think we ought to discuss now what 
should be done about it. 

Mr. Davison. I understand that, but that is something that 
something can be done about, in my opinion. 

The second column, I say, is the costs on the house which they sold 
for $2,900, and most of the houses, sold at that price. 

Then, these were both for the year 1936. The third column is for 
the year 1938, and it is their basic house with a little projection in the 
front and a little projection in the rear and dolled up a little more, 
which sold for $3>450, according to their figures. According to their 
figures, the gross profit on the $2,500 house was $419, on the $2,900 
house $838; and on the $3,450 house, according to their figures, their 
gross profit was $737, and they are building quite a few of those houses. 

Mr. O'Connell. Dividing the cost of this house up generally 
between labor and material and other costs referring to the $3,450 
house, I take it we have about $1,650 for materials — no; it is not 
broken up as between labor and materials, is it? 

Mr. Davison. No. 

Mr. O'Connell. The labor and material cost would be about 

Mr. Davison (interposing). That is another house you are referring 

Mr. O'Connell. I am referring to the wrong house. Would you 
explain to us the general break-down as between the labor and material 
cost and the other costs that go to make up the total cost? 

Mr. Davison. In general, the labor will be about 30 percent, mate- 
rial about 60, and the overhead and profit about 10 percerit. 

Mr. O'Connell. When you say materials are about 60, I have 
heard it said that the materials, strictly speaking, would only con- 
stitute about 35 percent, and that other nonlabor and material costs 
would go to make up the balance of 100. 


Mr. Davison. That is on the basis of the cost, just taking the 
house without the land and without any financing charges. That is 
the cost of the house without the land and financing charges. 

Acting Chairman Reece. I think it would be very interesting, 
Mr. O'Connell, on one of these types of houses to have the cost broken 
down so as to show the various items that make up the total cost of 
the house. I infer from your question that /ou expect to develop 

Mr. O'Connell. I thought Mr. Davison might do that in connec- 
tion with this house. We have two other witnesses coming on later 
today who will give us that information, both in regard to large-scale 
renting projects, in one case a practical builder who is going to give us 
the figures and proportions in a house he has actually built, and in the 
other case an analysis of a large-scale rental project actually under 
construction, so I should think that would be sufficient. 

Mr. Davison. I could give you this graph on that break-down,. if 
you wish it. 

Mr. O'Connell. Let's come to that a little later. 

Mr. Davison. These first three cases were four-room, one-story 
houses. These other cases here deal with a five-room and garage, i id 
in some cases six-room and garage, two-story house. We got bids on 
Long Island on the National Homes Demonstration house, which I 
understand I am to talk about later, so I won't speak of it in detail 
now, and the total bids on that house, outside of land and gross 
profit, were $2,142. 

That was for a five-room and garage house, but without a basement. 

Then, since it is cheaper to build on Long Island than in most parts 
of the country, we also took bids at Newburgh, N. Y., which might be 
considered as typical of the northern part of the country as a whole, 
and we got bids on the same house of $2,464. 

Mr. O'Connell. That is a difference of over $300 in the bids in 
those two areas? 

Mr. Davison. Yes. Long Island is a low-cost building area, and 
that incidentally is near a big city. The costs there would be very 
considerably cheaper than either in Jersey or Westchester, because 
they have the habit of building low-cost houses there. They know how 
to go about it. They have developed -their technics for building low- 
cost houses. 

Senator King. Before you conclude, will you submit for the record 
a statement as to the relation, the proportion, of the cost for the land , 
with reference to the entire cost? 

Mr. Davison. I can give you the cost of the land here, on these, 
and I believe they are going to have other witnesses. 

Mr. O'Connell. You might give them the cost figures on the land 
you have in connection with this house. 

Mr. Davison. In this house which they advertised for $2,500 on 
Long Island the land, streets, walks, landscaping was $227 for a lot, 
and on the $2,900 house it was $244. In their present house, which 
they are selling for $3,450, the land, streets, walks, landscaping came 
to $456, in relation to the $3,450 house. 

Mr. O'Connell. Referring specifically to the Long Island house, 
where the bids amounted to $2,142 for the construction of the house, 
as I understand it the land item in connection with that house was 


$450, based on bids taken in Long Island, and the land cost in New- 
burgh is estimated at $300. 

Mr. Davison, Yes. There is a good deal of land, distressed 
property, that can be obtained in different parts of the country. You 
can buy small parcels of land for less than the cost of development; 
that is, a development that has gone sour, gone back to the original 
owner or mortgage holder, and you can buy that land for less than 
the costs of the developments that are on the land, and those sorts of 
things have to be taken into account if you are going to get into this 
low-cost housing field. You have to have some subsidies. Maybe 
they are not called subsidies; it is just the market price of the land. 

Mr. O'Connell. This house that you referred to in Long Island 
and Newburgh, was that a demonstration house or a theoretical house? 

Mr. Davison. We were planning to build some of those houses 
and we had the contracts drawn, and our attorneys told us it was not 
within our charter to build the houses, so we weren't able to go through 
on it. 

Mr. O'Connell. When you say "we" 

Mr. Davison (interposing). The Pierce Foundation. And the bids 
on the Long Island and Newburgh houses were to the Pierce Founda- 
tion. We were going to try to prove the thing out, and at the last 
minute our attorneys said it was outside our charter. 

Mr. O'Connell. I understood the Pierce Foundation had also 
done some work with the Small Homes Demonstration Committee. 

Mr. Davison. I was chairman of their technical committee. 

Mr. O'Connell. What is the Small Homes Demonstration Com- 
mittee? What is it connected with? 

Mr. Davison. The National Small Homes Demonstration Com- 
mittee is an organization that is backed by the United States Lumber 
Manufacturers Association, the National Lumber Retailers Associa- 
tion, but on the committee are representatives from various industries 
and from the Government. They have representatives of the American 
Radiator, Crane, Kohler, Johns-Manville, and so on, and in these 
technical meetings that we had we had representatives from the five 
Government housing agencies. 

Mr. O'Connell. What was the purpose of the committee, to see 
what the .possibilities were of producing a single-family house at a 
reduced cost? 

Mr. Davison* They set as their objective to produce a four-room 
house that could be sold, including land, for $2,500, excluding land for 
$2,000; five rooms and garage for $2,500 exclusive of land, or including 
land, $3,000; and they were working on that problem to see what 
could be done in the way of standardization, and so forth, to reach 
that market, and this project I spoke of here was one of them. If they 
wanted it demonstrated that could be done. However, that has been 
done in some locations. I just received some information from the 
National Small Homes Demonstration that the first house that was 
built in the West was sold, a four-room house, for $2,700, of which 
$500 was for the land. 

Mr. O'Connell. I take it, generally speaking, the committee has 
not been successful in developing a house that can be sold at that price. 

Mr. Davison. It could be sold at that price in various locations if 
they would follow the plans and specifications, but there again they 


frequently run into this problem of the developer wanting to doll it 
up a little in order to get a much higher price. Now, from the stand- 
point of the individual developer, that is the thing to do; from the 
standpoint of getting volume of housing going in this country that 
isn't so helpful. I don't blame anyone for that, it is just a condition 
that exists. 

As a result of that study they made and the material they got out of 
it they are, I think, very materially stimulating lower cost construc- 
tion; even though people don't do it at that price, they are getting 
down into the lower group. 

Senator King. Have you seen any of these houses that Mr. Strauss' 
organization is building or purporting to build? I understand $4,000 
or $5,000 is the minimum. 

Mr. Davison. Yes. 

Senator King. Your investigation, as I understand from your 
chart, shows you can build separate houses for $2,000 or $3,000. 

Mr. Davison. Yes; you can build separate houses cheaper than 
you can apartment houses at the present time. 

Senator King. Are all of his apartment houses and not sep 

Mr. Davison. I believe that all of their work has been multifamily 

Mr O'Connell. I might correct you a bit on that. My under- 
standing is that while the major part of the activities of the U. S. H. A- 
have been large-scale apartment buildings, in some localities, adjacent 
to or in the smaller communities, they have been engaged or are pres- 
ently engaged in building single-family individual houses. I hadn't 
thought that we could go into costs of U. S. H. A. projects, although 
it may very well be before we are through that it would be advisable. 
I can't testify as to it. 

Acting Chairman Reece. Since you have referred to that subject, I 
understand that one of the problems of the U. S. H. A. particularly 
in the smaller cities is to build houses that will rent within the reach 
of this low rent group to which you refer. I think the U. S. H. A. 
recognizes that problem and is trying to solve it in some way, but will 
probably have difficulty in doing so. 

Mr. O'Connell. I think in general the tendency or the trend in 
U. S. H. A. construction has been downward from the time they 
started, that they generally were attempting to produce habitable 
dwelling accommodations for people of very low incomes. 

Acting Chairman Reece. I think so. 

Mr. O'Connell. And constantly decreasing the cost. I still say 
that I am not an expert on U. S. H. A. experience, but it is my general 
understanding that the trend in U. S. H. A. costs has been constantly 

Senator King. They ought to be because they have been tremen- 
dously high, unwarrantedly high. 

Mr. O'Connell. I merely know that they have gone down to some 

Senator King. They are not going to meet the problem by the very 
high prices which they have been charging for them and the very great 
costs, much of which was the -result of bureaucratic methods which 
have been involved. 


Mr. O'Connell. We will put in the record later some of the 
experience that they have had. 1 We had hoped before the hearing 
was over that we would get some explicit information on the ex- 
perience of the U. S. H. A. but neither Mr. Davison nor I intended to 
discuss it. We were trying to discuss private residential construction. 
We will forget the U. S. H. A. for the time being. 

Mr. Davison, I take it that the aim and objective of the committee 
with which you are connected was to produce a four- or five-room house 
at a price that would make it available for people in the middle-income 
group and that to some slight extent and in some localities they have 
been able to demonstrate the possibilities of meeting that group, but 
that there have been a number of deterrents of various types, depend- 
ing somewhat upon the location, which have prevented the committee 
from attaining the objective. 

Mr. Davison. I don't think they have reached the price objective, 
but I think that by having that low price, the builders add on a little 
bit to it and the net result is that you get a larger volume of low-cost 
housing than you would otherwise have gotten. 

Mr. O'Connell. Generally speaking, here again we have a situa- 
tion in which this group at least is conversant with the necessity for 
building or making available adequate dwelling accommodations to 
meet the needs of people in the middle or lower income group, a thing 
which has not been adequately or at all taken care of up to this point. 
Is that correct? 

Mr. Davison. That is right. 

Mr. O'Connell. I think that is sufficient in connection with the 
cost of single-family houses. 

There is really only one more question that I should like to discuss 
with you for a moment. Returning to the statistical material that 
you have given us, as to the capital cost of a house, of course it is also 
true, as you would agree with me, I am sure, that in terms of the 
monthly rent or the monthly or annual, so-called annual, cost— it is 
another way of looking at the cost of the house from the capital cost — 
it at least is important from the standpoint of the average home owner 
or renter; he is primarily interested in how much it costs him per 
month for dwelling accommodations, whether they be owned by him 
or rented by him. In connection with that, have you made any studies 
of the various elements that go to make up the monthly rent or rental 
equivalent and the effect of changes in those elements? 

Mr. Davison. Yes; we have made a study on that. If you are 
considering this purely from the standpoint of the relative savings in 
monthly rent possible from a given percent reduction in each of three 
basic types 1 of building costs — labor or "material or financing costs — • 
you get one set of results as illustrated by this graph which I should 
like to put in the record. It shows the reduction in the fixed monthly 
carrying charge that you get from a 20-percent reduction in materials, 
a 20-percent reduction in labor, and a 20-percent reduction in interest 
and amortization. The 20-percent reduction in materials would 
give you 9.33 reduction in monthly fixed charges. 
Mr. O'Connell. This is an individual home? 
Mr. Davison. An individual home. 

Mr. O'Connell. And a 20-percent reduction in material costs would 
result in a 9.33-percent reduction in the monthly fixed charges. 

1 Infra, pp. 5407-5431. 




Mr. Davison. Yes. A 20-percent reduction in labor would give you 
4.67-percent reduction in monthly fixed charges, and a 20-percent re- 
duction in interest and amortization would give you 16.69-percent re- 
duction in monthly fixed charges. 

Mr. O'Connell. In other words, looking at it from the point of 
view of the man who has to determine the amount that he can afford 
to pay monthly for home ownership or rent, the effect of a 20-percent 
reduction in principal and interest payments would give more effect 
than a 20-percent reduction in the cost of labor and material com- 
bined. Is that correct? As I compute it, 20-percent reduction in 
both labor and material would result in a reduction of cost in terms of 
the rental dollar of about 14 percent, and the 20-percent reduction in 
principal and interest payments would result in 16.69 percent. Is that 

Mr. Davison. That is correct. 

Mr. O'Connell. Has that chart any particular title to identify it? 

Mr. Davison. I will give you the chart. 

Mr. O'Connell. I take it this chart was prepared from actual cost 
figures and you believe it to be reliable? 

Mr. Davison. Yes. 

Mr. O'Connell. I should like to offer this particular chart. 

Acting Chairman Reece. It may be admitted. 

(The chart referred ft) was marked "Exhibit No. 853" and appears 
on p. 4993). 

Mr. Davison. There is one caution I should like to make in connec- 
tion with this question of the effect you get in reduction of financing 
costs; that is, interest and amortization as compared with reduction 
in construction cost. It is true, as I say, that you get a substantial 
effect in reducing your interest and amortization but if you have a 
house so expensive that even with this reduction the person can't live 
in the house, you are not going to solve this problem. I would like 
to give one concrete illustration. That is the Oakland Housing Cor- 
poration, a nonprofit organization in Pontiac, Mich. Senator 
Couzens gave $550,000 outright, the Government made an outright 
grant of $300,000 without interest, for houses which cost $4,440, 
$3,500 for the house and $940 for the land. These houses sell on a 
20-year payment period for $2,590 including fire insurance, water 
maintenance, and taxes, so even at zero interest the mass market is 
not reached in a dwelling costing $4,400. You can't do everything 
by lowering your interest rate. 

By way of illustration, I should like to submit a chart which I have 
not yet completed which shows that a 25 percent reduction in the total 
original cost of the house would cut the annual cost, including taxe3, 
maintenance, interest, and other charges, by 21.3 percent; while a 
25 percent reduction in the interest rate alone would cut the annual 
charge by 9.I. 1 

Mr. O'Connell. We shall be glad to receive the chart. 1 I don't 
believe that any of us think that we can do what we have in mind or 
hope can b& done by any one particular thing. I was merely attempt- 
ing to make available to the committee what the relative effect of 
decreasing one or another of the various elements that go in to make 
up the cost. 

' Subsequently submitted and Included In the appendix with supporting data on pp. 5592 and 5693. 


Mr, Davison. When you spoke so strong for reduction of interest 
I didn't want to make it appear that I thought that alone could 
solve the problem. 

As a matter of fact such an approach may be misleading. A reduc- 
tion of say 20 percent in financing charges — both interest and amor- 
tization charges — will reduce monthly costs as stated but the sum 
total of the payments made over the entire period of the loan will be 
practically the same, since obviously interest has to be paid for a 
longer period of time. 

Permit me to point out with emphasis that in my first chart I was 
taking one element at a time. I was comparing as alternatives what 
might be achieved either by reducing labor costs or by reducing 
material costs or by reducing monthly financing costs. I was not 
talking about reductions in total building costs. 

As this chart shows, you get an entirely different picture if you lump 
labor and material and other construction costs together and compare 
the potential saving that might follow from ' a reduction in total 
construction costs with the potential saving from a reduction in interest 
only. Then, let me repeat, a reduction of a given percentage in the 
total original cost of the house has between two and three times as 
great an effect in lowering the annual cost of housing to the owner as a 
similar reduction in the interest rate. A 25 percent reduction in the 
original cost of the house would cut the annual cost, including taxes, 
maintenance, interest, and other charges, by 21.3 percent; while a 
25 percent reduction in the interest rate would cut the annual charge 
by 9.1. 

Mr. O'Connell. That is merely one of the things that would help 
to solve the problem. 

Mr. Davison. Yes. 

Mr. O'Connell. Thank you. I think that is all the questions I 
have of Mr. Davison, 

Senator King. Have you broken your figures down into what the 
labor costs involve? Suppose you have a brick house. Do -you have 
the labor cost in the production of the brick, the labor cost in the 
production of the steel, glass, and whatever other articles went into 
the finished product? 

Mr. Davison. No; we haven't that detailed break-down. We 
have some labor break-down which we got from the Purdue housing, 
which I think is the best labor break-down I have seen. We got that 
from the figures published by Purdue in regard to their housing, and 
if you wish that I will submit it. 

Senator King. I should be glad to have it. 

Mr. Davison. I will submit that for the record. 

Mr. O'Connell. What does it indicate? 

Mr. Davison. This Indicates that labor is 30 percent and materials 
60 percent and overhead 10 percent in the cost of a $4,430 house. 

Senator King. Would there be some labor costs in that 60 percent? 

Mr. Davison. Yes; there are. This is labor on the job. Oh, yes, 
there are labor costs in that other. The American Construction 
Council made some very detailed figures. I think probably the 
Bureau of Labor Statistics has the best figures on that. You can 
get that from Dr. Lubin. 

Senator King. The amount that would be paid to labor, the digging 
of the foundation, and all of the work in connection with the construe- 


tion of the building, plus labor cost in the production of the materials 
that went into the house, would constitute perhaps 75 to 80 or 90 
percent, would it not, of the entire cost? 

Mr. Davison. When you take financing and taxes and everything, 
you get into a very involved problem there as to just what are the 
costs, and what you are paying for it on part time ; if you are paying 
for a house over a period of years on a monthly payment basis your 
labor costs may be a very small part of the total cost. 

Mr. O'Connell. We have some other cost figures coming, but I 
don't believe we have any figures that would indicate any division as 
between labor and material except considering labor as labor employed 
on the project, which is what he refers to as 30 percent. Of course 
part of that 60 percent attributed to material obviously includes a 
substantial proportion of labor in the mines or factories or some other 
places. I don't know what part of the 60 percent would be attribut- 
able to labor; I think it would be pretty difficult to get. 

Mr. Chawner. Mr. Henderson has given an excellent summary of 
this. It occurs to me that there is one aspect that may possibly be 
misleading, and I should like to ask a further question of the witness 
on that point. You have related family income to the cost of the 
house and have shown that for houses built at a lower price there 
would be a larger market, but yov haven't indicated whether you 
think that desirable by making a kouse smaller or by actually re- 
ducing the cost and maintaining the quality. Do you think there 
would be any great gain in merely building a small and less-adequate 
house? That isn't the burden of your testimony, I take it. 

Mr. Davison. Well, I didn't get into that phase of it, but there 
might be an. advantage right today in building lower-cost houses. 
The Chamber of Commerce of Buffalo are working on a project now 
that they expect to rent for $16 a month for a four-room house; that 
is $4 a room, with tax exemption for 5 years, and the house there will 
have bedrooms that conform to the F. H. A. standards. They have 
a preliminary contract on that house of $1,300 for a four-room house 
and I think that sort of thing is very desirable. Maybe it is a little 
too cheap but it is the right approach. What I wanted to do in this 
thing if possible was to focus the attention on the need of studying that 
low-priced field. 

Dr. Lubin. Is it necessary to assume that the only way you can 
get a lower cost house is by making it smaller or putting in cheaper 
materials? May it not be that by the use of our own ingenuity and 
large-scale methods of production we can build as good a house for 
$3,000 as we are now paying $4,000 for, if we apply our modern 
methods of production? 

Mr. Davison. Oh, I am sure you could. That is what I would 
really like to talk about, but I understood I was to keep off that 
today and get another chance. I think there are just tremendous 
opportunities, and I am so glad you brought that up. All this stuff 
I have been talking about makes me tired. I am afraid it sounded 
like that. But the thing you have got to realize is that you have got 
to get into that low-cost field or you are not going to get any volume 
in construction. Once you realize that, you will go ahead and find 
some way of doing it. 

Senator King. If you go into the South, among certain so-called 
sharecrop tenants, can't you build houses there? 


Mr. Davison. Yes; but they need maybe $500 houses down there. 

Senator King. Maybe. 

Mr. Davison. This country hasn't even started to tackle this 
problem. They have just been fiddling with it. 

Mr. O'Connell. I think Mr. Davison will be comforted somewhat 
by a realization that he is going to be called a little later in the hearing 
to give us something which in his mind at least will be much more 
constructive than the statistical material he has given us this morning. 1 

Mr. Henderson. That was the main question I had: What is the 
Committee going to do to relieve that tired feeling? 

Mr. O'Connell. We are going to give him a second chance. 

Mr. Henderson. I gather what made him tired was to see this 
tremendous potential market and nothing being done about it. Am 
I correct in that? 

Mr. Davison. Yes. I think one thing the committee could do — 
I am not supposed to say this now but I will say it anyway — is define 
low cost housing in terms of family income. • When you speak of 
families with low incomes, do you mean the people below the top 50, 
or do you mean the people below the top 30, or what do you mean? 
Then the next step is houses suitable for those families. Can they 
afford to pay twice their yearly income or three times their yearly 
income, and if you get that along with where. the market is, you have 
a problem laid out for you that is so hard of solution that you have 
got to do some work on it. 

Acting Chairman Rr ^ce. We have enjoyed your testimony and 
are looking forward to that part about which you seem to enthuse. 

Mr. Davison. It won't be as stupid as this testimony this morning 
It is awfully hard to talk statistics. 

Mr. O'Connell. With that in mind, we are going to have a few 
more statistics. 

Mr. Davison. It is easy for a statistician or an economist to talk 
statistics, but it isn't for me. 

Mr. O'Connell. At the risk of boring the committee (and I don't 
believe they were bored when Mr. Davison was talking) I want to 
call another witness who will give us some information about costs, a 
practical builder who is engaged in construction of single-family houses 
near a metropolitan area, and I would like to question him fairly 
briefly on what his costs and experience in his particular line are. I 
should like to call Mr. Allen H. Dawson. 

Acting Chairman Reece. Do you solemnly swear this testimony 
you shall give in this proceeding shall be the truth, the whole truth, 
and nothing but the truth, so help you God? 

Mr. Dawson. I do. 



costs of a single family house NEAR CHICAGO 

Mr. O'Connell. I might say, Mr. Chairman, that Mr. Dawson is 
a member of the firm of Smith & Dawson, and we subpenaed Mr. 
Dawson to have him give us some information about his experience in 
the housing field, the construction field, and Mr. Smith is with him; 

1 For further testimony of Mr. Davison see infra, pp. 5317-5340. 


we had not intended that Mr. Smith would testify, but if it is agree- 
able I would ask a few questions of Mr. Dawson and if he feels himself 
unable to answer he can call Mr. Smith. If that is necessary we can 
then swear Mr. Smith. I hope it won't be necessary. 

Mr. Dawson, for the purpose of the record will you please state 
your name and address? 

Mr. Dawson. My name is Allen H. Dawson, and I live in Glen- 
view, 111. 

Mr. O'Connell. And your business 

Mr. Dawson. And I am a partner in the firm of Smith and Dawson. 
We are developers and builders of homes. 

Mr. O'Connell. You are builders and developers of real estate 

Mr. Dawson. Yes. 

Mr. O'Connell. How long have you been in this business? 

Mr. Dawson. Why, we originally went into the business about 
1926 and we were more then in the selling of the vacant land up until 
about 5 or 6 years ago; we didn't do an awful lot in the construction 
end of it, and when it became so difficult we couldn't sell the land we 
started building homes. 

Mr. O'Connell. Prior to 1928 had you had practical experience in 
the construction business? 

Mr. Dawson. No; I didn't have any experience before that time. 

Mr. O'Connell. Since you have been in business I take it that 
you have developed a number of subdivisions, so to speak? 

Mr. Dawson. Yes; we have developed approximately 1,500 acres 
of land and we sell — we formerly sold anywhere from 2 to 5 acres of 
ground and now we sell about an acre of land with each house, and 
we find that that is plenty of land for the average home owner to buy. 

Mr. O'Connel. Speaking at the present time, do you only sell 
improved lots, that is improved by construction of homes, or do you 
also sell subdivided land unimproved? 

Mr. Dawson. We sell both and if we weren't able to sell the land 
and make a profit on the land in addition to what we are making on 
each house sale, why I don't think we could stay in business. It 
takes that additional profit of the additional land sales to make it 
work out for us. 

Mr. O'Connell. Have you any particular development under way 
at the present time? 

Mr. Dawson. Yes; we have one development located north of 
Chicago; it is about 22 miles from the center of Chicago and that 
comprises about 360 acres of land. We started that approximately 
3 years ago ; the first year or so we didn't do an awful lot with it until 
we were able to get F. H. A. loans, and we were able to do that and 
have now between 140 and 150 homes there. 

Mr. O'Connell. When you say you started about 3 years ago you 
mean you bought the land about that time? 

Mr. Dawson. We bought the land and cut it up in acre tracts and 
subdivided it in that form. 

Mr. O'Connell. You say this is about 20 or 25 miles outside of 
Chicago? Within the corporate limits of any town? 

Mr. Dawson. No; it isn't; 2 miles north of Mount Prospect, which 
is a suburban town of Chicago. 


Mr. O'Connell. What are the advantages, in your mind, of having 
your developments outside the corporate limits of Chicago, or of any 
other town? 

Mr. Dawson. Well, we find that most of the people we sell are very 
desirous of getting a large tract of ground where they have more or 
less elbow room. The tracts of ground run approximately 100 feet 
wide and 300 feet deep, and they use the back half of the acre of ground 
for gardening purposes and so on; and another thing is the tax rate 
is 3K percent of the assessed valuation, whereas in Chicago it is 9 or 
9.8, almost 10 percent, so it makes the taxes much less. 

Mr. O'Connell. So your taxes are cheaper and I suppose the 
original acquisition cost of the land would be cheaper? 

Mr. Dawson. Yes; and there are no improvements and of course 
they have just county tax and no village tax of any kind. 

Mr. O'Connell. What do you do for services that a municipality 
usually would provide, such as water and other services? 

Mr. Dawson. We put in a drilled well with each house ; each house 
has an automatic water system and nice well water and electric light, 
of course, is there, and the gas — just within the last 90 days the Public 
Service Co. ran the gas there; they saw the development growing so 
fast they thought they would hurry on and get the gas moved, so they 
have done that, all free of charge. 

Mr. O'Connell. What about police, fire, protection? 

Mr. Dawson. The fire protection is from Mount Prospect, 2 miles 
l way, and they have adequate protection; in fact, all our homes are 
of brick construction and they are located far enough apart so they 
really get a lower insurance rate. 

Mr. O'Connell. About what was the cost — what was the acquisi- 
tion cost of the land that you acquired there? 

Mr. Dawson. The first tract there we bought consisted of 120 
acres of ground, costing, I would say, in the neighborhood of $125 an 
acre and the next tract was 80 acres and the price went up on that to 
a little over $200, where now we are paying approximately $300 for the 
last 80 acres that we bought, last 120 acres. 

Mr. O'Connell. So you now own 360 acres that you acquired at a 
cost ranging from $125 an acre to about $300 an acre? 

Mr. Dawson. That is right; we have options now on an additional 
300 acres that we can get as we go along and as we need it. 

Mr. O'Connell. What about improvements on your 360 acres 
such as grading roads and surveying cost, and so forth, have you any 
general information on that subject? 

Mr. Dawson. Just plats showing how we lay out the roads and 
out of a 40-acre tract of ground we get approximately 40 pieces in 
single acre tracts which would be a little less than an acre on account 
of the road which is taken off. 

Mr. O'Connell. How many building lots would you get out of 
360 acres? 

Mr. Dawson. About 40 building lots, I would say. 

Mr. O'Connell. Out of 360 acres? 

Mr. Dawson. Oh, out of 360 acres; well, they run about an acre 
to a lot. When we originally bought the first tract there we had 
them in acre-and-a-half and of course we didn't get as many then; 
we get about one to an acre; we advertise approximately an acre of 
ground to each house, is what we are doing now. 


Mr. O'Connell. What would you say was the average selling price 
of a plotted building lot? 

Mr. Dawson. Out average price I would say would be around $700. 

Senator King. That is quite a profit from $125 to $700? 

Mr. Dawson. Well, that is on this last tract of ground which cost 
us $300 or perhaps $350 by the time we put in the roads. We figure 
that we are selling it really close when we are selling at a price, what 
we paid for it figuring the overhead and quite often we wait 5 years 
to get our money back on the land, if we sell it on a contract with a 
small down payment. 

Senator King. I suppose you include in that the cost of the roads, 
do you not? You furnish the roads, streets, and so on? 

Mr. Dawson. Yes. 

Senator King. So that would warrant you in charging a much 
larger price than the cost of the bare land? 

Mr. Dawson. Yes; that is right. 

Mr. O'Connell. How many lots have you sold in this develop- 

Mr. Dawson. In this Prospect Heights development I would say 
225 or thereabouts, and we have now 135 homes on the development 
that are either finished or very nearly finished. 

Mr. O'Connell. Have they all been sold? 

Mr. Dawson. All but the last; I believe we have nine unsold, but 
it looks to me we are going to be able to sell those very quickly, the 
way thing i are picking up for us. 

Mr. O'Connell. What is the size of the average house that you 
are building in the development? 

Mr. Dawson. Well, the average size, the house itself is 28 feet by 
23 feet, has a kitchen extending out another 5 by 8 feet, and prac- 
tically all of our houses have an attached garage. 

Mr. O'Connell. How many rooms in your houses? 

Mr. Dawson. They run four, five, and six; we have one plan there 
in a four-room finished home, where we put a stairway upstairs, leave 
the upstairs unfinished, to be finished by the purchaser, that sells for 
around $5,000, or a little bit less. There seems to be quite a demand 
for that type of home. 

Mr. O'Connell. What generally is the range of selling prices? 

Mr. Dawson. The houses, exclusive of the land, about the mini- 
mum price on that now will be $3,300 or $3,400, up to $5,000 and 

Mr. O'Connell. That would be exclusive of land? 

Mr. Dawson. That is right. 

Mr. O'Connell. So it would be $4,000 as a minimum, including 
land, I take it? 

Mr. Dawson. Yes; or a little more than that, perhaps. 

Senator King. Is that the cheapest house you sell, $4,000? 

Mr. Dawson. Yes. 

Mr. O'Connell What income group would you say you sold to? 

Mr, Dawson. Well, I would say that 85 percent of the people we 
are selling have an income of $2,000 or $3,000 a year. I would say 
about $40 a week would be about minimum. We might have a few 
in there that are a little bit lighter than that and we have quite a few 
that would run over $3,000, some considerably higher than ihat. 


Mr. O'Connell. Have you a statement of the cost of your houses, 
including the financing charges and other fees? 

Mr. Dawson. Yes; right here. 

Senator King. May I ask one question? Do you permit prospec- 
tive purchasers to indicate the character of house that they would 
like you to build for them? 

Mr. Dawson. We do; yes. 

Senator King. So there isn't a horrible monotony, then, among 
your houses? That is, there are variations, depending upon the 
wishes and artistic tastes of your purchasers? 

Mr. O'Connell. Have you usually sold the house before it is built? 

Mr. Dawson. Well, about half and half, I would say. We are 
building quite a few to order and we have about 15 under construction 
right now/ and 9 of those are sold, and quite often they are sold when 
we start them, and sold before we get the roof on. 

Mr. Henderson. Have you some pictures there? 

Mr. Dawson. Yes; I have. 

Senator King. The picture you have just exhibited is not a brick 

Mr. Dawson. That is a frame house; yes, sir. 

Mr. O'Connell. You build both brick and frame? 

Mr. Dawson. We do, but most of our homes we build of brick; 
we feel it is more substantial, less upkeep, and the way we operate our 
business we find we can build a brick home almost as cheap as we can 
a frame home. 

Senator King. You have exhibited a photograph here which would 
indicate that there is a two-story house? 

Mr. Dawson. That has three rooms downstairs and two rooms 
upstairs, finished ; that is a five-room finished house with an attached 

Senator King. This exhibit? 

Mr. Dawson. That is our office building and we have just erected 
that last year. We have now a grocery-meat market there and beauty 
parlor and several apartments upstairs. 

Senator King. Beauty parlors and cinemas, I suppose? 

Mr. Dawson. Yes. 

Mr. O'Connell. I have before me a break-down of the cost of the 
$4,800 house, which I understand is a break-down of your actual cost 
in connection with that house? i 

Mr. Dawson. Yes; it is. 

Mr. O'Connell. It indicates that the selling cost of the house, 
including land, is $4,800. And the selling cost of the house without 
land is $4,100, and the cost of the house is $3,750, incicating that 
$350 profit on the house and that the selling price of the lot is $700, 
and the cost of the lot is $350, so that the combined profit .on the 
$4,800 house and lot is indicated at $700. That is correct? 

Mr. Dawson. That is correct; that is pretty close to being an aver- 
age deal. 

Senator King. I suppose you take a mortgage on the property? 

Mr. Dawson. The property we purchase, you mean? That is 
F. H. A. approved. 

Mr. O'Connell. When you buy the property do you require any 
utside financing? 

1 S bsequently entered as "E»hlbU No 854." Sae pppendix, p. 5480. 


Mr. Dawson. No; we have been able to pay cash for the property 
when we buy it. 

Mr. O'Connell. And do you require any bank or other financing 
in connection with your construction of houses, I mean before arrange- 
ments are made for their sale? 

Mr. Dawson. No; we use our own money in all cases. 

Mr. O'Connell. So you are building for sale and you are in a 
position to finance your own operations up to the point of sale. In 
other words, you have your own, what you might call, working capital? 

Mr. Dawson. That is right. "We don't pay any interest on any- 

Senator King. You deal with each home owner separately, and he 
makes his loan through the F. H. A. separately? 

Mr. Dawson. That is right. 

Senator King. And gives the necessary mortgage .to the bank if he 
gets the money from the bank, and the bank then secures a guaranty 
from the F. H. A.? * 

Mr. Dawson. That is correct. 

Mr. O'Connell. On this $4,800 house, the financial statement of 
this house, on the second page of the exhibit Mr. Dawson has handed 
me, indicates that the purchaser would pay $500 down, plus the loan 
expense of approximately $175, and I take it — yes; it is broken down 
here that that $175 item, which is in the nature of a finance cost, 
includes the insurance brokers' commission of $107.50. What is that 
brokers' commission? "Who is the broker? 

Mr. Dawson. That is a 2 ^-percent commission that is allowed to 
the broker who places the loan for the F. H. A., or the brokerage in 
the deal, and I believe our particular broker is selling the loan to an 
insurance company or R. F. Q. 

Mr. O'Connell. Then there is a middleman? 

Mr. Dawson. There is; yes. 

Mr. O'Connell. And the financing agency? 

Mr. Dawson. That is correct; yes. 

Mr. O'Connell. And that cost is borne by the prospective hoine 

Mr. Dawson. That is borne by the purchaser, in addition to the 
10 percent down on the house. 

Mr. Henderson. Could the buyer, if he made his deal directly, 
save that $107.50 commission? Is there any way he can deal directly 
with the bank and through them with the F. H. A. in order to save that 
commission, or is it the usual charge made in connection with the 
placing of a loan of this kind? 

Mr. Dawson. That is the usual charge made for the broker for 
recordmg the title and checking up on the handling. 

Mr. O'Connell. The other items that go to make up the $175 are 
one-quarter percent mortgage insurance premium. I take it that is 
on the F. H. A. mortgage insurance? 

Mr. Dawson. Yes. 

Mr. O'Connell. And the first month mortgage insurance of 
88 cents — what is the difference between those two items? "What is 
the one-quarter percent mortgage insurance premium? 

Mr. Dawson. Well, that is the F. H. A. guaranty insurance where 
there is an advance of 13 months on that F. H. A., loan. 


Mr. O'Connell. Then that is the same type of obligation as the 
next one, as the 88 cents, the additional monthly mortgage insurance 

Mr. Dawson. That is right. 

Mr. O'Connell. An abstract posting of $10, abstract examination, 
$4.98; application fee — is that an application fee to F. H. A.? 

Mr. Dawson. That is paid to F.. H. A. ; that is 3 percent of the 
amount of the loan F. H. A. required. 

Mr. O'Connell. But the mortgagor doesn't apply to F. H. A., 
does he? Doesn't he apply to a bank? 

Mr. Dawson. The purchaser applies and signs the application for 
the insurance loan. 

Mr. O'Connell. For the insurance the loan is through a banker or 
some other financing agency? 

Mr. Dawson. Through Percy Wilson. 

Mr. O'Connell. So he is applying to F. H. A. for insurance on 
behalf of the bank? 

Mr. Dawson. Yes. 

Mr. O'Connell. "Which is placing the loan? 

Mr. Dawson. That is right. 

Mr. O'Connell. I see.- Construction interest, $6.20, and taxes, 
$3.50, makes a total of $175, which I take it is in addition to the $500 
down payment. The purchaser, as a practical matter, has to have $675 
in cash in order to buy this house at $4,800? 

Mr. Dawson. That is correct; yes, sir. 

Mr. O'Connell. And the balance would be supplied by the insured 
mortgage at $4,300, placed through a bank or other lending agency, 
insured by F. H. A? 

Mr. Dawson. That is right. 

Mr. O'Connell. There is one other item in here which is of some 
interest, and it relates to the monthly cost, the fixed charges that 
the mortgagor has to pay after he has arranged for the loan through 
the bank. Under the F. H. A. plan, with 5 percent interest and the 
one-quarter of 1 percent insurance premium, and covering fire and 
tornado insurance, and estimated taxes, the mortgagor «vould have to 
pay $34.01 per month on a 20-year amortization basis for his mortgage. 
If the 20-year period were extended to 25 years without any change 
in interest payments or other obligations, the monthly payments would 
be reduced to $30.78. Have you any break-down indicating the 
proportion of labor, material, and other costs that go to make up this 
total cost of $37.50 for the cost of the house? 

Mr. Dawson. Yes; we have a break-down here, and I would like to 
have Mr. Smith tell you, as he is more famiHar with that angle of the 

Mr. O'Connell. Let us see the break-down. Oh, that is the 
break-down I have. I was interested in a break-down between labor 
and material. This doesn't 

Mr. Dawson. That is a little hard, to break it down entirely, with 
labor, in view of the fact there are several things that have to be 
contracted out, and of course we don't know what their part of the 
labor would be. 

Mr. O'Connell. Wall, I think the material in this chart speaks for 
itself. I had hoped you did have another chart which would indicate 

124491 — 40— pt. 11- 


the break-down between labor and material, but I think this is as 
much as we can do with this exhibit. I would like to offer this for the 

Acting Chairman Reece. It may be admitted. 

The document referred to was marked "Exhibit No. 854" and is 
included in the appendix on p. 5480.) 

Mr. O'Connell. You referred to selling houses not complete in all 
respects, some rooms on the second floor might be left rough. Is that 
your usual practice, or does it vary? 

Mr. Dawson. Well, it varies. We find that four-room house there, 
where the owner can finish off the two upstairs rooms, seems to meet 
with quite a demand, and everybody feels quite favorable toward that 
type of home. 

Mr. O'Connell. I take it you can also sell the house at a cheaper 

Mr. Dawson. That makes the difference, too. 

Mr. O'Connell. Well, selling less than a complete house must be, 
to a large extent^in order to meet the financial capacity of the pur- 
chaser to pay. I wouldn't think that a purchaser would prefer to 
buy an unfinished house. It must be largely on account of his 
financial capacity to pay for a house. In other words, he buys as 
much house as he can pay for; isn't that what he does? 

Mr. Dawson. That is so, but a lot of the purchasers we sell would 
like to finish off two bedrooms or part of their house and do it in the 
evenings, and really enjoy completing their own home. 

Senator King. I suggest that perhaps many of those houses are 
purchased by newly married couples, and they anticipate in a few 
years they will need more room and prefer to wait to finish the upper 
rooms themselves. 

Mr. O'Connell. I should think they might buy a six-room house 
instead of five. 

Dr. 'Lubin. May I ask the question of the witness that Mr. 
O'Connell asked, if at the same price you had given the two rooms 
upstairs finished rather than unfinished, could you sell more houses? 
You can give them a finished house at the same price you can give 
tham with the upstairs unfinished? 

Mr. Dawson. I would say you would; yes. 

Mr. O'Connell. That relates to the question of price. The num- 
ber of houses you sell is related to the income of the 'persons who are 
your potential market to the extent that you can sell a house cheaper; 
you tap a demand you otherwise wouldn't reach, and it seems to me 
that is the explanation of the fact that you sell unfinished houses. 

Mr. Dawson. It is. 

Mr. O'Connell. You are reaching a group that could not buy the 
finished house? 

Mr. Dawson. That is right. 

Mr. O'Connell. In your construction do you employ a general 
contractor or do your own construction? 

Mr. Dawson. We do our own construction. My partner, Mr. 
Smith, handles the supervision of the construction end of the bus'ness, 
and he is out there on the job all the time. 

Mr. O'Connell. Do you subcontract some of the work? 

Mr. Dawson. We do; yes. We sublet some of it. 


Mr. O'Connell. And you are substantially in the position of a 
general contractor yourself, in the sense that you perform the function 
they ordinarily would, and you, as they would, employ subcontractors 
to do certain specialized portions of the work. 

Mr. Dawson. That's right. 

Mr. O'Connell. You probably dig your own foundations and use 
subcontractors for the mechanical end. 

Mr. Dawson. That's right — heating, plumbing, lighting. 

Mr. O'Connell In selling your houses, do you employ salesmen? 

Mr. Dawson. No; we do all our selling ourselves. ' We feel that is 
one reason why we have been successful in the business we are in. 
We don't have any salesmen, and we both work 7 days a week at it. 
We are out there on Sundays and also during the week. In that way 
we eliminate the sales expense. 

Mr. O'Connell. Generally speaking, your houses would sell to ■ 
people in an income bracket of $2,500 a year and up? You might 
get a little below that with your very cheapest or unfinished houses. 

Mr. Dawson. That would be about right. 

Mr. O'Connell. Do you employ union labor? 

Mr. Dawson. Yes; we do. 

Mr. O'Connell. And your sales are invariably, as I take it, ac- 
companied by F. H. A. insurance? Have you made any sales of houses 
that were not financed under the F. H. A. insurance plan in the last 
2 years? 

Mr. Dawson. Maybe one or two cash sales. 

Mr. O'Connell. Where financing is required on the part .of the 
purchaser, Have you made any sales that do not involve F. H. A.? 

Mr. Dawson. No; we haven't. 

Mr. O'Connell. Then I take it you probably didn't do much busi- 
ness in terms of construction or selling of houses before F. H. A. 
Is that right? 

Mr. Dawson. Before F. H. A. we built 14 homes, the year before 
we were able to get F. H. A. It took us considerable time trying to 
get F. H. A. to approve our property, inasmuch as it was 2 miles out- 
side of the corporate limits of a town. We did have a form of financing 
there where they could get, perhaps, 50-percent loans. 

Mr. O'Connell. Through F. H. A.? 

Mr. Dawson. No ; through individual mortgage companies, 50 per- 
cent, and then we would try to get 20 percent down and carry a second 
mortgage behind that. We couldn't do much, because we didn't have 
the capital. Then, if we discounted the second mortgages, we were 
back to where we started. It was very difficult to make the business 
operate and go anywhere. 

Mr. O'Connell. And how many houses have you built since 
F. H. A.? 

Mr. Dawson. I would say there are 125 that we have put through 
F. H. A. loans in the last about 2 years' time. 

Mr. O'Connell. Do you have any difficulty in finding lending 
institutions to take mortgages on your property insured by F. H. A.? 

Mr. Dawson. No; we find a ready market of several brokers that 
are very willing to handle F. H. A. loans. 

Mr. O'Connell. Do you happen to know whether the interest 
rate is uniformly 5 percent on the mortgages? 


Mr. Dawson. I believe it is, although in very select cases around 
Chioago, a good location, there are banks that are loaning at 4.5 

Mr. O'Connell. I mean in connection with your development. 

Mr. Dawson. It is all 5-percent interest; yes. 

Mr. O'Connell. Just a general question relative to costs. In your 
opinion — you are a practical construction man operating in this field 
for some time — what would you conceive to be the most important 
factors in construction cost that could be reduced to enable you to 
sell at a cheaper price? 

Mr. Dawson. Well, I have a few little notes on that. I believe the 
3-percent material tax on every stick of lumber and everything that 
goes into that house could, in some way, be eliminated. 

Mr. O'Connell. That is a local tax? 

Mr. Dawson. That is a State tax, a regular sales tax, and it is up 
to the contractor to pay all that, which adds 3 percent on the material, 
which we can't charge to the customer. If you give him a separate 
bill, you must include it right in there, or he would back right away 
from it in a lot of cases if he knew what the 3-percent sales tax would 
amount to. 

Mr. O'Connell. Do you include the sales tax in your price? 

Mr. Dawson. Yes. 

Senator King. That is a general sales tax in the State? 

Mr. Dawson. Yes. 

Senator King. Three percent? 

Mr. Dawson. Yes. 

Mr. O'Connell. What other items of payment could be reason- 
ably reduced? 

Mr. Dawson. I believe in some cases we might eliminate some of 
the distributors and wholesaleis and jobbers and dealers where we 
have to buy different materials. I believe they could be eliminated. 

Mr. O'Connell. What would be the effect of that, that you would 
be able to buy your materials cheaper? 

Mr. Dawson. I believe so ; if you could buy gravel right from the 
pit and certain other materials from the factories I believe you could 
cut the cost. 

Mr. O'Connell. You could cut the material cost in that way? 

Mr. Dawson. I believe so. 

Senator King. A man who sells you lumber has to pay 3 percent? 

Mr. Dawson. He charges us 3 percent. .- - 

Senator King. He is compelled to pay, when he makes the «ale, 3 
percent to the State? 

Mr. Dawson. That is correct. 

Senator King. When you purchased the land did-you have to pay 
3 percent of the cost on the land? 

Mr. Dawson. No; there is a small tax on the land; it doesn't 
amount to much. I believe it is $1 a thousand valuation,, a real- 
estate tax when you buy the land. 

Senator King. The tax of 3 percent is a sort of commodity sales 

Mr. Dawson. It is a retailers occupational tax. 

Mr. Chawner. Mr. Smith, have you attempted to buy any of your 
materials directly from manufacturers? 


Mr. Dawson. We have in certain cases. I believe Mr. Smith 
could give you some information on that. i 

Mr. O'Connell. Mr. Chairman, would you want to have Mr. 
Smith sworn? 

Acting Chairman Reece. Do you solemnly swear the testimony 
you are about to give will be the truth, the whole truth, and nothing 
but the truth, so help you God? 

Mr. Smith. I do. 



(The reporter read Mr. Chawner's question.) 

Mr. Smith. Yes, we have in several cases, but there is an associa- 
tion of retailers in Cook County and they are organized so that every- 
one buying building materials must buy through an association yard. 
In other words, you can't go on the side and buy your materials. 

Mr. O'Connell. You are in Cook County? 

Mr. Smith. We are in Cook County. 

Senator King. Is this a sort of combination of all the retailers? 

Mr. Smith. That is something- that has just happened in the last 
year. They just recently had a case where, in some court or other, 
somebody brought up this 3-percent tax, and it looked like it might 
be defeated and they immediately revised their plan and included the 
3-percent tax in their cost, and brought out a new price list which 
increased the rest of the commodities another 1 or 2 percent. 

Senator King. Is there no competition among the retailers? 

Mr. Smith. They are organized. 

Senator King. Then there is no competition. 

Mr. Smith. There is no competition. 

Senator King. Have you a law, if you know, in the State of Illinois, 
against restraints of trade? 

Mr. Smith. I don't know that. 

Senator King. It might be looked into by the Department of 

Mr. O'Connell. When you speak of that, what is that, an associa- 
tion of retail lumber dealers? 

Mr. Smith. Yes. It is called the Material Merchants Association. 

Mr. O'Connell. I understand that they are organized, but what 
is it that prevents you from buying materials directly from the manu- 

Mr. Smith. They won't sell us. 

Mr. O'Connell. The manufacturer won't sell? 

Mr. Smith. They will not sell. 

Mr. O'Connell. Why won't the manufacturer sell? 

Mr. Smith. Because this association prohibits it. 

Mr. O'Connell. How? 

Mr. Smith. Well, for an example, I will cite an example that just 
1 cippened recently. We are buying now on a new subdivision, We are 
putting 70 acres on the market, and we bought about $2,000 worth 
of gravel, or stone. It just happened that about a year ago, when we 
anticipated buying this land, we ordered this gravel. We wrote a 


letter in and got protection, because we knew it would be soon and 
we wanted to protect ourselves on price, not knowing anything about 
this association. So when the time came to use it we started running 
a "couple of independent trucks into our property, and the people who 
sell us the gravel came to us and told us that a complaint was made 
that we were buying stone direct, so I reminded them of the fact that 
a year ago I had written them a letter, or 8 months ago, before this 
affair went through, to protect myself on the price of stone. 

Well, he is compelled to give us this price until we gravel these 
roads. After that I don't know what will happen. We are pro- 
tected up until that time. We are buying building materials, $1,500 
worth a month, from a local dealer, and we may buy— well, we buy 
about 40 sacks of mortar a day, and possibly 30, 40, or 50 sacks of 
cement, and corresponding sand and gravel. Our price is the same 
as if we were an independent contractor there and had a back stoop 
that cost $5 to build. In other words we are spending a lot of money 
and we are not able to take advantage of our buying volume in some 
commodities. In lumber we are able to make good connections. 
In other words, there is no association that protects that, evidently. 

Mr. O'Connell. The association you refer to 

Mr. Smith (interposing). Is just the material dealers. That is 
sand, gravel, cement, lime, mortar, tile, brick — not brick. That is 
a different outfit. 

Senator King. Is there a brick price, a uniform brick price? 
Mr. Smith. Yes; there is. There is an established price of $11 a 
thousand for common brick in Cook County. 

Dr. Lubin. Have you ever attempted to go to the factory, to the 
manufacturer of these commodities, and purchase directly from him? 
Mr. Smith. There is no place you can go to. It has to be shipped 
in, and it will only be shipped to a licensed yard. 

Dr. Lubin. In other words, the manufacturer has refused to sell 
to you directly. 

Mr. Smith. The quarries have, on sand and gravel and things 
the like of that. 

Mr. O'Connell. What do you mean by a "licensed" yard? 
Mr. Smith. By a material yard. 
Mr. O'Connell. Who licenses it? 

Mjr. Smith. They have their association. I don't know who licenses 
it, but there is a yard in each town, and some of the larger towns 
have more than one, and these yards all belong to this association. 
In other words, we are close to Arlington Heights and Mount Prospect. 
If we go into Arlington Heights we are handed a slip, and here is your 
price. We go to Mount Prospect and here is the same price. In 
other words, we are not supposed to be able to buy cheaper. So far 
we haven't been able to. 

Senator King. Supposing you desired 100,000 feet of lumber to 
meet certain contracts which you had made for houses. Couldn't 
you buy that lumber, say, from Oregon or Wisconsin? 

Mr. Smith. Yes; I believe we could in carload lots on the lumber 
part. We could do that, but as I mentioned before, on lumber we 
are getting a good price, and we are able to deal on lumber, and if 
we were to buy direct in carload lots, not being alongside of a siding 
we would have the trucking rates from the town down to our property, 
and the handling, which wouldn't pay us. We have looked into that 


several times. We are able to buy lumber in large quantities, but it 
really doesn't pay us because we are getting the discounts. 
Mr. O'Connell. What about gypsum? 

Mr. Smith. We are not allowed to buy that. The set-up in the 
Chicago territory is that the plaster contractor takes the contract 
for the plastering and the lathing of every house, and he buys the 
Mr. O'Connell. You couldn't buy the materials? 
Mr. Smith. We couldn't buy them. 

Mr. O'Connell. The manufacturer wouldn't sell the materials? 
Mr. Smith. That's right. 
Mr. Henderson. Whose regulation is that? 

Mr. Smith. That is evidently the union. There are several 
branches of the building trades in Chicago that we are not allowed 
to do ourselves. We must let out the plumbing, we must let out the 

heating, the plastering, which includes the lathing, the glazing 

Mr. Henderson (interposing). You say that includes the materials, 
so there must be some deal, isn't there, between labor and the 
material dealers? 

Mr. Smith. The plastering contractor buys his material from these 
different yards. 

Mr. Henderson. From this association? 
Mr. Smith. From these material yards, that's right. 
Mr. Henderson. There is an understanding between the plasterers? 
Mr. Smith. He is probably governed by the same price we are. 
I don't know that, but he is probably governed by our price too. 
Mr. O'Connell. Could you buy plaster direct from the local yard? 
Mr. Smith. We could buy it, but we couldn't use it. We are not 
allowed to apply it. The plastering contractor must do that work 

The same with the electrical contractor and heating contractor 
and glazing contractor. Those things must be let out individually. 
Mr. Henderson. You can't go to Crane or Kohler? 
Mr. Smith. They wouldn't even let us in their plant. 
Mr. Henderson. Sears, Roebuck? 
Mr. Smith. You could go to Sears, Roebuck. 

Mr. Henderson. What would happen then? Wouldn't the plumber 
handle it? 

Mr. Smith. There is a State law in Illinois on plumbing that there 
must be a permit issued by the State on each plumbing job, and the 
only man that can get that is a master plumber. We are not allowed 
to get that. 

Mr. Henderson. Suppose you bought from Sears, Roebuck or 
Montgomery Ward. Would the master plumber handle it? 

Mr. Smith. No. As I understand it, there is one or possibly two 
master plumbers in Chicago that are appointed to handle those par- 
ticular companies' materials, where it is done by a master plumber. 

Mr. Henderson. Who appoints them? Who is the appointing 

Mr. Smith. Evidently the Master Plumbers' Association. 
Dr. Lubin. What do you mean by a master plumber? 
Mr. Smith. A master plumber is a man who sets up a business, 
just like we are realtors. He sets up a business and hires plumbers and 
these plumbers do our work. 


Mr. Henderson. He is the employer? 

Mr. Smith. He is the employer. 

Dr. Lubin. He is a contractor himself? 

Mr. Smith. In other words, we can't hire the plumber direct and 
put him on our job and buy our material. We hire the master 
plumber and master electrician. 

Mr. Henderson. He is an employer of labor, rather than the 

Mr. Smith. He is in the same position we are, only in his particular 

Dr. Lubin. And you say that the manufacturer of these plumbing 
materials will not sell you any of their products, they will only sell 
to the master plumbers? 

Mr. Smith. That is right — Crane and Kohler and those. 

Acting Chairman Reece. That arises out, does it not, Mr. Smith, 
of their policy of distribution, by which they have designated agents 
for their products in various parts of the country, and they feel, since 
they have their agents on whom they rely for the major part of their 
distribution, that it would not be fan- to them to sell directly to par- 
ticular purchasers, but is there any understanding between the agents 
of these concerns, plumbing or otherwise, by which competition is 
eliminated, so that all agents sell for the same price? 

Mr. Smith. Do you mean, if I go in to buy plumbing myself, in to 
Crane Co., can I buy it, or do I have to buy through this other man? 

Acting Chairman Reece. No. Do all agents sell for the same 

Mr. Smith. Approximately so; there is a little variation of price. 
By agent do you mean the 

Acting Chairman Reece (interposing). The retailer. 

Mr. Smith. The master plumber or the man who is making the 

Acting Chairman Reece. The master plumber as you have de- 
scribed him. 

Mr. Smith. No. You go out and get bids on it. There are 
probably 100 master plumbers in Chicago, maybe two or three hun- 
dred, I don't know, but there is a lot of them, and you can go out and 
get prices from these different men. It just happens that the way 
we operate our business we have built up an organization over the 
past 2 years which functions in harmony, and we have got a man who 
is in very good standing and he gives us a fair price and so we don't 
have competition in our organization. 

Acting Chairman Reece. Out of your experience, are you advanc- 
ing the suggestion that the retailers should be eliminated so that all 
business would be done directly with the manufacturer or producer? 

Mr. Smith. Well, I wouldn't go so far as to say that. 

Acting Chairman Reece. That becomes a matter of consideration 
if the type of business is such that retail agents are necessary. Then 
is it not incumbent upon the manufacturer and producer to give a 
certain amount of protection to his retailers? 

Mr. Smith. Yes. 

Acting Chairman Reece. As I understand, that is true, under your 
system of distribution, of a great many businesses. Take a wholesale 
hardware business; he doesn't sell to the consumer direct, he sells to 
a retailer. 


Mr. Smith. That is right. 

Acting Chairman Reece. And a great many other businesses have 
the same system of distribution. I assume that at one time at least 
such a system was found or thought to be necessary. 

Mr. Smith. That may be true, but from our own organization and 
from our own business we have eliminated in our own particular 
organization just exactly that sort of thing, in that we have elimi- 
nated the sales organization and the contractor, that is the general 
contractor. If we were to hire salesmen — let's put it these men who 
are doing these individual jobs for us — to sell our land and our homes 
we would add five, six, seven hundred dollars to the price of a house; 
we would have to hire a general sales manager and give him 5 percent 
commission, and he would have his different unit managers and sales- 
men and we would also have to, if we did that, probably sell three or 
four or five times as many homes as we do, and that would necessitate 
putting on general contractors to build these homes, and before we 
knew it we would be up twelve or fifteen hundred dollars more money 
in the cost of the house. That means that our sales resistance would 
be greater and that we would finally get to the point where we might 
not be able to sell homes. We have tried to eliminate that. We are 
trying to keep the cost of this house down as much as possible. We 
have eliminated, as I say, the sales organization and the contractor. 
There is no question but that if other things could be eliminated the 
house could be sold cheaper. I am not going to say whether I advise 
that it be done. 

Dr. Lubin. Mr. Smith, if you were permitted to buy from any 
dealer any of the things you needed in the construction of your houses 
along the lines of electrical equipment or plumbing equipment, and 
were then permitted to hire your own labor — I understand that you 
use union labor 

Mr. Smith. Yes. 

Mr. Lubin. Do you think you could save anything on the cost of 
that house? 

Mr. Smith. Yes, sir. 

Senator King. You have to buy, as I understand it — if I am wrong 
I want ,to be corrected — from retail organizations and those retail 
organizations have rules among themselves which they are governed 
by and they fix prices of the commodities which they sell. 

Mr. Smith. That is right. 

Senator King. You pay substantially the same price for your brick 
no matter from whom you buy brick? 

Mr. Smith. That is right. 

Senator King. And the same for plumbing fixtures? 

Mr. Smith. We don't buy plumbing fixtures; that is, in on the 
plumbing contract — sewer pipe, sand, and gravel. 

Senator King. The person who puts in your plumbing buys the 
fixtures himself? 

Mr. Smith. That is right. 

Senator King. You couldn't buy your own fixtures if you desired? 

Mr. Smith. That is right. 

Senator King. Could you advertise successiully and obtain any 
competition? Suppose you wanted to put in plumbing for a half 
dozen houses, could you advertise and gets bids for it? 


Mr. Smith. Oh, yes; we could advertise and get bids from Dlumbing 
contractors, from master plumbers. 

Senator King. Would there be any competition there? 

Mr. Smith. Oh, yes. There are a hundred contractors, as I say, 
that would be glad to bid on our work, but we feel that we have a man 
who is good ; he may not be the cheapest, we might be able to go around 
and get these fellows competing against each other. I don't know 
whether that is such good business. We believe we have got to come 
to a point where we can sell a good home at a fair profit and get people 
in there that will have something when they get in. 

Senator King. You say that you are free from a combination 
with some of these persons with whom you are dealing, from whom 
you obtain your supplies and fixtures. 

Mr. Smith. Are we free from 

Senator King (interposing). Joining with any of these organi- 

Mr. Smith. Oh, we are not joined with them. 

Senator King. Have you agreed not to buy your plumbing 
fixtures or your lumber or anything else through any organization; 
that is, have you agreed that you will buy from none other than those 
that belong to those associations? 

Mr. Smith. Well, of course, you are getting lumber into the 
plumbing again. Lumber we can buy any place we want to and deal 
on it, get our prices, because that is not fixed. 

Senator King. Is that true of brick? 

Mr. Smith. Brick is more or less $11 a thousand for common 
brick, and that is what is used universally. We buy 100,000 brick 
a month. 

Senator King. How about the glazier, the glass? 

Mr. Smith. The glazing must be done by a union glazier on the 

Senator King. So you are pretty well bound up, are you not? 

Mr. Smith. With the five trades that we must hire as subcon- 
tractors, there is no other way we can operate. Our only way of 
saving money and selling a house cheaper than we think our competi- 
tion sells is the fact that we eliminate the sales organization and the 
general contractor. 

Senator King. Suppose there was free competition among the 
manufacturers of brick, lumber, plumbing, on everything that goes 
into the house, absolutely free competition, you could buy your 
commodities a great deal cheaper, couldn't you? 

Mr. Smith. Oh, yes. 

Mr. O'Connell. I would like to refer just for a moment to the 
question, thinking again of this retail organization, which is composed 
of the retail tradesmen who sell plaster, lime, brick 

Mr. Smith (interposing). Building material yards. 

Mr. O'Connell. That is an organization which you referred to as 
licensed dealers in Cook County. 

Mr. Smith. I said licensed — I don't know whether they are li- 
censed — they have their organization. 

Mr. O'Connell. Could I belong to that organization? 

Mr. Smith. If you were a building material yard in good standing 
you could. 

Mr. O'Connell. Suppose I wasn't. Suppose I just had some 
money and wanted to go into the business. 


Mr. Smith. Then you would set up your yard and go in the busi- 
ness and make application to join it. 

Mr. O'Connell. I see, I would apply for a license. 

Mr. Smith. You would apply for a membership. 

Mr. O'Connell. I would apply to this association of retail 
tradesmen and if they saw fit I could go into that business. 

Mr. Smith. That is right. 

Senator King. If they saw fit he couldn't. 

Mr. Smith. I can't say that. 

Mr. O'Connell. And if they saw fit that I not go in that business 
and I had a retail yard selling these or attempting to sell these various 
commodities, would I have a market, would I be able to sell the 
materials, do you suppose? 

Mr. Smith. You would have a good market with us. We would 
start doing business with you right away. 

Mr. O'Connell. What would happen? You woald buy from me. 

Mr. Smith. I would. 

Mr. O'Connell. Although I was not a member of the association. 
What would the association do, do you suppose? 

Mr. Smith. I don't know. 

Senator King. Wouldn't your union employees strike? 

Mr. Smith. They might. 

Senator King. If you bought materials from an organization such 
as might be set up by our friend here? 

Mr. Smith. I am afraid you would run into trouble. 

Mr. O'Connell. What about at the other end? Would I be able 
to buy the commodities that I would want to be able to sell from the 

Mr. Smith. Of course I couldn't answer that. I know what I 
think, but I have nothing to substantiate what I think. I don't 
know wliether you could no not. 

Mr. O'Connell. One more question. Taking such a thing as 
millwork that goes into a house, how would you buy the windows? 

Mr. Smith. We buy that from a lumber company. 

Mr. O'Connell. Would you-buy the glass in the windows? 

Mr. Smith. No. We are not allowed to. The glass must be put 
in the windows on the job. It must be glazed on the job by union 

Mr. O'Connell. Whose rule is that? 

Mr. Smith. The union's. 

Mr. O'Connell. So you buy the window frames, the sash, without 
the glass; and they are placed in the windows and then the glazier 
or the member of whatever union it is 

Mr. Smith. Glaziers' union. 

Mr. O'Connell (continuing). Puts the glass in? 

Mr. Smith. In the window on the job; it must be at that particular 

Dr. Lubin. Is that employee who put that glass in one of your own 

Mr. Smith. Oh, no; he is a union man and he is sent out by the 
master glazier. 

Dr. Lubin. Who sells the glass. 

Mr. Smith. Who sells the glass, and who calls the man from the 
union; he is called out. . They have a certain number of days each 
month they work. I think it is something like 8 or 10. There is 


quite an excess of union men in Chicago now, and they have their 
turns and they work one place today and may work for another con- 
tractor tomorrow. At any rate, 8 or 10 days in the month. That is 
all done on the job. 

Mr. O'Connell. I have no further questions. 

Acting Chairman Reece. Are there any further questions? 

Mr. O'Connell. Thank you very much, Mr. Smith and Mr. Daw- 

(The witnesses Smith and Dawson were excused.) 

Acting Chairman Reece. The committee will stand in recess until 
2:30 o'clock. 

(Whereupon at 12:40 p. m. a recess was taken until 2:30 p. m.) 


The committee resumed at 2:40 p. m. on the expiration of the 

Acting Chairman Reece. The committee will come to order, please. 
Mr. O'Connell, you may proceed. 

Mr. O'Connell. We have only one witness to call this afternoon, 
who will continue and give the committee some cost figures and data 
to enable the committee to better understand the problem. His 
material will relate to large-scale rental housing projects as distin- 
guished from the single family type of dwelling that we considered 
this morning, and with that in preface I would like to call Mr. Schnit- 
man to the stand. 

Senator King. Is it the purpose of those who are conducting this 
hearing to enter the field that was briefly touched upon this morning 
by one of the witnesses, namely the agreement between labor and 
some of the retailers, the effect of which is to make costs higher and 
which agreement, oral or written or a mere understanding, would 
seem to constitute a violation of the Sherman antitrust law? 

Mr. O'Connell. I think it is only fair to say that from time to 
time as the hearing progresses that particular type of structure which 
was referred to this morning will recur. Various witnesses will refer 
to it and at a later point in the hearing we expect that the Depart- 
ment of Justice will give us some material in connection with it which 
will be of a general character largely because, as you may be aware, 
the Department of Justice has already announced that a wide inves- 
tigation is being made of the type of practices being referred to, and 
that necessarily limits the extent to which we may go in detail with 
regard to particular areas or particular practices that are probably 
in violation of the Sherman Act, which is very definitely a part of 
the picture which we are hoping to paint. 

I am only indicating that for the reasons I have indicated. We 
may not be able to paint it with the degree of particularity that we 
might like. 

Senator King. I hope that that matter will be covered before this 
investigation closes, because from the testimony given this morning 
and from information which has been brought to my attention, there 
seem to be — I will not say conspiracies, but organizations which are 
promoted for monopolistic practices in the building-trade activities. 

Mr. O'Connell. As I have said before, I think that will be touched 
on from time to time and as we go on a little later I think it will be 


more adequately explained why we are unable to cover the whole field 
with the degree of particularity you might like. 

> Acting Chairman Reece. Do you solemnly swear the testimony you 
are about to give in this proceeding shall be the truth, the whole truth, 
and nothing but the truth, so help you God? 
Mr. Schnitman. I do. 




Mr. O'Connell. Will you state your full name and address for the 

Mr. Schnitman. L. Seth Schnitman, 521 Fifth Avenue, New York 

Mr. O'Connell. And is it correct to say that you are former chief 
of the survey of current business and former chief statistician of F. W. 
Dodge Corporation, and are at present a consulting economist in 
private practice? 

Mr. Schnitman. Yes, sir; that is true. 

Mr. O'Connell. You were, or are, a member of the subcommittee 
on research of Mayor LaGuardia's committee on real-property im- 

Mr. Schnitman. I am. 

Mr. O'Connell. I think that sufficiently qualifies Mr. Schnitman 
to discuss the things we are going to discuss with him this afternoon. 

As an economist who has made some studies of the construction 
industry, could you consider that to approach the problem from the 
point of view of costs, is a proper, or you might say the best, way, o*f 
approaching the problem or removing obstacles to recovery in the 
building industry? 

Mr. Schnitman. Well, I don't know that I would say that that is 
the best way,. but I think it is certainly a vital point that must be 
examined thoroughly. 

Mr. O'Connell. That is the point that we were going to discuss 
with you this afternoon, and I think we are in accord that it is an 
important point. 

When we refer to costs, I think it would be well for you to clarify 
for the committee the various types of costs that we have. It is a 
rather broad word. 

Mr. Schnitman. I rather agree with you, because there has been 
so much confusion as to just what are the costs in the construction 
field. Taken by and large, I would say that there are three distinct 
types of costs that one might talk about. There are, for example, 
construction costs. I might define that by saying that it embraces, 
usually, items of labor, matt ials, and contractors' overhead; fre- 
quently it is referred to as the contract cost. 

Now there is another item of costs that is frequently used and talked 
about, and that is building costs, otherwise called development costs, 
which embraces in addition to construction costs as already defined 
the item of land and miscellaneous fees, of the contractors' fees and 
architects' fees and organizing fees and things 01 that sort. 

Then *bere is a ~_ ] element of costs which might be called housing 
costs, housing in the bx^adest sense; that is shelter cost, not neces- 


sarily confined to housing, although the bulk of my testimony will be 
only on the "housing cost among residential units, and that, of course, 
is what the occupant pays, whether it is in the way of rent, or rental 
equivalent in the case of a purchased house. 

We have heard something this morning about costs, rental costs, as 
applied to the small house. I don't think it will be necessary at all 
to repeat any of that. I would rather, and am prepared really only 
to talk about the large-scale housing projects. 

Mr. O'Connell. Before we go into detail on that, just to be sure I 
understand you, development cost would be what we generally think 
of as the capital cost, the over-all cost, ready for operation? 

Mr. Schnitman. Including landscaping and everything else. 

Mr. O'Connell. And housing cost is your way of denominating 
what is sometimes referred to as the annual cost, or the consumer's 
cost; what it really costs. 

Mr. Schnitman. It. might be called the cost of upkeep. 

Mr. O'Connell. We referred to it this morning as annual cost. 
1 Mr. Schnitman. I think that is proper. 

Mr. O'Connell. I don't want to go into the question of semantics, 
but housing costs didn't seem to me to be as descriptive of what you 
were talking about as if you would use annual costs. You mean 
continuing costs per month or per year? 

Mr. Schnitman. Yes. 

Mr. O'C dnnell. Either to rent or own the accommodation. 

Mr. Sci nitman. That is right. 

Mr. O'Connell. We were going to confine purselves, as I under- 
stand it, to large scale rental housing projects because we discussed 
the single-family home this morning, and I understand this presented 
a somewhat different picture. You have, I take it, some detailed 
information about particular large-scale renting projects that have 
been constructed. 

Mr. Schnitman. I have examined six large-scale rental housing 
projects constructed in recent years. . 

Mr. O'Connell. Would you tell us just generally what those 
projects are by name so we may understand that? 

Mr. Schnitman. There is the Knickerbocker Village project in 
New York City, which was financed by the R. F. C. • 

Mr. O'Connell. That is a limited dividend housing corporation, 
under the New York State Housing Law? 

Mr. Schnitman. That is right. And there is the Hillside housing 
project, which is a project financed by the P. W. A., also a limited 
dividend project. 

Mr. O'Connell. You mean financed by loan. 

Mr. Schnitman. By loan. There is equity money in both. 

Mr. O'Connell. But no grant. 

Mr. Schnitman. That is right. 

Mr. O'Connell. A Federal loan in both cases. 

Mr. Schnitman. That is right. And then there is the Carl 
Mackley Homes in Philadelphia. That has also been financed by 
loan from the Federal Government. 

Mr. O'Connell. Is that a limited dividend corporation? 

Mr. Schnitman. Yes. 

Mr. O'Connell. t)o you happen to know whether it is limited 
dividend under Pennsylvania State law or by virtue of contract with 
the Federal agency? I am not familiar with it myself. 


Mr. Schnitman. I am really not prepared to say. 

Mr. O'Connell. But at any rate it is being operated at the 
moment as a limited dividend corporation? 

Mr. Schnitman. Yes. 

Mr. O'Connell. And the other three? 

Mr. Schnitman. There is Brentwood Village and the Falkland 
Properties in the District of Columbia. Those are F. H. A. projects; 
that is, there is no Federal money in there at all by way of loans. 
The Federal Government under the large-scale rental provisions of 
the National Housing Act has guaranteed the mortgage; and there 
is still one other project of the same type in York, Pa., and that is 
known as the Elm Terrace Apartments, likewise financed under the 
F. H. A. guarantee plan. 

Mr. O'Connell. Are those latter three limited dividend by con- 

Mr. Schnitman. No; they are not. 

Mr. O'Connell. They are not? I was under the impression that 
the large scale F. H. A. financed projects were in some cases at least 
limited dividend so long as the F. H. A. had insured the mortgage. 
It isn't important in any event. 

Mr. Schnitman. I withdraw that; I would like to amend that for 
the record, if I may. 

Mr. O'Connell. You mean at a later time? 

Mr. Schnitman. Yes; at a later time. It isn't important in the 

Mr. O'Connell. That is true. I just wanted to be sure that the 
committee understood that we were discussing now, the three that 
were all privately constructed projects — the first three referred to are 
constructed by private limited dividend corporations, a portion of the 
financing of the capital cost having been advanced by either K. F. C. 
or P. W. A. in the first three cases; and in the latter three cases all 
the money, either equity or mortgage, having been advanced by 
private sources, in the latter three cases the mortgage money having 
been insured by F. H. A. I don't think it is important here, but 
those are the six projects that Mr. Schnitman is going to refer to. 

With that introduction, were you going to discuss the various 
items that go to make up the monthly rental dollar in some of these 
projects, or would you prefer to go immediately to one of the projects 
and discuss it in detail? 

Mr. Schnitman. I think it probably would be better to take one 
single element of cost as already defined and carry it through for each 
of the six projects, let's say construction costs for all of the six 
projects, and the rental costs for all of the six projects. 

Mr. O'Connell. All right, let's do that briefly oh the construction 
costs first. 

Mr. Schnitman. I don't think it is wise or necessary for me to 
stand up here at this chart. 1 I think you can all see it. I can refer 
to the chart as I have it here and I. think it would be a little 
more convenient. 

Mr. O'Connell. Please identify the chart you are going to refer 
to first. Having identified all of them we will offer them'all for the 
record after you have finished with all the charts. 

Mr. Schnitman. The top chart is headed "Building Costs per 
Room." You will»notice there that there is a bar for each building. 

1 Subsequently entered as "Exhibit No. 855," infra, p. 5024. 



The entire cost reduced to a per-rooml basis represents 100 percent. 
On Knickerbocker Village, you will find* that 34.3 percent of the total 
per-room cost represented the item of land, or $621 per room out of a 
total over-all building cost per room of $1,812. I will have a little 

Exhibit No. 855 



H6»a i 

-93% r^+ or - 















more to say about that as I proceed. That is the first bar to the left. 
If you look at the same item of land, which is the bottom section 
of that second bar at the top of the page, you will see in reference to 
Hillside Housing, that only 8.3 percent represented the cost of land 
on a per-room basis, or only $90 as against $621 in the Knickerbocker 
Village project. This is probably as good a place as any to indicate 


the reasons, or some of the reasons at least, for the difference, the very 
large difference, in the land cost between these two projects, both in 
New York City. 

The first project, namely the Knickerbocker Village project, 
represented a building operation that was essentially a slum-clearance 
project. All of the facilities were in — when I speak of facilities I 
mean sewers and water facilities and. all of that sort of thing. There- 
fore, it was not on raw land. The converse was true with reference 
to Hillside Housing; it was virgin land and required considerable in 
the {way of developments such as sewerage, water systems, and so 
forth. That, in a large degree, of course, accounts for the difference 
in land costs, but it isn't the entire story. Being virgin land in the 
outlying sections of New York, the land value was essentially lower, 
quite apart from the fact that there were no improvements on the land. 

Now, if you go over to the Carl Mackley Homes, which is the third 
bar from the left in the upper section of the chart, you will find that 
the land cost there on a percentage basis per room runs 7.8 percent 
•or only $79 out of a total over-all room cost of $1,007. 

Mr. Chawner. May I interrupt just a moment? Does this land 
you include mean the raw land or improvement cost included as well? 

Mr. Schnitman. Well, there is some overlap and it is not too easy 
to eliminate that overlap, but the principal thing to be noted, as 
I have already indicated, is between Knickerbocker Village and 
Hillside Housing, one being on raw land and the Knickerbocker 
being on improved land, in the sense that the facilities were in, such 
as water and sewerage and gas and electric lines, and things of that sort. 

Mr. O'Connell. In major part, to the extent that the supplying 
of those facilities are included in this over-all cost at Hillside, would it 
be fair to say that that cost is included in material or labor? -^This 
is purely the cost of land? 

**?Mr. Schnitman. Perfectly fair assumption. Now in the case of 
Brentwood Village and the Falkland Properties both in the District 
of Columbia, you find there that, the percentage for land cost on a 
per-room basis was somewhat higher than was true in the case of 
Hillside Housing, and Carl Mackley Homes, and looking over to the 
last bar you will find that the Elm Terrace Apartments of York, Pa., 
had a land cost precisely the same on-a percentage basis with a land 
cost at Hillside Housing in New York City, a striking difference, 
of course, as between the size of the communities. 

Senator King. How do you account for that? What would seem 
to be the cause for the extreme cost for the York, Pa., land measured 
by the cost of the New York? 

Mr. Schnitman. Well, I think it can be largely accounted, again, 
for by this question of overlap. One has to make these comparisons 
or accept these comparisons with a considerable grain of salt. That is, 
their overlap would come in case of the construction costs or in the 
case of materials. 

Mr. O'Connell. I am not sure that I understand that. In both 
cases isn't this intended to be the actual cost of the acquisition of the 
land in whatever State it happened to be? 

Mr. Schnitman. Yes, that is true; but it might cost more money to 
improve, put in the facilities such as water mains and so on in a given 
section. Kemember, this is on an over-all basis, on a percentage 
basis, and it is only on the percentage basis that it works out that 

124491— iO— pt 11 7 


way. Of course in actual cost, the cost per room was $84 inthe case 
of the York property as against only $90 per room in the case of the 
Hillside property. 

Mr. Chawner. Would it be fair to say, then, Mr. Schnitman, 
that when the land was bought for the Knickerbocker Village project 
more was bought with the land than in the case of the Hillside project? 

Mr. Schnitman. Exactly 

Mr. Chawner. In one case you bought all these facilities that were 
not available in the Hillside project? 

Mr. Schnitman. Of course, it is also fair to say, I think, that at the 
time the land was acquired for the Knickerbocker property it was a 
going opinion in New York that every site was a potential site for a 
skyscraper. I think it is important to bear that in mind with refer- 
ence to the Knickerbocker land cost. 

Mr. O'Connell. You mean to that extent it was of larger value, 
quite apart from the facilities of which we are speaking? 

Mr. Schnitman. That is right. 

Mr. O'Connell. Per-foot price of land in downtown Manhattan. 

Mr. Schnitman. The average cost of the land there ran about 
$15 per square foot, the acquisition cost. 

Senator King. You are speaking of New York? 

Mr. Schnitman. Of the Knickerbocker Village project. 

Mr. O'Connell. Downtown, is it not? 

Mr. Schnitman. Yes. 

Mr. O'Connell. The Hillside is up in the Bronx? 

Mr. Schnitman. Yes. 

Senator King. Did they erect many houses or apartment houses 
upon the Knickbocker site or did they erect buildings for rental pur- 
poses, I mean business property? 

Mr. Schnitman. No, it is a housing project; this is a housing project, 
very large project, running from 1 to 13 stories in height, with elevators 
and terraced penthouses. 

Mr. O'Connell. That appears to be the largest of all the projects 
we are considering, in terms of rooms, is it not, 5,000 rooms? 

Mr. Schnitman. Even as to rooms I think we ought to bear in 
in mind that those are what are known in the industry as "construction 
rooms" as differentiated from "residential rooms." Construction 
rooms meaning the rooms excluding the bathroom and the dinettes, 
which are counted in residential rooms as half -rooms, so that . the 
total number of residential rooms, so-called, is even greater than that 
shown on the chart. 

I notice I hadn't put that number of rooms on the chart. There is 
a table I believe that carries that. Now if we move upward from the 
bottom, where we have discussed land, we come to the next item, 
which is fees. Now with reference to the Knickbocker Village we 
find that the item of fees which includes such things as architects' 
fees and organization expenses, and so on, represented 4.1 percent 
of the total per-room cost, or in terms of actual dollars, $75 out of a 
total per-room cost on that project of $1,812. Correspondingly, 
with reference to Hillside Housing, which is the next bar from the left, 
the item of fees represented 5.5 percent, and a total cost of $59 out 
of a grand total per-room building cost of $1,096. 

Moving again to the right, Carl Mackley Homes, fees represented 
7 percent, total actual cost of $70 per room out of a building cost 
total of $1,008. 


Senator King. How do you account for such wide variances there? 

Mr. Schnitman. Well, that is in a measure due to, again, the 
question of what I call overlap. In some instances the permits might 
have to be paid for by the contractor, subcontractor, aDd in other 
instances not so, so that the total cost of the fees might be included in 
another item. It might be carried in, for example, the top section 
of -the chart as overhead or elsewhere, because it is impossible to 
make that differentiation, but, taking it by and large, the overlap 
is not so great as to negative the comparison between these projects. 

Mr. O'Connell. How would you explain the wide variation that 
the Senator speaks of, if you can't explain it in terms of/overhead? 

Mr. Schnitman. Well, it really isn't an easy matter to explain. 
I wish it were so that I could, in an accurate fashion. 

Senator King. Wouldn't it connote that there were excessive 
charges somewhere along the line? 

Mr. Schnitman. There might be that type of connotation. 

Senator King. Speculative activity, somewhat? 

Mr. Schnitman. It is possible to read that kind of connotation 
into it. 

Senator King. Extreme labor costs in some places? 

Mr. Schnitman. The item of labor costs 

Senator King (interposing). Architectural fees, or something of 
that kind? ; 

Mr. Schnitman. That might enter into it. 

Mr. O'Connell. I understand you are attempting to confine 
yourself largely to the figures that are here. Most of these figures 
were obtained by Mr. Schnitman through either F.. H. A., the State 
housing board, or the agencies that have them, and he is probably 
not in position to explain the discrepancies as well as he would like. 

Mr. Schnitman. So, if we move over further, »we find again that 
sort of comparison: Brentwood Village is 817 percent for the fees, 
Falkland Properties at 6.9 percent, and for the Elm Terrace Apart- 
ments 8.8 percent. 

Moving up again, we come to the question of labor. This is direct 
labor on the site, and has nothing to do with the labor in the production 
of the materials that are assembled on the site. Looking at the 
Knickerbocker Village, then, We find -that labor cost, direct labor on 
site, represented 21.3 percent, or a total of $386 out of the total 
over-all room cost. In the case of the Hillside project it was $355 for 
direct labor, or 32.5 percent. In the case of the Carl Mackley Homes 
it was $366, or 36.3 percent of the total over-all per room cost. 

Mr. O'Connell. I take it the percentage attributable to labor 
on the Knickerbocker Village project is diluted by the large percentage 
attributable i to land, so it doesn't indicate any exceptional labor 

Mr. Schnitman. No; although there is one thing that one must 
remember, that even as between labor and materials there is some 
overlap. There might be present — take mixed concrete delivered on 
the job, where in another instance the concrete may be mixed right 
on the job. That would make some difference as between the category 
that that cost would fall into, whether it be classed as a labor cost or 
as a material cost. 

Now, if we move up again we find the item of materials. 

Mr. O'Connell. I take it that on the three F. H. A. projects 
labor and materials is not broken down. It is not available. 


Mr. Schnitman. That's right; it is not available. 

I think I might say for the record that I believe the Bureau of Labor 
Statistics has -made a real contribution in its break-down of these 
cost items on these first three projects. So far as I know there is no 
other agency that has done that sort of thing. 

So that if we come to the item of materials, looking at the Knicker- 
bocker Village again, the material cost represented 27.8 percent of the 
total over-all room cost, and Hillside Housing showed 43.2 percent, 
andlfor the Carl Mackley Homes 46.7 percent. 

The item of overhead: The Knickerbocker Village project was 12.5 
percent, for the Hillside Housing 10.5 percent, and for the Carl 
Mackley Homes 2.2 percent. 

Representative Williams. What is included in your term "over- 

Mr. Schnitman. Well, that is the contractor's overhead on the 
job. It covers everything, or includes such items as trucking, machin- 
ery, and things of that sort. 

Mr. O'Connell. It includes contractor's overhead as distinguished 
from the organization overhead of the corporation. 

Mr. Schnitman. That's it exactly. 

Mr. O'Connell. Well, in a case such as Knickerbocker Village 
I imagine'it was built under contract. 

Mr. Schnitman. All of these places were under contract. 

Mr. O'Connell. The Hillside Housing project was built under a 
different type of contract, on a fee basis, so clearly the overhead of the 
contractor would be included under overhead. 

I wonder if that has been broken down so that the contractor's over- 
head is not included in labor and material in those cases. 

Mr. Schnitman. There is some little overlap there, too, but I 
don't think it is consequential. 

Mr. O'Connell. There is a very wide variation between the 
overhead on the first two projects and that attributable to the Carl 
Mackley Homes, is there not? 

Mr. Schnitman. Yes. 

Mr. O'Connell. You wouldn't have any explanation of that that 
you happen to know? 

Mr. Schnitman. No; because I can't be entirely sure, unfortun- 
ately, of this element of overlap and the method of accounting, as to 
whether the comparative 'basis is a strictly fair one. 

Mr. O'Connell. I think, unless the committee has some questions, 
that is sufficient on the over-all capital costs. 

Is it satisfactory to you, Mr. Schnitman, to move to what we refer 
to as annual costs, which I think are very significant? 

Mr. Schnitman. Look at the bottom of that page. I have these 
costs, the annual costs, or housing costs per room per month, broken 
down likewise for these same six projects. 

Mr. O'Connell. Are these costs per room per month on the same 
basis; that is, on a basis of construction rooms? 

Mr. Schnitman. Yes, this is on construction rooms, on an identical 
basis with what appears on the top. 

Mr. O'Connell. So we really couldn't compute the cost per room 
on a rental basis, these figures, at $12.85 per room in Knickerbocker 


Mr. Schnitman. Those are on a construction room basis, not a 
residential room ;basis. 

If we look at the bottom of that page we find the item of interest. 
I think it might be well here to indicate immediately that the housing 
costs can be broken down into interest, depreciation, operating costs, 
vacancy allowances, and the item of gain or loss. 

Mr. O'Connell. What do you mean by gain or loss, the return to 
the equity? 
Mr. Schnitman. That is the amount available for the equity. 
If we look at the item of interest we find that it ranges on a per-room 
per-month basis in the Knickerbocker Village from 37.9 percent of the 
total annual cost or monthly cost per room, to 21.8 percent in the case 
of the Elm Terrace Apartments in York, Pa. 

There again the reason for the apparently high rate, the apparently 
high proportion of the interest charges in the total over-all annual or 
monthly costs per room is tied, obviously, to the question of the 
original building costs, because the project had to be financed, and 
the interest charge, of course, is figured on the amount of money that 
was loaned to the project. 

Now, if we move up 

Mr. O'Connell (interposing). Before you do that, do you happen 
to have any information as to whether there was any wide variation 
in the interes: rates as between these projects? 
Mr. Schnitman. There is none. 
Mr. O'Connell. There is no variation? 

Mr. Schnitman. The rates run from 4 to 4.5 percent, but on these 
two projects, Knickerbocker Village and Hillside, it is 4 percent. 
Mr. O'Connell. And the F. H. A. project is 4.5 percent? 
Mr. Schnitman. I believe there was one of them that was 4.5 

Mr. Chawner. Wouldn't it be fair to say also, Mr. Schnitman, 
that the portion of the total financing met ;by borrowing would also 
affect the interest? One would have to consider interest in relation 
to gain and loss. 

Mr. Schnitman. Yes, yes; that is entirely right. 
Mr. Chawner. The amount of funds was less in the case of one 
project, the amount of funds obtained by borrowing was less, but 
you would expect a larger item in the form of your equity, or gain or 
loss, as you have indicated here. 
Mr. Schnitman. That is right. 

Mr. O'Connell. You don't have any information as to the relative 
amount of borrowed money? 

Mr. Schnitman. Oh, yes; I have that all 
The mortgage on the Knickerbocker Village, out of a total cost of, 
roughly, $9,500,000, was $8,000,000 or a little better, and the equity 
was about a million and- a half. Incidentally, that represented a 
higher ratio of equity than is true in any of these other projects. In 
most cases the equity was roughly 10 percent on the other projeds. 
Does that answer your question? 

Mr. O'Connell. Yes, it does. I am a little bit puzzled. I thought 

the required equity on F. H. A. projects would probably be 20 percent. 

Mr. Schnitman. You are entirely right about that. Perhaps I had 

better give you these figures. In the case of the Hillside housing 


project, out of a total over-all cost of $5,421,000, the mortgage repre- 
sented $4,988,000, the equity $433,000. These are very round figures. 

In the case of the Carl Mackley Homes the total over-all cost was 
$1,093,000 and the mortgage was $1,030,000. The equity money was 
only $63,000. 

On the F. H. A. projects, the Brentwood Village, in the District of 
Columbia, the total over-all cost was $2,100,000 and the equity money 
was $449,000., the mortgage money $1,651,000. 

On the Falkland Properties, also an F. H. A. project, the total over- 
all cost was $1,081,000 and the mortgage was $840,000. The equity 
was $241,000. 

In the case of the York, Pa., property, the total over-all cost was 
$179,000 and the mortgage money was $141,000, and the equity about 

Mr. O'Connell. Would you care to offer that chart for the record? 
What is it entitled? 

Mr. Schnitman. "Total Building and Housing Costs of Six Rental 
Housing Projects." 

Mr. O'Connell. I will offer these documents for the record, with 
the charts. 

(The chart referred to was marked "Exhibit No. 855" and appears 
on p. 5018. The statistical data on which this chart and "Exhibit 
No. 856" are based are included in the appendix on p. 5482.) 

Mr. O'Connell. I have been making some notes as you went along. 
I think this is fairly correct, that on the Knickerbocker project the 
equity was approximately 25 percent — between 20 and 25 percent — 
on the Hillside it was substantially 10 percent, on the Carl Mackley 
Homes approximately 7 percent, and the three F. H. A. projects, 20 
percent, or slightly in excess of 20 percent. 

Mr. Schnitman. That is correct. 

Now, we move up to the item of depreciation. You will find that 
depreciation in the case of the Knickerbocker Village accounted for 
19.4 percent of the per-room per-month cost, or it might be figured on 
the annual cost. That runs all the way from $2.49 in the case of that 
project, the Knickerbocker project, down to $1.47, or 12.8 percent, in 
the Hillside housing project, which happens to be the lowest on the 
item of depreciation of these six projects studied. 

Now, operating costs: 

Mr. O'Connell. I take it, that this item of depreciation includes, 
and is larger in each case than, the amortization. 

Mr. Schnitman. That is true. 

Mr. O'Connell. The depreciation being an assumed rate at which 
the property will deteriorate. 

Mr. Schnitman. And providing for funds for replacement of the 
physical property. 

Mr. O'Connell. And the amortization, a lesser sum, being the rate 
at which the mortgage is being liquidated. 

Mr. Schnitman. The rate at which the mortgage is being liqui- 

Moving up again, operating costs — and I might perhaps define op- 
erating costs a little bit. That includes fuel costs, janitors' supplies, 
and everything necessary to keep the building in good working con- 
dition. For Knickerbocker Village that item represented 35.3 per- 
cent of the- per-room per-month charge, whereas for the Brentwood 


Village project it represented only 21.1 percent of the total per-room 
per-month or annual charge. 

Mr. O'Connell. There shouldn't be much of what we were refer- 
ring to as overlapping in that particular type of figure, should there? 
Mr. Schnitman. No; there is not a whole lot of overlap there. 
One of the big differences, of course, in the item between the Knicker- 
bocker Village and Brentwood Village is the fact that the Knicker- 
bocker Village is a very large project. It is a 9- and 13-story project 
with elevators, which, of course, enters itself into the item of operating 

Mr. O'Connell. But if you are considering your operating costs 
on a basis of operating cost per room per month, could I imply from 
that that the larger the project the more it costs per unit to operate? 

Mr. Schnitman. That wouldn't be a fair implication. Of course, 
it is a different type of project from the type of project that Brent- 
wood Village is, because you have a number of building-service 
employees there. They have the item of building-service pay pretty 
well in the forefront, it has been for the last 2 or 3 years in New York. 
That is an important item. It is not the all-important item of 
operating costs, to be sure, but it is an important item that has to be 
considered. It makes an essential difference between th#t type of 
project and the Brentwood Village project in the District of Columbia. 

Mr. O'Connell. I notice the rest of the chart, which indicates 
that in the smallest of the projects, the one in York, the operating 
costs are substantially higher than they are even in the Knickerbocker 

Mr. Schnitman. That is true. 

Now, if we move up again and find the item of taxes on a per-month 
per-room or annual basis, we find that taxes account for, in the case 
of the Knickerbocker Village, 6.8 percent. That runs, oddly enough 
in the case of the Carl Mackley Homes, to as high as 20.1 percent. 
That has an explanation all its own. In that item for the Carl 
Mackley Homes there are penalties for unpaid taxes, back taxes. 
As you will notice, that building is running in the red. That is the 
reason the chart is drawn in the manner to indicate the section above 
100 percent. The item is a loss item with reference to the Carl 
Mackley Homes. 

Mr. O'Connell. Before we leave the taxes, it is somewhat surpris- 
ing to me to find the taxes on Knickerbocker Village so much smaller 
than on the Hillside housing project and other properties in New 
York. Is there a tax-exempt item to explain that difference, or do 
you happen to know? 

Mr. Schnitman. I believe there is a tax exemption. 

Mr. O'Connell. I am not entirely familiar with the New York 
State law. 

Mr. Schnitman. I believe there is a tax exemption, yes. 

Mr. O'Connell. Of course, Hillside housing is also a limited- 
dividend corporation operating under the New York law. 

Mr. Chawner. Isn't it true, Mr. Schnitman, that there was a 
certain period provided and that just covered a period up to about 
the time this village project was undertaken, and I think there is 
some distinction? 

Mr. Schnitman. There is a limited period there. If the committee 
would like to have it in, I would be very happy to explore that. 


Mr. O'Connell. I didn't understand the importance. If there 
were a simple explanation of these wide variances of taxes. 

Mr. Schnitman. If the explanation were on a basis of tax exemp- 
tion, there is some limited provision for tax exemption, that I know, 
am very certain. Now shall we move on to the item of vacancy? 
We looked at the Knickerbocker Village *>ud vacancy item there is 
inconsequential. You will note it is less ithan 1 percent, actually 
six-tenths of. one percent, whereas in the case of the Brentwood 
Village, which is right here in the District, the vacancy is 24.5 percent 
of the total per room per month changed; 1 Somebody has to pay 
for that; the renter pays for it -an each instance. 

Mr. Blaisdell. Does that account, Mr. Schnitman, in part for 
the lower operating cost in connection with Brentwood Village? 

Mr. Schnitman. I think it probably does have a — there is a 
traceable relationship there. 
. Mr. Williams. How long has that project been completed? 

Mr. Schnitman. That has been completed roughly two years. 
Shall we move on to the next item? 

Mr. O'Connell. Yes. , 

Mr. Schnitman. The last item on the bar in each instance is the 
item of gain or loss. Now you will notice in the case of the Knicker- 
bocker Village, which has an average room rental of $12.85, there is a 
gain of $2.42, or 18.8 percent of the rental dollar, whereas, as I have 
already indicated, in the discussion of the tax item as to Carl Mackley 
Homes, Philadelphia, with an average room rental of $12.50, + he net 
loss is $2.72 per room, which cost the renter 21.8 percent of his rental 
dollar. Are there any questions on that? 

Mr. Chawner. Is the Carl Mackley Houses privately owned or 
what is the nature of the ownership there? 

Mr. Schnitman. That is a P. W. A. housing project; that was con- 
structed under title II of the N. I. R. A. 

Mr. Chawner. The equity interest, is it a private concern? It 
occurred to me there was a cooperative project. 

Mr. Schnitman. There is, I think, a limited-dividend corporation 
of some kind, private corporation. 

Mr. Williams. Those projects that were constructed by the 
P. W. A. were always turned over to the U. S. H. A., weren't they? 

Mr. O'Connell. Congressman, I think I can explain that. This 
was not constructed by P. W. A. This was constructed by a private 
limited dividend corporation and was financed by a loan by P. W. A. 
and is comparable in that way to the Hillside Housing project. 

Mr. Schnitman. It is comparable in every respect. 

Mr. O'Connell. It is privately owned and operated and was 
financed by P. W. A. loan. 

Acting Chairman Reece. These are all private projects, then? 

Mr. O'Connell. Every one; that is right. 

Acting*Chairman Reece. With these various types of loans? 

Mr. O'Connell. That is righ* They are limited in their dividends 
in the first three cases because of the participation of- the Federal 
Government by way of loans from P. W. A. and in two cases, of 
course, the Hillside and Knickerbocker Village, are operating under a 
State law which provides for the creation of limited dividend corpora- 

1 Under date of June 30, 1939, Miles L. Colean, assistant administrator of Federal Housing Administra- 
tion, offered corrections to figure of vacancy in Brentwood Village; see "Exhibit No. 864", appendix 


tions which operate under certain provisions of the State housing 
board, I believe it is, or State housing authority in New York, and in 
return for the limited-dividend privilege which the State housing 
authority exacts, I understand, there are certain concessions in the 
way of tax exemptions, and so forth. 

I think that is a correct statement. 

•Mr. Schnitman. That is true. 

Mr. O'Connell. Are there any other questions on the cost figures 
which we have been discussing? 

Representative Williams. It appears from this — am I correct — 
that two of these F. H. A. projects are operating at a profit, one of 
them at a loss. 

Mr. Schnitman. That is right. 

Representative Williams. The one at Brentwood and Falkland 
are operating at a profit. 

Mr. Schnitman. And Elm Terrace in York is operating at a loss. 1 

Representative Williams. Notwithstanding the fact that there is a 
24.5 percent vacancy in Brentwood Village. 1 

Mr. Schnitman. Exactly, and of course that fact is traceable again 
to the item we discussed here a minute ago as to operating costs; their 
operating costs are very low. You see, their operating costs represent 
only $2.85 out of a total rental of $13.48 as against operating costs in 
the Elm Terrace Apartments of $5.94. 

Mr. O'Connell. The fact that they are operating at a profit is also 
attributable to some extent to the fact that they are able to charge a 
higher rent. 

Mr. Schnitman. Yes ; they get a higher rent. 

Mr. O'Connell. They get a much higher rent than they would 
have to get to show a profit with a smaller amount of vacancies. 

Mr. Schnitman. After all, the element of profit is the thing that 
determines this thing. 

Mr. O'Connell. Are there further questions before we leave this? 

Mr. Schnitman. We may turn to this chart I have headed here 

(The chart referred to was marked "Exhibit No. 856" and appears 
on p. 5028. The statistical data on which this chart is based are 
included in the appendix on p. 5482.) 

Mr. Schnitman. I have taken the same six projects, and classified 
them as between mortgage and equity. You will notice that the 
Knickerbocker Village project has an equity of 15 percent, roughly, 
and a mortgage of 84 percent or 84.5. The Hillside housing project, 
90 percent mortgage, and the remainder being equity. The Carl 
Mackley Homes; equity less than 6 percent, the remainder being 
mortgage. Brentwood Village project, 21 percent and a fraction is 
equity and the remainder is in mortgage. In the case of the Falkland 
Properties, a little better than 22 percent represents the equity, and 
some 77.5 percent or a little better the mortgage, and in the case of 
the Elm Terrace Apartments the mortgage represents some 78 per- 
cent or a little more and the equity a little better than 21 percent. 

Mr. O'Connell. I think we probably covered that phase fairly well. 

Representative Williams. Who is financing this Carl Mackley 

i Under date of June 30, 1939, Miles L. Colean, Assistant Administrator of Federal Housing Adminis- 
tration offered corrections to figures of vacancy in Brentwood Village and operating loss of Elm Terrace, 
see "Exhibit No. 864," appendix, p. 6486. 



Mr. O'Connell. That was financed by P. W. A. 

Mr. Schnitman. That was originally a loan from the P. W. A. 
under Title II of the N. I. R. A. 

Representative Williams. In what shape was it? Who has that 
now, or do you know? Has it been negotiated on the market? 

Mr. Schnitman. It is a private corporation. 

Representative Williams. I mean the mortgage. 

Mr. Schnitman. The mortgage? 

Representative Williams. Yes. 

Mr. Schnitman. I think, I would judge, that the mortgage may 
have been taken over by the Housing Authority. 

Exhibit No. 856 











84.6% |5.4% 


90.6% 9.4% 




78.6% 91.4% 


Mr. O'Connell. I understand that the mortgage and the bonds 
which the mortgage secured were held originally by P. W. A. When 
U. S. H. A. was created, the mortgage and bonds were turned over 
to U. S. H. A. and they now hold the security evidencing this loan. 
The project is still being operated by the private limited dividend 
corporation which constructed it in the first instance. 

Representative Williams. That would appear to be a rather narrow 
equity in that property. 

Mr. O'Connell. It would seem so. 

Mr. Schnitman. I would certainly think so, very slim. 

Mr." O'Connell. As I understand it, you have described to us |the 
three different types of costs which we must differentiate between. 
In fact, I think for simplification we probably could say two, because 
the total development cost is the original total capital cost of the 
project ready for occupancy and what you refer to as housing cost, 


what we have been referring to an annual costs, the other way of 
measuring the cost to the owner or renter, in your case the renter on 
the project. Which way would it seem to you would be the better 
way, we might say, of approaching the problem of cost in terms of the 
marketability of the product that we are assuming is to be sold, total 
cost or annual cost? 

Mr. Schnitman. I think the basis of what work I have done is that 
you have got to approach it from the annual-cost basis. My studies 
would lead me to believe that you. can reach a greater market by 
reducing the annual costs than you can by reducing a similar amount 
percentagewise the development costs. 

Mr. O'Connell. Of course, the two things are interrelated in that 
the development cost has an effect on the annual cost. 

Mr. Schnitman. That is correct. 

Mr. O'Connell. Have you made any computations as to the 
effect on annual cost of reductions of various elements that enter into 
the original capital cost? 

Mr. Schnitman. Yes; I have. 

Mr. O'Connell. You have a chart, I understand, on that. 1 

Mr. Schnitman. Yes. On the project for which very complete 
figures are available, that is the Hillside housing project in New 
York, in order to find out just what could be«done to reduce costs to 
the renter, we have taken the figures of the Hillside housing project, 
which as I said are very complete, and applied a 20 percent reduction 
arbitrarily chosen to each of the items going into costs. 

I think it might be well, before I describe that, to say at this time, 
because it might provoke questions that would save the time of the 
committee, that a cut of 20 percent in labor would represent a decline, 
a possible decline, without m anywise affecting profit, of 3.9 percent 
on the monthly rental; a cut of 20 percent in labor would bring in a 
3.9 percent reduction, taking it on the actual performance figures of 
the Hillside housing project; a cut of 20 percent in materials would 
bring an additional 5.1 percent reduction in the "annual cost to the 
renter; and a cut of 20 percent in the items of interest and depreciation 
combined would bring m an additional reduction possible to the renter 
of 8.1 percent. That might all be summarized in this way, that a cut 
of 20 percent in building costs, that is total development costs, taking 
each item separately as I have just done, plus a similar cut in all 
operating costs, could bring in a reduction in the case of the Hillside 
housing project in annual rentals of 27.3 percent. 

Mr. O'Connell. Do you care to discuss the items in this chart in 
any more detail? 

Mr. Schnitman. Yes. Looking at this chart, the Hillside housing 
project, in New York, a chart of the effect of a 20 percent reduction 
of building cost on housing cost per room 

Acting Chairman Reece (interposing). How did you happen to 
make the chart on a basis of 20 percent reduction? 

Mr. Schnitman. There seems to be an opinion in the industry 
that anything short of a 20-percent reduction would be rather incon- 
sequential to the renter. As a matter of fact, I have applied smaller 
percentages; and I am convinced, on that purely arbitrary basis, of 
the amount of saving to the renter. 

Acting Chairman Reece. Is there any opinion in this industry 
as to how the 20-percent reduction might be effected? 


Mr. Schnitman. Well, there is a whole lot of talk, of course, 
that the thing that is holding back the market for housing is the 
original cost, the development cost. I can't say that I entirely 

Exhibit No. 857 




-JI.09S.6I — 






share that point of view. It is pretty much like the case of the 
automobile. It is not the original cost; it is the upkeep. 

(The chart referred to was marked "Exhibit No. 857" and appears 
on this page. The statistical data on which this chart is based are 
included in the appendix on p. 5482.) 

Mr. Schnitman. If we look at this chart which I have numbered 
"2," applying a 20-percent reduction in original cost, we would 


have for the item of interest $2.61 against $3.34 on the actual operating 
figures of Hillside housing project. A 20-percent reduction in opera- 
tion cost — perhaps I had been do it this way: I will enter this table 
in the record to accompany the chart. A reduction of 20-percent 
in land costs would mean a saving in interest charges of only 6 cents; 
a reduction of 20-percent in land costs would mean a saying of 4 
cents in the item of taxes ; or a total saving, by a reduction of 20 
percent in land costs, to the renter of 10 cents per room per month. 

A reduction of 20 percent in the item of labor costs would mean a 
saving in interest charges, which is an item you will recall included 
in the operating cost, in the cost to the renter, of only 24 cents; 
14 cents for taxes, 10 cents on depreciation, or a total saving of 
48 cents. 

A similar horizontal reduction of 20 percent in material costs 
would mean a saving in interest charges which the renter has to pay 
of 31 cents per room per month, a saving of 19 cents on the item of 
taxes per month per room, and 14 cents in depreciation, or a total of 
64 cents. 

A reduction of 20 percent in the item of overhead and profit would 
mean a saving to the renter of 8 Cents per room per month on interest 
charges, 4 cents per room per month on taxes, 3 cents per room per 
month on depreciation, or a total of 15 cents per room per month 

If you add that all up, it gives jou a total saving, by way of a 
reduction in development costs, original development costs, that 
would be traceable to a corresponding reduction in the rental dollar, 
of $1.45 per room per month. 

On the other hand, if we apply a 20-percent reduction on the 
items of interest, taxes, and operating costs, we find a total saving 
in the case of interest of 67 cents per room per month; in the item 
of taxes, 44 cents per room per month, and the operating cost, 89 
cents per room per month. That would reduce the average room 
rental from where it is at $11.13 per room per month to a possible 
$9.80, without in any wise affecting profit or equity. 

Mr. O'Connell. Mr. Schnitman, I think "Exhibit No. 857," 
which has been put in the record, is sufficiently clear as indicating 
the effect of 20-percent reduction, unless some of the committee have 
some further questions they wish to ask in connection with it. 

Acting Chairman Reece. Is there any question? 

Mr. O'Connell. There are no questions? There is really only 
one further question I would like to ask, Mr. Schr^itman. It is 
rather a general question and may call for something which is in 
the nature of a personal opinion; but if you have been following the 
recent testimony, one item was to the effect that the volume of 
business during the past decade has been on substantially half or 
less than half the volume of construction during the twenties. In 
view of what you have just said about rental housing and the im- 
portance of the rent, of the rental dollar and the annual cost, as 
against original cost, what do you consider the most important 
deterrent to the resumption of a normal volume of rental building? 
Is that too broad a question for you to answer? 

Mr. Schnitman, Well, that is something that one might spend 
days and days on and probably get nowhere with it. I would say 
that, first off, one must consider in the discussion of the fact that the 
building industry, more especially residential building, has been so 


slow to emerge or even to approach emergence from the depression, 
or even to approach the previous peaks of the twenties, is largely a 
historical fact. There never has been a time,- historically, where 
the cycle that followed, the one in which a new peak was made, has 
attained to the amplitude of that cycle containing that new peak, 
and I think it is well to recognize that fact, because if we are looking 
ahead with any view to getting up to the amplitude of the twenties 
without providing the release from existing rigidities which were 
obviously operative even in the twenties, we are looking for some- 
thing that is not likely to happen. 

Specifically, figures were thrown out here that we had 937,000 
dwelling units produced in the year 1925. Doesn't make a whole lot 
of difference whether it was 937,000 or any other figure of that general 
magnitude. I think it is idle for us to expect that we can get, back to 
937,000 with the rigidities that have frozen the industry in the face 
of the historical precedent which I have just described. 

Now what are some of these rigidities? We have frozen real estate 
on a fictitious level. We find our great institutions, banks, savings and 
loan associations, our life companies, who are very active in financing 
real estate, are holding large quantities of foreclosed properties. The 
best estimate I have Of that is a total of, roughly, $4,000,000,000 of 
residential properties still held by financial institutions, inclusive even 
of the H. O. L. C. 

Now some way must be found to liquidate those properties, par- 
ticularly since it now appears, at least to me, that we are^at least at 
the midway point and probably lots further beyond the midway 
point in the current building cycle. 

Mr. O'Connell. By that you mean you anticipate an expansion 
in building? 

Mr. Schnitman. I anticipate a further expansion, but the upward 
phase of residential building started in let us say '34. There never has 
been a time in history where we have had more than 7 years of con- 
tinuous rise and this year marks the sixth continuous rise, and with 
minor unimportant interruptions in residential building. Now, true, 
we are still miles away from the levels of the twenties. 

Mr. O'Connell. May I interrupt you just a minute? I am inter- 
ested in the. historical development of this psychological proposition. 

I am not familiar with the subject, but could you tell me how much 
of recorded history we have as regards the waning and waxing of the 
building booms? 

Mr. Schnitman. Well, on very imperfect data it is possible to 
carry the historical back for a century. The data are quite imperfect 
prior to the beginning of the twentieth century. As a matter of fact, 
not too perfect even prior to 1910. 

Mr. O'Connell. The only one I had even seen fairly well charted 
was the one in the twenties was the reason I asked. 

Mr. Schnitman. Yes. Now characteristically the cycle has ele- 
ments that are different from the business cycle. That I think is well 
known to all of you. The cycle usually runs 18 years, that is from top 
to top or bottom to bottom, and the rising phf usually is of longer 
duration than the declining phase; the rising phu^e usually consumes 
about 11 years. 

Now there may be some connection between that rising phase of 

I I years and the sunspot theory that Professor Stewart at Princeton 


has just been digging up again, of an inverse relationship, but be that 
as it may, I don't see how we can fly in the face of that history unless 
we somehow methodically plan to release ourselves from the rigidities 
and more especially is that necessary today than ever before in our 
history because the country no longer is growing at the same rate as 
it has in the past. 

Now here are institutions carrying foreclosed properties, hoping 
against hope, in my opinion, for an opportunity to liquidate fore- 
closed properties at or better than acquisition costs. Now there are 
$4,000,000,000 worth of residential properties to be so liquidated. 
Now there is provision for liquidation of those properties. At least 
so far as the life insurance companies are concerned, in the New York 
State insurance law. That law provides that all property acquired 
under foreclosure by the life companies that is not needed for its own 
business must be liquidated within 5 years from date of acquisition, 
but there is a joker in that law and that joker is this, unless the 
Superintendent of Insurance issues a certificate to the inspector on 
the grounds that such a liquidation would be injurious to the company. 

Now, I studied for two of the larger companies their portfolio of 
residential properties under foreclosure. These two companies are 
carrying today about $25,000,000 of residential properties where the 
unit value of acquisition cost is $25,000 and over. I will say this, 
that their total holdings of residential property far, far exceeds 25 
millions because it includes properties under the $25,000 classification. 

Now those properties were all acquired prior to 1934 and I wouldn't 
feel on this subject the way I do today if we were not so far along in 
this construction cycle. I might say that it is probably later than we 
think, and you say, "Well, why is that important?" And to that I 
would answer in this way, if the properties now held by our institu- 
tions under foreclosure were to be put on the market it would tend, in 
my judgment, to keep original development costs — as we have just 
defined them — on new projects well in line because of the competitive 

Old properties, obsolescent properties coming on the market at a 
price somebody will buy it for. Now I realize that it might mean a 
hardship for some of these institutions, but I think it is high time that 
we reckon with the facts as they are, and I can't for the fife of me come 
to any conclusion that would warrant an opinion we can have any 
larger further resumption in residential building until we find some 
way methodically to liquidate — I don't mean it has to be done on a 
Saturday afternoon, but a plan, something that wiU operate let us 
say over the remaining years of the cycle. 

It might be 3 or 4 or 5 years off. The upward phase. 

Mr. O'Connell. May I interrupt you just a moment? If I under- 
stand you correctly, then, you believe that the large amount of fore- 
closed properties held by institutions operate as a deterrent to the 
construction industry and that an orderly liquidation of them 

Mr. Schnitman (interposing). Very distinctly, I am of that opinion. 

Mr. O'Connell (continuing). Would act as a wholesome influence 
and might result in stimulation? 

Mr. Schnitman. Yes, I do. 

Mr. O'Connell. By projecting a competitive element into the 
situation and acting to reduce or to control costs of new projects? 


Mr. Schnitman. Exactly. Now there is an obverse side to that 
and it is entirely reconcilable with this point of view that I have just 
left, I think, and that is that I am wholeheartedly in accord from a 
sheer economic standpoint, if not indeed from the social angle, with 
the intent and purpose of section 20a, article I of the New York 
insurance law which has to do with the granting of powers to insurance 
companies to build, own", and operate for rental income, rental, prop- 
erties of the type the Metropolitan Life is just erecting in the Bronx. 1 
. To me that is one of the most wholesome developments that has 
occurred in recent years. It is really a revival of a law that went into 
discard after the rental commissions and shortages were met, when 
commissions went out and shortages were met in the early twenty's; 
a revival of that original provision, and I am hopeful that that develop- 
ment will carry further. 

Now I said before that it might appear that that is irreconcilable 
with the point of view I made as to their liquidation of their existing 
properties. To me it isn't irreconcilable. I think it is in complete 
harmony. The property that the Metropolitan Life is constructing is 
situated on a site in New York City in the Bronx of 126 acres, roughly 
a fifth of a square mile to house ultimately some twelve or thirteen 
thousand families, a community over which they can control — I don't 
mean control in a sinister sense — the factors that make for obsoles- 
cence, rapid obsolescence, and deterioration and slums. Now that 
isn't the case with the properties that they have under foreclosure. 

They are widely separated, widely diffused individual parcels that 
have been milked dry by equity holders and now had to come back 
to the institutions, and the institutions can't make most of those 
properties pay. I happen to know of a property in New York of 
some 115 apartments which carries today an occupancy ratio of about 
99 percent on which the insurance company that owns that building 
is showing just a little better than 3 percent on acquisition cost. 

Mr. O'Connell. Then I understand you to believe that there is a 
large field for large-scale rental projects constructed on an equity 
ownership basis? 

Mr. Schnitman. That is really a conviction that I have, after a 
thorough-going study of this problem. 

Mr. O'Connell. I have no further questions. 

Mr. Chawner. Mr. Chairman, I had a question on exactly that 
point. Congressman Williams a moment ago noted that on this Carl 
Mackley Houses the equity interest was only 5.8 percent, but at the 
same time that project was losing about 22 percent, apparently on an 
annual basis. 2 I suppose this is for a particular year, and I wondered 
if there might not be some relation between those two situations, the 
fact that we have a project in which the equity ownership is so very 
small that there isn't very much incentive to careful management, and 
it is entirely conceivable that might be in part responsible for the sub- 
stantial loss shown here, and that I suppose it is quite possible, if that 
continues, that the mortgage obligation on the property will be thrown 
back on the United States Housing Authority, and I was wondering 
if it might not contribute to the question the Congressman raised, if 
in the record we could have some information on the nature of that 
ownership of that property. 

' In this connection see also Hearings, Part IV, pp. 1240-41, and infra p. 6134 et seq. 
' See "Exhibit No. 855," supra, p. 5018. 


That stands out as being an unusual project in that respect. The 
Federal Government apparently having made a loan of 95 percent on 
thisjparticular project. That is unsatisfactory in point of view of the 
operation of the project. 

Mr. Schnitman. Along your line of discussion, Mr. Chawner, I 
might even add this thought, something I have given considerable 
thought to; personally, I am convinced that the F. H. A. type of large- 
scale rental housing project in the longer run is likely to prove out 
much more satisfactorily than the small-house type for the same rea- 
son that I indicated with reference to the Metropolitan housing 

Mr. O'Connell. That is, that you are able to minimize the 
neighborhood obsolescence? 

Mr. Schnitman. Which is a very vital element, and as we approach 
this cycle, or the crest of the cycle, I think it is a fair assumption to 
say that the bulk of the loans to be guaranteed by the F. H. A. on 
small houses will be made at the top of the cycle or near the top. It 
might be drawn in a chart with an inverted pyramid, standing, if you 
like, on 1935, when the first loan was made, and as you approach the 
top of the cycle, sometime we will say after 1940, you will find the 
bulk of the loans and perhaps the poorest loans on the small-house 
type made right at that point where there is no control over the 

Mr. Blaisdell. You are suggesting, Mr. Schnitman, that possibly 
neighborhood control in connection with small-house development 
might be as beneficial as connected with a larger development? 

Mr. Schnitman. Very decidedly. 

Mr. Chawner. On this point, Mr. Chairman, I would like to add 
to the record a statement as to the nature of the ownership of this 
company. 1 

Mr. O'Connell. Would it be possible to get that? 

Mr. Schnitman. I will get it. 

Mr. O'Connell. The witness will obtain information about the 
Carl Mackley Homes and insert it in the record at a later point. 1 

Mr. Williams. What income group was this apartment house being 
built by the insurance company to accommodate? 

Mr. Schnitman. Well, that is called the middle income group; it is 
not the type of group over which there is so much concern. The 
rental scale as I understand it is figured at about $15 per room per 

Mr. O'Connell. What you call the middle income group is not 
what I was calling the middle income group, I don't believe, because 
when I referred to middle income group I was thinking of persons or 
families having an income between $1,000 and $2,000 a year, and nrv 
impression is that at rent approximating $15 a room you probably 
wouldn't get an income group below $2,000 a year. 

Mr. Schnitman: I think that is correct. 

Mr. O'Connell. You mean from $2,000 on up? 

Mr. Schnitman. Two thousand up. 

1 Mr. Schnitman subsequently submitted the following statement regarding the ownership of the Carl 
Mackley Homes: "The Carl Mackley Homes are owned by the Juniata Park Housing Corporation, a 
limited dividend corporation organized under the laws of Pennsylvania. It is said that the majority of 
the stock is owned by members of the Amalgamated Hosiery Workers Union of Philadelphia. The total 
investment in the Carl Mackley Homes is $1,092,783, of which the P. W. A., under authority of the Na- 
tional Industrial Recovery Act, Title II, loaned, on the security of a first mortgage note, $974,814, the 
P. W. A. also purchasing one $10 share of stock as a qualifying share to sit on the board of directors. These 
securities are now held by the United States Housing Authority." 

124491— 40— pt 11 8 


Representative Williams. I understood you to say that one of the 
rigidities that you spoke of was a fixed value of real estate on, I 
believe you used the word "fictitious" value. Is that right? 

Mr. Schitman. Well, maybe the choice of word was bad. What I 
mean by fictitious 

Representative Williams (interposing) . I was wondering what you 
meant by that. 

Mr. Schnitman. Value, so far as rental property is concerned, is 
predicated upon, or should be upon, what it will earn. Now rental 
properties, if one is to make adequate allowance for depreciation, 
adequate allowance for vacancies in old properties and things of that 
sort, can be construed as being fictitiously valued, as these properties 
can be construed as being fictitiously valued where the rate of return 
now is 3 or even 4 percent on total present cost. 

Representative Williams. Do you think the land values are frozen 
at too high a value now? 

Mr. Schnitman. That may not be true generally, but certainly it is 
true in many, many localities. 

Representative Williams. I was also interested in your statement 
about the disposition of the acquired properties by the different 
institutions; as to what they do with them of course is a matter of 
individual and personal opinion and judgment, as I see it, and I don't 
know how we are going to control it. 

Mr. Schnitman. Well, I know one way of controlling it. 

Representative Williams. All right; I'd be glad to hear that. 

Mr. Schnitman. I think somehow or other we must — and I am not 
one that likes laws; I think we could get rid of some of them, but I 
do think we ought to have a law requiring all appraisals to be matters 
of public record. Now that isn't novel with me; that is the system 
in Mexico. 

In the good old days, in the twenties, appraisals were made from 
the running boards of automobiles. I know. My home here in 
Washington was appraised that way. The appraiser never went 
inside of the home. 

The fact that it is a matter of public record does not necessarily 
mean that people will look at it. I do think that it would operate 
as a preventive measure on runaway appraisals, which in the last 
analysis is the basis of the mortgage. 

Mr. O'Connell. I don't think that is the answer to Congressman 
Williams' question. I think he is interested in knowing ;what could 
be done, thinking in terms of this committee, to provide for what you 
refer to as an orderly and speedy liquidation of overhanging foreclosed 
properties in the hands of lending institutions. Is that correct? 

Representative Williams. Yes, that is right. 

Mr. Schnitman. We might start right with our own Home Owners' 
Loan Corporation, which is carrying today some 90,000 properties 
that it has foreclosed. Now I must say that they have made every 
effort to liquidate those properties. They have liquidated a sizeable 
number of properties. They have foreclosed something over 150,000. 
But in most instances the liquidation to the sale of those properties 
has been at or just slightly under acquisition costs. 

Now we might, as to the institutions, invoke the insurance law 
with reference to the insurance companies, because we are so far 
advanced now in the building cycle, on the up phase of the cycle. 


Representative Williams. What, in your judgment, would be the 
effect if they were practically all turned loose on the market, these 
4 million that you speak of, if they were disposed of? 

Mr. Schnitman. Well, that certainly is a good question. In my 
judgment if that turning loose, as you call it, is extended over a period 
of, say, 3 to 5 years, I can't help but believe it would have a beneficial 
effect. Say if these properties were revalued on a basis where, with 
a nominal vacancy and with going operating costs they could have 
a prospective yield to the buyer of, let's say, 6 percent, we would 
find plenty of buyers, and the moneys derived by the institutions 
from the sale of the properties could be reinvested in these large-scale 
equity type houses over which they would have control against 
neighborhood deterioration. 

Representative Williams. It is your opinion, then, if all these resi- 
dential properties that are owned by the various institutions were 
turned loose it would stimulate building rather than retard it. 

Mr. Schnitman. Exactly. I think that point of view is perhaps 
an unorthodox one. 

Representative Williams. Yes; it is to me. 

Acting Chairman Reece. As I understand, you stated earlier that 
you thought only the large unit projects financed by the F. H. A. 
would eventually prove successful, and if that is the case, what is 
your suggestion with reference to building the small units in com- 
munities where the large unit projects are not in demand? 

Mr. Schnitman. Well, I am not one that is going to take a definite 
atand that the small house doesn't have a place in our life; it does, 
a very distinct place, but I do take a definite stand on the question 
of what I would class economic soundness, and I believe that the 
large scale rental housing project, if properly conceived, is economi- 
cally sounder in the large than in the small house type. 

Acting Chairman Reece. I assume you are referring to situations 
in the larger cities, aren't you? 

Mr. Schnitman. Essentially in the larger cities. Of course that 
is where the large scale rental housing projects for the most part 
under the F. H. A. are being built. 

Acting Chairman Reece. There is a good deal of our country 
located outside of the four or five large cities. 

Mr. Schnitman. Oh, yes; you are entirely right, but we are be- 
coming as a people increasingly more dependent upon employment 
and shifts of employment, and somewhere there is a limit as to how 
far home ownership as such can go. 

Representative Williams. Don't you think home ownership ought 
to be encouraged rather than home rental? 

Mr. Schnitman. I think it should, within limits. But you see 
the thing that I am afraid of is as we approach the crest of this cycle, 
it may be 3 or 4 years off, our terms for buying a home will have been 
made so liberal that we will have a large number of relatively poor 
risks by the time the building cycle, historically and otherwise, may 
begin turning downward. 

Representative Williams. You think we ought to reach the limit 
of building as we did during the twenties? Do you t^ink we were 
overbuilt during that period? 

Mr. Schnitman. Well, we speak about being overbuilt — I think we 
must differentiate between quantitative and qualitative pretty much 
as we must do when we speak of shortages. 


Representative Williams. Building during that period averaged 
about 700,000, as I recall it. 

Mr. Schnitman. That is right. ' , 

Representative Williams. Do you think that is too many? Do 
you think that we ought to approach that or go beyond that number 

Mr. Schnitman. If I could see a visible means of increasing first 
the national income and its component, the individual family in- 
comes, I would feel free to say that we could easily exceed best pre- 
vious peaks in residential building. To put it another way, to bor- 
row a mathematical term, residential building is essentially a function 
of the national income. At a level of about 40 billions in the national 
inline there was virtually no residential building, and when the na- 
tional income had increased by 10 billions the increase in residential 
building was so slight that it was hardly noticeable. It was not 
until we had crossed 50 billions on the recovery move that there was 
any appreciable rise in residential building, percentagewise. If we 
could get back to a national income of 80 billions, 90 billions, we 
could get a new high in the national income, it would be a very simple 
matter to expect and have a volume of residential building that 
would exceed anything we have seen in the past. 

Acting Chairman Reece. /Are there any further questions? 

Mr. O'Connell. I should like to make one remark relative to what 
Mr. Schnitman had to say about the comparison between the large 
scale rental projects financed by F. H. A. and the small individual 
houses financed by that organization. This will be covered more in 
detail later on, and I am not presuming to speak for F. H. A., but it is 
my understanding that they are cognizant of the locality obsolescence 
feature arid they do have locality standards in connection with their 
individual home ownership projects, and to that extent at least I 
wouldn't want the committee to get the inference from Mr. Schnit- 
man's statement that the problem of neighborhood or locality obsoles- 
cence can only be taken care of in the large-scale rental projects. I am 
not attempting to testify in connection witK it. I merely wanted to 
point out that the F. EL A. are familiar with that problem and we 
will go into that a little more at a later date. 

Representative Williams. I want to say in response to what you 
have said and what I said a while ago, that I am very sure the F. H. A. 
takes into consideration primarily the location and the future develop- 
ment of the community in which the individual home is built as well 
as the large scale project. 

Mr. O'Connell. I think it is probably Mr. Schnitman's view that 
that is a more difficult problem possibly in the small individual home, 
in that you cannot control to the same extent the locality that you 
could in a large-scale rental project where the rental project itself is 
the locality. Isn't that correct? 

Mr. Schnitman. Yes ; that is correct. 

Mr. O'Connell. I have no further questions. 

Mr. Blaisdell. Mr. Schnitman, you have just testified to the fact 
that you believe that the holdings or these institutions are being over- 
priced as far as selling is concerned. I assume that the companies 
would be very happy to get rid of what they have got. 

Mr. Schnitman. Oh, there isn't any doubt about that. 

Mr. Blaisdell. And it is only a question of price. 


Mr. Schnitman. That is it exactly; they will sell at a price. 

Mr. Blaisdell. I assume also that the projects which they are 
holding— : I call them projects, the apartments, the houses — are also 

Mr. Schnitman. Yes, sir. 

Mr. Blaisdell. And I assume also that the rents which they are 
getting for those projects are what the market will bring. 

Mr. Schnitman. Exactly. 

Mr. Blaisdell. That same market would be there entirely irre- 
spective as to whether they sold the properties or whether they held 
them, would it not? 

Mr. Schnitman. That is right. 

Mr. Blaisdell. And you are suggesting, then, that the insurance 
companies, the banks, and the building and loan associations have the 
initiative to build anew where purchasers of these properties do not 
have the initiative to build anew for rental purposes. 

Mr. Schnitman. Right. 

Mr. Blaisdell. I am trying to interpret your statement, and that 
this situation of ownership and holding for a price on sale is the 
retarding factor in the present situation. 

Mr. Schnitman. Well, it isn't the only retarding factor: 

Mr. Blaisdell. No; I appreciate that, but it is a serious retarding 

Mr. Schnitman. Yes; I think it is. 

Mr. Blaisdell. If these companies were willing to sell at a price it 
would be again a market matter, would it not? 

Mr. Schnitman. Yes. 

Mr. Blaisdell. They, however, are willing to take 3 percent instead 
of — well, they can't get any better than 3 percent any place else. Is 
that correct? 

Mr. Schnitman. That is right. On the Metropolitan Life Insur- 
ance property, which is a wholly owned equity property, they got 
some 7 or 8 or I think in their best years even 10 percent. 

Mr. Blaisdell. There is no advantage from their standpoint in 
getting rid of something at 3 percent on its present valuation, as you 
said, or its acquisition cost. 

Mr. Schnitman. Unless they reinvested that money elsewhere. 

Mr. Blaisdell. Well, they reinvest a lower sum and get a larger 

Mr. Schnitman. That is right. 

Mr. Blaisdell. It is all the same as far as they are concerned, so 
from the standpoint of the companies there would be no advantage in 
doing it. 

Mr. Schnitman. Well, the same sum invested in equity housing, 
which I believe ought to be permitted to a, limited extent, for banks 
too, would bring a far higher return than that sum of money tied up 
in foreclosed property brings today. 

Mr. Blaisdell. That is the net earnings as far as the company is 
concerned in absolute amount 

Mr. Schnitman. Absolute amount. 

Mr. Blaisdell. Would be larger than what they now get from [the 
present investment. 

Mr. Schnitman. That is right. Take a specific project, a theo- 
retical project, of $100,000, where their net return,letus say, is $3,500 


3.5 percent. A similar amount, $100,000, that would be too small to 
build a project to control neighborhood deterioration, but we will use 
that as an index, might bring in $7,000 or $8,000. 

Mr. Blaisdell. Yes; but they are not going to get the $100,000 
from -the sale of property. 

Mr. Schnitman. No; all right. Now if they sold the property 

Mr. Blaidsell. They would sell it for $75,000. 

Mr. Schnitman. If they sold the property for $75,000, in my 
judgment the reinvestment of that fund would still bring a larger net 
return in a new project than that which they are getting now holding 
it for a higher price, or holding it for sale at acquisition cost, 

Mr. Blaisdell. I assume that you would apply the same logic to 
the H. O. L. C. holdings? 

Mr. Schnitman. Well, the H. O. L. C. is essentially in a different 

Mr. Blaisdell. I understand they will not go in and buy property. 

Mr. Schnitman. They won't go in; we hope not. 

Mr. O'Connell. Incidentally, Mr. Blaisdell and the rest of the 
committee, I hate to be saying we are going to do things at a later 
date, but a number of these things are going to be done at a later 
date. We do expect to produce a later witness who will give us some 
information about the Metropolitan experience, on this point of equity 
financing which Mr. Schnitman has touched on and which the com- 
mittee has inquired about. 

Acting Chairman Reece. If there are no further questions, thank^ 
you very kindly. 

What is your procedure for tomorrow? 

Mr. O'Connell. Tomorrow and Friday we expect to call witnesses 
who will discuss with the committee one of the most important single 
elements in cost, particularly annual cost, that being the financing 
charges in connection with either home ownership or rental houses. 

The witnesses will be, first, Mr. Altman, of the Securities and Ex- 
change Commission, who will give the committee some general in- 
formation about the sources of mortgage money and the relative 
importance of the various sources of mortgage money and also equity, 
money, of course, and some information relative to recent fluctuations 
in interest rates. 

After Mr. Altman we will have Mr. Rogers, vice president of the 
Prudential Life Insurance Co.; Mr. Bodfish, the executive director of 
the United States Building and Loan League; and Mr. Bruere, presi- 
dent of the Bowery Savings Bank. 

I doubt if we will finish with all of the witnesses I have indicated 
tomorrow. I think that tomorrow and Friday morning we should be 
able to finish with the witnesses I have indicated, and that is all we 
have planned for this week. 

Actmg Chairman Reece. The committee will stand in recess until 
10:30 tomorrow morning. 

(Whereupon, at 4:35 p. m., a recess was taken until 10:30 a. m. 
Thursday, June 29, 1939.) 


THURSDAY, JUNE 29, 1939 

United States Senate, 
Temporary National Economic Committee, 

Washington, D. C. 

The committee met at 10:45 a. m., pursuant to adjournment on 
Wednesday, June 28, 1939, in the Caucus Room, Senate Office Building, 
Representative B. Carroll Reece, presiding. 

Present: Representative Reece (acting chairman), Messrs. Hender- 
son, Lubin, O'Connell and Brackett. 

Present also: Edward J. Noble, Under Secretary of Commerce; 
Hard wick Stires, and Lowell J. Chawner, Department of Commerce; 
Willis J. Ballinger, Federal Trade Commission; Ernest Meyers, 
Department of Justice; Theodore J. Kreps, economic consultant to 
the committee; Thomas C. Blaisdell, Securities Exchange Commis- 
sion; and Peter A. Stone, co-ordinator of construction studies for the 

Acting Chairman Reece. The committee will please come to order. 
Are you ready to proceed, Mr. O'Connell? 

Mr. O'Connell. I am, Mr. Chairman. Yesterday the committee 
heard testimony on the elements that enter into the cost of dwelling 
accommodations, both rental and owned. A distinction was'drawn 
between the original capital cost of such accommodations and the 
annual cost or consumer's cost. It was pointed out from the stand- 
point of either the owner or the renter, the amount of his fixed monthly 
obligation is a very important, if not, indeed, the dominant factor in 
determining whether adequate dwelling accommodations are within 
his reach. 

Some comparisons were made of the effect of comparable percentage 
reductions in the major elements of capital cost, labor, and material, 
and the cost of finance. One witness indicated from the standpoint 
of monthly fixed charges for home ownership a 20-percent reduc- 
tion in the cost of the finance, meaning the principal and interest 
payments, would effect more of a reduction in the annual cost than 
would a 20-percent reduction in labor and materials combined. With 
that as a background it is our intention today to investigate or to exam- 
ine the finance cost as one of the major elements that enter into the 
problem of home ownership, with a view to ascertaining what, if any- 
thing, can or shoidd be done about reducing that portion of the cost 
of dwelling accommodations. 

The first witness this morning who will give us a background on the 
general picture of the mortgage market will be Dr. Altman, of the 
Securities and Exchange Commission. 

Acting Chairman Reece. I believe Dr. Altman has been sworn. 

Mr. O'Connell. He has already been sworn. 

It was some time ago you testified. Would you mind giving your 
name and position to the reporter again? 





Mr. O'Connell. Dr. Altman, can you give the committee any 
information on the proportion of private indebtedness represented by 
mortgages on one- to four-family nonfarm homes? 

Dr. Altman. There have been various studies since 1930 covering 
the long-term debts in the United States, one element of which con- 
sists of the long-term debts on one- to four-family nonfarm homes. 
In 1930 it was estimated by Dr. Horton, in his volume on Long-Term 
Debts in the United States, that the estimated long-term debt, long- 
term private debt, was 84% billion dollars. Of this total, 22.3 billions, 
or 26 percent, represented mortgages on nonfarm homes. 

In 1934 total private long-term debts had been reduced to 74.9 
billions. Of this total, 17.7 billions, or 24 percent, represented non- 
farm mortgages. 

By 1937 the private long-term debt stood at 70.3 billions, of which 
17.3 billions, or 25 percent, represented nonfarm home mortgages, 
or in other words, in summary, one may say that throughout the period 
1930 to 1937 the mortgage indebtedness on one to four-family nonfarm 
homes constituted about one-fourth of the total private long-term 
indebtedness of the United States. 

Mr. Henderson. In that total of private debt, what is included? 

Dr. Altman. They would include all debt, all nongovernmental 
long-term private debt, which would include the debts of individuals 
and of corporations. 

Mr. Henderson. That would not include the insurance companies' 
obligations to the insured, or a bank's obligations to its depositors, 
or anything like that? 

Dr. Altman. No; it would not. 

Mr. Henderson. Which was include, of course, in later studies. 
The Twentieth Century Fund did give a connotation of debt to that. 

Dr. Altman. Yes; they did. 

Mr. Henderson. But this is in terms of what might be called the 
older concept of debt, mainly the private debt of corporations and 

Dr. Altman. That is right, Mr. Henderson. 

Acting Chairman Reece. That doesn't include debt or obligations 
represented by securities? 

Dr. Altman. It would include them, yes;' if a corporation had 
issued 5-year bonds, let us say, those 5-year bonds would be included 
in the long-term debt. So that you would have included'in this total 
all the long-term debts of corporations whether they were represented 
by debenture bonds or first-mortgage bonds or long-term notes. 

Mr. O'Connell. Dr. Altman, have you any information as to 
what percentage of owner-occupied and rented residential properties 
are mortgaged? 

Dr. Altman. It is generally held that about one-half of all the 
residential properties in the United States, urban residential proper- 
ties, are subject to mortgage. The proportion of residential property 
subject to mortgage varies very much in different areas of the country. 
The survey of urban housing made in 1934 by Mr. David L. Wickens 
indicated that the highest percentage of mortgaged residential 


properties is found in the New England and Middle Atlantic States. 
In New England, for example, as of the first of January 1934, Mr. 
Wickens found that almost 69 percent of the total owner-occupied 
residences were subject to mortgage, and almost 54 percent of the 
rented residential properties were subject to mortgage. 

As you leave New England and the Middle Atlantic States, the 
percentage of mortgaged properties tends to fall. Mr. Wickens 
discovered that the lowest percentage of owner-occupied residences 
subject to mortgage was found in t the Mountain States where 49 
percent were subject to mortgage. Curiously enough, the lowest 
percentage of rented property subject to mortgage is found in the 
East South Central States, but there is tremendous variation in 
different areas of the country. I think, however, that for the general 
picture one may accept the commonly held belief that about one- 
half of the residences in cities are subject to mortgage. 

Mr. O'Connell. Have you any figures on the value of the out- 
standing mortgage indebtedness on these homes at the present time, 
or any comparatively recent time? 

Dr. Altman. The volume of mortgages on one to four-family 
nonfarm homes (and I would like to confine myself to this category 
for the next few moments) was 17.3 billion dollars in 1937. It was 
21.7 billion dollars in 1929, and these two totals are summarized in a 
chart which was introduced into the record some 4 or 5 weeks ago by 
Professor Davenport in his testimony for the Securities and Exchange 
Commission in the investment banking hearings. 1 

In general, the course of mortgage indebtedness in the United States 
on one- to four-family nonfarm homes has been as follows: It was 
about $9,000,000,000 immediately prior to 1920; it showed a steady 
increase through the decade of the twenties and reached a peak of 
$22,300,000,000 in 1930. The mortgage indebtedness declined 
steadily after 1930 and reached a low of 17.3 billions in 1937. The 
data for 1938 are not yet available in final form, but they indicate that 
there was an increase of something like $300,000,000,000 in the out- 
standing mortgage indebtedness in 1938, so that the estimate would be 
an outstanding mortgage debt of 17.6 billions in 1938, as of the end 
of the year. 

Mr. O'Connell. What a^e some of the factors that are responsible 
for the decline of mortgage indebtedness between 1930 and 1937? 

Dr. Altman. I think we may probably summarize the factors 
responsible for the decline of mortgage indebtedness after 1930 under 
five headings. 

In the first place, we had a decline in new construction of this par- 
ticular type of property. In 1929, for example, the estimated value 
of residential construction — and this is a somewhat broader category 
than the one- to four-family nonfarm homes that I was discussing 
previously; I may add that I have to discuss the broader category 
because the data for the narrower category are not readily available — 
was $3,000,000,000. The value of residential construction was 
$390,000,000 in 1933, so that from 1929 to 1933 the value of residential 
construction fell from. $3,000,000,000 to $390,000,000. The value of 
residential construction increased in the years following 1933, and in 
1937 the value of residential construction is estimated to be about 
$2,000,000,000 and in 1938 about $1,700,000,000. 

' See "Exhibit No. 626", Hearings, Part IX, p. 4094. 


Then with such a decline in the value of residential construction 
you find that there is no need to extend mortgages on new construction 
and at the same time the owners of existing property amortize and 
pay off their mortgages bit by bit so that you have a second factor 
entering into the picture, namely, that during the 7-year period some 
of the holders of the outstanding mortgage debt pay off the mortgages 
outstanding as of 1930. 

A third factor which would tend to explain the decline in the volume 
of outstanding mortgage indebtedness on one- to four-family nonfarm 
homes, follows from the transfers of real estate to the mortgagees, 
either through voluntary deed or through quitclaim deed or through 
foreclosure' Between the end of 1929 and the end of 1937 it is esti- 
mated that the value of one- to four-family nonfarm homes owned 
by financial institutions increased from $335,000,000 to 2.6 billion 
dollars, or in other words the financial institutions, between 1929 and 
1937, acquired one- to four-family nonfarm homes to the extent of a 
book value of about 2.1 billion dollars. 

In addition you have other classes of holders of mortgage debt as of 
1930, who acquired properties which are not included in the figures I 
have just given. Individuals, for example, acquired properties during 
the same period but we have no data on the amount of property that 
they acquired during this period. On the whole, I should suppose 
that it is probably safe to say that probably about 2% million dollars 
of debt on this particular type of property was extinguished between 
1929 and 1937 as a result of transfer to the mortgagee. 

A fourth factor in the situation is the reduction of the face value of 
the debt on these types of property by composition agreements between 
the mortgagors and mortgagees. For example, the H. O. L. C. made 
something over 1,000,000 loans totaling 3.1 billion dollars. It is esti- 
mated that in the process of transferring the loan from the original 
holder to the H. O. L. C. there was an estimated reduction in the 
principal or the face of the mortgage amounting to about 7 percent of 
the original debt, or to put this in monetary terms, it is estimated that 
there was a reduction of about $200,000,000 in the principal or face 
value of the mortgage indebtedness. 

Mr. O'Connell. The mortgage indebtedness would include all 
mortgage indebtedness? 

Dr. Altman. That would include this mortgage indebtedness the 
H. O. L. C. acquired from the previous holders of the debt. 

Mr. O'Connell. Would another way of putting it be that would 
represent the amount of mortgage indebtedness extinguished so it 
would include second mortgages? 

Dr. Altman. I think this would refer simply to first mortgages. 

Acting Chairman Reece. Are you pretty well satisfied with the 
estimates with reference to the reduction in debt in that respect? 

Dr. Altman. You mean the reduction of debt through the process 
of transferring mortgages from previous holders to the H. O. L. C? 

Acting Chairman Reece. Yes. 

Dr. Altman. I haven't done any of this work myself, Congressman 
Reece; I have simply taken this from what I take to be the best 
available sources. 

Acting Chairman Reece. One thing that prompts the inquiry on 
my part is the fact that as I understood the situation, the H. O. L. C, 
when a home was transferred in many instances required the owner 


to improve the property; that is, it had been permitted to fall into a 
state of bad repair and quite properly it was thought that before the 
H. O. L. C. made a new loan that it should be put in a state of good 
repair, which necessitated in those instances increasing the loan 
rather than decreasing it, increasing the mortgage rather than decreas- 
ing it. 

Dr. Altman. I think that is right, except that the figures that I 
have offered for the record here would take account of the fact that 
some of the mortgages may have been increased through the process 
you have described. That is to say, there is a net reduction of about 
$200,000,000 after taking into account all the factors that operated in 
the situation. 

Mr. Henderson. That means, Dr. Altman, that in this country 
we chose to substitute the Government as the creditor and, except for 
about 7 percent extinguishment, we did take over the amount of the 
outstanding indebtedness and that was carried in the new mortgages 
by the Federal Government's activities? 

Dr. Altman. That is right, Commissioner Henderson. There was 
a transfer of debt rather than an extinguishment of debt. 

Mr. Henderson. I wonder if you are familiar at all, just as a 
diversion, with the experience of any other countries confronted with 
similar situations. I wonder if you know the extent to which there 
have been drastic reductions of the mortgage indebtedness outstanding 
at the time there were new financial arrangements entered into. 

Dr. Altman. T'm sorry; I do not. 

Mr. Henderson. I do know, of course, that Canada, particularly 
with its farm mortgages, did set up means by which the face amount 
of the mortgage under certain circumstances was drastically reduced, 
and I am sure that was followed in several other countries, but in this 
country the face value of the mortgages pretty generally, except for 
such reductions as you have noted, were carried over when the 
Government interposed as creditor. 

Dr. Altman. That's right. 

Acting Chairman Reece. Another circumstance which makes it 
appear to me improbable that there could have been a very consid- 
erable reduction in the amount of mortgage was the fact that the 
H. O. L. C, as I understand, adopted the policy of making loans only 
on distressed property, and if the owner was behind on his payments 
it would not appear likely to me that in many instances it would be 
able to reduce the amount of the mortgage, unless by way of compro- 
mise of some kind, which, of course, did take place in some instances. 

Dr. Altman. These were mostly compromise agreements I am talk- 
ing of. I don't mean to imply that there was any payment made by 
the mortgagor. This face was reduced according to these estimates 
by about $200,000,000 in the process of transferring mortgages from 
the original holders to the H. O. L. C. The same process took place 
with respect to other types of mortgages, but we simply don't have the 
information as to the amount of reductions of face value in such other 
compromise agreements, and for that reason I am not offering any 
data on that particular score. 

The amount of compromise agreements couldn't have been very 
great, because we had about $22,000,000,000 of outstanding mortgages 
as of 1930, and a reduction of $200,000,000 of the face amounts to 
merely 1 percent of the total. 


Mr. O'Connell. One of the things to which can be attributed the 
reduction in nonfarm mortgages, then, from 22.3 billion in 1930 to 
17.3 billion in 1937 is the matter of composition, or an arrangement by 
which the outstanding mortgage indebtedness was to some extent 
reduced, and the only portion of that as to which you have accurate 
data is the H. O. L. C. portion of the reduction, which involves 

Dr. Altman. That's right. 

Dr. Labin. May I ask what the significance of these figures on 
outstanding mortgage indebtedness on American homes is? These 
are figures which represent the face value of the mortgages, do they 

Dr. Altman. Yes. 

Dr. Lubin. In other words, there is no relationship between the 
figure of 17.3 hundred millions for the year 1937, and the value of the 
assets behind them. In other words it is quite probable, is it not, 
that between 1929 and 1937 the actual market values of these buildings 
which are represented by these mortgages had gone down markedly, 
but they were not written off in the sense that inventory in a plant 
would be written off. The face value remained just as it previously 
had been, irrespective of the fact that the assets behind had deteri- 
orated in value. 

Dr. Altman. That is right, except that the face value of the mort- 
gage is important as indicating how much individuals have to pay. 
The fact that a mortgage may have been $1,000 on a $2,000 house in 
1929, and the value of that house fell to $1,000 in 1937, still didn't 
mean that if there hadn't been any amortization of the mortgage in 
those intervening years the person wouldn't have to pay $1,000 on 
that mortgage, out of diminished assets. 

The last factor I would like to mention in connection with the 
decline in mortgage indebtedness in 1930 is a bias in the figures which 
should be taken into account in any discussion of the subject. One 
of the holders of mortgage indebtedness on one- to four-family nonfarm 
dwellings consists of the group of closed banks. We have no data on 
the real-estate holdings of closed banks throughout these years. As 
a bank failed, the amount of real-estate holdings which it had sort of 
got lost in the totals. We don't know which particular lending agency, 
in which particular type of lending agency, the real estate was held. 

It is estimated that in 1937 the closed banks still held about $200,- 
000,000 of mortgages on one- to four-family nonfarm homes, about 90 
percent of which had been acquired in or prior to 1934. Actually, 
then, the decline in the mortgage indebtedness from about $22,300,- 
000,000 in 1930 to 17.3 billion in 1937 is exaggerated to the extent 
of perhaps several hundred million dollars through the failure to 
incmde mortgage holdings of closed banks. In general, though, there 
was a very severe contraction, amounting to, more than 3}i billion 
dollars of mortgage indebtedness from 1930 to 1937. 

(Mr. Henderson assumed the chair.) 

Dr. Altman. May I turn, now, to the general question as to who 
holds the mortgage debt upon one- to four-family nonfarm homes? 

The chart sets forth the holders of this debt in 1929 and in 1937. 1 
In 1929 you will notice that of a total outstanding debt of 21.7 
billions, 7 billions was held by the savings banks and loan associa- 

' See "Exhibit No. 626," Hearings, Part IX, p. 4094. 


tions; 3.2 billions was held by the mutual savings banks; 2% billions 
by commercial banks; 1.7 billions held by the life-insurance companies; 
and 7.2 billions held by individuals and all other institutional holders 
not previously included. 

I think we may summarize the situation at the peak of the out- 
standing mortgage indebtedness on one- to four-family nonfarm 
homes in 1930 in somewhat the following fashion: In 1930 about one- 
third of the debt on one- to four-family nonfarm homes was held by 
the savings and loan associations. Another third was held by individ- 
uals and others, and the remaining third was held by financial insti- 
tutions, including the commercial banks, the life-insurance companies, 
and the mutual savings banks. 

By 1937, when the debt had been reduced to 17.3 A hiUions, we find 
that the H. O. L. C, which had come into the picture in the mean- 
time, had materially changed the situation. In 1937 the H. O. L. C. 
held 2.4 billions, or 14 percent of the outstanding mortgage debt. 
Individuals and others continued to hold about a third of the out- 
standing mortgage debt, though the amount they held had been 
reduced from 7.2 billions in 1929 to 6 billions in 1937. 

The share of the savings and loan associations in the total had been 
materially reduced from about one-third in 1930 to about one-fifth in 
1937, and the share of the financial institutions, though diminished in 
volume, in absolute amount that is, continued to remain at about 
one-third of the total outstanding mortgage indebtedness. 

Dr. Lubin. Is it fair to assume from those figures that of the total 
decline, which you said was approximately three and one-half billions 
of dollars in the value of outstanding mortgages on these homes, that 
of that total amount, two billion four hundred million have been taken 
over by the H. O. L. C? In other words, thereby concluding that 
only a billion and a half, approximately, or less than a billion and a, 
half of the decline, is attributable to taking over properties and things 
of that sort? 

Dr. Altman. I don't think one can say that. There was a general 
decline of mortgage indebtedness from' 22 billions in -1930 to 17.3 
billions in 1937. Along with this general decline went a transfer of 
debt to the amount of 2.4 billions to the H. O. L. C. 

Acting Chairman Hendekson. The decline was accounted for by 
the fact that new mortgages that were being placed were not receding 
at the same rate in the period leading up to 1929, and the payments on 
the outstanding 22 billion as of 1929 were continuing. There was a 
considerable liquidation there. 

Dr. Altman. That's right, Commissioner Henderson. Those are 
two of the factors included in the five that I was discussing previously 
as accounting for the decline in mortgage debt. 

Mr. O'Connell. Have you any figures on the relative importance 
of F. H. A. insured mortgages in the total amount of mortgages out- 
standing, and the volume of such mortgages as being currently 

Dr. Altman. To answer the first question first, Mr. O'Connell, in 
1937 there was an estimated volume of outstanding mortgage indebted- 
ness on one- to four-family nonfarm homes amounting to 17.3 billions. 
Of this total, 828 millions consisted of mortgages insured by the F. H. 
A., so that 4.8 percent of the outstanding mortgage indebtedness on 
one- to four-family nonfarm homes was insured by the F. H. A. at the 


end of 1937. This percentage had risen rapidly from the preceding 
years. It was only one-half of 1 percent in 1935 and 2.3 percent in 
1936. 1 . 

So far as the volume of mortgages currently written is concerned, 
we find the following: 

In 1937 the total amount of mortgage loans made on one- to four- 
family nonfarm homes amounted to 2.4 billion dollars. Of this 
amount, 424 million dollars was insured by the F. H. A., so that in 
1937 one may say that of the volume of new business currently done 
in this field, 17.6 percent was insured. In 1938 the volume of mort- 
gage loans made on one- to four-family nonfarm homes was 2.4 billion 
dollars, of which 473 million dollars was insured by the F. H. A., so 
that approximately 20 percent of the total was insured by the F. H. A. 8 

It is important to note, however, that the percentages of new 
business insured by the F. H. A. vary very much as among the differ- 
ent institutions in the mortgage field. For example, if we turn to 1937 
we discover that 45.6 percent of the new mortgages written on one- to 
four-family nonfarm homes by commercial banks were insured. 
Twenty percent of the new business of the life-insurance companies 
was insured; 10 percent of the business of the mutual savings banks 
was insured; 7.6 percent of the building and loan associations was 
insured. 3 

In other words, then, not all institutions participated in insurance 
to the same degree. 

In 1938 v e find substantially the same figures. Commercial banks 
wrote $560,000,000 of mortgages on one- to four-family nonfarm 
homes, of which 45 percent was insured; the life-insurance companies 
wrote $237,000,000 worth of mortgages on the same type of property, 
of which 16.5 percent was insured. The mutual savings banks wrote 
$105,000,000 of mortgages, of which 11 million, or 10.5 percent, was 
insured. On the whole, for all the lenders in 1938, 20 percent of the 
new business was insured. 3 

In order to clarify this I would like to submit for the record tables 
covering the particular material I have been discussing. The first one 
is called "Amount of mortgages on urban one- to four-family homes 
held by various lending agencies, and amount and percentage of such 
holdings insured by the F. H. A. 1935-37." 

(Representative Reece returned to the chair.) 

Mr. O'Connell. I should like to offer the table. 

Acting Chairman Reece. It may be admitted. 

(The table referred to was marked "Exhibit No. 858" and is in- 
cluded in the appendix on p. 5483.) 

Dr. Altman. The second is called "New mortgage loans on one- to 
four-family nonfarm homes made by various lending agencies, amount 
of these loans insured by the F. H. A. and percentage of insured loans 
to total loans, 1935-38." 

Mr. O'Connell. I should like to offer this. 

Acting Chairman Reece. It may be admitted. 

(The table referred to was marked "Exhibit No. 859" and is included 
in the appendix on p. 5484.) 

Dr. Altman. It may be interesting to indicate the relative impor- 
tance of the different types of mortgage-lending agencies in the picture 

1 See "Exhibit No. 858," appendix, p. 5483. 
» See "Exhibit No. 859," appendix, p. 54»4. 

» Thirl. 


at the present time. I will take the year 1938. In 1938 the total 
volume of mortgages written was about 2.4 billion dollars. The rela- 
tive shares in the total written by the various agencies are as follows: 
The commercial banks wrote a little less than a quarter; the life-insur- 
ance companies, 10 percent; the building and loan associations, 30 per- 
cent; and individuals and others, 28 percent. 

In other words, then, the individuals and others continued to be a 
very important factor in this mortgage market and wrote slightly less 
than one-third of the new business in 1938. 

To present this material in tabular form, I offer the table called 
"Absolute and percentage distribution, by lending agencies, of new 
mortgage loans on one- to four-family nonfarm homes, 1935-38." 

Mr. O'Connell. I should like to offer this table. 

Acting Chairman Reece. It may be admitted. 

(The table referred to was marked "Exhibit No. 860" and is included 
in the appendix on p. 5484.) 

Mr. O'Connell. When you refer to new mortgages, do you mean all 
mortgages written or mortgages on new homes constructed? 

Dr. Altman. All mortgages written within the year, regardless of 

Mr. O'Connell. Is there any way of determining how many new 
mortgages were written for new construction? 

Dr. Altman. Yes, there is. 

Acting Chairman Reece. The loans made by savings and loan asso- 
ciations and other institutions of that type include the F. H. A. insured 

Dr. Altman. Yes, whether insured by the F. H. A. or not, they 
would be included in the table I just offered for the record, though the 
preceding table, Congressman Reece, gives the share of total new 
business by each lending agency insured by the F. H. A. 

To answer the question, Mr. O'Connell, as to the amount and pro- 
portion of loans going for new construction and of the amount in pro- 
portion of loans going for other purposes, I may say that in 1938 of the 
total volume of 2.4 billion dollars of new mortgages written on one- to 
four-family nonfarm homes, only 748 million, or 32 percent, went for 
construction. The remainder went for other purposes which would 
include refinancing, home purchase, reconditioning, and any other fac- 
tor other than construction. 

Mr. O'Connell. Is that 1937? 

Dr. Altman. 1938. In 1937 the percentages of new portion for 
construction was 29 percent; in 1936 it was 27 percent. In 1930 it 
was 18 percent. To summarize this material I would like to -introduce 
into the record a table called "The estimated amounts of mortgage loans 
made during each year on one- to four-family nonfarm homes, and the 
distribution of this total between loans for construction and for other 
purposes, 1925 to 1938." 

Mr. O'Connell. I would like to offer this. 

Acting Chairman Reece. It may be admitted. 

(The table referred to was marked "Exhibit No. 861" and is included 
in the appendix on p. 5485.) 

Dr. Altman. It is interesting to look at the uses to which F. H. A. 
insured mortgages have been put. Previously I was dealing with all 
mortgages, whether insured or not. For the period through December 
31, 1938, we find that the F. H. A. made 363,908 mortgages, of which 


188,000 were made upon new homes "and 175,000 upon existing homes. 
Or, in other words, about 51 percent of the new mortgages insured by 
the F. H. A. were made upon new homes. 

If we turn to the value side of the picture to investigate the value 
of the mortgages insured by the F. H. A. vre discover that one and a 
half billion dollars of loans were insured oy the F. H. A. through 
December 31, 1938. Of this total $878,000,000 was placed upon new 
homes and\$651, 000,000 upon existing homes, so that approximately 
57 percent of the total F. H. A. insured mortgages was placed upon 
new homes. 

Mr. Henderson. In other words, the mortgages on the new homes 
tended to be slightly higher than the mortgages on the old homes? 

Dr. Altman. Yes. 

Mr. Henderson. That is what the record shows? 

Dr. Altman. Yes, by number of mortgages 51 percent, slightly 
more than half, was upon new homes; by value, 57 percent was upon 
new homes. To summarize this material I would like to offer a table 
called the "Distribution by new homes and existing homes of new 
mortgages accepted for insurance by the F. H. A. through December 
31, 1938." 

Mr. O'Connell. I should like to offer this. 

Acting Chairman Reece. It may be admitted. 

(The table referred to was marked "Exhibit No. 862" and is 
included in the appendix on p. 5485.) 

Mr. Chawner. May we ask a question on the current activity? 
I understand for the year 1938 the percentage developed on new 
property was considerably higher. Do you have the figures for the 
year just passed? 

Dr. Altman. I don't have the figures for any period shorter than 
the period from the inception of the F. H. A. through December 31, 

Mr. O'Connell. Dr. Altman, I should like to ask you just one or 
two general questions on interest rates. Could you give us any 
general information on the difference between contract rates, so- 
called, and effective rates, speaking of interest rates, on mortgages? 

Dr. Altman. One of the pitfalls in the field of trying to discover 
what the interest-rate structure upon one- to four-family nonfarm 
homes is the fact that the mortgages carry a certain rate of interest 
upon their face; which may be 5 or 6 or some other percent, but this 
percentage is called the contract rate of interest. On the other hand, 
there are various expenses involved in getting mortgages, such as 
fees and brokerage and perhaps expenses of one kind or another, 
perhaps renewal commissions of one type or another, depending 
upon who makes the loans and where the loan was made, so that actu- 
ally the cost to the borrower is greater than is indicated by the face 
value of the interest rate shown in the mortgage itself. 

In order to determine what the cost to the borrower actually is, 
one should take into account all these additional expenses involved 
in carrying and servicing the loan. The figure that indicates what 
the cost of the loan actually is to the borrower is called the effective 
rate of interest which takes into account both the contract rate of 
interest and such expenses as are involved in carrying the loan, 
taking into consideration the length of the loan, the length or maturity 
of the loan. 


Mr. O'Connell. As I understand it, the contract rate is the stated 
rate of the mortgage. 

Dr. Altman. That is right. 

Mr. O'Connell. The effective rate is the 1 actual cost to the bor- 
rower and it would, I take it, almost invariably be higher tnaft the 
contract rate because it would include things not included in the 
contract rate.. 

Dr. Altman. That is right, and it would invariably be higher. 

Mr. O'Connell. I take it also in many cases the effective rate is 
a thing that might not be known until the mortgage had been paid. 

Dr. Altman. That is right, because sometimes you have contin^ 
gent charges based upon the fact that, for example, you may be 
delinquent for a month or 2 months in your payment and that may 
entail a penalty. What the mortgage actually cost the borrower 
depends upon whether during the life of the mortgage he met all his 
payments on time or was delinquent one or two times for a month or 
two on his mortgage-interest payments. 

Mr. O'Connell. You haven't any accurate information on what 
the effective interest rates have been or what the trend has been in 
recent years? 

Dr. Altman. Jt is extremely difficult to offer any very satisfactory 
information on what the interest rate structure on mortgages covering 
one- to four-family nonfarm homes is at the present time or has been 
in the past. It is easy to note from the discussion of effective interest 
rates that has just been concluded that it is very difficult to determine 
just what the charges are, and no really thoroughgoing surveys of the 
situation have been made. I have collected a few scattered bits of 
information, not all of which are precisely on the same basis, so that 
comparability is difficult, but the available evidence seems to indicate 
that there has been a substantial decline in effective interest rates on 
mortgages covering the one- to four-family nonfarm homes in recent 

In 1931 a compilation was made of the effective interest rates 
charged by savings and loan associations. This compilation was 
based upon reports that were made to the finance committee of the 
President's Conference on Home Building and Home Ownership. As 
of 1934, a survey was made covering 52 cities by Mr. David L. 
Wickens. These data were compiled and published in a volume called 
Financial Survey of Urban Housing. 

As of 1936 a survey was made by the Federal Home Loan Bank 
Board covering the effective rates charged by Federal savings and loan 

I have compiled these series into a table called "Effective interest 
rates charged by savings and loan associations in 1931, all lenders in 
52 cities in 1934, and Federal savings and loan associations in 1936," 
and this table I would now like to introduce into the record. 

Acting Chairman Reece. It may be, admitted. 

(The table referred to was marked "Exhibit No. 863" and is included 
in the appendix on p. 5485.) 

Dr. Altman. It is evident from this table that in district 1, for 
example (I am using the districts as adopted by the Federal Home 
Loan Bank Board reports), including Connecticut, Maine, Massa- 
chusetts, New Hampshire, and Vermont, the effective interest rate 
charged by savings and loan associations in 1931 was 6.5 percent. 

.124491 — 40— pt. 11 r9 


The Wiokens study showed that in the same district the effective 
interest rate charged by all lenders in 1934 was 5.88 percent. The 
Federal Home' Loan Bank Board report indicates that by 1936 the 
rate was 5.7 percent as charged by Federal savings and loan associa- 

As you go through the various districts into which the country is 
divided you find similar though not equal reductions in effective in- 
terest rates from 1931 through 1936. The greatest absolute decreases 
took place naturally enough in those districts which had the highest 
rates in 1931. District 10, for example, which includes Colorado, 
Kansas, Nebraska, and Oklahoma, had an effective interest rate 
charged by savings and loan associations in 1931 of 9.4 percent. The 
Wickens study indicated that the effective rate was 7.12 percent in 
1934, and the Federal Home Loan Bank Board indicated that this 
rate was about 7 percent in 1936. I can't stress too greatly, however, 
the fact that these data are not strictly comparable and that there is 
no really good series for the United States or for any part of the United 
States indicating what - the decline in interest rates has been in recent 

The difficulty in all this presentation of rates is that you are really 
not dealing with a comparable commodity through time. In one year 
the interest rates may reflect mortgages based upon 60 percent of the 
appraised value ; in recent years the percentage of the appraised value 
has tended to rise, so that now you are dealing with loans made upon 
75 or 80 or 85 percent of the appraised value. In addition, the ma- 
turity has changed, the amortization provisions have changed, and 
the expenses have changed. 

Mr. Henderson. And the insurance factor has entered. 

Dr. Altaian. And the insurance factor has entered into the picture, 
so it is extremely difficult to state what the effective interest rate is. 
Before I say that I should add that in addition you are faced with a 
wide diversity of conditions throughout the United States. The 
mortgage market is an extremely diversified, localized market, so that 
there is no one rate which states what the situation is in any one State 
or even in any one city. 

As a result of all this, it is an extremely difficult statistical problem 
to determine what the effective rate structure is, and of course it is 
even more difficult to establish the. changes in effective rate structures 
through time. 

Acting Chairman Reece. How does the appraised value affect the 
interest rate? 

T)r. Altman. It affects the interest rate through t-he risk. That is 
to ^say, if you have a loan made upon a property to the extent of 50 
percent of its appraised value, the risk is substantially less than if the 
loan is made upon 80 percent of its appraised value. Now, so far as 
the home owner is concerned, it affects him in the following way: If a 
homb owner built or bought a house, let's say, on which there is a 
first mortgage of 50 percent of the appraised value, you have a certain 
effective rate. He may put in a 20-percent equity. That leaves 30 
percent to be financed by a second or third mortgage. The interest 
cost td ^he^wner of the house, the effective interest cost, which is the 
only thing "ue is interested in, consists in the amount of money he has 
to pay onVth mortgages over and above his equity. Now, if you have 
a first mortgage to the extent of 80 percent of the appraised value, 


there is no need for second and third mortgages, so that as you step 
up the percentage of first mortgages to the appraised value of the 
property you increase the risk factor involved in first mortgages and 
at the same time you reduce the cost to the owner of the property 
because of the fact that you eliminate the necessity of paying higher 
interest charges upon second and third mortgages. In other words, 
then, I should think that what we would need in this particular situa- 
tion would be a thoroughgoing study to determine what it costs a 
typical mortgagor in various parts of the country at various times to 
finance his home ownership, taking into account the fact that the 
relative importance of first, second, and third mortgages has changed 
through time. 

Mr. Henderson. Taking into account also the fact that the second 
mortgage is a very expensive mortgage to obtain on account of fees 
and charges which are added to it. 

Dr. Altman. Yes. 

Mr. Henderson. Which are not always computed in the interest 
rate itself. 

Dr. Altman. Exactly. 

Mr. Henderson. The difference in the effective rate on the 90- 
percent mortgage, the first mortgage, compared with the rate on the 
50-percent mortgage, with a second and probably a third mortgage, 
in the old days was tremendous. Sometimes a mortgage of 85 to 90 
percent had a rate of 7 r 7.5 or 8 percent. That would be much 
cheaper for the borrowf ohan a nominal rate_on the first mortgage 
of, say, 6 percent, witL fhe additional expense of second and third 

Dr. Altman. Yes. To summarize what you have said, Commis- 
sioner, with respect to the material I have introduced, when you indi- 
cate that the effective rate was 6.5 in 1931 for .district 1 and 5.7 
percent in 1936, the decline in the cost to the borrower may actually 
have been greater than is indicated by this situation because in the 
latter year it was unnecessary for. him to go into the market and get 
a second or a third mortgage. 

Mr. Henderson. Well, apart from the statistics, if you had to 
make your best guess, you would say, would you not, that there had 
been a downward trend in the effective rate? 

Dr. Altman. There has been a downward trend in the effective 
rate on first mortgages and this downward trend is even greater than 
has been indicated through the fact that the percentage that the first 
mortgages represent of the appraised value has gone up. 

Acting Chairman Reece. Has there been much loss on first mort- 
gages in the past? 

Dr. Altman. I don't know. That is a very difficult question to 

Acting Chairman Reece. I had in mind my recollection of a state- 
ment that one of the witnesses made yesterday with reference to life- 
insurance companies in particular which as I recall was to the effect 
that there had not been, that while the institution held a good deal 
of property, when it was sold it usually brought the amount of the 
mortgage plus expenses. I am not sure my recollection is correct. 

Dr. Altman. I am not prepared to say. There is such a diversity 
in this field, because some of the agencies lend more strictly than others, 


they lend to different types of property and different size mortgages. 
Then you have the additional factors that the future trend of prices 
influences the amount of loss that they take; the amount of service 
that they are prepared to extend to the property varies. I would not 
be prepared to make any general statement as to what the losses were. 

Mr. Henderson. From your study, however, of the mortgages 
held by various types of agencies, would you conclude that all the 
losses that have taken place have not been realized or written off yet? 

Dr. Altman. That would be a guess not supported by any of the 
material I have introduced so far. I should suspect that there prob- 
ably are some unrealized losses with regard to existing mortgage debt, 
that whether these losses will ever be taken or not depends upon what 
the future trend of real-estate values will be. If real-estate values 
rise, the present unrealized losses may never have to be taken. If 
they fall, we will not only have to take some of the unrealized losses 
as they exist at the present time but take c 'lers that aren't even on 
the books. 

Mr. Henderson. When you get a substantial institution which can 
carry a mortgage in default for a long period, it is the hope that it 
will come back. You do have a certain amount of unrealized loss 
carried because of the strength of the institution which carries it. 

Dr. Altman. Yes. I should say that in general to the extent that 
you have an institution which can finance and carry real-estate hold- 
ings over a long period of time, the chances are better that they can 
emerge from that situation without taking any loss either on the 
properties they acquire or on the mortgages they hold than if they 
would have to liquidate on a distressed market. 

Mr. O'Connell. I have no further questions of this witness. 

Mr.-CHAWNER. On the point that Mr. Henderson was just discuss- 
ing, wouldn't you say that the worth of the mortgage is not determined 
by the income of a given year and that one has to consider the income 
and the worth of the property underlying the mortgage over a given 
period? If in 1933 it had been necessary to sell many properties or 
to estimate their worth on the basis of the current income, in many 
cases it would have been less than nothing, but the value or the worth 
of these underlying mortgages depends upon income of the properties 
over a given period of years, so that what the life-insurance companies 
have attempted to do is to take over these properties, not force them, 
but to settle in a more favorable market when the income and the 
value of the property is higher. That is the very nature of the case, 
is it not, in a mortgage obligation? 

Dr. Altman. That must necessarily be so. If you have a property 
which is capable of giving income, or its equivalent, service, to some- 
one or other over a period of 20 years, the" value of that property con- 
sists of the value of all its future services, of all its future income, and 
not merely of the incomes in any one year. It would be a great mistake 
to value a property that would last 20 years by the income that it 
would give this year or next year or merely for the next 3 years. 

Mr. Henderson. To add to that, of course with a declining rate 
of return on other kinds of investment, a declining income even in 
one period might make a property a valuable asset for an insurance 
company or a savings-bank mstitution to maintain. Even though 
the stipulated rate of interest is not paid on the mortgage it may 
recapture enough to make it a more favorable investment than the 
securities of municipalities or the Federal Government. 


Dr. Altman. The relative attractiveness of mortgages in the in- 
vestment of, say, life-insurance companies depends upon what other 
things they can put their money into. The mere fact that the con- 
tract rate, let us say, upon a mortgage has fallen from 5 to 4.5 percent 
doesn't mean that mortgages are necessarily less attractive than they 
were in the preceding period if at the same time the yield on Jugh- 
grade bonds falls from 4 to 2 percent, so that you may find yourself 
in the incongruous position of finding that mortgages — I am not saying 
that this is so — I am discussing a hypothetical situation — are rela- 
tively a more attractive investment despite the fact that the yield on 
mortgages has fallen, because the yield on other securities has fallen 

Acting Chairman Reece. Are there any other questions? 

(The witness, Dr. Altman, was excused.) 

Mr. O'Connell. I should like to call Mr. R. R. Rogers. 

Acting Chairman Reece. Do you solemnly swear that the testi- 
mony you shall give in this proceeding shall be the truth, the whole . 
truth, and nothing but the truth, so help you God? 

Mr. Rogers. I do. 



Mr. O'Connell. Mr. Rogers, will you state your name and address 
for the record? 

Mr. Rogers. R. R. Rogers, Newark, N. J. 

Mr. O'Connell. You are ar vice president of the Prudential 
Insurance Co.? 

Mr. Rogers. That is correct. 

Mr. O'Connell. And for the past 11 years in charge of their 
mortgage-loan department. Is that correct? 

Mr. Rogers. Substantially correct. The last 4 or 5 years .in 
charge; prior to that second in command. 

Mr. O'Connell. I should like to ask you a couple of general 
questions along the line of some of the testimony that was introduced 
in the past 3 or 4 days before going to the thing that we wish to discuss 
in detail, the finance charges and interest rates. 

Are you in accord with the view expressed by a number of previous 
witnesses that there is an actual need for new dwelling accommoda- 
tions on the one hand and that there are large accumulations of in- 
dividual savings seeking investment on the other? 

Mr. Rogers. Yes. 

Mr. O'Connell. You have no quarrel with that general proposi- 
tion. Are you also in accord with the view expressed by previous 
witnesses that the construction industry is not at the present time 
supplying any substantial amount of adequate dwelling accommoda- 
tions for persons in the so-called middle-income group, by which I 
mean persons or families having an income, of less than $2,000 a J . s r? 

Mr. Rogers. Correct. 
~- Mr. O'Connell. Do you believe, from your experience, .that there 
has beep a moderate increase in residential construction over the 
past 3 years? 

Mr. Rogers. Yes. 


Mr. O'Connell. To what do you attribute this increase? 

Mr. Rogers. I would say first probably to the influence of F. H. A. 
insured loans up to 80 or 90 percent of the appraised value. The 
normal increase in residential building from necessity or from choice, 
a substantial reduction in interest rates on mortgage loans combined 
with corresponding decreases in initial financing charges. And 
fourth, long-time self -amortizing loans reducing the annual cost of the 
debt service. . I don't know in what order they come, but I would say 
that the F. H. A. insured loans probably come first. 

Mr. O'Connell. Well, now ail of the factors that you have men- 
tioned other than the one related to what you call necessitous build- 
ing seem to be factors which have had a bearing on cost, is that 

Mr. Rogers. Yes. 

Mr. O'Connell. You refer to F. H. A. loans? 

Mr. Rogers. That is right. 

Mr. O'Connell. F. H. A. loans. 

Mr. Rogers. Cost or margin, I would say the narrow margin of 
security and the large margin of loans, that wouldn't have anything 
to do with cost. 

Mr. O'Connell. I don't know, I am asking you. 

Mr. Rogers. I would say that 80 or 90 percent loans being insured 
by the F. H. A. has nothing to do with the cost. 

Mr. O'Connell. But must it not be it produces more prospective 
home owners because it opens the market for persons who could not 
finance the construction of a home before. 

Mr. Rogers. That is right. 

Mr. O'Connell. In that sense it is hitting a group or demand 
that was not satisfied or could not be satisfied before? 

Mr. Rogers. Oh, yes. 

Mr. O'Connell. In that respect it affects the cost I should think. 

Mr. Rogers. Well, perhaps it does; perhaps it doesn't. Let it 

Acting Chairman Reece. Pardon. Would you kindly remember 
to talk into the microphone. 

Mr. O'Connell. Not considering for the moment what particular 
items of cost any reduction could best take place, in your opinion 
would a substantial reduction in the cost of home ownership con- 
tribute toward a further expansion in the field of residential con- 

Mr. Rogers. Very materially. 

Mr. O'Connell. Previous witnesses have discussed costs from two 
angles,, one being the capital cost of a -house, the other being what 
they have referred to as annual costs by which I understand them 
to mean the amount per month which it would cost either the renter 
or the home owner to meet his monthly or periodic obligations. 
Those are two somewhat different ways of approaching the cost 
problem. Have you any belief or feeling as to the relative importance 
of the two? 

Mr. Rogers. Will you kindly state the question again? I got 
rather lost in the maze of it. 

Mr. O'Connell. I am sorry. Witnesses have discussed costs on 
two bases, one capital cost of the house, construction cost; the other 
the annual costs. 


Mr. Rogers. Yes; I understand your question now. My answer 
would be that in a rather wide experience of selling some 20,000 single- 
family dwellings or duplexes that the first consideration is price, but 
that the carrying-charge situation is very important. My own ex- 
perience has been that with the average buyer, his first inquiry was 
the price; if we can't satisfy him on the price we can't in the terms; 
that is our own experience. 

Mr. O'Connell. But if you do satisfy him on the price, then you 
talk about the annual cost; I take it that his ability to acquire the 
property is pretty directly related to what it is going to cost him at 
periodic invervals? 

Mr. Rogers. I say it is very important. 

Mr. O'Connell. It is very important, but just a question of what 
you consider first; you think they talk of capital costs first; if you get 
over that hurdle you take the annual cost? 

Mr. Rogers. Pretty much the same as a man buying an auto- 
mobile; about the first thing he asks is the price and then he talks 

Mr. O'Connell. There is another general question I think you 
might want to answer. One of the witnesses who was before the 
committee yesterday gave us some figures relative to tire effect of 
certain percentage reductions in various elements of cost. Now I 
would like to refer to that testimony of Mr. Davison which was to 
the effect that a 20-percent reduction in material costs would result 
in a 9.33-percent reduction in monthly fixed charges; that a 20- 
percent reduction in labor costs would result in a 4.67-percent reduc- 
tion in monthly fixed charges, and that a 20-percent reduction in 
interest and amortization would result in a 16.6-percent reduction 
in monthly fixed charges. 1 

Have you anything you would care to say about that particular 

Mr. Rogers. No; I haven't had time to study it out. It is quite 
an involved statement. However, Mr. Fitzgerald, sitting beside me 
here, is the statistician of our mortgage -loan department and after 
hearing that testimony yesterday I asked him if he would give some 
study to that yesterday afternoon and evening, so that he might 
answer the question for me. 

Mr. O'Connell. Is he prepared to answer? 

Mr. Rogers. Yes. 

Acting Chairman Reece. Do you solemnly swear that in your 
answers to questions in this proceeding you will tell the truth, the 
whole truth, and no tiling but the truth, so help you God? 

Mr. Fitzgerald. I do. 



Mr. O'Connell. Would you state your name and address for the 

Mr. Fitzgerald. H. W. Fitzgerald, Newark, N. J. 
Mr. O'Connell. Do I need to restate the question? 

1 See supra, p. 4992 et seq. 



Mr. Fitzgerald. I think it would be well if you do, Mr. O'Connell. 

Mr. O'Connell. A witness yesterday testified to the effect that a 
20-percent reduction in material cost would result in a 9.33-percent 
reduction in monthly fixed charges; that a 20-percent reduction in 
labor costs would result in a 4.67-percent reduction in monthly fixed 
charges; that a 20-percent reduction in financing ccsts, by which I 
understood him to mean interest and amortization, would result in a 
16.69-percent reduction in monthly fixed charges. I understand he 
was speaking about the single-family home on a home- ownership 
basis. 1 

Now, the question I asked Mr. Rogers was as to whether he had any 
quarrel with the accuracy, the mathematical accuracy, of the com- 
putations or if he had anything he wished to say commenting on this 

Mr. Fitzgerald. Mr. O'Cjnnell, in the first place I would like to 
say that the problem is of a kind which involves a number of relative 
relationships. For a given set of variables the calculation would pro- 
duce the percentage decreases in the carrying charges indicated in 
your example. With every other set of variables yotr would get some- 
Vhat varying percentage decreases in the carrying charges. Now to 
comment further on the problem in general, I presume that when 
you speak of fixed charges or carrying charges you are talking specific- 
ally about interest, amortization, taxes, and insurance. 

Mr. O'Connell. That is right, and insurance premium on an 
F. H. A. loan, I believe, in the example that was used. 

Mr. Fitzgerald. Which would be a comparative^ small propor- 
tion of the total carrying charge. 

Mr. O'Connell. I understand those are the items included in the 
fixed charges. 

Mr. Fitzgerald. Now, from the standpoint of the mathematics of 
the thing, it should be perfectly obvious that inasmuch as the elements 
of interest and amortization will constitute probably from 80 to 85 
percent of the total amount of carrying charges, that a 20-percent re- 
duction of that major portion will result in a significantly large reduc- 
tion of the total carrying charge. It is a direct operation. 

Now, by way of comparison, a 20-percent reduction of the item of 
material costs which enter into the total capital outlay involved in 
producing a building will, when translated into terms of the monthly 
carrying charge, necessarily be small, and that would vary with the 
varying proportion that material represents of the total capital charge 
from case to case ; likewise in the case of labor. 

Mr. O'Connell. Well, the example cited, the, material percentage 
of capital cost is indicated to me to be 43.73 percent and the labor 
23.37 percent. As you say, those would undoubtedly vary. The 
combination of the two is slightly over 70 percent for the combination 
of the two. I take it that while there might be variances between 
labor an material, the sum total of the two would probably not be in 
excess of 70. 

Mr. Fitzgerald. Then, to generalize, let me put it this way. The 
percentage by which a given percentage reduction of material costs 
and/or labor costs will reduce the monthly carrying charge will vary 
with -the ratio of loan to value of property and it will decrease as the 
ratio of loan to value decreases. 

' See supra, p. 4902 et seq. 


Mr. O'Connell. Now, let me see if I understand that. That if the 
loan were a 60-percent loan instead of an 80-percent loan — I" believe 
these calculations are based on an 80-percent loan — if the loan were a 
60-percent loan, then the 16% percentage figure, 16.69 figure, that we 
refer to would be decreased, is that right? 

Mr. Fitzgerald. Well, to give you an example. If you will permit 
me to assume that materials plus labor represent 80 percent of the 
cost of producing the building. 

Mr. O'Connell. That is a little high, but for the purpose of the 
example, I guess we will. No evidence has been presented here that 
would indicate that in any of the actual cases cited has it been much 
more, if anj r more, than 70, but if you have an example based on 80 
we will go along with that. 

Mr. Fitzgerald. And if you will presume this example, then a 
20-percent reduction in materials and labor on a 90-percent mortgage 
would reduce the carrying charges 14.4 percent; on an 80-percent 
mortgage, 12.8 percent; on a 70-percent mortgage, 11.2 percent, and 
so on down. 

Mr. O'Connell. How much would your reduction of 20 percent in 
your principal and interest payments reduce the carrying charges on 
a 90-percent mortgage? 

Mr. Fitzgerald. Well, I would say that n your interest and amor- 
tization approximate 81 percent of the total carrying charges, then the 
carrying charges would be reduced approximately 16 percent by a re- 
duction of 20 percent in the debt service part of the carrying charges. 

Mr. O'Connell. I don't quite understand. My question was what 
percentage reduction would you arrive at if you assumed a 90-percent 
mortgage? You say that assuming a 90-percent mortgage a 20-per- 
cent reduction in labor and material costs, and there again assuming 
the labor-material constitute 80 percent of the capital cost, would 
result in x a reduction of 14 percent. I am merely trying to use the 
same figures. 

Mr. Fitzgerald. I thought you were referring to the other part of 
the problem when you asked that question. The only point that I 
want to make is that as your amount of mortgage in proportion to the 
amount of the value of the property diminishes, there is a reducing 
effect derived from the reduction of materials and labor, but I think 
that the most significant part of this whole discussion is simply this. 
You are comparing percentage changes operated on one base with 
percentage changes c-perated on another base. By that I mean you 
are comparing percentage change in carrying charges with percentage 
change in capital cost. 

Mr. O'Connell. Sure. 

Mr. Fitzgerald. Now, as a matter of actual fact, from the stand- 
point of the home buyer, in the final analysis a 20-percent reduction in 
the cost of that portion of his capital investment represented by 
materials and labor will represent a much more significant substantial 
and important savings in dollars to the home buyer in the long run 
than a 20-percent reduction in the interest and amortization. 

Mr. O'Connell. Well, I think there are any number of comparisons 
that could be made, I have no doubt. Of course, in terms of capital 
cost we cannot compare a given reduction of labor and material cost 
with a reduction in finance cost because the finance costs are an 
inconsequential item until } T ou get into the, occupancy period and we 


were discussing or attempting to see what effect these various types of 
reduction would have on what has been referred to as the rental dollar. 
I hold no brief for the particular statistics that were presented here 
yesterday. It seemed to me that they were valid. If the annual 
cost is of importance and is of prime importance to the average home 
owner, it seems to me that to compare major items that enter into that 
annual cost to see what the relative effects of each of them would be is 
a valid comparison. Now, do I understand that you don't agree with 

Mr. Fitzgerald. Well, I would say that to the extent that the 
home buyer is forced by circumstances to deal in terms as opposed to 
values, a reduction in the amount of the carrying charges would be 

Mr. O'Connell. But the home owners we are talking about are as 
a practical matter forced to deal in terms of annual cost, aren't they? 

Mr. Fitzgerald. Well, I prefer to sidestep that one ; I think it is a 
matter of circumstances with the individual. 

Mr. O'Connell. Well, we are dealing with a group of people who 
make $2,000 a year and less and while possibly you don't like the use 
of the word "forced," I mean as a practical proposition it has always 
seemed to me that the amount that that particular individual can pay 
or can afford to pay per month per year for his growing accommoda- 
tions is a very decisive factor in determining whether or not he has 

Mr. Fitzgerald. Well, yes. I would say if he is forced to pay on 
terms he is forced to take on a longer period of amortization. 

Mr. O'Connell. Why do you say longer period of amortization. 
For the purposes of comparison we contrasted financing costs, which 
means principal and amortization, with the other items. No, I 
hadn't attempted, nor had the witness attempted, to suggest how that 
reduction could be achieved at all. I think it is perfectly clear, 
though, that it could be achieved by either a reduction in interest 
rate or increase in the amortization period or a combination of the 
two, isn't that so? 

Mr. Fitzgerald. Yes; I would say that is an academic question. 

Mr. Chawner. Mr. O'Connell, it might clarify this discussion if 
you recall a comment of the preceding witness, namely to the effect 
that approximately half of the mortgage represented in most cases 
in the country as a whole, approximately half the value of the property, 
and that is the point I take it that the witness is making, that that 
is an important consideration when you are trying to compare changes 
in capital cost with changes in operating or the annual cost. One 
must consider the actual experience, that you cannot say that a change 
in operating cost operates on the total capital cost because as the 
previous witness has indicated, in most cases the loan is only half of 
the value of the property. 

Mr. Fitzgerald. The problem necessarily changes with every 
change of the set-up about which you have been talking. 

Mr. O'Connell. Can't we agree that in the example cited by the 
witness yesterday in which he took an 80-percent F. H. A. mortgage 
and took a situation of an actual house in which the combination of 
labor and material costs were 70 percent of the capital cost, cannot we 
accept as valid his comparison for whatever it is worth, that a 20- 
percent reduction in principal and interest payments, however 


arrived at, would result in a more substantial decrease in monthly 
fixed charges than would a 20-percent reduction in the cost of labor 
and material combined? 

Mr. Fitzgerald. I would agree that the statement is mathemat- 
ically correct. 

Mr. O'Connell. That was the main thing I was interested in. 
We had no discussion that was put in the record yesterday; it was 
accepted and I thought you people would have some comments on it. 

Mr. Fitzgerald. In following up and making one more comment, 
I have studied Smith & Dawson's house which was discussed in the 
evidence yesterday ' and I estimate that a 20-percent reduction in 
material and labor costs entering into that house in the final analysis 
would save the purchaser substantially more than a 20-percent 
reduction in the interest rate. 

Mr. O'Connell. Would you explain how you arrived at that? 
Do you want to ask a question? 

Mr. Henderson. Yes. I want to ask this. It is certainly true 
that 20 percent of a larger amount is greater than 20 percent of a 
smaller amount. But as to the inducements to take on a contract to 
buy a house, there is no doubt that the lowering of the monthly fixed 
charge is a great inducement, isn't that true? 

Mr. Fitzgerald. I think that is self-evidejit. 

Mr. Henderson. So if you are looking at it from the standpoint of 
the stimulus to construction, probably more impetus to home buying 
can be given by a reduction in finance charges than even the more 
substantial reduction that takes place when the cost of labor and 
material is reduced. Isn'o that correct, or didn't you follow? 

Mr. Fitzgerald. Well, I followed you, and I think you necessarily 
have to agree to the extent that the buyer is forced to rely on terms 
rather than values. 

Mr. Henderson. Do you want to say anything concerning the 
importance of terms to the borrower in deciding whether he buys a 
house or not? If he has a $2,000 income, isn't there a limit to the 
percentage that he can pay? If he could pay 80 percent of his $2,000 
income on a house in a year he could save a tremendous amount, 
couldn't ,he? That is, if he could take $1,600 out of an income of 
$2,000 and apply that toward the purchase of a house he would make a 
tremendous saving, wouldn't he? 

Mr. Fitzgerald. Yes. 

Mr. Henderson. So there is some limit, to what he can pay and if 
you can lower the monthly charge six or seven dollars it is a substantial 
item for a low-income group, and probably is an inducement to buy? 

Mr. Chawner. Would it clarify this point a little bit if we took 
an example in terms of dollars. Take the value of a $10,000 house 
which carries a $5,000 mortgage; I take it that what the witness is 
trying to say is that a 20 percent reduction in the $10,000 item, capital 
cost, would be more than a corresponding percentage change in the 
$5,000 which is the amount of mortgage loan made on the property. 
Is that the point you are making? 

Mr. Fitzgerald. Well, I think Mr. Henderson has seen the point 
very clearly and I agree with Mr. Henderson that if it is made easy 
for a person of small means to buy a home and the circumstances are 
such that he must have a home, or it is preferable that he have a 
home, that then he can buy; otherwise he can't. 

' See "Exhibit No. 854", appendix, p. 5480. 


Mr. Henderson. And he will buy, usually, isn't that it? The 
large percentage of people would buy if they could fit the down 
payment into their amount of savings and the monthly charges into 
their current income. Isn't that how you form your mortgages? 
You find some basis upon which somebody can reasonably carry 
that mortgage, and that is the inducement which leads people to 
buy houses? 

Dr. Lubin. I still don't get the mathematics of Mr. Fitzgerald's 
statement. I mean, he said that a 20 percent reduction in cost of 
materials and labor, that has an effect upon the actual cost of the 
house itself would be greater in the long run than the saving of 20 
percent carrying charges, that is interest and amortization, and I 
don't want to get into too involved a mathematical argument, but I 
was doing some figuring here and I can't find any formula by which I 
can arrive at that myself. In each instance the saving in interest of 
that amount would more than offset the saving in actual carrying 

Mr. Fitzgerald. Well, are you referring to the individual case here 
that I mentioned, or 

Dr. Lubin. Take the $2,000 house, assume that labor is 80 — labor- 
material is 80 percent of the total; it means that labor and material 
represents $1,600, according to your hypothesis, and a saving of 20 
percent there means a saving of $320; that is 20 percent of $1,600, 
which means that the cost of the house now becomes $1,680. 

So the man saved $380. He also saves on his interest rate, because 
of the fact that he now pays on $1,680 rather than on $2,000, but even 
after you figure that in for a period of 20 years, the net saving would 
not be as great as a 20 percent decline or cut in the interest rate on 
$2,000 over a period of 20 years. I can't figure out how you can get 
any example whereby you could show that a 20 percent saving in 
labor and materials over a period of 20 years would be equal to a 20 
percent cut in carrying charges over a period of 20 years. 

Mr. Fitzgerald. I think it is necessary that you make a dis- 
tinction in your carrying chaiges. The amortization part has got to 
be carried out ultimately. The only thing you can reduce absolutely 
is the interest, and possibly the taxes to some extent. 

Dr. Lubin. Yes, but let's forget taxes and consider only interest 
and amortization. I question your statement that a 80 percent 
savings in materials and labor would be greater than 20 percent 
savings in interest and amortization over a 20-year period. 

Mr. Fitzgerald. The problem again will have to be qualified by 
the interest rate you use and all the terms incident. 

Dr. Lubin. I will grant all those. I wish you would submit for the 
record at your leisure a mathematical calculation that will show 
that to be true. 1 

Mr. O'Connell. I understood you had made some sort of calcu- 
lation based upon one of the houses discussed yesterday while Mr. 
Dawson was on the stand. 

Mr. Fitzgerald. Of course the problem has come up quickly, and 
there has been comparatively little time to make an exhaustive 
analysis of all possible cases, but I say that in connection with the 
Smith-Dawson house I estimated that a 20 percent reduction in the 

1 Mr. Fitzgerald subsequently submitted an explanation of the figures in question, see his letters dated 
July 6 and July 8, 1939, to Mr. Joseph J. O'Connell, Jr., which appear in appendix, pp. 5590 and 5591. 


amount of materials and labor, as indicated by the exhibit that was 
submitted, would ultimately represent a greater savings in dollars to 
the buyer of that house, than would a 20 percent reduction in the 
interest rate. 

Now I might qualify that further by saying that that was figured on 
the usual F. H. A. mortgage set-up of a 90 percent mortgage on 
$4,800 payable at the rate of 5 percent interest, with a fixed monthly 
payment of $6.60 for interest and amortization. 

Mr. O'Connell. Let's agree, unless Dr. Lubin wants to go further 
with it, that since there seems to be a very definite cleavage between 
you — and I frankly don't think we ought to pursue it in detail here, 
we would all have to sharpen our pencils and probably would get even 
more confused — and since the gist of your statement is that by your 
computations a 20 percent reduction in labor and material on this 
house to which we have referred would result in a greater percentage 
of reduction in annual or fixed charges than would a comparable 
reduction in interest— do you mean interest charges? 

Mr. Fitzgerald. I said a 20 percent reduction in the interest rate. 

Mr. O'Connell. Well, that, of course, is a little different from the 
thing we were talking about, too, but let's agree that you will give us 
some accurate figures in explanation of that viewpoint of yours, based 
on this assumed savings in interest alone, which of course is something 
other than what we were talking of before, and submit it for the record 
a little later. 1 

Acting Chairman Reece. That may be done. 

Mr. O'Connell. I think we probably have discussed this particular 
phase of the problem long enough, so if there is no objection on the 
part of the committee, I would like to return to Mr. Rogers and get to 
talking about the. thing I am sure Mr. Rogers wants to talk about, 
and I am sure we want to hear him talk aboiit, and that is interest 

Mr. Blaisdell. Could I finish the line of questioning, not along 
these particular lines, but along a slightly different fine? I will be 
perfectly happy to have Mr. Rogers answer the question. It has 
been indicated that if certain changes were made, either in capital 
costs or in carrying charges, there could be a reduction in the cost to 
the user of the house. Now the emphasis has been on the fact that 
there could be such changes. I would like to ask Mr. Rogers whether 
these changes actually do take place and what the person who is 
buying or paying for the house on time will actually pay. 

Mr. Rogers. I don't think I can answer the question. All I can 
say is that over the period of the last 5 years there has been a reduc- 
tion, a large reduction, in interest rates, probably more than 20 
percent, and a reduction of initial financing costs, and a lengthening 
of the amortization period, all of which has benefited the buyer in the 
reduction of carrying charges, if that answers your question. 

Mr. Blaisdell. Unless there has been a comparable increase in 
the total value, which I think is the word that was used, so that the 
one offsets the other. 

Mr. Rogers. You mean to say unless there has been a comparable 
increase to the comparable decrease in the cost of construction, 
materials, labor, and that sort of thing. 

1 See data subsequently submitted, appendix, p. 5590 and 5591. 


Mr. Blaisdell. No; I am saying in the value placed on the prop- 
erty. It is conceivable that the value goes up when the other items 
go down, so that you have the same charge, in fact, in absolute 

Mr. Rogers (interposing). What you are saying really is that when 
interest rates reduce you can capitalize the property at a reduced 
capitalization factor and therefore it is worth more. Theoretically 
I think it is sound. 

Mr. Blaisdell. You are a practical mortgage man, and I am asking 
you what happens in the actual transactions in property. 

Mr. Rogers. Practically, I don't think it has had very much effect. 

Mr. Blaisdell. You don't think these reductions have had much 
effect in the absolute costs to the person who is getting the house? 

Mr. Rogers. No. I think it is — well, I don't know whether I 
would say that either. Of course, as interest rates have been reduced 
that has been a savings, hasn't it? As amortization has strung out 
longer, that has not been a savings. He eventually has to pay it, of 
course, but it has reduced his carrying charges, and quite likely by 
virtue of those two facts has increased the desirability of owning a 
home. Now if you are asking a question as to whether it has increased 
the value of that home, I doubt it. It should, but I don't believe 
practically it has. 

Mr. Blaisdell. I am not dealing now with capitalization. I am 
dealing with the market for houses. 

Mr. Rogi rs. Well, that is a very competitive subject,, of course, 
and it is subject to all sorts of extraneous things. Perhaps you would 
be surprised to know that sales of houses, the market value of houses, 
if you want to put it that way, has moved up and down with these 
war scares. Do you believe that? 

Mr. Blaisdell. I will take your word for it. 

Mr. Rogers. It is a fact. I say that there are so many factors 
that enter into that situation that I don't think I can give you a com- 
plete answer to the question you are asking. I would like to. 

Mr. Blaisdell. The thing I am really concerned with is the extent 
to which and the speed with which these changes in the charges to 
the actual user of the house reflect themselves in the absolute charges 
to him. 

Mr. Rogers. The speed with which they do it? I should say just 
as soon as you put the thing into effect, and it has been gradually 
coming into effect over the last 5 years, and it is still going on. Inter- 
est rates are still declining; amortization is being strung out for still 
longer periods. It is a continuation of a situation which has existed 
for some years in the past and is continuing at the present time, and 
I agree with Dr. Lubin and Mr. Henderson that all of these things 
have increased the salability of homes, created a desire on the part 
of home purchasers to buy them. 
. Mr. O'Connell. Let's talk a little bit about interest. 

Mr. Rogers, would you explain to the committee what you conceive 
to be the major elements which determine mortgage interest rate:, 

Mr. Rogers. Yes, and I would like to preface it by saying I am 
neither an economist nor an actuary, and whatever opinion I give of 
course must be a layman's opinion. 


Mortgage loan interest I think embraces three important factors: 
First, the cost of money; second, the risk involved in lending that 
money ; and third, the cost of doing business. 

Mr. O'Connell. And when you add the three you get what the 
interest rate is. 

Mr. Rogers. Yes. 

Mr. O'Connell. Let's elaborate a bit on the cost of money. 
Going a little bit more in detail, what is the cost of money to an 
insurance company, or to your company? 

Mr. Rogers. Well, I will give a layman's answer to that, because 
I puzzled on it a little bit last night, and it may be entirely incorrect. 
I will just give what I think it is, as far as an insurance company is 
concerned; that amount, in addition to other factors, such as premium 
income, savings in mortality, and perhaps other factors of which I 
don't know, which must be earned to mature insurance contracts. 

Mr. O'Connell. Is that intelligible to you? 

Mr. Henderson. I am afraid either I was wool-gathering or I 
missed it. Will you go over it again? Will you ask the question 
again and have the witness respond again? 

Mr. O'Connell. I will ask Mr. Rogers again if he will tell us what 
he means by the cost of money as applied to insurance companies. 

Mr. Rogers. And my answer was: That amount in addition to 
other factors, such as premium income, savings in mortality, and 
perhaps other factors, which must be earned to mature insurance 

Mr. O'Connell. Do I understand, then, that there is a sum, cer- 
tain or uncertain, which must be earned on mortgages to carry out 
your insurance contracts? 

Mr. Rogers. I can't say a sum certain, because mortgages are only 
one of our investments, but I would say sufficient must be earned on 
mortgages and on other investments to accomplish the purpose for 
which insurance is created, and that is the payment of death claims 
or surrender values. 

Mr. Henderson. Let me ask you this. In your department, does 
the comptroller make you a rate? 

Mr. Rogers. No. 

Mr. Henderson. He doesn't; as in a bank, for example, when it 
is laying off funds for the operation of some department, it frequently 
has a charge of a fixed rate. You don't get that from the comptroller? 

Mr. Rogers. No; the department is entirely independent of all 
other departments, and interest rates, of course, vary in the types of 
securities which we accept on mortgage security. 

Mr. Henderson. Do you have a sort of rule of thumb of what 
your recapture rate has to be? 

Mr. Rogers. No; I never even give it a thought. 

Mr. Henderson. You are guided more by the market? 

Mr. Rogers. By competition. I should say this, that if our mort- 
gage interest rate was an unsatisfactory situation, that our actuarial 
department would probably call it to our attention, or call it to the 
attention of the board of directors, and we might be instructed to 
cease or go ahead or stop or slow down. 

Mr. Henderson. Which might lead you to believe that you have 
a slight working margin, at least. 


Mr. Rogers. I think so. 

However, I would like to touch a little on that subject of cost and 

Mr. O'Connell. We had only discussed the first item of the three. 
We are going to take all three, are we not? I think we will probably 
come back to the cost of money. I am not entirely clear yet as to 
what the cost of money is to insurance companies. 

Mr. Rogers. I am liot either. 

Mr. O'Connell. It certainly isn't a contractual obligation on the 
part of insurance companies to obtain a certain specific percentage of 
returns on their investments. 

Mr. Rogers. You are getting over my head, and I think I will 
have to stop where I am. It is really an actuarial question, and I 
am not an actuary. Mr. Henderson could answer that. I frankly 
don't know. 

Mr. Henderson. I will pass too. 

I think I have a working knowledge, and I thought perhaps the 
witness had gone into it. He answered my question all right. 

Mr. Rogers. Frankly, I was hoping to be helped out, Mr. 

Mr. Henderson. I would say your company certainly ought to 
have the competence to compute that, because they do a lot of com- 
puting in the course of a day, as some of the testimony on other 
matters has shown. 

Mr. Rogers. I don't know that .they don't, as a matter of fact. 
All I say is that the department is entirely separate. I am positive 
that I would hear from our actuarial department through the proper 
sources if our mortgage interest rate was not satisfactory. 

Mr. ; Connell. Now, the second element that you referred to as 
going to make up mortgage interest rates generally is what you call 
the risk factor. What would you care to say about that? 

Mr. Rogers. Perhaps the best expression of such risk is found in 
the practical experience of one large lender in 1938, the Prudential. 
Total mortgage loans in force 

Mr. O'Connell (interposing). You are quoting from something? 

Mr. Rogers. It is a precise answer, and I would rather read from 

Total mortgage loans in force plus unsold properties acquired by 
foreclosure aggregated $1,145,000,000. The gross return from interest 
was $45,529,000, and the net return from rentals on foreclosed proper- 
ties was $2,932,000, or a total return of $48,452,000. 

Dividing the amount received represented by loans and properties 
into the amount received by way of interest and rentals, leaves a net 
yield of 4.35 percent, out of which operating expenses of approximately 
one-half of 1 percent have yet to be deducted, leaving an approximate 
net yield of 3.85 for that year on the total amount involved in the 
mortgage loan account of mortgages and properties 

Mr. O'Connell. What year was that? 

Mr. Rogers* 1938. The point I am trying to make is that it 
isn't the stated rate in the mortgage that matters so much as the rate 
finally collected after risk of loss and expenses have been deducted, 
and that is always a very much lower figure than the stated rate over 
a period of time. - 


Mr. O'Connell. Could you tell us what the stated rate was on 
that group? 

Mr. Rogers. In 1938 our average lending rate was 4.83. 

Mr. O'Connell. The amount collected is on a basis of 4.35? 

Mr. Rogers. That's right. 

Mr. O'Connell. Is the difference between 4.83 and 4.35 what you 
would call percentage attributable to risk? 

Mr. Rogers. No ; I would say the amount attributable to risk would 
be the less amount received from rentals, less percentage of interest 
that was received from that amount represented by properties owned 
than the interest rate on mortgages. In other words, had those 
properties, that $200,000,000 worth of property 

Mr. O'Connell (interposing). Is that the amount owned? 

Mr. Rogers. Roughly. Had those properties remained mortgages 
at 4.83, then we would have got the stated rate. But as a matter of 
fact when we take our existing mortgages, which were assumed to be 
: jx good standing, paying 4.83, and our foreclosed properties, on which 
we are receiving rentals after deducting the expense of the operation 
of the department, the net yield that we would turn over to the 
actuarial department would be 3.85 for that year. 

Mr. O'Connell. Having deducted one-half of 1 percent cost of 
doing business. But isn't it a valid comparison to compare the 4.83 
percent, the stated rate, with 4.35, as the realized rate? 

Mr. Rogers. Realized on mortgages. 

Mr. O'Connell. Well, the 4.35 is realized on mortgages and owned 
property, and it is diluted by the ownership of the property, isn't it? 

Mr. Rogers. That is true. 

What I am really trying to show— I don't know whether this is or 
what is the best method of determining what the risk factor is, because 
the year before it would have been greater and the year before greater, 
because our property has been coming up in terms of rentiDg power. 
What I am pointing out is that there is a risk element. I have not 
devised any better way of determining what that risk element is than 
to take a certain year. If I had time I would like to go back 5 years, 
and I feel sure the net return of 3.85 would probably be substantiated 
because the earnings on mortgages were higher during those years. 

Mr. O'Connell. When you' talk about 3.85, that embraces the 
third element, cost of doing business, so that while it may be very 
rough, if we compare the stated rate on mortgages with the realized 
rate on mortgages and unwillingly held property, you get a difference 
of 0.48, the difference between 4.83 and 4.35. Would it be fair to say 
that 0.48 percent is the part of the interest rate which is attributable 
at that period to risk? You were talking about risk. 

Mr. Rogers. Again I would say I am not an actuary, but I would 
say that would be substantially correct, but I think you would have 
to take it over a period of years to get any realistic facts out of it. I 
have given the committee the best I know on the subject. 

Mr. O'Connell. I am not much of a mathematician myself, but 
we have had three elements of interest cost: Cost of money, risk 
involved, and the cost of doing business, and they add up to what 
your contract rate would be, which in 1938 was 4.83. 

Mr. Rogers. Right. 


Mr. O'Connell. 4.83. We have 0.5 percent for the cost of doing 
business, 0.48 percent for risk, and the balance, which would be 3.90 
percent, attributable to the first item. Is that right? 

Mr. Rogers. My own figures say 3.85. Anyhow, it is substantially 
correct, whatever difference there is between the two for purposes of 

Mr. O'Connell. That's right — 3.85 — so that speaking roughly, we 

find that of the elements that go to make up the interest rate, 0.5 

percent is chargeable to the cost of doing business, 0.48 percent is 

chargeable to risk, and 3.85 percent is chargeable to the cost of money. 

(The witness nodded in the affirmative.) 

Mr. O'Connell. Just to clarify my understanding as to what this 
iiWudes, this mortgage portfolio of yours includes other than resi- 
dential housing, including 

Mr. Rogers. Oh, yes— everything, farms, everything. The total 
amount quoted here on receipts from interest and from rentals in- 
cludes our total amount of interest received on all mortgage invest- 

Mr. O'Connell. On all mortgage investments, residential and all 
other sorts? Of course, the percentage of that total portfolio which 
would be F. H. A.-insured mortgages would be how large? 

Mr. Rogers. At the year-end I would say $32,000,000. About 40, 

Mr. O'Connell. At the end of '38, which is the period we are using, 
32 millions out of a portfolio of a billion one forty-five? You have no 
way of breaking down the billion one forty-five into residential prop- 
erty and commercial and farm? 

Mr. Rogers. Had I known that you wanted that information and 
had had plenty of time, I think we could have. It would have in- 
volved running about 125,000 cards through the Hollerith machines. 
It is quite a job to get it. 

Mr. O'Connell. Apparently, without going to a great deal of 
trouble we couldn't determine what the stated rate is or the effective 
rate, or the risk factor on residential property, could we? We couldn't 
isolate it very easily. 

Mr. Rogers. No; I would say this, however, that our mortgage 
account is, in number, 90 percent residential loans or apartment 
houses, and in dollar volume — what? 

Mr. Fitzgerald. In dollar volume approximately 60 percent, I 
should say, residential, as opposed to the other type of property. 

Mr. Henderson. That means 10 percent of the number of your 
loans would be nonresidential, but 40 percent by volume. 

Mr. Fitzgerald. I think that does not apply to include the farm 
account with the city account. 

Mr. Rogers. I will say this, that if you want to set us a problem 
and tell us exactly what it is you want, I will be very glad to get the 
information for you and send it down for the records. 

Mr. O'Connell. I was merely trying in line with the first question 
you answered by giving me the three elements, to bring out as well as 
I could the relative parts of the total each of the three elements plays, 
and I think that the last questions merely indicate that we have to 
remember, in using the figures, that other than residential property is 
included in the mortgage pro tf oho. I don't know; if the mortgage 
portfolio were divided up so that we were dealing with residential 


mortgages only, that it would have a very different picture, and I 
don't suppose you do either. 

Mr. Rogers. I don't. 

Mr. Henderson. What is your stated rate on residential property? 

Mr. Rogers. Are you speaking of F. H. A.'s or conventional loans, 
or whatnot? 

Mr. Henderson. The conventional loans you make direct. 

Mr. Rogers. I would say it was governed by competition. The 
insurance company is a very small factor in the lending business. 
They lend all over the country. Local people must be served first, 
and when you say "What is your effective rate or your stated rate?" 
it would have something to do with the ratio of loan to appraisal. If 
someone came to us with a fine 50-percent loan,T don't doubt, under 
competition, that we would go to 4 percent. * If it was a 60-percent 
loan, conventional, I think we would go to 4.5. So far on our F. H. A.'s 
we have bought large-scale housing stuff at 4.25, some of it, most of 
it at 4.5. • On the small stuff we have tried to stick very close to a 5- 
percent rate, but are now paying a substantial premium to get that 

Mr. O'^onnell. You mean you pay a substantial premium to the 
approved mortgagee from- whom you buy the insured mortgage? 

Mr. Rogers. Or broker, and in addition to that are allowing him 
a differential in interest. 

Mr. Henderson. How would that compare with a conventional 
loan, say, in 1928? 

Mr. Rogers. You mean the F. H. A. rate? 

Mr. Henderson. No; your own conventional rate. 

Mr. Rogers. I would say that our interest rate structure is re- 
duced in that period about 20 percent. . 

Mr; Henderson. About 20 percent? 

Mr. Rogers. That is rough. X would say that the earning power 
of the entire account, going back to 1926, was pretty close to 6 per- 
cent, and the earning power of the entire account at the present time 
is very likely slightly under 5. 

Mr. O'Connell. Referring to the F. H. A. mortgages, have you 
any information as to the extent to which you are currently using 
F. H. A. insurance in your residential-mortgage loans? 

Mr. Rogers. I don't believe there is. Of our new money, prob- 
ably 30 percent is going into F. H. A., and I wish it was 40. 

Mr. Henderson. That is a little higher than the average for all 
insurance companies, which Mr. Altman showed is 16 percent. 1 

Mr. Rogers. I think that is entirely accounted for by our mortgage 
loan set-up, in that we have branch offices and they don't — and we 
have better facilities for getting them. 

I would like to say at this time that there is certainly nothing 
critical in the testimony I am giving you regarding the F. H. A. 
I think they are doing a fine job. and we think a great deal of the 

Mr. Henderson. I think we ought to say at this point that the 
resolution which created this committee specified directly, as I recall, 
that we were to inquire into governmental policies, 2 and so far there- 
has been no barring of anybody who wants to say anything about 
any governmental policy, particularly if it is in line with the inquiry. 

1 See "Exhibit No. 859," appendix, p. 6484. 

> See "Exhibit No. 2," sec. 2 (a) (3), Hearings, Part I, p. 192 


Mr. Rogers. We certainly think they are doing a fine job in relation 
to the job set them. 

Mr. Henderson. I am very pleased to hear you say that. 

Acting Chairman Reece. In the smaller cities the F. H. A. has 
been of very great value in encouraging the construction of homes, 
where the question of individual homes is involved, or at least that 
has been my observation, and I am wondering if yours has been the 

Mr. Rogers. That is unquestionably so. 

Mr. O'Connell. You said you were currently using F. H. A. 
insurance to the extent of about 30 percent of your residential mort- 
gage loans, and you wish it were 40. Does that mean that the other 
70 percent of loans are loans which are placed at, or which can be 
placed at reasonable terms without regard to F. H. A.? 

Mr. Rogers. Yes; they don't require the 80 percent or 90 percent 

Mr. O'Connell. So that you only use F. H. A. where you were 
taking an 80 or 90 percent loan? 

Mr. Rogers. We have no choice in the matter. It is the borrower's 
choice. If the borrower who could get a 4K or 5 percent rate from us 
conventionally would rather have that than to get even a 4^ plus a 
one-half percent insurance, or a 5 plus one-half percent insurance from 
F. H. A., the rate situation is slightly in his favor. 

Mr. O'Connell. It isn't entirely the borrower's choice because you 
say if the borrower can get a 4^ percent rate from you, what you mean 
is if the loan is sufficiently desirable from your standpoint so you 
are willing to take it without regard to any insurance at a 4K or 
even a better rate, there is no occasion to use F. H. A. insurance? 

Mr. Rogers. No; we don't feel he needs the insurance, and he 
doesn't want to pay for it. 

Mr. Henderson. I will not be here this afternoon, unfortunately, 
Mr. Rogers, and -I don't want to destroy these fine calculations on 
risk and cost of doing business and cost of money, but I do have some 
observations to make on them. In the first p^ace, from an economist's 
term, the residue of 3.85 is not a cost, but is a return. The other 
observation that I have to make is that you compute your cost of 
doing business at 0.5 and you have got a lossage of about the same 
amount from the average rate due. to your lesser income on the fore- 
closed properties. I wonder if it isn't true that those two items could 
shift very, very' markedly. 

In other w r ords, if you pursued the obligor a little harder, paid more 
money for lawyers and the like, your cost would increase, but so would 
your return. Don't you find, in your management, that somewhere 
in between you make a decision as to whether or not you will spend 
more money to get the money in? 

Mr. Rogers. No; I don't think that is a fact, Mr. Henderson. As 
a matter of fact, these branch offices are set up on the basis of doing a 
good job, and the first requirement is conservation of the existing 
account. That supersedes everything else. 

Mr. Henderson. What do you mean by conservation of the 

Mr. Rogers. Keeping track of it, watching it every day, to see 
that it remains in good standing. May I say that the accounts are 
approximately 90 percent in good standing. 


Mr. Henderson. You mean the property itself when you say 
Mr. Rogers. Every factor having to do with mortgage loans. 
Mr. Henderson. The renter isn't called the account? 
Mr. Rogers. Yes, of course, the branch offices have charge of the 
properties just the same as they do of mortgages, but let me say the 
first tenet of the branch offices is conservation of the existing mortgage 
account. That is the first requirement, to keep that in apple-pie 
order and in good shape. The branch office would be not in very 
good favor if they let the account slip. I don't mean to say by that 
that we are oppressive with deserving borrowers; I think we go as 
far as anybody, and have. 

Mr. Henderson. I think I could testify to that from some observa- 
tions I have made. 

Mr. Rogers. But I think the committee will be after us in August, 
where we have carried some too long; nevertheless, that is what we 
have done. Now the next tenet is maintenance, management, and 
sales of real property. There is a separate department in the branch 
office to handle that. There is a separate department to handle 
loans. What is the next one? Anyhow, there are six working 
instructions shown, and each one of those six working instructions 
shown is periodically checked with monthly visits by mortgage loan 
supervisors, so I — well, here it is; conservation of existing loans, 
broadening our lending policy on the basis of safe lending, is two; 
maintenance and management and- sale of foreclosed properties; that 
used to be two; it is now three, because it is working out and we are 
more interested in broadening our lending facilities. 

The other two have been a combination, absorption of loan 
correspondents into branch office economy — we are not interested. 
The organization of branch offices has been completed, and the 
maintenance of good will. 

Mr. Henderson. In discussing the break-down of the interest, from 
my observation, your cost of doing business and your losses pretty 
much go together. That is, if you spent no money in having the 
agent make repeated efforts to collect rent, or if you entered no suits — 
in other words, if you dispensed with all the necessary attendant ex- 
penses which go with trying to keep the accounts paid up — you would 
have a lower cost of doing business, but most assuredly you would 
have a higher loss. 

Mr. Rogers. You certainly would. 

Mr. Henderson. And all I am saying is that on that 1 percent 
which is divided almost equally between cost of doing business and the 
failure of the properties taken over to earn the same rate, you have 
an element of judgment in there which you could change very mark- 
edly. So I am saying that I can't see that you can set down the risk 
factor, the economic risk factor, certainly as one-half percent. 

Mr. Rogers. Oh no; I am not trying to do that. I am just 
making a statement as to 1 year's operations. I made that clear 
in the statement. 

Mr. Henderson. Even on 1 year's operation it is not the economic 
risk factor that is in there. 

Mr. Rogers. I would say this, Mr. Henderson, that that risk 
factor figured over a long period of years would be much less than that. 


Mr. Henderson. That the percentage that you lose by failure 

Mr. Rogers (interposing). Oh, yes; I am not trying to establish 
that as a risk factor. I am just trying to call attention to the com- 
mittee that there is a risk in the business. 

Mr. Henderson. I think we can agree on that. On the measure- 
ment of it I wanted to enter a disclaimer myself, because I don't 
believe it can be measured that way. 

Mr. Rogers. No; I don't think it can, either. 

Acting Chairman Reece. The committee will stand in recess 
until 2:30. 

(Whereupon, at 12:50 p. m., a recess was taken until 2:30 p. m. 
of the same day.) 

afternoon session 

(The hearing was resumed at 2:40 p. m. upon the expiration of the 

Acting Chairman Reece. The committee will please come to order. 

You may please proceed, Mr. O'Connell. 

Mr. O'Connell. I should like to ask Mr. Rogers a few more ques- 
tions relative to the thing we discussed at greatest length this morning, 
namely the interest rate to the insurance company which he repre- 
sents on residential mortgages generally. As I understood you, Mr. 
Rogers, taking 1938 as an example, the average contract rate on resi- 
dential mortgage properties was 4.83 percent. 

Mr. Rogers. No; that was on all loans made. 

Mr. O'Connell. All mortgages? 

Mr. Rogers. In other words, in 1938 we loaned a total of $150,- 

Mr. O'Connell. On mortgages? 

Mr. Rogers. On mortgages, and the 4.83 rate is the average of all 
loans made. 

Mr. O'Connell. Referring more specifically to the residential 
loans, I understood you to say that at the present time substantially 
30 percent of your mortgage loans are F. H. A. insured. 

Mr. Rogers. That is correct — 30 percent of the lending of 1938. 

Mr. O'Connell. We are still using 1938? 

Mr. Rogers. Yes. 

Mr. Fitzgerald. May I amend that, Mr. Rogers? I think the 
statement should be that substantially 30 percent of our urban 

Mr. Rogers (interposing). Yes; that is true; 30 percent of our 
residential Loans, city loans. 

Mr. O'Connell. Are F. H. A. insured? 

Mr. Rogers. That was of the lendings of 1938. 

Mr. O'Connell. And the other 70 percent of urban residential 
loans were not F. H. A. insured? 

Mr. Rogers. Urban residential loans and other urban loans. 

Mr. Fitzgerald. No; I think it would be more correct to say that 
30 percent of our urban residential loans, speaking in terms of all types 
of residential loans, including apartment loans 

Mr. O'Connell (interposing). Yes; 30 percent of your urban 
residential loans are insured, 70 percent are not. 

Mr. Fitzgerald. That would be as accurately as we could estimate it. 


Mr. O'Connell. And I understood you this morning to say that, 
generally speaking, the 70 percent that are not insured in F. H. A. 
are loans which are placed more advantageously in spite of the fact 
that there is no F. H. A. insurance — more advantageously from the 
point of view of the borrower. 

Mr. Rogers. That is right. 

Mr. O'Connell. So, generally speaking, the non-F. H. A. insured 
loans cost the borrower less than the F. H. A. insured loans? 

Mr. Rogers. Yes; I would say that was correct, particularly in 
view of the fact that in the F. H. A. loan he pays one-half percent for 
insurance, which he does not on a conventional loan. / 

Mr. O'Connell. It is always dangerous to generalize but could 
you generalize as to the contract rate on F. H. A. insured mortgages 
in your company? 

Mr. Rogers. You mean the lendings of 1939? 

Mr. O'Connell. 1938; you say it would be higher or lower than the 
4.83 average? 

Mr. Rogers. Pretty hard to say because in that there are some of 
the large-scale housings which were taken at 4% or less. 

Mr. O'Connell. But of course also would be the 70 percent of 
loans that are placed at a lower interest cost generally? 

Mr. Rogers. That is true. What is your question? 

Mr. O'Connell. As to how the contract rate on F. H. A. insured 
mortgages with your company would compare with the 4.83 percent 
average for all mortgage loans. 

Mr. Rogers. I would think it would be about comparable. 

Mr. O'Connell. About the same? 

Mr. Rogers. Yes. But as I said this morning we would have to 
run the entire list of cards together. 

Mr. O'Connell. Well, frankly, what I was trying to get at — what 
I am interested in — is as to whether the interest return or the interest 
cost to the borrower on F. H. A. insured mortgages adequately reflects 
the value of the insurance? 

Mr. Rogers. Yes, I think that is coming more and more into effect 
because if you took 1939, the average rate on our F. H. A. loans would 
be much lower. 

Mr. O'Connell. Much lower than your 1938 rate? 

Mr. Rogers. Yes. 

Mr. O'Connell. Would the percentage of F. H. A. insured mort- 
gages be higher? 

Mr. Rogers. I think they would be about the same. 

Mr. O'Connell. So that the reduction in the F. H. A. rate was 
accompanied by a still lower rate for the non-F. H. A. insured loans? 

Mr. Rogers. No; I wouldn't say that, but I would say this, that in 
1939, which is contrary to all of 1938, we are paying cash premiums 
for 5 percent F. H. A. loans, which in effect is a reduction in the 
interest rate, as far as we are concerned. 

Mr. O'Connell. Not as far as the borrower is concerned? 

Mr. Rogers. In reality, as far as the borrower is concerned because 
the cash premium which we are paying is payment to the broker for 
bringing the loan in which the borrower formerly paid to the broker. 

Mr. O'Connell. I don't believe we could probably go into that at 
this point, but I understand you to mean that the practical effect 
of your paying a premium on a 5 percent F. H A. insured mortgage 
is to give all or part of that premium to the borrower? 


Mr. Rogers. In effect yes, if you understand what I said, and that 
was that we are paying the broker, whom the borrow ei formerly 
paid. It is quite customary during all mortgage loan history, and still 

is customary, for the borrower 

Mr. O'Connell. Pay a broker? 

Mr. Rogers. Yes; to use the services of a broker to get his loan 
and pay for it. 

Mr. O'Connell. That is right, but you mean that by virtue of the 
fact that you pay a premium to the broker he doesn't charge a broker- 
age to the borrower? 

Mr. Rogers. Correct. In other words, the borrower has at least 
ceased to pay the charges. 

Mr. O'Connell. How do you account for that? How does that 
work out? . 
Mr. Rogers. I think it is purely competition, that is ail. 
Mr. O'Connell. You mean competition between brokers? 
Mr. Rogers. Between brokers and lenders, more particularly. 
In other words, the broker has forced the lender to assume that 
burden which he formerly collected from the borrower. On the other 
hand I think it would be safe to say, too, that the borrower realizing 
that he has something good is refusing to pay that. Someone has to 
pay the broker; if you are going to deal through brokers in this day 
and age of competition in the mortgage business, it has to be the lender 
that has to do it. 

Mr. O'Connell. Generally speaking, I understood you to say 
that the non-F. H. A. insured mortgage loans return you less than 
F. H. A. insured mortgage loans. 

Mr. Rogers. I think it would be pretty close; it would be awfully 
difficult for me to make a definite statement on that. 

Mr. O'Connell. Let's assume that it would be close. I am 
merely trying to go into the question of the relative risks involved 
of the two types of obligation. In other words, I am trying to evalu- 
ate on the insurance on the F. H. A. mortgage. What would you say 
as to the risk element in an F. H. A. insurance mortgage? Is there 
a substantial amount of risk? 
Mr. Rogers. I would say, who knows. 

Mr. O'Connell. Is there a substantial amount of risk in a Govern- 
ment bond? 

Mr. Rogers. There is a risk of loss, of course, in an F. H. A. loan, 
first of all in the certificate of claim which would carry the foreclosure 
costs and attorney's fees and so on. Of course you know in some 
) States those charges are very high. 

Mr. O'Connell. They vary greatly, I think. 

Mr. Rogers. Then if you translate your 5 percent F. H. A. mortgage 
into a 2%-percent Government bond, there is a loss of income between 
the 2% percent and 5 percent. 

Mr. O'Connell. Do you happen to know what those 2% percent 
debentures are worth in the market today? 

Mr. Rogers. No; I don't think there is any market for them. 
Mr. O'Connell. You mean there are none on the market. There 
would be a market for them if they were sold. Would you say they 
would be worth more than their face amount? 
Mr. Rogers. No. 
Mr. O'Connell. Two and three-quarters Government bonds? 


Mr. Rogers. It is different with a Government bond because the 
maturity runs probably for a very long period. 

Mr. O'Connell. It can't run more than 3 years beyond the maturity 
date of the mortgage. 

Mr. Rogers. It might run 23 years. 

Mr. O'Connell. A maximum, of 23 years from the date of issuance 
of the insurance. 

Mr. Rogers. Well, if you had a 20-year or 23-year Government 
bond to compare with it and said what the price was I would say that 
there would be a market for these debentures, but I don't know. 

Mr. O'Connell. The element of risk that you refer to — let's see 
if we understand this. If a mortgage insured by F. H. A. defaults 
and you bring suit to foreclose the mortgage within 30 days after the 
default, you are then entitled upon completion of the transaction of 
foreclosure to receive in return for the property foreclosed 2%-percent 
debentures in an amount equal to the mortgage foreclosed with interest. 

Mr. Rogers. With interest after the 30 days. 

Mr. O'Connell. With interest after the 30-day period? Do you 
mean there is a hiatus of interest between the default and the time 
you start foreclosure? 

Mr. Rogers. I don't think you could start it within 30 days. In 
decency you coldn't start foreclosure on a man within 30 days. 

Mr. O'Connell. In order to be entitled to debentures with interest 
from that date you have to start your foreclosure within 30 days. 

Mr. Rogers. Yes. 

Mr. O'Connell. And then at the completion of the transaction 
you have received your debentures and you also receive a certificate 
of claim in amount equal to the expenses of foreclosure. 

Mr. Rogers. Yes; and attorneys' fees. 

Mr. O'Connell. That expense of foreclosure in connection with 
defaulted properties is the maximum capital loss that you can con- 
ceivably sustain. 

Mr. Rogers. Yes; if you look at it from that viewpoint. You say, 
and probably you are correct, that the debenture could be sold imme- 
diately for 100 cents on the dollar and have your money back, but 
in the meantime you have lost what you thought was a good 5-percent 

Mr. O'Connell. You didn't think it was a good enough 5-percent 
mortgage without the F. H. A. insurance. 

Mr. Rogers. No ; I mean to say you bought it on the theory it was 
a good 5-percent mortgage. I have forgotten what your question 
was. The point I was trying to make was that what we are looking 
for is income of 5-percent rate and not the debenture rate, and if there 
is a loss of income, which there would be unless you could imme- 
diately invest that money all over again at 5 percent, which doesn/t 
look at all likely at the moment, there would be a substantial loss. 

Mr. O'Connell. Loss of income as compared to the income on the 

Mr. Rogers. Yes. 

Mr. O'Connell. That is the risk factor, as I take it. 

Mr. Rogers. That is right. 

Mr. O'Connell. I also take it that the insurance has some value in 
reducing the risk factor — that is just one of the values of the in- 


Mr. Rogers. Decidedly. In other words, these 80- and 90-percent 
loans would not be selling in the market at all except for the insurance. 

Mr. O'Connell. But it is difficult, isn't it, to evaluate the risk? 

Mr. Rogers. Just as it was on the conventional loans we were 
talking about this morning. I know no way to do it. We are not 
experienced enough with them. 

Mr. O'Connell. What about the factor of liquidity of loans? 
Is that of importance in determining the yield that you would expect 
to get or hope to get? 

Mr. Rogers. No. As far as the insurance company is concerned. 

Mr. O'Connell. Yes. 

Mr. Rogers. No. 

Mr. O'Connell. Would that apply to your portfolio generally? 

Mr. Rogers. Yes. 

Mr. O'Connell. Liquidity is not a factor? 

Mr. Rogers. Insurance companies do not need substantially great 

Mr. O'Connell. They substantially have it. 

Mr. Rogers. I still say they don't need it. As far as that is con- 
cerned, you wouldn't consider a mortgage a liquid asset anyhow. 

Mr. O'Connell. Is a noninsured mortgage as liquid as an insured 

Mr. Rogers. No. 

Mr. O'Connell. If there is any value to liquidity^the F. H. A. 
insurance has a value in that respect. 

Mr. Rogers. Yes. 

Mr. O'Connell. They are more liquid. 

Mr. Rogers. Savings banks might be subject to that kind of 
thing and that element of liquidity might be quite valuable, but I 
would say that it did not possess the same value to insurance companies. 

Mr. O'Connell. The liquidity isn't as important to an insurance 
company as to other institutions. 

Mr. Rogers. I would say that is true. 

Mr. O'Connell. On F. H. A. insured mortgages we have a liquidity 
value of whatever it is — less for insurance companies t'-an for some 
types of investors — and a value in terms of minimizing risk which, 
as near as we can tell, minimizes the risk to the possible expense of 
foreclosure plus what you referred to as loss of revenues on your 
mortgages by virtue of taking 2% percent debentures in exchange. I 
find it difficult to give very much value to that risk element because 
assuming, as I think we must, that the debentures are worth the 
face amount of the mortgage 

Mr. Rogers (interposing). Let's put it the other way. Take our 
conventional loans, residential loans, small loans, which were fore- 
closed through the depression, our experience so far is that we have 
recovered, book cost, charge-off, the cost of rehabilitation, and a slight 
amount of the interest. 

If that is to continue, and I can't promise that it will, nor can I 
see any particular reason why it shouldn't, I would say that F. H. A. 
loans possess no greater value to us, since we are substantially getting 
out whole. 

Acting Chairman Reece. Do you have any idea as to whether other 
insurance companies have had a similar experience Ih that regard^? 


Mr. Rogers. No; I don't. I think we pursued a more aggressive 
policy in regard to rehabilitation and rental and sales — I won't say 
than other companies, but we have pursued that policy, and I think 
it has been one of the reasons why we have had such a reasonably 
satisfactory experience, it if is a satisfactory experience. I regard it so. 

Acting Chairman Reecb. Then I would conclude from your state- 
ment that on your foreclosures you have suffered no loss except a 
partial loss of interest. 

Mr. Rogers. That's right — so fan; and we have sold a little better 
than half of them. 

Acting Chairman Reece. We hope the future may prove out as 

Mr. O'Connell. Have you any opinion as to the effect on home 
construction, either for home ownership or for rent, of a reduction in 
the F. H. A. maximum rate of interest? 

Mr. Rogers. Is the question you are asking, if the interest rate 
were reduced on F. H. A. loans? 

Mr. O'Connell. What would happen? I don't know. What, in 
your opinion? 

Mr. Rogers. I think it is very difficult to say. 

Mr. O'Connell. .1 appreciate that. 

Mr. Rogers. And I am not speaking at. all from a Prudential 
viewpoint, you realize that. If you are thinking in terms of reducing 
the F. H. A. rate to 4.5 percent 

Mr. O'Connell (interposing). Let's think of it in those terms. I 

Mr. Rogers. Use it as an example, if you want to. I think you 
might find that it would deprive some builders of ready access to the 
money market. 

Mr. O'Connell. Can you elaborate on that? 

Mr. Rogers. Yes,. I would say that not all F. H. A. loans are as 
sound as others, from our viewpoint, and it would be true from the 
viewpoint of others. They would think those were sound enough, 
perhaps, at a 5-percent rate, but they wouldn't think quite so well of 
them under the 4.5 percent rate; consequently, they would pass them 
by in favor of the 5's. If too many people pass the 4.5's by in favor 
of the 5's, or vice versa, of course you can see what the situation 
would be. 

Mr. O'Connell. You mean the situation would be less building? 

Mr. Rogers. It might. In other words, if you deprive builders 
of F. H. A. insured mortgages by reason of the fact that you reduce 
the rate to a point where some investors, at least, might feel that 
they would rather not have F. H. A. insured loans, because the 
rate may have reached the point, deducting expenses against it, 
where, for instance, insurance companies mip-ht feel that that was 
a lower rate than they could afford to take — I do not say that is a 
fact; it is part of the picture. 

Mr. O'Connell. We have a 5-percent rate now. 

Mr. Rogers. That's right. 

Mr. O'Connell. And your feeling is that with that maximum 
rate reduced to 4.5, institutional lenders would have, may we say, 
a reluctance to lend on some mortgages that they would lend on at 
5 percent? 


Mr. Rogers. No, I don't say that. I think so far as savings 
banks are concerned, in view of their situation, where they are paying 
1 or 1.5 percent interest, I should think 4.5 percent would be a satis- 
factory rate. They would have to answer for themselves. 

Mr. O'Connell. I should have confined my question to insurance 

Mr. Rogers. As to insurance companies, where the urge is great 
to meet their obligation to their policyholders you could get the 
rate down to a point where they would not be nearly as attractive 
as they are now. As a matter of fact, it seems to me the law of 
supply and demand is largely taking care of that situation. All 
over the country F. H. A. loans are being advertised by banks at 4.5 
percent. I have a flock of reports in my portfolio from Cleveland, 
and I saw quite recently in New York 4.25 percent. 

It goes to show that the F. H. A. rate has been, by reason of the 
law of supply and demand, reduced to 4.5 percent in cases, probably — 
well, in some cases. As to the 5's, I don't think anybody is getting 
5's at par. We are paying a premium for all of them, and in some 
cases a premium and a service charge, so as a matter of fact the 
law of supply and demand, competition in the business, I think is 
taking care of the interest rate situation very nicely, and I think you 
might get the business into a 4.5 percent straightjacket if you auto- 
matically reduced the present rate to 4.5. 

Mr. O'Connell. I see. You think the 5 percent straightjacket is 
all right. 

Mr. Rogers. I don't think the 5 percent is a straightjacket. It 
is a ceiling. 

Mr. O'Connell. That is all the 4.5 would be. 

Mr.' Rogers. Yes, but it might be a straightjacket. You are 
getting down to the point where people would have to begin to 
consider whether they would be willing to take that chance. 

Mr. O'Connell. That involves a number of factors in what 1 
have been trying to develop as the real value of F. H. A. insurance, 
and we really can't put a definite value on that, although a lot of 
F. H. A. mortgages are being traded in substantially under the 5. 
That is my understanding. 

Mr. Rogers. Yes. 

Mr. O'Connell. Would like to ask you a question which I am 
afraid you can't answer, but I want to ask it for the purpose of then 
asking you to put in the record later. 

I want to ask you if you have any information available as to the 
rate of return on the various types of obligations which your company 
holds in quantity, by general classes. 

Mr. Rogers. No. 

Mr. O'Connell. You have not? Would it be possible, through 
some of the officials of your' company, to submit for the record a 
general break-down for the year 1938 of the various types of invest- 
ments you hold in quantity? l 

Mr. Fitzgerald. I would say it is possible. 

Mr.. Rogers. If it is possible, we will promise to do it. 

Mr. O'Connell. I don't want to put you to a great deal of trouble, 
but we have the figure of the stated rate for your mortgage portfolio 
for 1938. That is 4.83. I merely want the record to show, if I 

1 Subsequently submitted and entered in the record on August 23, 1939, as "Exhibit No. 953", see 
appendix, p. 5589. 


can get it, what your other portfolios would show as to the stated 
return on other types of investments. 

Mr. Rogers. Types of loans or types of property? 

Mr. O'Connell. Types of investment. You have, as I under- 
stand it, your portfolio classified as railroad, utilities, governments. 

Mr. Rogers. The entire investments, yes. 

Mr. Fitzgerald. I think, Mr. Rogers, there is one qualification 
to be made. The rate that was quoted by Mr. Rogers for 1938 
applied to the new loans made during that year. 

Mr. Rogers. I think I made that clear. 

Mr. Fitzgerald. That rate would be a different rate. 

Mr. O'Connell. The figure upon which that 4.83 rate was based 
was $1,145,000,000. 

Mr. Rogers. Oh, no; it was the 1938 lendmgs. 

Mr. O'Connell. Let's go back and clear that up. 

Mr. Rogers. In 1938 we lent approximately $150,000,000 at an 
average stated rate of 4.83. 

Mr. O'Connell. Didn't you give us some information this morning 
as to the stated rate of yield on your mortgage portfolio? 

Mr. Rogers. No; no; we talked about the risk situation. That 
again was confined to 1938. 

I understand what you want. You want a break-down of the 
return on all types of investments of the company, and that is possible. 

Mr. O'Connell. By general classifications. I want to see what 
mortgage investments you made and the rate of return, your portfolio 
of various types. I assume there is quite a spread between the rate 
of return and that, generally speaking, evidences varying degrees of 
risks, liquidity, and other factors which make such types of invest- 
ment valuable to you. 

Mr. Rogers. It is comparatively simple. 

Mr. O'Connell. I thought it was; that is why I asked the question. 
Would it be fair to ask you where you think the mortgage portfolio 
would stand in the general picture? 

Mr. Rogers-. I think it would stand pretty well at the top, 

Mr. O'Connell. Probably policy loans would be above it and then 

Mr. Rogers. Mortgages ; yes. 

Mr. O'Connell. I should like to a§k you only one or two more 
general questions. We have had quite a bit of discussion as to the — 
no; off the record. 

Your company has acquired in recent years a substantial amount of 
residential real estate as a result of mortgage foreclosure. Have you 
any idea as to the amount of that property you hold? 

Mr. Rogers. Amount at the present time? 

Mr. O'Connell. Yes. 

Mr. Rogers. Roughly, 177 million of unsold properties. It would 
stand on our books at 200 million, but that would be because of con- 
tracts of sales which are not treated as sales. 

Mr. O'Connell. Have you any views as to the effect that this 
property overhanging the market has on further expansion of new 

Mr. Rogers. No; I think the shoe is on the other foot — that the 
new construction is retarding the sale of repossessed properties. 


Mr: O'Connell. Is that so, so that new construction is retarding 
the sale — well, wouldn't it work both ways;, might it not? 

Mr. Rogers. No— well, of course, it does work to some extent 
both ways; but the answer to it is this, I think — when F. H. A. loans 
were limited to 80 percent of value that it was more advantageous for 
a man to buy a home for use at 10 percent down and 90 percent 
mortgage, or a 90-percent contract of sale. Now that the same man 
who can buy a home for 10 percent down on F. H. A., 90-percent 
mortgage would prefer to buy something new than something old, 
so that is the reason I say I think the shoe is on the other foot. I am 
not complaining about it, however. 

Mr. O'Connell. Would you care- to say anything about what you 
conceive to be a proper policy of liquidation? 

Mr. Rogers. Oh, yes. I think the policy that has been pursued, 
would bq a sound policy — what you are really asking is, isn't it; this 
overhang on the market could very seriously, u it was dumped, retard 

Mr. O'Connell. That has been suggested. 

Mr. Rogers* Yes; I think it would be the fact, and as a matter of 
fact years ago the dumping process was somewhat in evidence, but it 
was found that it didn't work because it constantly went down, so that 
there has grown up a very strong feeling that a sound policy of admin- 
istration for the sake of upholding all real-estate values, not ours but 
everybody else's, is confined ' to antidumping of rentals and anti- 
dumping of sales prices; administration of the account in consonance 
with sound market values, whether it is rentals or sales, and by 
doing that I don't think we interfere at all, or very little, with new 

Mr. O'Connell. Another question. There was a certain amount 
of testimony adduced here within the past several days relative to the 
propriety of large institutions such as life insurance companies invest- 
ing some portion of their assets in equities, large-scale investment 
housing projects. Have you anything you would care to say on that 
general subject? ; 

Mr. Rogers. Well, I don't think any insurance company should 
invest in an equity. I think it should invest, if at all, in total owner- 

Mr. O'Connell. I beg your pardon by equity I meant ownership. 

Mr. Rogers. Am I right? 

Mr. O'Connell. Yes. 

Mr. Rogers. I would say I see no reason at all why insurance 
companies should not be permitted to invest in wholly owned unen- 
cumbered sound housing units, and I don't see why it should be limited 
to housing. My own belief is that it could be done with other sound 
unencumbered income properties to fully as good advantage to the 
insurance companies. I have in mind that many merchandisers in 
this country are owners of property not by choice but by necessity, 
that they would prefer to be tenants and not owners. I can't think 
of any better type of landlord than an insurance company owning 
that property unencumbered in the sense that it could make long- 
time leases with sound tenants on a basis of amortization of the 
building and a substantial return on the investment. 

That statement is a little irrational, but since the United States, 
so far as I know, is the only country in the world where life insurance 


companies are stricted wholly to evidences of debt, it seems to me if 
there is anything wrong with that program that it would have been 
discovered long ago in other countries and would not be permitted. 

Mr. O'Connell. In other countries such institutions as yours are 
permitted to invest in unencumbered real estate and substantially in 
this country it is so restricted, and your company is not permitted, 
generally speaking, to own 

Mr. Rogers. No, the only time we are permitted to buy real estate, 
of course, is under special statute. In New Jersey we bought some 
property in conjunction with the city of Newark and built some slum 
clearances, as much for the social side of it as the practical. 

Mr. O'Connell. Mr. Chairman, I have no further questions to 
ask Mr. Rogers. 

Acting Chairman Reece. Any questions? We thank you very 
kindly, and Mr. Fitzgerald, for your testimony. You are excused. 

When the committee recesses today it will recess until 10:30 Wed- 
nesday, July 5, and, Mr. O'Connell, would you care to make a state- 
ment of your plans at that time? 

Mr. O'Connell. I should like to make a short statement in explana- 
tion of the fact the committee is going to recess at the moment and 
not convene until July 5. We had expected to call Mr. Bodfish this 
afternoon, and Mr. Bruere of the Bowery Savings Bank tomorrow 
morning, to give the committee some more information about the 
financial side of housing. Unfortunately, the pressure of other duties 
has made it impossible for most of the committee members to be pres- 
ent. The end of the fiscal year coming tomorrow makes it as a prac- 
tical matter impossible for most of the legislative members to be 
present, and other pressing affairs are making it impossible for some 
of the other members. We feel that the testimony of Mr. Bodfish 
and Mr. Bruere is of sufficient importance as to justify us in asking 
them to bear with us and to appear before the committee next Wed- 
nesday, rather than today and tomorrow, at which time we hope we 
will be able to have a larger representation on the committee. 

I think that-is all I have to say, so at that time on the fifth of July, 
subject to the convenience of the witnesses that I have referred to, we 
hope to convene at 10:30 and to hear Mr. Bodfish and Mr. Bruere. 
If there is any change, of course we can make an announcement 
between now and then. 

Acting Chairman Reece. The committee will stand in recess. 

(Whereupon at 3:15 p. m. the committee recessed until 10:30 a. m., 
Thursday, July 6, 1939.) <- 



United States Senate, 
Temporary National Economic Committee, 

Washington, D. C. 

The committee met at 10:55 o'clock a. m., pursuant to adjournment 
on Thursday, June 29, 1939, in the Caucus Room, Senate Office Build- 
ing, Senator Joseph C. O'Mahoney, presiding. 

Present: Senator O'Mahoney (chairman), Representative Williams, 
Messrs. Arnold, Henderson, Lubin, O'Connell, Patterson, and 

Present also: Willard L. Thorp, Department of Commerce; Willis 
J. Ballinger, Federal Trade Commission; Gordon Dean, Department 
of Justice; Theodore J. Kreps, Economic consultant to the committee; 
Lowell J. Chawner, Department of Commerce, and Peter A. Stone, 
coordinator of construction studies for the committee. 

The Chairman. The committee will please come to order: 

Mr. O'Connell, are you ready to proceed? Will you call the first 

Mr. O'Connell. Before doing that, sir, I would like to make one 
reference to testimony that was presented before, the committee last 
week. On Wednesday, Mr. Schnitman gave some information to the 
committee relative to the operating costs on six large-scale rental 
housing projects, three of which were F. H. A. insured projects. 1 The 
testimony indicated that in one of the F. H. A. projects, Brentwood, 
I believe, in the District of Columbia, there was a vacancy rate of 
some 24 percent in the period covered by the survey, and in another 
project, in York, Pa., a 9.3 percent operating loss for the same period 
was indicated. Mr. Schnitman's testimony did not make it entirely 
clear that the period taken was the first year of operation of these 
projects, and in one case, the Brentwood project, the project- was not 
in operation during the entire year 1938, so that the operating loss in 
one case and the percentage of vacancies in the other case did not 
accurately express the existing situation insofar as those two projects 
are concerned. 

Congressman Williams asked several questions along the line that 
I have been discussing, and the Federal Housing Administration have 
since that time written a letter to Congressman Williams pointing out 
the fact that at the present time the Brentwood project, in vacancies, 
is some five-tenths of 1 percent, and that in the case of the other 
project on the basis of its current operations the operating loss indi- 
cated on the chart is no longer a fact, so with Congressman Williams 
approval and at his suggestion I should like to offer for the record the 

1 See supra, pp. 6015-5040. See also "Exhibit No. 855," supra, p. 5018, and appendix, p. 5482. 


124491 — 40— pt. 11 11 


explanatory letter from the Federal Housing Administration relating 
to Mr. Schnitman's testimony as to the two projects I have referred to. 

The Chairman. That was written by whom? 

Mr. O'Connell. The letter is signed by Miles L. Colean, Assistant 
Administrator of the Federal Housing Administration. 

The Chairman. The letter may be admitted. 

(The letter referred to was marked "Exhibit No. 864" and is 
included in the appendix on p. 5486.) 

Last week testimony was presented before the committee relative 
to the importance of the building industry and its position in the 
national economy, the important place in it occupied by residential . 
construction and the fluctuations in this field, the character of the 
need for dwelling accommodations, its extent, and the extent to which 
this need is being met. It was demonstrated, and as to this I believe 
there can be no dispute, that of recent years the construction industry 
had done little or nothing in the way of providing adequate dwelling 
accommodations for families in the so-called middle-income group, 
by which I mean those having an income approximately between 
$1,000 and $2,000 per year. 

Witnesses pointed out that in order to meet this present unsatisfied 
demand, it is essential that the elements of cost going to make up the 
present too high total cost, be reduced to a point at which persons 
in this so-called middle-income group can enter the market either as 
home owners or renters. The very great importance of annual costs, 
by which is meant the periodic outlays after occupancy, as distin- 
guished from original capital cost, was explained by several witnesses 
and figures were given showing the relative effect on the so-called 
rental dollar of comparable reductions in finance costs as against labor 
and material costs. 

At the time of adjournment last Thursday, one witness had been 
called who discussed with the committee the importance, from the 
point of view of a large institutional lender, of finance as a factor 
in both annual costs and capital costs. Today additional witnesses 
will be called who will discuss the same topic and will give the com- 
mittee their views as to the cost of finance in the privately financed 
housing field and their views as to what, if anything, can be done to 
reduce this element of cost. 

The Chairman. Do you solemnly swear that the testimony you 
are about to "give in this procedure will be the truth, the whole truth 
and nothing but the truth, so help you God? 

Mr. Bodfish. I do. 



Mr. O'Connell. Mr. Bodfish, will you state your name and ad- 
dress to the reporter for the record, please? 

Mr. Bodfish. My name is Morton Bodfish. My address is 333 
North Michigan Avenue, Chicago. My business connection: I am 
executive vice president of the United States Building and Loan 
League. That is a national trade organization of some 4,000 savings 
and loan associations operating in local communities all over the 


country. We have some $6,000,000 in home mortgages represented 
in the organization. 

Mr. O'Connell. I understand you are the executive vice president 
of a trade organization known as the United States Building and Loan 

Mr. Bodfish. That is correct. 

Mr. O'Connell. And the number of members in the league 
is 4,000. 

Mr. Bodfish. Four thousand, and some forty-nine State organi- 
zations, which includes the District of Columbia. 

Mr. O'Connell. Do you happen to know how many organiza- 
tion — not organizations, but how many building and loan or savings 
and loan associations there are in the country? 

Mr. Bodfish. There are slightly under 10,000 of these institutions. 
Represented in our organization, however, are more than 80 percent 
of the assets. The institutions not in the organization are small 
institutions in Pennsylvania and Maryland; and a few scattered 
elsewhere that do not bulk substantially. 

Mr. O'Connell. You represent something like 50 percent in num- 
ber but 80 percent of the assets in that type of organization? 

Mr. Bodfish. That is correct. 

Mr. O'Connell. Just to give the committee and me a better 
picture of the organization, are there any particular qualifications for 
membership in the organization? 

Mr. Bodfish. Well, we have required that all our member insti- 
tutions be subject to State or Federal supervision and inspection. 

Mr. O'Connell. Will you please speak a little louder, Mr. Bodfish? 

Mr. Bodfish. Yes, sir. We have required that all our member 
institutions be subject to State or Federal supervision, examination, 
and inspection, so that we have in the organization. only institutions 
that are under the general jurisdiction of either a State supervisory 
authority, si^ch as a building and loan superintendent, the Insurance 
Commissioner, or under the supervision of the Federal Home Loan 
Bank Board. Also we have general membership requirements dealing 
with practices, solvency, and State league affiliation. 

Mr. O'Connell. How many so-called Federal savings and loan 
societies are in your group? 

Mr. Bodfish. Something under 1,000 in our organization. I 
might say that about two-thirds of these are former State-chartered 
institutions which have been- converted to Federal-chartered institu- 
tions, just as a State bank sometimes becomes a national bank. 

Mr. O'Connell. What is the average size of the institution in 
your group? 

Mr. Bodfish. The average size is slightly under $1,000,000; I think 
something like $980,000 is the average size of the institution so it is 
slightly under a million. 

Mr. O'Connell. Would you have any general information as to 
the size of the largest as against the size of the smallest? 

Mr. Bodfish. The smallest institutions will run down as low as. 
five or ten thousand dollars. The largest institution is slightly in 
excess of $50,000,000, and is located here in Washington, D. C. The 
Perpetual Building Association is the largest member of our organiza- 
tion; as a matter of fact, the largest institution in the country. 


Mr. O.'Connell. Geographically, are there members of your organ- 
ization in all States? 

Mr. Bodfiss. There are members of our organization in all States, 
the District of Columbia, eight in Hawaii, and one in Alaska. 

Mr. O'Connell. As between States is there a high degree of con- 
centration in some States and a very few of your members in others? 

Mr. Bodpish. I would say that it roughly follows the pattern of 
the urban population. In other words, in the industrial States, such 
as Pennsylvania, Ohio, New Jersey, you find a larger number of insti- 
tutions and a concentration of assets. However, the institutions are 
scattered into practically every town and county in the country, 
but it follows the urban population pattern very, very definitely. 

Mr. O'Connell. Would you care to give the committee a brief 
bit of information relative to the building societies in Great Britain, 
as to whether there are any similarities or dissimilarities between 
those organizations and yours? Historically, I take it that there 
probably is a connection. 

Mr. Bodfish. The British building societies, which are counterparts 
of the American building and loan associations or savings and loan 
associations, were founded as friendly societies, community cooper- 
atives, about 160 years ago. The movement there has developed and 
the American movement has moved along parallel lines, starting in 
this country about 50 years later. Our first institution in this country 
was organized in 1831, in Frankford, Pa., now part of Philadelphia, 
and was called the Oxford Provident Building Society. That came 
about 50 years after the first British societies. At the present time 
in Great Britain, including Scotland and Ireland, there are about 
1,000 British building societies. Since the World War, which was the 
beginning of Britain's modern housing movement— they had prac- 
tically no house production in the 5 years preceding the World War 
or during the World War — these British societies have financed about 
2,000,000 new homes, that is about 80 percent of the privately con- 
structed homes. 

The Chairman. What were the circumstances that brought these 
societies into existence? 

Mr. Bodfish. The desire of people in the community to gather 
together a. little ■ fund of money which could be loaned to people in 
the working class, so to speak, for the acquisition of homes, and that 
has been their sole business all through their existence. It is a mutual 
fund of money in which the funds are all loaned back to members of 
the societies in the form of long-term amortized loans secured by 
real-estate mortgages for the building or the acquisition or the modern- 
izing of homes. 

The British societies have one development that has not been 
exactly parallel with the United States development in that there is a 
certain amount of branch operation among the larger societies. For 
example, the largest building and loan association or building society 
in Great Britain is called the Halifax Building Society. It is an 
institution of over 100,000,000 pounds sterling total assets. The 
second largest institution is about 55,000,000 pounds sterling assets, 
also using branch operation to a certain extent. 

The Chairman. I take it that prior to the formation of this move- 
ment, home ownership among the working classes was practically 


Mr. Bodfish. It was unknown, Senator, except in those fortunate 
circumstances where they were able to gather together enough for 
an outright purchase, and even in Great Britain with the splendid 
work of the societies, their home ownership ratio to the total popula- 
tion is still only about half what ours is. In 1930 about 20 percent 
of the people in Great Britain owned their homes; at the same time 
our percentage was about 48 percent of our urban population. 

Mr. O'Connell. You don't mean prior to building and loan soci- 
eties in Great Britain, there was no way a person could borrow money 
to build a home? 

Mr. Bodfish. There were practically no facilities as far as I could 
ascertain for long-term amortized mortgage credits. As a matter of 
fact, in Great Britain the commercial banks never make a mortgage 
loan. A few of the insurance companies do. The savings banks are 
not engaged in the mortgage business. Practically the whole respon- 
sibility of financing the small-home purchaser and financing the whole 
recent building boom that has attracted so much attention in Great 
Britain has fallen on the shoulders of these building societies. As a 
matter of fact, I think British businessmen generally agree that it 
was the building boom financed by the building societies, that was 
really the operative factor in bringing them out of the depression of 
'31 and '32. 

Mr. O'Connell. Mr. Bodfish, I have heard it said in terms of size 
that the Building Societies in Great Britain were substantially larger 
units than the savings and loan societies here and were more com- 
parable in size to the life-insurance companies in this country. 
Would you happen to know anything about that? 

Mr. Bodfish. There are about 1,000 societies all together. Twenty 
five of the societies are very large institutions. 

Mr. O'Connell. Would you count the Halifax as one of the 
larger or would the branches be included? 

Mr. Bodfish. No, sir, I am counting that as one society. There 
are still in Great Britain about 950 local societies that do not use 
branches in any way and about 25 of the large ones use branch 

Dr. Lubin. Have you any idea as to what percentage of the total 
business is written by the 25 large ones? 

Mr. Bodfish. The percentage of houses built? 

Dr. Lubin. Mortgages underwritten. 

Mr. Bodfish. I have seen a figure. I wouldn't want to be certain 
of the statistical accuracy, but I think you will find that the 25 
largest societies do about two-thirds of the business. It is between 
60 and 70 percent, I don't recall correctly. They are corporate 
cooperative institutions practically identical to our savings and loan 
institutions, the one difference being that they are generally much 
larger institutions and we "do not use branches to any great extent, 
as they do. 

Mr. O'Connell. Do you have any accurate information as to the 
current interest rates being charged by the Building Societies of 
Great Britain? 

Mr. Bodfish. Most of the larger societies at the present time are 
operating on a 4% and 5 percent basis, with about a 21-year loan. 
However, that does not tell the whole story, in that practically all 
of the mortgages written by those larger societies include a hedge 


against a change in the interest rate situation. Most of the mort- 
gages contain a clause that either the society may call the mortgage 
on a 6-month notice, or if the Bank of England rate moves up 1 per- 
cent, the society has the right to increase its rate on a specific mort- 
gage to the borrower, but not in excess, as I recall in most of the 
mortgages, of 1 percent. So they have a hedge. 

Mr. O'Connell. By hedge, you mean they have a right to a 
periodic adjustment of the interest rate, depending on the bank rate? 

Mr. Bodfish. Depending on the bank rate. 

Mr. O'Connell. Either up or down? 

Mr. Bodfish. The society always has the right under their rules 
and bylaws to adjust mortgage rates downward. As a matter of 
fact, the general refunding operations which I think came along about 
'33—1 am not sure of the date — was when the societies generally 
adjusted to 4% percent. Prior to that they were on a 5%, some on a 
6 percent basis. Some of them didn't adjust the business on their 
books but merely on the new business. 

I think there is a very interesting, significant thing there, that they 
didn't adjust their rates downward until they had«a colossal flow of 
savings into these institutions so that they had a flow of savings and 
a flow of money that made it easy for them to make an adjustment. 
I think we have tended a bit to attempt to adjust our interest rates, 
as a matter of general public policy, somewhat ahead in this country 
of the flow of savings into the specialized home-financing institutions. 
I might say that the institutions in Great Britain have a somewhat 
lower cost of money, due to the fact that they take deposits as well 
as take savings on shares. Our structure in this country is almost 
exclusively a share structure. The British building societies pay 
about 3 or 3)2 percent on shares and 2% percent on deposits, giving them 
an average cost of money of around 3 percent. 

Mr. O'Connell. And you say in this country the building and 
loan associations still do substantially all their business on a share 

Mr. Bodfish. With the exception of two or three States, it is 
entirely on a share basis. 

Mr. O'Connell. What dividends are ordinarily paid on those 
shares at the present time? 

Mr. Bodfish. At ' the present time dividends are typically 3% 
and 3 percent, with some institutions in some smaller communi- 
ties still on a 4-percent basis and a few institutions in the northeast 
that have gone to a 2%-percent basis. 

Mr. O'Connell. When you refer to the purposes of the building 
societies in Great Britain, I understood you to indicate that the pur- 
poses generally were to encourage thrift and at the same time to stim- 
ulate home ownership. Would that be a fair statement of the purposes 
of the organizations that you represent? ^ 

Mr. Bodfish. Yes, I would say so. Our institutions are all thrift 
and' savings institutions and lend their money on home mortgages and 
that gives us a balanced situation. That is, management reconciles 
the interests of the investor with the interests of the borrower. 

Mr. O'Connell. Was it that in the first instance, or are they gen- 
erally speaking organizations composed of investors and in seeking an 
outle^foc their investment they encourage home ownership? It is just 


a matter of emphasis. I don't know where the emphasis should be 

Mr. Bodfish. That is just a question of whether the right leg is 
more important than the left. There are five or six investors for every 
borrower, or five or six people that come into the institutions to deposit 
savings to one that makes a mortgage loan, and, of course, there are 
quite a number of people investing in the institutions entirely as a 
safe outlet for funds, and there is also a substantial number who are 
accumulating enough for an ultimate down payment on a home or a 
home purchase. They feel by accumulating their savings in the build- 
ing and loan association it establishes their name and credit with a 
mortgage lending institution to which to turn for credit if they build 
a home. 

Mr. O'Connell. I gather your organizations are mainly concerned 
with home ownership in distinction with financing rental projects. 
Would you have any feeling as to whether or not rental housing which 
has been referred to from time to time before this committee should 
be encouraged, or whether your organization is in or is going into that 

Mr. Bodfish. Our institutions are not prominent or active in the 
rental field. We are interested primarily in the home-ownership idea. 
The fact is, 90 percent of our mortgage portfolios are in home mortgages, 
and 10 percent in miscellaneous property including a little rental 
property. As a matter of fact, Mr. O'Connell, we are rather deeply 
concerned as a group over the growing emphasis on rental property 
and housing, rather than home ownership and the single-family 
home with its detached building and its individual plot. 

Mr. O'Connell. Do I understand you to mean that you do not 
think that large-scale rental housing should be encouraged? 
Mr. Bodfish. I state very frankly that I can't see any more reason 

for the Federal Government, for example 

Mr. O'Connell (interposing). Let's not talk about the Federal 
Government, let's talk about rental housing apart from the Federal 
Mr. Bodfish. Can I talk about public policy? 
Mr. O'Connell. I would prefer for you to tell whether you think 
rental housing should be encouraged as against home ownership. 

Mr. Bodfish. Encouraged by whom, by individual building and 
loan associations, by public policy, by the chairman of the committee, 
or whom? 

Mr. O'Connell. Just encouraged. 

Mr. Bodfish. No, I don't think that rental housing should be 
encouraged. I think that rental housing is essentially a commercial 
enterprise just like a factory or any other business in which people 
invest capital in the hope of getting a rental return. I think in home 
ownership you have some additional social and economic implications 
which justify considerable encouragement and assistance that you 
might not give to an ordinary commercial enterprise, and I regard 
rental housing as an ordinary commercial enterprise. 

Mr. O'Connell. A commercial enterprise is not necessarily some- 
thing that should not be encouraged. The fact that rental housing 
might be developed on a scale that would return a profit to the person . 
that invests in it wouldn't seem to me to be an argument against it. 


Mr. Bodfish. I am a great believer in private enterprise and en- 
couraging private enterprise, but on the other hand I think it is a 
different thing to use the influence and even the credit by indirection 
of our Federal Government to develop rental housing as versus home 
ownership or versus any other type of commercial enterprise. 

Mr. O'Connell. It has been suggested, I don't recall whether 
any one particularly referred to it before this committee, that in 
thinking in terms of the lower middle income group that we have 
been discussing, of persons having an income of one thousand and 
two thousand dollars a year, that it might be in encouraging such 
people to invest their small savings in home ownership, we might in 
the long run be doing them a disservice. Have you any feeling on 
that subject? I am not espousing that view, I am merely indicating 
"it has been suggested. 

Mr. Bodfish. I think that is a view that has been discussed a 
great deal and I am frank to say that while there are occasions 
when industries or families move that home purchase has its prob- 
lems, I don't believe those problems face 90 percent of the people in 
the one-thousand to two-thousand income group. 

The Chairman. What problems do you mean when you say they 
don't face 90 percent of the people in this income group? 

Mr. Bodfish. I mean this, Senator, that the argument against 
home ownership in the low-income groups, between one thousand 
and two thousand dollars income, is that it destroys their mobility 
as wage earners. If they buy a house in Detroit and the auto factory 
closes down and they have to go to Toledo to work, they have a 
home on their hands and it would have been better had they not made 
a down payment and invested their savings in a home. 

I think that problem does face some families. I think the great 
bulk of families, probably 90 percent of them in American com- 

The Chairman (interposing). Home ownership is an indication of 
economic independence, isn't it? 

Mr. Bodfish. Economic independence, stability, interest in the 
community, responsibility on the part of the individual in local 
business and governmental affairs — it has a whole galaxy of social 
and economic and political implications that are highly desirable. 

The Chairman. If a person is not economically independent, it is 
difficult for him to become a home owner, is it not? 

Mr. Bodfish. No; I don't think so. I think that one of the ways 
in which we have attained practically a 50-percent home ownership 
ratio in our urban families at the present time has been that folks 
in very modest circumstances have used" a home purchase transaction 
and an orderly payment for that home. 

The Chairman. When you speak of home ownership, do you mean 
outright ownership, or equity ownership? 

Mr. Bodfish. Equity ownership is the first step for the person 
of modest means. 

The Chairman. I am just trying to get the picture as to what 
constitutes this 50 percent of home ownership. How much of that 
is equity ownership merely and how much of it is outright ownership? 

Mr. Bodfish. A great deal of it, I don't know the proportion, a 
substantial amount of the equity ownership is found among people 
that have purchased, made a down Davmont, and are in the process 


of eliminating the debt from their homes, and a great deal of it of 
course is outright Ownership. We look upon the person who owns an 
equity and has an orderly program for retiring that indebtedness as 
a home owner who is in the process of becoming a debt-free home 

The Chairman. How many actually become debt-free? 

Mr. Bodfish. A great many of them. 

The Chairman. What proportion of the home owners, of this 
50 percent of home owners are debtrfree owners? 

Mr. Bodfish. I don't know statistically. It would just have to 
be a guess. 

The Chairman. What would you guess? 

Mr. Bodfish. My guess would be — let me think of a rough calcu- 
lation for a moment; I would guess that two-thirds of them, between 
a half and two-thirds own their properties outright and completely. 

The Chairman. That is more than I would have anticipated. 

Dr. Lubin. You are talking now about all owners, or just municipal 

Mr. Bodfish. Urban home owners. 

The Chairman. You are talking of all owners? 

Mr. Bodfish. Nonfarm, excluding farm. You see, before the 
depression, we had about a third of the mortgage debt in amount, 
and about a half in number of homes, and we had about something 
over 2,000,000 mortgages. . I think that as you rough the thing 
up, you will find that more than half of the urban home owners own 
their homes outright and they are completely paid for. I do not 
have figures at hand for it. That is an opinion. 

Mr. O'Connell. No figures of that sort have been presented to 
the committee. As I recall last week evidence was presented to the 
effect that there were seventeen and some three-tenths billion dollars 
of mortgages on urban homes, 1 but we have no figure on it to cover the 
question you raised, and yours is just a guess. 

Mr. Bodfish. Mine is just a guess. 

Dr. Lubin. Mr. Chairman, there are figures on the total number 
of homes in' the United States that are mortgage free, and that figure 
is not in excess of one-half. I don't remember the exact figure but 
I know it is not in excess of one-half. 

The Chairman. Does that include farm homes? 

Dr. Lubin. That includes farm homes as well, and it seems queer 
to assume that two-thirds of the homes of urban owners are mortgage 
free when only half of all the homes in the United States are mortgage 

The Chairman. It seems extraordinary to me, but of course you 
are actually only guessing and Mr. O'Connell hasn't the figuresi Dr. 
Lubin, I think it would be very interesting if you would procure for 
the record at this point the figures to which you refer. 2 It seems to 
me that the Census Bureau ought to have some information upon 
home ownership. 

Dr. Lubin. There are figures available. 

Mr. Bodfish. I don't think they have been tabulated since 1920 
on home ownership. 

1 Supra, p. 5042. 

> Dr. Lubin subsequently supplied figures regarding the percentage of mortgaged United States homes 
for the years 1934-36. See infra, p. 6111. 


Dr. Lubin. You had your real-property inventory in 1935 which 
would cover some of those points. 

The Chairman. Would you make it your business to get some of 
that information? 

Dr. Lubin. I would like to go on with this line of questioning. Do 
you have any ideas as to how many people lost their homes through 
foreclosure in 1930 and 1935? 

Mr. Bodfish. None of them lost their homes through foreclosure 
that owned them outright. 

Dr. Lubin. How many people actually lost their homes? 

Mr. Bodfish. I don't know. 

Dr. Lubin. Do you have any figures for any particular city, for 
your own association? 

Mr. Bodfish. Our institutions had about seven and a half billion 
in mortgages at the peak of 1929, and we repossessed about one 
billion and a half properties, which would mean — I have no figures 
on a city — but roughly it would be about one out of five, wouldn't 

Dr. Lubin. Every fifth family lost their home? 

Mr. Bodfish. Who had a mortgaged home. 

Dr. Lubin. With you people? 

Mr. Bodfish. That is possible. 

Dr. Lubin. Don't you think that is an argument against home 
ownership for certain income groups? 

Mr. Bodfish. I don't think it is a conclusive argument. I think, 
Dr. Lubin, it can also be argument against real-estate booms and 
excessive building which we engaged in the twenties, and purchases 
that were unwisely made beyond income. In our experience we had 
more foreclosures in the higher-income groups who bought beyond 
their means and the like, than the small-income people. 

Dr. Lubin. I think that would be true in certain communities, but 
if you take any industrial community, take the early thirties, do you 
have any figures showing the relative percentage of foreclosures for 
the small-income groups in your large cities where people lost their 
jobs as compared with other groups? 

Mr. Bodfish. I do not have any figures. I think the H. O. L. C. 
figures would be helpful because they refinanced many of those 

Dr. Lubin. Do you think a man earning $25 or let's say $30 a week 
and has a job in a factory and has no assurance of steady employ- 
ment should commit himself to a down payment and regular monthly 
payments, knowing all the time that at any moment he may lose his 
job and be unab'e to continue those payments? 

Mr. Bodfish. If a man has no assurance of steady income, I don't 
think he should buy a house. He shouldn't buy an automobile or 
anything else. 

Dr. Lubin. Do you know of any industrial workers who do have 

Mr. Bodfish. Well, I think the majority of industrial workers in 
this country have, based on past experience, reasonable assurance of 
steady income, continued employment. 

Mr. O'Connell. I doubt if most industrial workers would agree 
with you on that. 

Dr. Lubin. I am not arguing against home ownership, but I am 
raising the question whether or not a man with an income of $1,500, 


who is married and has a family, who consequently is unable to set 
aside any surpluses to take care of emergencies of unemployment, 
should be urged — I can't say permitted, because he has the right to 
do anything he wishes — whether our institutions should so organize 
themselves as to make it easy for him to purchase a home. 

Mr. Bodfish. Well, I would agree with you in, let's say, industries 
of very uncertain employment conditions. Certainly a man in New 
York or Chicago with a $1,500 income shouldn't be embarking on a 
home purchase involving $4,000 or $5,000 or $6,000. But I think that 
brings us to a very important point, however. You take last year, 
our institutions made 365,000 loans, that is in 1938, 365,000 loans. 
The average loan was under $2,500. That is, almost half the average 
size of the F. H. A. on this insured-mortgage plan. Those loans were 
made largely in smaller cities of the country. For example,' over half 
of our institutions are in towns under 25,000 population. A third 
of them are in towns under 10,000 population. 

I was rather interested in preparation for this experience to look 
at the figures on the building of individual family homes. Something 
over 160,000 of them, or 63 percent of the single family homes built 
in 1938 were built in towns under 25,000. 

The Chairman. What proportion of those homes are now held by 
the persons who originally undertook to pay for them? In other 
words, what turnover is there in this group? 

Mr. Bodfish. Well, can I come to the question in a minute? I 
was speaking of the homes built in 1938 and developing Dr. Lubin's 
question of $1,500 income. I think a $1,500 cash income in these 
smaller cities represents ability to purchase housing and to maintain 
home ownership and to carry it out. I am convinced that much of 
the whole mass market for small homes is in the cities under 25,000 
where incomes ranging as low as $1,000 on up to $1,500, or probably 
$2,000 cash incomes are in the upper level of the town; aDd their recip- 
ients can buy, build, and own their homes. 

Turning to Senator O'Mahoney's question — the turnover in owner- 
ship — I am frank to say that I don't know. In our institutions we 
have a very substantial portion of our borrowers who carry their loan 
transactions right straight through until the debt is completely ex- 
tinguished. I realize that we probably have a much greater experi- 
ence in that connection than other lenders for the reason that for all 
these 110 years, all our loans have been on a monthly amortization 
basis, which means the loan was fitted to the man's income, his ability 
to pay, and, of course, it is a plan now that has been adopted by the 
F. H. A. and it is being adopted by savings banks and insurance com- 
panies, and I think is one of the very significant improvements. 

The Chairman. It is your experience, then, the home owner is 
relatively stable? 

Mr. Bodfish. We think so. 

The Chairman. And those who undertake to purchase a home, 
even though they begin by a very small down payment,' usually go 
through and complete the budget. 

Mr. Bodfish. That is right. 

I can cite, for example, one institution with whose internal figures 
I am quite familiar, which has 1,360 loans, I think, at the present 
time. All have been made in the last 7 or 8 years. , There are 10 
delinquencies in the whole 1,360, and those loans are 66%, 75 percent, 
and even 80-percent loans. 


The Chairman. Then it follows there must be some degree of 
stability of employment among those home owners? 

Mr. Bodfish. That is right. Of course, that is one of the processes 
of selection in making the loan. 

Mr. O'Connell. What area is that in? 

Mr. Bodfish. Chicago area. 

The Chairman. In other words, you select, in making the loan, the 
borrower who gives evidence of stable employment. 

Mr. Bodfish. Stable employment, good character, disposition in 
past history to pay his debts, and not attempting a home purchase 
beyond his means. 

The Chairman. What proportion of these borrowers are employees? 

Mr. Bodfish. Employees as contrasted to 

The Chairman. To principals. 

Mr. Bodfish. Oh, I would say the large proportion of them are 
persons employed in offices or industry, or are small tradesmen. 

The Chairman. Would you say that more than 90 percent of them 
are employees? 

Mr. Bodfish. I would not think that high. You get a lot of what 
you call small proprietors in that group that own a little community 
business, a filling station, a grocery store. That class of people is 
very interested in acquiring and paying for its homes. They are not 
executives, or employees. On the other hand, they are not high- 
income people at ail. 

The Chairman. What would be the proportion? 

Mr. Bodfish. Oh, if I had to guess I would say 80 percent of them 
are employed by business concerns of which they are not the princi- 
pals. Probably 20 percent of them are small proprietors of one kind 
and another. 

The Chairman. And would you say that of 80 percent their em- 
ployment is relative stable? 

Mr. Bodfish. Yes. 

Dr. Lubin. If you select your loans on that basis, then what hap- 
pens to the man who doesn't have regular employment, who works 
in a factory that may shut down any day, or that because of seasonal 
and other factors may shut down fox 3 or 4 months in a given year? 
Granted that through your institutions we can provide for people 
with stable employment, how are you going to provide housing for 
this other group, if rental housing isn't stimulated? 

Mr. Bodfish. I am quite inclined to agree that if a person does 
not have stable employment he should not embark upon home 

The Chairman. One answer might be that stable employment 
should be encouraged. 

Mr. Bodfish. I think, in answer to Dr. Lubim there is a great ag- 
gregate of housing available for the people of middle incomes at the 
present time. I have never been able myself to be convinced that 
everyone should have a new house. I think there is a lot of auto- 
motive transportation in this country in the hands of middle-or low- 
income groups that could not afford a new Packard 120 or a Ford, 
but do acquire a second-hand means of transportation. The same 
thing applies, to a great extent, in connection with housing. Often 
times people of low income can buy better housing if it comes through 
the filtering-up process, as we speak of it, than they could if they 


attempted to buy new housing. Personally, Dr. Lubin, I don't feel 
that the level of rents has yet been advanced or has been balanced 
with building costs to a point where rental housing is a good business 
proposition. I think we are getting some due to pretty generous 
financing. I think we can get an Empire State building m every 
town and city of the United States, if we have enough high-percentage 
money involved and available. 

Dr. Lubin. Would you say it is primarily a question of rentals ad- 
justing themselves to building costs, or might it not also in part be 
building costs adjusting themselves to rentals? 

Mr. Bodfish. I think we can accomplish the same results either 
way. It is a question of which is going to be the most adjustable. 
I think when you come to building costs you have so many factors — 
it is such a complex industry that substantial adjustments are going 
to be somewhat difficult. On the other hand, I think there are very 
minor upward movements, in response to low vacancies in the rental 
level which will change the whole position regarding rental housing, 
existing housing. I think existing housing has to be somewhat more 
desirable from a business point of view before you can get a large 
volume of new rental housing. 

Mr. O'Connell. You made a general observation a moment ago 
that rather interested me. There has been a substantial amount of 
testimony before this committee recently to the effect that sub- 
stantially no construction has been done in recent years which pro- 
vides adequate dwelling accommodations for persons with an income 
of less than $2,000 a year. There has been evidence also, or testi- 
mony, to the effect that there is certainly a great unsatisfied need for 
adequate dwelling accommodations, which in effect means that there 
is a large untapped market for building, which in turn would indicate 
the possibility for expansion in the construction industry. Do I 
understand you to mean that you do not believe there is any need 
for increased activity in the construction field for that middle-income 

Mr. Bodfish. That is a difficult question, because you use two con- 
cepts. You say "need" and then you also say "market." I think 
there is a need for improved housing, additional housing accommo- 
dations in the country. I was very impressed with Dr. Lubin's 
analysis, which arrived at so many very sensible conclusions regard- 
ing a mean actual production, as contrasted with some of the astro- 
nomical figures that have been based, I think, exclusively, on the 
1927 Building Volume. 

Mr. O'Connell. We will use Dr. Lubin's figures, which were, I 
think, 525,000. 

Mr. Bodfish. I think there is a reasonable need over a period of 
time for 525,000 dwelling units. I don't think there is a market 
this year, or will be next year, for that number of units. 

Mr. O'Connell. Let me ask you this at that point. Would there 
be a market for that number of dwelling accommodations if the cost 
of home ownership could be substantially reduced? I take it when you 
are thinking in terms of the market you mean people who are in posi- 
tion to buy dwelling accommodations. 

Mr. Bodfish. Effective demand. That is, folks that are ready, 
willing, and able. I think it is axiomatic that as you reduce the cost 
of any desirable commodity you widen the market for it. How many 


additional home purchasers a certain fall in costs would bring in to the 
market, I confess I don't know. I think there are a lot of deterrents 
to home ownership which are very real, that are affecting the thinking 
of people. I don't need to go into them. They are familiar to every- 
body on the committee — everything, starting with taxes, and general 
business conditions, and so on. 

Mr. O'Connell. In 7 terms of the market that we are discussing, 
that is this middle-income group, I take it that practically all the 
deterrents to which you refer revolve around cost of one item or 
another, or many items. 

Mr. Bodfish. I think they partly revolve around cost. • I think 
they partly revolve around the existing properties that are available, 
the undigested, institutional holdings, and after all, house purchase is 
a long-time commitment. It involves a large capital sum in relation 
to families. It is probably the largest financial transaction the 
family engages in, in the course of their lifetime. And while it may 
be trite, they do it in much greater volume when they are optimistic 
about the future, about their employment, about business conditions. 

Mr. O'Connell. And they do it in great volume when they have 
enough money to buy a house. 

Mr. Bodfish. That is right. You look back on the twenties 
when we had a real-estate boom. That is what we have been busy 
getting over, in part, for the last 6 or 7 years. People bought houses 
without much regard to the level of costs that existed, to the costs of 
financing, and the like. 

Mr. O'Connell. The course of this hearing so far has been gen- 
erally to explore various items of cost that go to make up home 
ownership, whether they be capital costs or annual costs, and trying to 
keep that in mind we would like to discuss with you mainly the 
question of finance costs, and whether or not it would be reasonable to 
expect a reduction in that rather important item of cost. Can you 
tell me first what income group building and loan societies generally 
reach in their financing? You say that the average mortgage placed 
by building and loan societies in 1938 was $2,5Q0? Is that right? 

Mr. Bodtish. That is right. The Federal Home Loan Bank 
System averaged it at $2,200. 

Mr. O'Connell. That is the average of all. 

Mr. Bodfish. That is the average of 3,800 institutions on which 
we have complete statistics. 

Mr. O'Connell. Taking $2,500 as a mortgage figure, I take it that 
the cost of the home would be something in excess of $3,000. 

Mr. Bodfish. I think it means it involves properties, new and old, 
ranging anywhere from $2,000 to $4,500, generally speaking. 

Mr. O'Connell. Do I understand you to mean that building and 
loan societies in your opinion are doing a substantial amount of 
financing which will redound to the benefit of the group that we are 
discussing between $1,000 and $2,000 a year? 

Mr. Bodfish. I think there is no question but what the building 
and loan associations have dealt with an income group that was 
much further down the scale than had been reached by other financial 
institutions. I think their century of success and much of the good 
will that they have grows out of the fact that they have dealt with 
credits for people of very modest income. In the smaller cities, the 
cities under 25,000, I would say. the bulk of our business is from 
people who have incomes of $1,000 to $1,500. 


Mr. O'Connell. Let's talk a little more specifically about interest 
rates. Can you give us some accurate information as to the current 
interest rate being charged by members of your organization? 

Mr. Bodfish. I do not have statistical information. I would have 
to generalize. I would say that our lending rates are predominantly 
5 and 5% percent at this time, with considerable at 6 percent and 
some as low as 4%. I realize I have named four figures, but they are 
based upon informed opinion because most of our institutions now, 
instead of operating as they did a half century ago on the same rate 
to everyone have what we call a variable rate. A man comes in with 
a high percentage loan, he pays a little higher rate than a man who 
has a 50 percent loan, and so it has become a more mixed, picture 
and a more complex one rather than a simple one. 

Mr. O'Connell. Have you any first-hand information about any 
particular building or savings and loan society to which you could 
refer? • 

Mr. Bodfish. I can be candid about the institution in Chicago I 
mentioned a few minutes ago. Our average interest income or rates 
on new mortgages is 5% percent at the present time. That means 
they are 5K and 5 percent, about half and half. 
Mr. O'Connell. You mean the average stated rate? 
Mr. Bodfish. That is the rate paid by the borrower except for the 
title charges, the appraisal fees, and those incidentals at the time of 
the making of the loan. I might say that generally speaking through- 
out the building and loan picture the rates have fallen. We calculate 
about IK percent since the predepression levels. It used to be very 
common in the newer parts of the country where it is difficult to get 
capital together for the rates of these institutions to be as high as 
7 percent, 7.2 

Mr. O'Connell. What would you say are the major factors that 
go to make up that effective interest rate? 

Mr. Bodfish. Well, in our institutions I think the thing is fairly 
simple for the reason that we are engaged exclusively in the one 
business of home credits. I think your first item is the cost of money, 
in other words, the cost of persuading people to be thrifty, and 
thrifty in a particular institution. We find that is about 3 or 3% 
percent at the present time. We feel that there is a floor on the thing, 
about 3 percent. 
Mr. O'Connell. Why is that? 

Mr. Bodfish. We feel that the United States savings bonds and 
investments of that kind which We yielding about 3 percent, establish 
a lower level below which we can\t attract money. 

Mr. O'Connell. You mean if you don't offer 3 percent or better 
investors won't put their money into institutions? 

Mr. Bodfish. Not in the volume we can use because the Govern- 
ment is offering a direct Government obligation at more favorable 
rates. The yield on savings bonds is 2.9 over a long period. 

Mr. O'Connell. The rate that savings banks pay is substantially 
less than that, is it not? 

Mr. Bodfish. That is true. The whole question of public psy- 
chology in connection with bank rates is a perplexing one; they are 
putting money in savings departments of banks that offer 1 percent ; 
I guess they are going to put it in the Chase now at no percent, if I 
read the announcement correctly, but when we take a community 
institution and tell people we are going to invest all their money in 


long-term mortgages in that community and they are going to have a 
full understanding of the operation, we are not convinced we can buy 
money cheaper than 3 percent. The next thing is the cost of operating 
the business, which must be added to the cost of money. We find it 
costs about 2 percent, that in relation to assets. 

Mr. O'Connell. It costs about 2 percent for your organizations 
to do business? 

Mr. Bodfish. That is right. That is quarters and equipment and 
supervision and personnel and all of the procedure, supplies, and the 

Mr. O'Connell. That item is substantially higher than Mr. 
Rogers indicated was the cost of his organization to do business. 

Mr. Bodfish. Well, Mr. Rogers, as I understood his statement, said 
it was a half of 1 percent for the conduct of the mortgage department. 
Now, that is only half of the business. That does, not include the 
acquiring of this money. When he acquired his insurance money he 
paid commissions and had a whole phase of the organization which 
represented an addition to the one-half. As I understood; the one- 
half was the cost of operating the mortgage department. 

Mr. O'Connell. He divided the interest rate that he had to get into 
three factors. One was the cost of doing business, one was risk, and 
the third was the cost of money, and the cost of doing business he said 
was one-half of 1 percent. I didn't know that it didn't include all of 
the cost of doing business. 

Mr. Bodfish. Of course, our cost runs less in some of .the larger 
institutions, but in the main we say roughly 2 percent and then we 
figure another half percent for risk. Now that is no accurate evalua- 
tion of the isk; that is what we put into reserves as required by 
statute, as required by conservative policy, to keep the saver's 
dollar safe from reasonably unforeseeable circumstances that might 
impair the integrity of those savings. 

Mr. O'Connell. So, generally speaking, you feel that your or- 
ganizations have to pay 3 percent or more for the money that they 
want to invest, 2 percent for the cost of doing business, and approxi- 
mately one-half of 1 percent for risk, which would add up to 5% percent 
average rate as a minimum. 

Mr. Bodfish. That is right, 5 to 5%, larger institutions a little less 
and smaller organizations sometimes a little more, naturally. 

Mr. O'Connell. I_ would like to discuss a moment more this 3 
percent that it costs you to get money from the public. Do I under- 
stand that that is' because your investment portfolio is a long-term 
investment and that the persons who put their money into your or- 
ganization must not expect to get it out when they want to, as they 
can in a savings bank. 

Mr. Bodfish. Well, J don't know that it can be drawn down to 
quite that position. We try to make a very careful and honest con- 
tract with them; in other words, our passbooks and certificates and 
bylaws provide that if cash is not on hand they must await the 
orderly liquidation or repayment of the securities. We don't make 
a contract, as does a commercial savings bank, that if we don't have 
enough cash, on hand to meet all requirements we are going to turn 
the institution over to the public authorities for liquidation, which is 
in essence your banking contract. On the other hand, we do try to 
meet" the withdrawaiYequests of all investors promptly with cash 


on hand or the income from our monthly amortized mortgages, but 
it gets down to a rather simple proposition of what basis the people 
are willing to make their investments on, if we are getting a reasonable 
flow of funds. 

I will say this: I think the factor of safety as developed by the 
insurance of bank deposits has been a real factor in our whole problem 
of money. You see, we guaranteed bank deposits in the Banking Act 
of 1933. As near as we can calculate over a billion dollars was 
drained out of our community institutions, largely due to the guaranty 
of bank deposits, so we had to come to the Congress and develop a 
somewhat similar guaranty fund for the savings and loan associations 
in order to turn the flow of capital. Now apparently there were 
questions of safety, of liquidity, involved there. The minute that was 
done the position has shifted and we have a very satisfactory flow 
into our institutions now. 

Mr. O'Connell. Do you mean at the present time from the safety 
angle your institutions are in as good a position as your competitors 
for money, so to speak? 

Mr. Bodfish. From the safety position we think so. We are not 
as liquid an institution, of course, as a commercial bank or mutual 
savings .banks. 

Mr. O'Connell. Could you tell me to what extent your savings 
and loan assdciations use the facilities of F. H. A. insurance? 

Mr. Bodfish. Well, we are lending about a billion dollars a year, 
roughly speaking, now, and about 15 or 16 percent of our loans are 
F. H. A. loans. We use the F. H. A. when we have a high-percentage 
loan that is beyond the limits that we feel that we can go on our 
home-loan plans or where they want a term. that is excessive. About 
16 percent of our volume, is insured F. H. A. business. 

Mr. O'Connell. Would the balance of your loans, generally speak- 
ing, reflect a higher return to your organizations or a lower return? 

Mr. Bodfish. They reflect a much higher net return but not par- 
ticularly a higher cost to the borrower. Here is a business that 
operates on a 2-percent spread, as we say, in other words, if it costs 
2 percent to operate the business, the difference between the cost of 
money and the sales prices is 2 percent. Half of 1 percent is 25 
percent of the mark-up, if you put it in retail merchandising terms, 
and that half of 1 percent is the F. H. A. insurance premium. In 
other words, if we make a 5%-percent loan on our own plan, we are 
getting more than 25 percent more income than if we had made an 
insured plan where we are paying a half of 1 percent to the F. H. A. 
for carrying the risk. 

Mr, O'Connell. Then your answer is that generally speaking your 
return from non-F. H. A. insured loans is highei than your return on 
F. H. A. 

Mr. Bodfish. Our net return to the institution is higher and our 
cost to the borrower is the same. We have had no trouble meeting 
F. H. A. competition. As a matter of fact, in the beginning F. H. A. 
costs to the borrower ran anywhere from 6.3 to 6.7, and we just met 
that and we are meeting the present cost to the borrower. 

Mr. O'Connell. I should like to return again to the cost of money. 
Do you happen to know what interest rates or dividends your asso- 
ciation paid, say 15 years ago? 

124491— 40— pt. 11 12 


Mr. Bddfish. I could generalize that would in a way be fairly- 
accurate. I would say they paid from, oh, 5 to 6 percent. 

Mr. OConnell. As opposed to about 3 now. 

Mr. Bodfish. Yes. That 5 to 6 percent was not the rate received 
by all the savers. The old building and loan plan involved 6 percent 
if you carried through the whole payment contract Of 10 or 11 years, 
with some forfeiture of earnings if you withdrew prior to that period, 
so that didn't represent the exact cost of the money to the institution; 
it represented the dividend to the man that stayed and paid out his 
shares to the end. If he withdrew in 1 or 2 or 3 or 4 years, he received 
probably 2% or 3, 3K or 4 percent. 

Mr. O'Connell. As I understand it, the safety factor on money 
invested in your institutions is substantially the same by virtue of 

>ent legislation as the safety factor of money put with, say, a 
commercial bank or savings bank. If that be so, I take it that the 
main reason that the cost of money to your organization is sub- 
stantially higher than these other institutions must have largely to do 
with liquidity. 

Mr. Bodfish. Yes. I would make only one qualification or state- 
ment; I would say an insured savings bank. I think our safety factor 
is greater than a noninsured savings bank. 

The Chairman. I didn't get that answer. 

Mr. Bodfish. He mentioned that our safety factor was as great as 
commercial banks or savings banks. I would say it is as great as an 
insured commercial bank or an insured savings bank. 

Mr. O'Connell. Do you know whether mutual savings banks are 

Mr. Bodfish. Fifty-six of them out of some 600 are insured by the 
F. D. I. C, and in New York and Massachusetts they have State 
insurance plans that — well, let's say they probably, by an impartial 
observer, would not be regarded as strong insurance as the F. D. I. C. 

Mr. O'Connell. But in any event, to the extent that such banks 
are not insured, do you think the safety factor of your organiz?' ion is 

Mr. Bodfish. That is right. 

Mr. O'Connell. So your safety factor is as high or higher than 
your competitors' for money. 

Mr. Bodfish. That is right. 

Mr. O'Connell. So that leaves us with the question of liquidity 
to explain the difference in cost. 

Mr. Bodfish. I think it is liquidity plus, being very candid, depres- 
sion experience ; that is, the savings banks are found exclusively in the 
Northeastern States, as a matter of fact 77 percent of their assets are 
in two States in the Northeast. We were scattered all over the country 
where we had the banking troubles and the real-estate deflation was 
very substantial. We were the people in the twenties who made the 
75 and 80 percent loaDS and consequently we had that problem to 
work through after a real-estate deflation that averaged about 30 
percent, as near as we can figure, of the residential properties. Those 
things are injurious to public confidence. They cause institutions to 
suspend payments temporarily, and the like. I think it is liquidity 
No. 1, and gradually working out of the depression experience. 


Mr. O'Connell. But you compete for the money that is invested in 
your institutions with mutual savings banks in some areas, commer- 
cial banks, insurance companies, and other institutional lenders. 

Mr. Bodfish. That is right. 

Mr. O'Connell. I gather from what you say that, generally 
speaking, you pay and feel that you have to pay a higher return to your 
investors than these other people. 

Mr. Bodfish. Yes. 

Mr. O'Connell. And that is explained primarily on the basis of 
lack of liquidity of the investment that you make. 

Mr. Bodfish. That is right. 

Mr. O'Connell. That brings me to another question. What would 
you say as to the liquidity of F. H. A. insured mortgages? 

Mr. Bodfish. Well, I don't believe there is any way to make a 
20-year amortized or 25-year amortized mortgage liquid. I think you 
could give them some collateral value that will make them more useful 
to a financial institution to borrow upon. 

Mr. O'Connell. Isn't it a fair statement that, generally speaking, 
F. H. A. mortgages have a very wide market and are, generally speak- 
ing, very liquid at the present time? 

Mr. Bodfish. I think they have a wide market at the present time. 
I don't think that the present situation is any indication of the situa- 
tion when liquidity is really needed ; that is the thing that really counts. 
We never had a building and loan association go on withdrawal notice 
for 40 years, due to our monthly payments and the inflow of new 
investments. What the liquidity situation would be in a depression 
picture is something different. We think in the Home Loan Bank 
System that we give a certain amount of liquidity to other mortgages 
in that we have provided a vehicle whereby they can be borrowed 
upon -substantially. 

Mr. O'Connell. What rediscount privileges have your organiza- 

Mr. Bodfish. There are about 4,000 of them that belong to the 
Federal Home Loan Bank System. They own about $40,000,000 of 
stock in those 12 banks and they can borrow there — not rediscount — 
upon home mortgages that are in good standing. We feel in that con- 
nection that our liquidity picture as an institution has been sub- 
stantially improved as contrasted to conditions that prevailed in the 

I am not sure what the salability would be of F. H. A. mortgages in a 
depression picture. Certainly the currency issuing power has been 
put behind them by making them eligible for borrowing from the 
Federal reserve banks, which makes them somewhat liquid in the hands 
of commercial banking institutions. 

Mr. O'Connell. When Mr. Rogers testified generally that while 
the factor of liquidity was not of great importance to his institution, 
he indicated that the F. H. A. morgtages were substantially more 
liquid than other mortgages and that they compared very favorably 
in liquidity with other types of investment. I am merely trying to 
see how valuable or how much this liquidity factor or lack of liquidity 
which you referred to is justified in requiring you to pay 3 percent or 
3K percent for your money. So as to make it perfectly clear what I 
was getting at, it seemed to me from testimony that had gone before 


that if your portfolio consisted largely in F. H. A. insured mortgages, 
that liquidity would no longer be a factor, or lack of liquidity would 
no longer be a -factor which would explain the cost of money to you. 

Mr. Bodfish. Well, we have had a few institutions that have made 
a large amount of F. H. A. mortgages and I don't recall their experi- 
ence has been one of a different public attitude on account of these in- 
vestments. I think that an F. H. A. mortgage has a collateral value 
and has some marketability that an ordinary mortgage doesn't have 
beyond a question of a doubt. However, I still think our experience 
is ahead of us on the F. H. A. higher percentage of loans, rather than 
behind us. 

Mr. O'Connell. So you haven't considered extending the use of 
F. H. A. insured mortgages as a vehicle by which your mortgage port- 
folio would be made more liquid and thus reduce the cost of money to 

y° u? 

Mr. Bodfish. We think the liquidity thing has been taken care of 
largely, as far as it can be taken care of in a long-term mortgage institu- 
tion, by the 12 Federal Home-Loan Banks which can lend on either 
F. H. A. mortgages or our regular mortgages. And I doubt if we can 
ever make an institution which exclusively invests in long-term mort- 
gages a liquid institution. Probably I don't thh)k we ought to. 

Mr. O'Connell. I don't know that it is desirable, either. I was 
merely trying to evaluate the liquidity factor as explaining the term 
you are required to pay your investors. 

Mr. Bodfish. In fact, we think it is best to have people understand 
there is a difference between a contractural demand deposit in a bank 
and a savings account or investment in a building and loan association 
and that they are entitled to that higher return only because they are 
committing themselves to receive their money back promptly, if it is 
available, but if not, to await the orderly repayment of the mortgages 
and the liquidation of the mortgage securities. 

Mr. O'Connell. Do you think that factor explains the difference 
in cost of money to you as between your organizations and the other 

Mr. Bodfish. That is true. Of course, I think there is another 
factor that shouldn't be passed by. That is that these institutions 
practically without exception are mutual cooperative enterprises. 
They are owned by the people who put their money in them. There 
is no proprietary stock in the sense of a group controlling the institu- 
tions, as there is in a commercial bank. 

Mr. O'Connell. Of course, the same thing could be said for mutual 
savings banks and insurance companies. 

Mr. Bodfish. Well, I would like to argue that with you sometime, 
because I think there is a great deal of difference between the mutual 
savings bank trustee system and our system, but the result is you have 
the directors and the citizens in a community as anxious to encourage 
thrift as to encourage home ownership and they take great pride in 
paying as liberal a dividend as they can to the hund/ed or one thousand 
or four thousand people that have their money in the institution. 

Mr. O'Connell. Well, then, do I understand you to feel you don't 
think your institutions should be expected to compete for money with 
other institutional lenders? 

Mr. Bodfish. I think they have to compete, which is probably a 
wholesome thing, but I don't think their whole point of view is to see 


what is the lowest possible rate that they can pay for money. I think 
there is a cooperative aspect in there which while they follow the 
money market, they still don't say what is the lowest we can buy our 
money at, and what is the highest we can lend it at. 

Mr. O'Connell. That brings you back to the question of what the 
purpose of the building and loan society is. 
Mr. Bodfish. That is right. 

Mr. O'Connell. That is whether it is to encourage thrift and get 
a high return for those who invest money in it, or whether it is to 
stimulate home ownership and make money available to home owners 
at the lowest possible cost. You are indicating now the emphasis is 
on the first. 

Mr. Bodfish. I think the cooperative institution can have two 
objectives. I think they are to do economical home financing in a 
community and give a fair and a low rate to borrowers and at the 
same time operate the thing as economically as possible and make as 
generous a reward to the savers as possible. I think an institution 
can have two objectives. 
Mr. O'Connell. I agree. 

Mr. Thorp. You have mentioned the word "community" a num- 
ber of times. To what extent is it true that these organizations are 
essentially local from the point of view of gathering funds within a 
community and returning them to use within that community, rather 
than participating in a national capital market? 

Mr. Bodfish. Dr. Thorp, I would say that the institutions are 
almost exclusively local as far as their gathering funds is concerned. 
You could say they are in the national market when they borrow 
from the Federal Home Loan Banks because the debentures are sold on 
the national market, but 95 percent of our money today comes from 
citizens right in that community and then is reloaned in the 'com- 

Mr. Thorp. What happens if there is not sufficient market in that 
community to put those funds to use? 

Mr. Bodfish. Often the institutions will decline to receive or accept 
additional funds and quite often also, as happens in other financial 
institution^, when they have more money flowing toward them than 
they can use, that is when they usually make their mistakes. I think 
when there is more money available than they can prudently employ, 
there is always the temptation to put the money out. Our institutions 
are susceptible to that rather human error, as others. 

Mr. Thorp. Is there any machinery whereby they can bring funds 
from other localities into a locality where there is a particularly 
favorable market? 

Mr. Bodfish. There are two pieces of machinery, one fairly uni- 
versal and one fairly restricted. In some States it is possible for 
institutions to take shares 'and make deposits in other like institutions 
in other parts of the State; that is very common in New York State 
and Ohio, for example. The other piece of machinery which is nation- 
wide but which is not extensively used is the Federal Home Loan 
Banks. They have the right to accept deposits from member institu- 
tions and that puts that money, that surplus money which is usually 
time money and gets time rate, into this System of 12 banks which 
has the statutory machinery under the Federal Home Loan Back 
Board here to shift it to other parts of the country. I must say in 


fairness that that facility has not been developed or used nearly so 
much as some of us anticipated it would at the time we had a little 
part in planning the legislation. 

Mr. Thorp. Essentially, though, that would summarize to say that 
these institutions are for redistributing funds within given communi- 
ties, rather than among communities? 

Mr. Bodfish. I think that is very true and accurate. 

The Chairman. Is home ownership increasing or decreasing? 

Mr. Bodfish. Well, I think it decreased during the depression pe- 
riod and the liquidation of the real-estate boom. I think that it will 
again increase, particularly in the smaller cities, as we resume building 
activities and as the construction industry expands. 

The Chairman. That is now entering the field of prophecy. What 
*is the actual, condition at the present time? 

Mr. Bodfish. Well, I don't think we have any figures. I think it 
is true we know statistically that home ownership has progressed in 
the last four or five decades. I think our 48 percent in '30, as I recall 
the figure, was the highest national figure we attained. I am not 
certain on that. I am speaking from memory 

The Chairman. That 48 percent included all mortgaged homes? 

Mr. Bodfish. That is right. 

The Chairman. As well as wholly old loans. 

Mr. Bodfish. I don*t know what has happened in the last 5 or 6 
years. I imagine with the liquidation of the real estate boom of the 
twenties, which is what we have been engaged in partially in this 
country, that there has been some setback to home ownership. As a 
matter of fact, we got two to two and one-half billion dollars of 
institutionally owned residential real estate, homes for families. To 
that extent it is a set-back. 

The Chairman. What is the interpretation of that figure? Do you 
base it upon the value of the foreclosed mortgage or the value of the 
property? You say there are 2){ billion dollars. 

Mr. Bodfish. Institutionally held real estate. 

The Chairman. Does that 2% billion dollars represent the actual 
value of the residence property or the amount of the mortgages? 

Mr. Bodfish. That is the book value which is the amount of the 
mortgage plus the taxes that have been paid, the carrying charges, 
foreclosure costs and the like. I think you will find that that 

The Chairman. How does it compare with the resale factor? 

Mr. Bodfish. I think it is very slightly under the resale value. 
In other words, when you repossess a property , § it usually means the 
taxes and carrying charges plus the mortgage indebtedness approach 
its market value. 

The Chairman. In what manner do you handle these repossessed 

Mr. Bodfish. As a rule, recondition them, rent them temporarily, 
and in an orderly way put them on the market, resell them on home 
purchase contracts. 

The Chairman. What proportion of them are now rented? 

Mr. Bodfish. Practically all of them. 

The Chairman. Practically all of this two and one-half billion of 
institution-owned homes are now being rented? 

Mr. Bodfish. Senator, I should only speak for about a billion 
dollars of that. That is our portion in building-loan associations. 


The Chairman. You experience? 

Mr. Bodfish. Our experience is a much improved rental situation 
with regard to those properties and they are beginning to move off 
the books. If they continue at the present rate, I think in another 
3 or 4 years we will be pretty well through with repossessed real 

The Chairman. The condition as you now describe it is that home 
ownership is declining; you hope it will increase. There is a smaller 
proportion of homes owned now than there was in 1930? 
Mr. Bodfish. I would think so. 

The Chairman. What indications do you -see that there will be an 
increase of home ownership? 

Mr. Bodfish. Well, last year we built about 265,000 new single- 
family homes. Most of them, with the exception of a few, have found 
purchasers and that means that there is a growing demand. 
The Chairman. How many did you build? 
Mr. Bodfish. In the country about 265,000 single-family homes. 
The Chairman. How does that compare with the average construc- 
tion in 1930 and prior thereto? 

Mr. Bodfish. In 1930 it had fallen. For the period 1920 to 1930 
as I recall, we built about 700,000 units annually of whictt about two- 
thirds were single-family urits, the other third being multi-family, 
speaking in round figures, so it means we are about half of the average 
single-family home production of the twenties. 

Mr. O'Connell. Less than half. You say 700,000, I believe. Oh, 
I see, two-thirds. 

Mr. Bodfish. Two-thirds approximately were single-family units- 
and the other third multi-family. 

The Chairman. So we are now building annually only half as many 
single-family units as were being constructed in 1930 and prior thereto? 
Mr. Bodfish. That is 1938. In 1939 I think it is going to increase 

The Chairman. That is, the number of units constructed last year 
was greater than the number the year before? 

Mr. Bodfish. Substantially, about 40,000 greater. 
The Chairman. Do you see indications that more will be con- 
structed during the next year? 

Mr. Bodfish. I think that there will be a gradual increase in the 
volume of construction. I would expect a substantial increase in 
1939 over 1938. I think it is already indicated in the figures. 

The Chairman. Well, do the building and loan associations study 
the problem of how the capacity of the people to build and own their 
own homes may be increased? 

Mr. Bodfish. We try to. We try to study that every time we make 
a loan because unless we do lend to people who have the capacity to 
carry out their obligations, it is a bad transaction for them as well as 
for this community institution. 

The Chairman. Naturally you would examine each risk to deter- 
mine whether or not it was a good one. 
Mr. Bodfish. That is right. 

The Chairman. What I am getting at is whether or not you study 

what factors might promote good risks and make them more numerous. 

Mr. Bodfish. Well, we try as a group to give considerable attention 

to the general economic situation, the trends of building, the trends 


of incomes of families and that sort of thing so we can arrange terms 
intelligently. On the other hand I wouldn't want to imply there is 
much unanimity of thought because after all these local institutions 
are highly individualistic. You can't even get them to agree on closing 
hours let alone what is going to happen in their community next year. 

The Chairman. Of Course, I suppose it follows if home ownership 
is declining renting is increasing? 

Mr. Bodfish. Well, I think there has been a doubling up of families 
and there has been some increase in renting during the depression, 
Senator. But I don't want to admit that the setback in home 
ownership has been anything other than a depression phenomenon in 
which people hesitated to make long commitments, in a period 
which we were liquidating the results of the real-estate boom of the 
twenties. I personally believe that the repercussions of the real-estate 
boom were even greater than the repercussions of the security specu- 
lation which we generally think of in connection with the late twenties. 
I feel that home ownership will move forward at the present time and 
its setback was essentially a temporary one. And while renting 
probably has gained, tenantry has gained in that period, I still think 
we should very reluctantly encourage rental housing or tenantry and 
confine that encouragement in our thinking and in our public policies 
to those units of population whose employment is so insecure or who 
must be so mobile as a family that they should not undertake to get a 
permanent stake in the land. 

The Chairman. What can we do to encourage the construction and 
ownership of homes, family-sized homes? 

Mr. Bodfish. Well, I think that there is a 

The Chairman (interposing). That, I assume, you would regard to 
be a desirable objective. 

Mr. Bodfish. Beyond any question of doubt. I think we have a 
lot to do in the way of revising, for example, our local tax structure. 
The home owner is carrying practically the whole burden of expense 
of local government. I think the whole city-planning movement needs 
much greater emphasis. I think that there is much to be done in cities 
in the way of elimination of slums, demolition of insanitary and 
unsafe housing. I believe that we have got to start building com- 
munities rather than just houses, that is, many a home owner Las had 
an unhappy experience because he was the only owner-occupier in an 
isolated subdivision somewhere. That is in distinct contrast to British 
practice where the larger building companies developed communities 
or estates as they call them. They build a whole community rather 
than isolated houses. I think we have given a great impetus to home 
ownership in the general sponsorship and adoption of the long-term 
amortized mortgage. I think that has been one of the real factors in 
getting the volume of home building we have at the present time. I 
think as costs fall, which they will, interest rates may fall a little 
more in some communities in response to the very intensive com- 
petitive situation. That will be helpful. It is possible that long 
terms may be extended some more, although some of us are very 
skeptical about a 25-year mortgage. We hesitate to encourage a 
family to commit itself to a debt that runs practically the whole 
productive life of the family. Traditionally our building and loan 
associations are all operated on a 12-year basis. We are moving now 
into 12 years on older properties, and on new properties 15 or 20 years. 


I think that is an advance and the question is one of good judgment as 
to how far we should extend those loan terms in our efforts to reduce 
annual carrying charges. 

The Chairman. To what extent are mortgage debts refinanced, 
and thereby continued over a long period? 

Mr. Bodfish. There is a great deal of refinancing. I wouldn't say 
that it. went to a majority of the mortgage debt, but I would say it 
closely approaches it. Of course, the refinancing doesn't always 
represent a continuation of the existing amount of the debt. Often- 
times it represents a shift, let us say, from a community institution 
with a 6- or 5%-percent rate to a bank mortgage or insurance company 
mortgage at a more favorable rate. I don't have figures on it. 

The Chairman. Did I understand you to say most of the loans are 

Mr. Bodfish. I would say not most, I would say something ap- 
proaching half of them are refinanced in the course of their existence. 

The Chairman. What is the average term of an original mortgage? 

Mr. Bodfish. In our institutions it has been twelve years. That 
average term is being lengthened. We are making some 15 and 
some 20-year mortgages now. 

The Chairman. What is the effect of refinancing on the length of 

Mr. Bodfish. That would frequently extend the length of the term 
and there would be a new obligation. The principal refinancing that 
takes place with our institutions, Mr. Chairman, has been refinancing 
by eastern insurance companies and lenders of trustee funds when the 
mortgage was seasoned down to what we used to call a no-risk mort- 
gage, that is a 50-percent obligation. Oftentimes the borrower would 
refinance and get 4 or 4% money in contrast to 5, 5%, and 6 or even 
the higher rates that used to prevail. 

The Chairman. Would it be correct to say in almost half or a third 
of the cases, the mortgage is not really paid off but there is merely a 
change of mortgagees? 

Mr. Bodfish. I think certainly in over a third of the cases there is 
a change of the mortgagees rather than the contract being carried 
right through to its end, even in our institutions. 

The Chairman. Even in your institutions? 

Mr. Bodfish. That is right. I think that is becoming less so, Mr. 
Chairman, as our rates have fallen and our rates have become more 
comparable with those of eastern insurance companies and the like. 

Mr. O'Connell. Referring again to your discussion as to the 
possibilities of increasing construction, which of course is the thing 
the committee is interested in at this time, would it be fair to say 
most of the things you have indicated would be helpful in encouraging 
construction and involving a reduction in cost of one element or an- 
other that goes to make up home ownership? 

Mr. Bodfish. Well, I think many of them would involve cost. 

Mr. O'Connell. The cost of labor, cost of materials, the cost of 
taxes, the cost of money, or the cost of some of the many elements 
that go to make it up? 

Mr. Bodfish. That is right. 

Mr. O'Connell. You are in accord with the general view that a 
reduction in cost would in all probability result in the stimulation of 


demand or would bring into the market persons not now in position 
to enter it as home owners or renters? 

Mr. Bodfish. I think that is true. Of course an increase in rents 
would also bring them in without reduction of costs. 

Mr. O'Connell. Increases in rents? 

Mr. Bodfish. That is, there are just two sides to the dollar; you 
can either increase the income from real property or decrease its 
cost, and you accomplish the same thing but at a different price level. 

Mr. O'Connell. You discussed the possibilities briefly of the 
reduction in interest costs and you indicated that you thought there 
was some possibility that because of the tremendous amount of avail- 
able money seeking investment, there might be a further reduction in 
cost. I take it if there were such a further reduction, it would have 
to some extent the effect we have been discussing? 

Mr. Bodfish. Yes; I think I would like to make one little addition 
to that; however, I think the financial group are the heroes, so far, in 
the reduction of costs because it is the one factor in the building cost 
picture which has taken a substantial and perfectly proper reduction. 
I have doubts whether it can or will go a great deal further. 

Mr. O'Connell. From your standpoint it is fortunate we started 
with the heroes. The fir-t element of cost we happened to consider 
would be finance costs ; beiore we are through we will consider a number 
of other elements of cost. Anyway, we wanted to get in the record 
the fact that a reduction in finance cost, as well as a reduction in the 
other elements of cost, would have the same sort of effect, namely, 
stimulation of demand and to some extent expansion in housing. 

Mr. Bodfish. I think that is essentially true. 

Mr. O'Connell. As I understand, you stated that the average cost 
to home owners for mortgages carried by the various associations now 
runs about 5K percent. 

Mr. Bodfish. About 5% percent. 

Dr. Lubin. That is the actual cost to them? 

Mr. Bodfish. That is right. 

Dr. Lubin. Do any of your associations charge initiation fees? 

Mr. Bodfish. The fees and fines and all that sort of thing of the 
traditional building and loan are in the main disappearing from the 
picture. As a rule, Dr. Lubin, there are initial fees. For example, 
if it is a construction loan, there would be a fee running half to one 
per cent to defray the frequent inspection. There are, of course, 
title charges which are not within the Control of the lending institution, 
either to title companies, abstractors, or the attorneys. 

Dr. Lubin. The 5% percent includes the initiation fees and other 

Mr. Bodfish. No; that is interest rate, and if there is anything 
additional, such charges are made at the time the loan is made. 

Dr. Lubin. Can you tell what the cost of money is to the members? 
Five and one-half is not the cost to the borrower. It is the interest 
rate you charge them. 

Mr. Bodfish. It is the interest rate they are charged on the monthly 
balances. It is the true cost to the borrowers, if you add to that the 
legal cost — and, incidentally, there is a perfectly proper realm for 
some government leadership in the cost of putting mortgage business 
on the books. 


Dr. Lubin. Would it be fair to say the person whose mortgage is 
held by a building and loan association, on the average is paying 6K 
percent for his money? 

Mr. Bodfish. I think it would be a very unfair statement. When 
you distribute the initial costs over the period of the loan, I don't 
think they would exceed a quarter to a half percent at the top, 
distributed over the period of the loan. 

Dr. Lubin. The actual cost would be closer to 6 and 5%, then? 

Mr. Bodfish. I wouldn't say it would be in excess of h%. I have 
been in communities where there would be nothing in addition to 5%. 
Other communities where it is distributed over the loan, it might 
run as high as to increase the actual interest rate a half point. 

Mr. Arnold. These are guesses on your part as to cost? 

Mr. Bodfish. Mr. Arnold, you have to generalize when you are 
describing the rates and policies of four or five thousand community 
institutions, each of which has its rates determined by a local board 
of directors and the like. 

Mr. Arnold. You never have made a study of how much their 
fees actually are and how much the additional cost actually is? 

Mr. Bodfish. There have been studies 

Mr. Arnold. You don't have the figures with you? 

Mr. Bodfish. I do not have the figures available for a large 
number of institutions. 

Mr. Arnold. Therefore, these estimates you are now giving are 
just general guesses? 

Mr. Bodfish. If I may say so, they are informed opinions. 

Dr. Lubin. You also mentioned some organizations were getting 
6 and §){. Can you tell us how many are getting 7? 

Mr. Bodfish. I would say there are in terms of the volume of 
lending very few institutions getting 7. 

Dr. Lubin. There, are some getting 7? 

Mr. Bodfish. I think you can find them in some small areas, small 
communities, small institutions getting 7. 

Dr. Lubin. Can you tell us if any are getting 8? 

Mr. Bodfish. I would say practically none. I don't see how they 
can lend ; money, if they do, when the F. H. A. rate to the borrowers 
is about 5% and everybody else is trying to lend money at 5% and 
6, I don't see how they can lend it at 8. 

Dr. Lubin. A lot had mortgages outstanding at a per cent or rate 
which was not cut and they are still outstanding? 

Mr. Bodfish. I think there are some of them in that six billion 
dollars, but I doubt if there is a great deal, because an intelligent 
borrower can refinance his mortgage, that is one thing in building and 
loan associations, they can pay off their mortgage any time they 
want to without penalty. 

Mr. Arnold. That, again, is a guess, isn't it? 

Mr. Bodfish. No; it is a statement of fact which you cannot say 
applies exactly to 4,000 institutions. 

Mr. Arnold. You have never actually made a statistical study of 
that question, have you? 

Mr. Bodfish. I have not made a statistical study, I have spent ten 
years traveling and working among them and doing nothing else. 

Mr. Arnold. That is a general impression you have from your 


Mr. Bodfish. General information, that is right. 

Dr. Lubin. Could you tell us how many of your organizations 
are now getting 9 percent on outstanding mortgages? 

Mr. Bodfish. I don't think there are any myself. 1 don't see 
how they could lend a dollar. 

Dr. Lubin. You think there are some getting 8? 

Mr. Bodfish. I think it is possible. I think there was a table put 
in the record the other day which I considered a very unfair state- 
ment, although it came from an official publication, in which a survey 
was made of lending rates and was not weighted in any way by the 
size of institution. 1 If you had a small institution that made one 
7-percent mortgage and a million-dollar institution that made one at 
5, half were lending at 7 percent and half lending at 5. That appeared 
in the Home Loan Bank Review. It was put in the record the other 
day. I don't see, Dr. Lubin, how an institution with all the com- 
mercial banks in the country lending money under the F. H. A. 
guarantee against loss by the Government — I don't see how a com- 
munity institution, a building and loan, can be lending money in any 
volume or of any consequence in the national picture at rates of 7 or 
8 percent. There is no question there were rates like that in the 
twenties, just the same as mortgages were made by bond and mort- 
gage companies and all that sort of thing, at higher rates. 

Dr. Lubin. I think the thing that should be brought out definitely 
is that there is a distinction between a nominal rate and what people 
pay for their money. People believe than when they buy an auto- 
mobile and they are paying 6 percent interest, they are paying 6 
percent interest. If you check it, you will find they are not. If they 
are paying on.a monthly installment basis, they are paying actually 12, 
if they have 12 payments a year. I wonder how significant 6 or 6% 
percent is as a nominal rate, if you take in all of ' hese other factors, 
plus the fact that there are still outstanding ir .tgages which were 
written when interest rates were relatively high, the rates on which 
haven't been lowered. After all, the problem of housing is not a 
problem of a few cities; it is a problem for the Nation as a whole. It 
is just as important that the man living in a small community where 
he has to pay 8 percent or 7 percent for his money have decent housing 
as it is in a large city. 

Mr. Bodfish. Well, I feel this very distinctly, that the comparison 
as to mortgage rates should be accurate and honest. I think, frankly, 
that the legitimate private lender has been treated very unfairly m 
recent years by the colossal publicity of 5 percent F. H. A. money. 
The whole country was just deluged with 5 percent interest. The 
cost to the borrower in the first 2% years of that operation was any- 
where from 6.3 to 6.7, the Title I stuff was 9.7. Even now we still 
talk about 5-percent interest rates and an F. H. A. costs about 5%. 

Mr. O'Connell. Why 5%? - 

Mr. Bodfish. Well, three-tenths of 1 percent appraisal paid by the 
borrower, legal costs, and the like, in addition to the 5 percent interest 
and the one-half percent premium. 

Mr. O'Connell. The interest rate is 5. 

Mr. Bodfish. Interest rate to the institution, and three-tenths of 
1-percent appraisal, insurance and the legal costs. Our rates have all 
fallen; I think they have fallen as much in the small communities as 

i Referring to "Exhibit No. 863," see appendix, p. 5485 


they have fallen in the larger communities. Of course, with 10,000 
community cooperative institutions I think probably we will find one 
or two that are charging 10 percent, operating on the old dividend- 
plan basis of paying 8- or 9-percent dividends on the borrower's share 
accumulations. I think in all these things, when you discuss the banks 
of the country or the building and loan associations, we have to intel- 
ligently generalize as to what the situation is. We are having no 
trouble meeting F. H. A. competition as to rate. We can't meet it 
as to loan percentages at times; we don't care to. 

Dr. Thorp. You spoke once before about the fact that banks had 
different rates according to the characteristics of the loans. Is there 
any generalization that you can make with regard to the cost of money 
to a borrower who is putting up a small house as against a borrower 
who is putting up a larger house? Assuming, let's say, a 50-percent 
loan on a $5,000 house as against a 50-percent loan on a $10,000 house, 
would the cost of money vary? 

Mr. Bodfish. I think the cost of money doesn't vary so much with 
the size of the house as it does with the percentage of loan. Hundreds 
of our institutions have adopted the policy of making, let's say, a 
4K- or 5-percent rate on 50-percent loan business, but when you move 
into 66% or on up to 75, it involves greater risks and will result in a 
half point or a point higher rate on those higher risks. I think the 
rate has turned on percentage of loan much more than it has on size 
of property. Of course, one of the problems with the very small 
property is that the title charges and that phase of the machinery are 
just as much as on a large one and proportionately it makes the loan 
more expensive to the smaller owner. I think that there are some 
areas where the smaller loans are more expensive because you go into 
districts where the risk is admittedly greater, where the banks or the 
F. H. A. won't go, and we go into some of those districts. I think 
you will find, as a rule, they will pay a 1 percent higher rate than they 
pay in a new district that is on the make rather than one that is 
either in decline or on the road to decline. 

Dr. Thorp. -You wouldn't in general feel that the small house was 
a greater risk than the large one, would you? 

Mr. Bodfish. I think the small house is — well, I think your risk 
there turns on what your equity protection is. I think that our 
experience bears out that in the terms of character — after all, it is the 
man who pays back the loan and not the house; the small fellow pays 
much better than the chap who buys a large house out on the country 
club frontage or who steps beyond his means a little bit. 

The Chairman. I regret to interrupt this at the moment, but I 
think we are just about obliged to take a recess. Are there any 
members of the committee who desire to question Mr. Bodfish later? 
I want to ask Dr. Lubin if he has secured the material with respect to 
percentage of mortgage loans that we were discussing this morning. 

Dr. Lubin. Mr. Chairman, the urban and financial survey, which 
covered the years 1934-36, showed that in 202 cities, of all the owner 
occupied properties in those 202 cities, 56.6 percent were mortgaged. 1 

The Chairman. Who made that survey? 

Dr. Lubin. That was made by the United States Government; 
Mr. Wickens was in charge of it. 

The Chairman. What agency? 

•See supra, p. 5091. 


Dr. Thorp. I think the Department of Commerce was responsible 
for the project. 

The Chairman. When was it made? 

Dr. Lubin. It covered the years 1934-36. 

Mr. Bodfish. Mr. Chairman, might I make one respectful request? 
In response to the letter from the representative of the committee, I 
prepared a statement answering as specifically as I could the questions 
that were set forth in the letter from Mr. Cheseldine. 

The Chairman. What is that? 

Mr. Bodfish. I received a letter from the committee raising a 
number of specific questions. I prepared a statement answering those 
questions. While we have covered some of them, we have not covered 
all of them. If not inappropriate, I should like to see that statement 
in the record. I submitted it to Mr] O'Connell the other day so he 
knows it doesn't have a great deal of extraneous .or inappropriate 
matter in it. 

Mr. O'Connell. I have no objection to its being included. 

The Chairman. Without objection 'the statement may be entered 
in the record. 

(The statement referred to wps marked "Exhibit No. 865" and is in- 
cluded in the appendix on p. 5486.) 

The Chairman. The committee will stand in recess until 2:30. this 
afternoon for a public hearing. 

(Whereupon, at 12:45 p. m. the committee recessed until 2:30 p. m. 
of the same day.) 


The committee resumed at 2:40 p. m. on the expiration of the recess, 
Representative Williams presiding. 

Acting Chairman Williams. The committee will be in order. Mr. 
O'Connell, you may proceed. 

Mr. O'Connell. The first witness this afternoon will be Mr. 
Henry Bruere. 

Acting Chairman Williams. Do you solemnly swear the testimony 
you are about to give in the matter now pending will be the truth, the 
whole truth, and nothing but the truth, so help you God? 

Mr. Bruere. I do. 



Mr. O'Connell. Mr. Bruere, will you give your name and address 
to the reporter, please? 

Mr. Bruere. Henry Bruere. 

Mr. O'Connell. Mr. Bruere, you are, as I understand it, the 
president of the Bowery Savings Bank, in New York City; is that 

Mr. Bruere. Yes, sir. 

Mr. O'Connell. We intend discussing with you to some extent this 
afternoon the question of the cost of finance as an important element 
in the cost of either home ownership, or rental of cTwelhng accommoda- 
tions. Naturally, our discussion will probably cover some other 
topics too, but in general we are more interested in the finance cost 


than anything else. First, from your general knowledge of the 
subject, would you be in accord with the view that has been previously 
expressed by witnesses before this committee, that the construction 
industry is not at the present time supplying, or able to supply, any 
substantial amount of adequate dwelling accommodations for families 
having an income of less than $2,000 a year? 

Mr. Bruere. I think that is substantially true, yes; on the present 
rental basis. 

Mr. O'Connell. In your opinion, would a substantial reduction in 
the cost of home ownership, or in rent, result in increased activity 
in housing for this group? 

Mr. Bruere. About that I am somewhat doubtful, because of the 
general economic situation. There are so many factors involved 
which effect the cost of housing and which effect the demand for it 
that it don't think a categorical answer is feasible to a question of 
that sort. 

Mr. O'Connell. If we assume that there is a mass market, so 
to speak, of persons having an income of between, let us say, $1,000 
and $2,000 a year, and if we also assume, as your answer to the first 
question indicated, that that market is not being met by the construc- 
tion industry at present price levels, would it not follow that a sub- 
stantial reduction in some or all of the elements that go to make up 
the cost of a house, would result in tapping that at present untapped 

Mr. Bruere. I think there are one or two assumptions in your 
question, one of which suggests itself to me at once. That is the as- 
sumption as to the availability of such a market, with persons of that 
level of income, whether a purchase of a house on the basis which we 
now expect people to demand, is a feasible thing for them, whether that 
does not represent very largely," a rental clientele, rather than ad 
ownership clientele. 

Mr. O'Connell. That interests me. Were you here this morning? 

Mr. Bruere. No, sir. 

Mr. O'Connell. This morning we had quite some discussion with 
the previous witness on the question of rental housing, as opposed to 
home ownership, for this particular group of people, and we might take 
a moment to develop what your view is as to that. The opinion was 
expressed by some members of the committee, and others, that in that 
lower income group it might be that encouraging home ownership 
would in the long run be doing a disservice to the people in that lower 
income group. 

The opinion expressed by the witness on the other hand was to the 
effect that he believed that an expansion of home ownership, even in 
that field, was desirable. Have you any views on that subject? 

Mr. Bruere. I think generally it is desirable to encourage, home 
ownership where it doesn't place too large a burden on the person who 
undertakes to acquire the home, and it ie for that reason in the eco- 
nomic levels benefited by it that I have been very much in favor of the 
arrangement recently made by the Government to insure small housing 
developments, thereby enabling lenders to lend a larger amount on the 
security with safety. 

Mr. O'Connell. Of course, that doesn't cover the equity par- 
ticularly, does it? 


Mr. Bruere. Yes; it enables him to escape certain charges, enables 
him to take a longer time to acquire full ownership and encourages 
him to make the beginning. It also gives, in our experience, which I 
must tell you at on£e is confined to one locality and I don't pretend 
to know the situation as a whole — it gives him a better product, and 
I think that we have felt our way in this present development very 
satisfactorily. The supplying of houses for persons of incomes of, 
let's say, two thousand — Mr. Lubin would know and I wouldn't 
know what proportion of the population, say of New York City, has 
an income, say a family income of $2,000. It would be a very large 
proportion. Would you know, Mr. Lubin? 

Dr. Lubin. I would sry that approximately half of the families 
come within that group. 

Mr. Bruere. They probably would, but we have a large proportion 
of them on relief. We are now making housing provision through the 
U. S. H. A. and the State Housing Authority, and enterprises such as 
the Bronx development of the Metropolitan Life Insurance Co., 1 
for low income groups, which I think) if one's opinion is worth any- 
thing, is a better arrangement in a city of that character for persons 
whose incomes are fifteen hundred to eighteen hundred dollars than 
the risk of home ownership, unless you can start with some very young 
person, shortly after marriage, where income has the prospect of 
rising. And it is for that type of person, where perhaps the wife 
is still emp .oyed and wherd there is some saving, that the present 
arrangements of the F. H. A., we think, from observation rather than 
from broad statistical study, are working out admirably. 

This question has been discussed many times, it is much on our 
minds. I have prepared a little memorandum which doesn't quite 
answer what you say, but has to do with the question as to why 
both equity and mortgage money do not seem to flow into the building 
field as rapidly as we should like to have it in an ideal economy. 
I don't want to bore you with these documents, but I can give you a 

Mr. O'Connell. Let's see if we can't develop them a little more 
piecemeal and if when we get through we haven't developed them all, 
we will be glad to have you supplement them at that point. 

You made reference to F. H. A. as an organization which was 
meeting an income group which was probably more susceptible to 
rental development than anything else, and you also mentioned the 
Metropolitan Life Insurance Co. My understanding is that the in- 
come group to be' met by F. H. A. activities generally is below the 
income group to which we have been referring. 

Mr. Bruere. The U. S. H. A. 

Mr. O'Connell. The U. S. H. A. I understand in New York the 
maximum number they will reach in terms of income is $1,300 a year 
and in most sections of the country even below a thousand. 

Mr. Bruere. That is a question I noticed the mayor raised at the 
opening of the Red Hook houses yesterday or the day before. 

Mr. O'Connell. On the other hand, I believe Mr. Ecker is going 
to testify later as to the groups met by the Metropolitan housing 
development. I understand that income group in all probability 
will be above $2,000, so what I am interested in mainly is the group 
between those two extremes, that is between $1,000 and $1,300, and 

1 See infra, p. 5134 et seq. 


Mr. Bruere. If I were a laborer working for $1,400 or $1,500 a year, 
or a chauffeur, with a wife and two children, how can I acquire a 

Mr. O'Connell. You can't live in a U. S. H. A. housing project. 

Mr. Bruere. I can't live in a U. S. H. A. project and I don't want 
to live in the Bronx or some other place where rent might run down 
to eighteen or fifteen dollars a room. I think I shall have to be 
thrifty for a while and give up my motor car if I have one. 

Mr. O'Connell. You would have to be thrifty to own a home. 

Mr. Bruere. I would expect my wife towork and I could not afford 
too many children. It is a pretty hard job for anybody in that income 
group to acquire a house in New York, although I was looking over 
recent loans we have made on F. H. A. insured loans, and many of 
those were mortgages running from three to five thousand on six to 
seven thousand dollar houses. 

Mr. O'Connell. Boiling this down, would you say generally it is 
your view from your general observation that for persons in that 
so-called middle income group there is at least a substantial market 
for rental houses as distinguished from home ownership? Without 
attempting to say we should or should not encourage home owner- 
ship, it seems to me there are two problems involved. One is the 
social desirability of home ownership as against the economic feasibility 
of it for persons m this low-income group, and the witness this morning 
stressed his view that home ownership in any income group was a 
desirable thing, and I just wanted you to develop what you thought. 

Mr. Bruere. I concur in that, and I think Mr. Bodfish in thinking 
of the whole country would have a better view than I who see it 
living in New York City where to obtain land cheap enough to pro- 
vide a home you incur transportation inconvenience or expense which 
might offset the advantage of the home. But certainly we are all 
concerned to the greatest extent possible to contribute to the develop- 
ment of individual home ownership. 

Mr. O'Connell. I believe there is no dispute about that. 

Previous witnesses before this committee have stressed the import- 
ance of what are generally referred to as annual costs, as distinguished 
from- original cost. Could you agree in surveying the possibilities of 
decreasing costs in order to meet the purses of those in the middle 
income groups, it is important to consider annual costs as well as 
original capital costs? 

Mr. Bruere. It means carrying charges. 

Mr. O'Connell. It includes carrying charges, repairs, taxes. 
That is terribly important, is it not? 

Mr. Bruere. Yes; there is no question about that. 

Mr. O'Connell. Of course, that is where the finance costs come in. 

Mr. Bruere. That is where the difficulties arise, because persons 
who have the fixed charges may be confronted with emergencies 
which cause them embarrassment. It is an ordinary human proposi- 
tion. We have all experienced it. 

Mr. O'Connell. Could you tell us something about the extent to 
which the Bowery Savings Bank participates in housing finance? 
First you make direct mortgage loans for new residential construction? 

Mr. Bruere. Yes; we do to a limited extent make construction loans. 

Mr. O'Connell. Primarily you go into the field of the completed 

124491 — 40 — pt. 11 13 


Mr. Bruere. We buy the mortgage on the completed construction. 

Mr. O'Connell. Do you ordinarily deal directly with the mort- 
gagor or do you deal through a broker or middle man? 

Mr. Bruere. Wherever we can we deal with the individual mort- 
gagor, but presently of course the principal activity of our lending is in 
the field of Federal Housing Administration insured mortgages which 
are arranged through builders. The individual mortgage is made, of 
course, ultimately with the owner, the individual mortgagor. We 
might provide for the construction loans on a certain number of 
houses, but when they are finished we lend the money to John Jones 
under the provisions of the Federal Housing Administration. 

Mr. O'Connell. In that transaction is the arrangement usually 
direct as between you and the mortgagor? 

Mr. Bruere. Yes; we follow it through. In other cases we buy 
from concerns that have done the financing. 

Mr. O'Connell. Would you have any information as to your 
current operations as to how your new mortgages would divide up as 
between new residential construction and financing existing structure? 

Mr. Bruere. Ninety-nine and a half percent new. 

Mr. O'Connell. Ninety-nine and a half percent of the mortgages 
you are placing involve new construction? 

Mr. Bruere. Yes. 

Mr. O'Connell. Can you tell me what percentage of the mortgages 
you are now placing involves F. H. A. insurance? 

Mr. Bruere. Pretty nearly all of them. 

Mr. O'Connell. Pretty nearly all? 

Mr. Bruere. Yes. 

Mr. O'Connell. You also buy mortgages for investment, of 
course, through the middleman. 

Mr. Bruere. Well, we buy some, but we have a definite limitation 
when we do. We have in the last year and a half, I think, bought 
about 3 millions of F. H. A. insured mortgages, and we have com- 
mitted about 3 millions more in process, and we would like to have our 
present program of investment about $10,000,000. That will all be 
virtually new construction. 

Mr. O'Connell. Are those mortgages that you are placing 80 
percent mortgages? 

Mr. Bruere. Originally; they have gone up now, some of them, 
of course, to higher percentages. They run around 80 percent because 
they are selected mortgages. . 

Mr. O'Connell. Outside of F. H. A. insured mortgages is there a 
statutory maximum? 

Mr. Bruere. Sixty-six and two-thirds percent on the appraised 

Mr. O'Connell. There is exemption for F. H. A. insured mort- 

Mr. Bruere. The F. H. A. is exempted; anything F. H. A. will 
insure is eligible for investment in savings bank funds, but we of 
course try, just so as to keep our hand in, and to make a contribution 
of judgment, to look at these loans with some discrimination, so there 
is some selection. We don't buy indiscriminately just because they 
are insured because we don't think that that is a proper attitude to 
take toward an enterprise. 


Mr. O'Connell. There has been considerable comment, lately, 
in many circles resulting from the recent policy of your bank to make 
F. H. A. insured mortgage loans at an interest rate of 4'A percent, as 
I understand it; the maximum F. H. A. rate is 5. Is that correct? 

Mr. Bruere. The maximum permissible; yes. 

Mr. O'Connell. Would you care to indicate generally to the 
committee what motivated your company in reducing the F. H. A. in 
reducing the effective rate on insured mortgages? ^r 

Mr. Bruere. Well, there is a lot of money to be invested in mort- 
gages, and New York, despite all its experience, is mortgage minded. 
The savings banks require mortgages to take care, even if they didn't, 
increase their deposits, of the increments in deposits, because deposi- 
tors allow the interest to remain. We haven't many alternatives 
any longer for investment. We buy long-term Government bonds 
maturing in 1960 or 1965, yielding about 2.30%. Most of the railroads 
which were heretofore eligible for investment by savings banks are no 
longer eligible, because, as you know, we are restricted by specific 
provisions of the statute regarding the type of investment that we 
make of our funds. We may still invest in mortgages. The prin- 
cipal activity of mortgages, in the mortgage field in New York City, 
has been in the development of apartment houses, six-story elevator 
apartment houses, and in the F. H. A. small-house field. We have 
felt that the investment for our purposes in F. H. A. insured mort- 
gages in small houses was preferable. Therefore, we sought them. 
We found that the demand was so great that we didn't get them, and 
we felt that with the insurance, that with proper selection, proper 
supervision of construction, we could advisedly take them at a 4% 
percent rate, cutting a half of 1 percent, because we do our own servic- 
ing, and with volume we thought we could perhaps make up a part 
of that loss through economies in servicing. We didn't intend to go 
too far into that field, as I said, limiting it perhaps to eight or ten 
millions of dollars, and therefore we offered to take them at that rate 
and currently we are taking them at the rate of about one hundred and 
fifty or one hundred and seventy-five thousand dollars a week, but 
we will come to the end of our program, perhaps in a year or so. 

Mr. O'Connell. Does that current rate at which you are taking 
mortgages represent an increase over the amount that you were 
getting before you reduced? 

Mr. Bruere. Oh, yes. It brought us loans. It helped us con- 
siderably, I should say. 

Mr. O'Connell. Do you think that represented to some extent an 
expansion in construction activities or do you think it represented 
merely getting business that other institutions would otherwise have 

Mr. Bruere. I think we came a little late in the field to stimulate 
expansion. I think we just took loans that others no longer wished 
t that rate. 

Of course all of these generalizations I am making are based on 
impression and hearsay, very largely, and observations. They may 
not be statistically sound. 

I don't want in the presence of Dr. Lubin to make any positive 
statements which can't be statistically verified. My impression is 
that we did not much stimulate, although some builders resumed 


because- they thought there was a chance to widen the margin a little 

Mr. O'Connell. Would you think a general decrease would have 
that stimulating effect? 

Mr. Bruere. I think, as you know, you have a definite limitation 
there. I believe there is a definite limit on the number of persons that 
can be sold houses at the present time. We have a lot of persons who 
are uncertain as to their income or haven't any income and we have a 
lot of development that has been going on. The market tends to 
stiffen up, it has decidedly stiffened in the last few months. I couldn't 
say honestly that I believe by slashing the interest rate you would 
widen very much the demand, because the interest rate is a relatively 
unimportant factor in the long-term cost of housing. 
" Mr. O'Connell. It is quite an important factor in the monthly 

Mr. Bruere. Yes; but you have maintenance costs and so forth. 
That isn't the determining factor to a purchaser, as to whether it is 26 
years at 4 percent. He doesn't sit down and figure it out to a nicety. 
His problem is whether he has $500, or $600, or $700 to lay down for 
his first payment. Is he reasonably sure of his job, and can he pass 
all of the tests that are very properly applied to his dependability as 
a purchaser by the F. H. A.? Their judgment would be very much 
better than mine, but I wouldn't offhand think that you would widely 
increase the demand by reducing your interest rates within reason- 
able limits. You can't revise it too far, because then money won't 
be supplied. 

Mr. O'Connell. Of course, I agree there probably isn't one de- 
termining factor, but it seems to me all the factors which go to make 
up the determination of whether or not a man builds, and whether 
somebody else builds an apartment house for him to rent, all those 
factors involve costs. In other words, all of the deterrents I have 
heard of are things that represent a cost element, labor cost, material 
cost, finance cost, and while admittedly reduction in interest cost of 
one-half or three-quarters of any particular percentage would make 
only a comparatively small reduction, let me say, in the monthly cost, 
if we were to outline the field of the various elements of cost and were 
to be able to effectuate a reduction in some of the major elements 
that enter into the total cost, I gather, I should think that the stimu- 
lating effect would be really substantial. 

Mr. Bruere. Well, that is a matter of judgment. Qn a $5,000 
house, 1 percent is $50 a year interest. 

Mr. O'Connell. That wouldn't be $5 a month. 

Mr. Bruere. That is $12.50 a quarter. One dollar and twenty- 
five cents a month may make some difference, the $1.25 looking ahead 
5 or 6 years doesn't look as big as the amounts you have to put 
down for your 10 percent payment. 

Mr. O'Connell. I think he has to get over the hurdle of the 20 

Mr. Bruere. I think that is so. After a while, he gets along and 
he feels perhaps he could save a little money by reducing the principal 
and securing a reduction in the interest rate. We have found that to 
be true with persons who were able to make a reduction in the principal 
of the mortgage, for which they desired an offset reduction in interest 
rate. They said, "I'll give up the $500 or $1,000 if I can save half or 


three-quarters of 1 percent, for instance." He is well on his wav. 
He is the owner of the house and begins to see how the monthly 
expenses run. Perhaps he has a prudent and thrifty wife who thinks 
$1.25 is a lot of money and he tries to get it adjusted. At the begin- 
ning he is putting his hands in all his pockets and she is looking in her 
purse and savings-bank account as to where the $700 down payment 
is going to come from. That is the deterrent. If you could do some- 
thing about that, or the question which we have all discussed that 
you probably all know infinitely more about than I do, namely how 
can you reduce the total cost of construction? 

Mr. O'Connell. That brings me to a general question that I 
think perhaps you are thinking about. In the light of your experience, 
what would you say as to the possibility for stimulating residential 
construction through removing of the deterrents of whatever sort 
seem to you to be of the most importance? You mentioned construc- 
tion costs and other things. 

Mr. Bruere. Yes; that is it. We haven't found the answer yet 
to mass production of houses, even if we did believe we had a mass 
market. To a certain extent the builder of groups of houses has cut 
costs by wholesale purchasing of materials, but we have this problem 
of the seasonal demand for labor and the necessity of paying higher 
wages which are demanded because of the short duration of em- 
ployment. Nobody has yet worked out, due very largely to climatic 
conditions, the means of reducing the costs of dwellings by mass 
production. A lot of people have been trying it, as you know. It may 
eventually come. 

Another trouble, I think, which exists there is that houses are im- 
mobile. You can say, "We can achieve mass production," but the 
customer may not like the location you choose. You have to go 
through the process of individual selection, and we know also there is 
a great deal of individual taste. We have got past that in modern 
industry. People like to buy cars like someone else's car. They pre- 
fer to hve in houses unlike anyone else's house. For that reason. we 
now arrange so this house has a pink bathtub and the next a purple 
one and the next a white one, and so on. You can't very well get 
complete standardization because you haven't complete standardiza- 
tion of taste. . 

Mr. O'Connell. Isn't it more available as a possibility when you 
think of it in terms of large-scale manufacture? 

Mr. Bruere. Yes; I think it is one of the major questions.. It 
isn't a problem which can be handled entirely by the institutional 
lenders of funds. Through joint studies by the construction inductry 
and if we found some way of getting cooperation from the labor groups, 
if there were a feasible way — I don't pretend to know one — and the 
Government, we might be able to say that under reasonable conditions 
houses could be supplied in 500 or 1,000 lots at 5, 10, or 15 percent 
cheaper than they would be built in lots of 20 or 30 or 15. 

Mr. O'Connell. I was thinking again in terms of your suggestion 
that reasonably small reduction in interest rates would not mean a 
very great reduction in annual cost. There was testimony presented 
here last week to the effect that a 20-percent reduction in labor costs 
on a typical one-family residence would have amounted to about 5 
percent reduction only in the cost of home ownership in terms of 


annual cost. So there, again, it is an item which taken by itself 
does not indicate any answer. 

Mr. Bruere. I have a lot of theories on the subject which are in 
a state of development and probably a lot of them unsound. I think 
the major question is a question of the organization of communities 
in which we live. We have created a community and then we have 
abandoned it. There is no system of development. We allow people 
to take one area and develop it without relation to another. We have 
to provide new facilities, sewers, and streets, lighting, and whatnot, 
without realizing the ultimate cost which will come and reflect itself 
in taxes and perhaps assessments. We are just beginning. Certainly 
it is true in New York. We are just beginning to get the idea of 
planning the town. We also are still in the stage of developing ade- 
quate transportation 'facilities. We build an area where transporta- 
tion facilities aren't adequate because we seek cheaper land. Then 
we build transportation facilities and we find the cost increases there 
by taxation. All of those things affect home building in a complicated 
community such as any one of our American cities is. I think we are 
beginning to see now that we have to plan areas and by setting up 
certain standards, I think the most desirable of which are those which 
have been erected by the Federal Housing Administration, the Gov- 
ernment has made a very significant contribution within that field. 
If we all put our heads together, perhaps we can reduce costs. I 
think it is going to be a questoin of slow development. Certainly it 
is nothing we can do if we should say, "For improvement"; you prob- 
ably wouldn't think it an improvement for us to suggest, "we will 
lend money for 26 years at a rate which is considerably below what is 
the going rate to stimulate savings." We would find that it would 
have very little effect on the ultimate demand for houses, because of 
these other conditions to which I have referred. But I don't want to 
say nothing has been done. I think we are making slow progress. 
I add and repeat that the most significant process, I think, has been 
in the last few years when we have begun to erect the standards which 
are the basis of joint judgment such as those which were set up by the 
supervision of the Federal Housing Administration, to which we will 
look for good merchandise. If we can get the public to believe that 
we are building good merchandise, it is worth while to save for this 
type of house, the house insured by F. H. A., the house that you are 
not going to find you have to replace the material in in a very short 
time, then gradually we will get a growing demand for that type of 
thing for which people will save and make plans, and then builders 
probably can go into the field on a larger scale and the city will say, 
"This will be a development exclusively for the small-home owner and 
the arrangements for financing will be made in advance of the actual 
construction of the total area." 

Mr. O'Connell. A great deal of what you have said would seen, 
to indicate there was great hope for the large-scale development. 

Mr. Bruere. Yes; I think that is so. To a certain extent, the 
English- housing has gone along that line. They have taken certain 
localities and they have ribbons of houses that run through zones 
where they are all standardized and where arrangements have been 
made somewhat in advance of the acquisition of the land, and it is 
known progressively building will be put up on them. Only recently 
has there been a tendency to do that, as far as I know, in New York. 


(Dr. Lubin assumed the chair.) 

Mr. O'Connell. Have you any other things? 

Mr. Bruere. I have discussed a number of points that I want to 
perhaps emphasize on this question of finance. We have been talking 
about the small house. The cost of interest in the multiple dwelling, 
for example — we have taken here a total of 196 buildings of which 188 
were mortgaged. These are all located in New York, they are all new 
buildings all in one area of New York, six-story elevator apartments. 
The total mortgages represented $28,000,000, the average rent per 
room at the opening of the houses was $20.39. The gross annual 
rent was $7,300,000. The annual mortgage interest was $1,347,000 
and it represents exactly 18% percent of the gross income. Now this 
percentage we find almost uniform in different types of houses, multi- 
ple dwellings. The cost of financing 

Mr. O'Connell (interposing). That is the cost of interest on a 
large scale? 

Mr. Bruere. Yes; in relation to the total rental income, and there- 
fore you can see that while it is important, it isn't the predominant 
feature by any means. 

Mr. O'Connell. Do you know of any other single items that are 
more important? 

Mr. Bruere. No; except the service aspects of it and, of course, 
operations. If you reduce, say you reduce the interest one-sixth or 
one-seventh, it would have a relatively small effect on the total per- 
centage of the income which was allocated to financing. 

Mr. O'Connell. My point is I think that same thing can be said 
about almost any item you take. It just happens in the thing we 
started with, finance, was one of the elements in the cost of home 
ownership. I am sure as we continue that every other element of 
the cost of home ownership, all of which combined makes the cost 
of ownership too high, is subject to the same thing. 

Mr. Bruere. We have certainly brought down the cost of owner- 
ship and will bring it down. We have brought it down on an average 
by insurance. You have estimated your second-mortgage charges, 
you have removed your uncertainty as to the ultimate security, and 
that has affected the average rate considerably. Now, the next thing 
is to proceed toward whatever standardization we can achieve, 
might be impudent enough to say that if I were on this committee I 
would find out what such organizations such as the Bureau of Stand- 
ards and the construction groups that are technically equipped could 
suggest by way of a proposal for discussion on this question of costs. 
I think it is worthy of a considerable amount of study and I think you 
would probably find that both the local housing authorities and the 
Federal Housing Administration are accumulating some very import- 
ant data. I trunk you will find everywhere to the extent of their 
capacity lending institutions which are using other people's money 
will be glad to cooperate because it is obviously of very great import- 
ance to us. We would like to have inaugurated a continuous process 
of study of these questions. 

Our ideal country would be to have people we" 1 employed, saying 
their money, buying homes, living decently with all the amenities 
that make life worth while. Otherwise, we don't gain anything 
by what we are seeking to accomplish socially. I would like to 
see the Bureau of Standards or a sort of Brookings Institution set 


up by the Government to look into that question. I wouldn't 
want to suggest anything implying any point of view, but you will 
find, I think, no major devil in this picture. There isn't any hocus- 
pocus that is being worked but we are dealing with an industry which 
grew up. You and I both know how the private house was originally 
built, how it was mostly built by the carpenter, or the little builder 
building two or three houses a year. We just don't know how to pro- 
vide individual houses on a large scale. As I say, the attitude of the 
individual buyer enters in. We all lament the awful rows of houses 
that look alike where people may be uncertain of the doorway they 
are entering on a dark night, except that the lock is different. So 
we seek for variety. I think it can be done in time. I assure you 
that to the extent that the relatively small amount of money the 
'Bowery Savings Bank has at its disoosal, it will cooperate in every 
way to find the answer. 

Mr. O'Connell. Referring again, just to be perfectly clear and so 
that I understand you, have you any thought as to whether taking 
the cost of finance as one of the major elements in the cost of home 
ownership — whether there is any reasonable possibility in view of the 
substantial sums of money that are available awaiting investment of 
a substantial reduction in that cost? 

Mr. Bruere. May I give you an answer which is some figures? 
A little midnight oil has been burned here. I thought you were going 
to ask more questions I couldn't answer, so I had the answers all 
written out nicely. 

Mr. O'Connell. And now I haven't asked the questions. ' f 

Mr. Brttere. I haven't found that. I think you have a lot of 
them. I have done the best I could. Here on the question of mort- 
gage charges, which I imagine is what you are interested in, Mr. 
O'Connell, these are charges which are made against borrowers in 
making ordinary mortgage loans, say, to any one of us here. *We 
come in and we say we live out some place on Long Island. For the 
purpose of comparison, we have taken all in one locality. Here is a 
house for $3,000, say you would buy a house for $3,000. Your 
mortgage tax would be $15. It would: cost you $72 to have your title 

Mr. O'Connell. Would I have to have my title insured? 

Mr. Bruere. Yes; we would want it insured. 

Mr. O'Connell. You would want it insured, all right. 

Mr. Bruere. I suppose there is a way of getting around that, but 
we have to take the title risk; the F. H. A. wants it insured. 

Mr. O'Connell. Does F. H. A. require it? 

Mr. Bruere. I don't know that they require it. It is better for 
us to have it so, because we have to deliver the title in case of fore- 
closure. They want us to insure it if we have the" insurance. 

Mr. O'Connell. That is a reasonable requirement. 

Mr. Bruere. Yes; in case the mortgage is foreclosed. The 
attorney's fee is $15; recording fee, that is a statutory charge of 
$8.25 based upon the number of words in the* document. There we 
have on a $3,000 mortgage charges of $120 which represents 4 percent 
precisely to get the mortgage started. 

Mr. O'Connell. In terms of the borrower, I take it the man who 
is trying to buy the house would have that 4 percent added to the 
amount of his down payment. 


Mr. Bruere. Yes. We don't absorb any of those particular 
charges. Sometimes the builder will. On $6,000, the cost is $161, 
and the rate was then 2.68. So on the average house between $3,000 
and $6,000 in our locality, the rate would be something around 
Z% to 4 percent; on $10,000, of course, it comes down lower. It is 
slightly less, of course, if uninsured, because we do not have the 
inspection charge of the F. H. A. That is all. Those are not stagger- 
ing charges for a new enterprise and we have tried to get them down 
as low as we can for the purpose of inviting the use of our lending 
facilities by contractors and others who can direct borrowers to us. 

Mr. O'Connell. Those are costs over and above the interest rate 
borne by the purchaser? 

Mr. Bruere. Yes. They are beyond our control. They are reve- 
nues for the Government as well as the State; the mortgage tax and 
recording tax, which is, of course, a municipal charge; the lawyer's 
fee for drawing papers and supervising it and seeing that it is all in 
order; and the title insurance is at our option, of course. 

Mr. O'Connell. Those items, particularly when spread out over 
the term of the mortgage, represent very great increase. 

Mr. Bruere. No, they are not deterrents especially. It is lack of 
funds and the inability to reduce costs by mass production. We just 
haven't found the answer yet. 

Mr. O'Connell. But it would be so, would it not, that an equiva- 
lent reduction in the finance costs, whether it be by reduction in the 
interest rate or lengthening, let us say, of the period of amortization, 
would have exactly the same effect as comparable reduction in capital 

Mr. Bruere. I think so, yes; yes, of course. May I say this, that 
I have been giving the impression perhaps in our discussion that there 
hasn't been a good deal of building in the New York area. As a 
matter of fact, there, has been a considerable amount of it. We have 
in New York, among the savings banks, the trust companies, some 
of the life-insurance companies, an organization which statistically 
studies what goes on and they inform me that in the past 3 years the 
additional faculties have provided accommodations for 60,000 people ; 
but that, of cpurse, is very much lower than was the case in other 
years, but still it is substantial. 

Mr. O'Connell. I think it is an improvement over recent years. 

Mr. Bruere. It is an improvement over recent yeai^. Take in 
the five boroughs 1933 to 1939, inclusive, there has been a marked 
growth in the amount of square feet of construction. In 1933 the 
total residential was 6% million; in 1934 8 million; in 1935, 1% million; 
in 1936 29 millions; in 1937 it dropped to 28 million; in 1938 36 
million again, and in 1939, the first 5 months, 21 milli ons, 

In 1928 those figures by comparison look very small because then 
(1928) there were 150,000,000 square feet added. That is now, of 
course, an unbelievable situation; mythological. 

Mr. O'Connell. I would like to ask one question referring to 
interest rates. Are substantially all of the mortgages you are taking 
now with F. H. A. insurance at 4^-percent interest? 

Mr. Bruere. We think costs have gone up a little too high and 
there has been too much competition on apartment houses. We 
don't want to take them at the present level — as a matter of fact, we 
would like to get mortgages where a fellow has 40 or 50 percent in 


his property and those we would take without insurance. But, as a 
matter of fact, the bulk of the business we are now doing is in purchase 
of F. H. A. mortgages. 

Mr. O'Connell. On a 4%-percent basis? 

Mr. Bruere. Yes, 4%, and we have taken when sometimes it is 
necessary to do so, a little less, say 4 percent, where mortgages are 
bought from other originators. We pay a little premium on them and 
a service charge, so that it nets us perhaps 3.55 percent or 3.60 percent. 

Mr. O'Connell. And the exceptions, the cases you refer to, where 
a man might have 40- or 50-percent equity, would be exceptions 
which would result in a lower rate? 

Mr. Bruere. Where he has 40% equity we would loan him without 
insurance F. H. A. 4% I think is what we have been getting for that 
type of loan. 

Mr. O'Connell. So that 4 l A of course would represent 4% to the 
borrower, whereas 4% on F. H. A. would be 

Mr. Bruere (interposing). Your question was that the cost to the 
borrower is A}{ percent, as against the cost to the borrower at 4%, and 
the difference is you might say the valuation that we place upon the 
insurance. It has value, naturally. 

Mr. ' O'Connell. In other words, generally speaking, it is the 
position of your company that selected mortgages with F. H. A. 
insurance are good investments to you, with 4K-percent return? 

Mr. Bruere. At the present time, up to a certain amount of money, 
if we have about eight or nine millions to invest on that basis. Munic- 
ipal and utility bonds of comparable quality are longer in term and 
higher in price. 

Mr. O'Connell. When you say utility bonds, municipal bonds, 
are high, you mean the yield to you is low? 

Mr. Bruere. Yes; lower yield than the long term, and a low interest 

Mr. O'Connell. Would you say that the current loans you are 
making on F. H. A. insured mortgages would yield you a better return 
than other types of securities in your portfolio? 

Mr. Bruere. Yes; mortgages always yield a little bit above, of 
course, the average bond rate, 1 percent at least. 

Mr. O'Connell. Why should an F. H. A. mortgage have a 1 per- 
cent higher yield than a utility bond? 

Mr. Bruere. Why should it? In the first place, the idea is that 
you have a certain lack of marketability, which is perhaps No. 1. 
You have an investment which is subject to deterioration, you have 
certain risks, which are minimized, but still exist, with respect to 
foreclosure, and delivery of this particular security in good condition 
to the F. H. A. for recoupment. 

Mr. O'Connell. Now let us take the first one 

Mr. Bruere (interposing). Then you have a narrower demand for 
it, perhaps. 

Mr. O'Connell. That goes back to your question of marketability. 
I was under the impression that F. H. A. insured morrgages were 
quite liquid, quite marketable; that there was a wide market for 

Mr. Bruere. They are a made market. Mr. Jones, of the Recon- 
struction Finance Corporation, made them liquid, in a sense, in the 
beginning, by offering to buy them when we were all very timid about 


them at the beginning, you know. They have since become more 
liquid, but, of course, they are not as liquid in the sense that a listed 
and prime security is by any means. 

Mr. O'Connell. You mean they are not traded on the exchange? 

Mr. Bruere. No ; and they are not known. People are still sensitive 
about buying what they can see. 

Mr. O'Connell. As the value of the F. H. A. insurance becomes 
better known, don't you think that would be reflected in lower interest? 

Mr. Bruere. There again your guess, of course, would be as good 
as mine. There are a lot of conditions which may affect the interest 
rate, but undoubtedly the insurance is a value-giving quality, and it 
has to be reckoned as such, and I regard the insurance perhaps as only 
a part of the value contributed by the F. H. A., assuming that its 
work is well done. I think it has been increasingly well done in our 
observation. The inspection and selection of the risk is a very im- 
portant factor, we find. 

I don't want to give the impression that there are not limits. I 
think we must be aware that you can't escape saturating the economy 
with any particular kind of new development merely because the 
Government puts a velvet dress on it, so to speak. You have to 
have an economy able to absorb the commodity itself. The Govern- 
ment might conceivably build motorcars so that you could sell them 
for $275, but still there would be a limit to what people would be able 
to buy. The same thing is true of housing. 

Mr. O'Connell. We will agree, will we not, that from the point of 
view of your company up to a limited sum, you concede that the 
F. H. A. insurance is of such value behind mortgages that it makes 
F. H. A. insured mortgages a good investment at 4% percent? 

Mr. Bruere. For the time being, in a limited amount, and I say 
in good locations that we know all about, and with good risks, we call 
them a good pattern rating which the F. H. A. gives, that at a 4%-per- 
cent rate they would seem satisfactory to us. Now, it may not seem 
satisfactory to others. We certainly felt so, otherwise we would not 
have taken them. 

Mr. O'Connell. I have no further questions. 

Acting Chairman Lubin. M r - Bruere, I was very much interested 
in the statement you made about the interest rate that was necessary 
to stimulate savings. Would the experience of your bank lead you to 
believe that if you paid higher rates on deposit now you would have 
more deposits? 

Mr. Bruere. I would answer this way. We have found it de- 
sirable, for reasons which I think are clear to anyone, to limit the 
amount of savings that we accept in any one particular time because 
we are virtually operating our bank on a basis which enables anyone, 
to secure interest after 3 months of deposit, and at a 2 percent rate, 
which is now paid, it is a very attractive opportunity for anyone to 
invest short-term money. We have, therefore, restricted our deposits 
to what we regard as a reasonable savings amount, $500 a quarter. 
We already do not accept at that rate the amount that is offered to us. 
We would make that situation worse if we were in position to pay a 
higher rate. I don't think that we would increase the amount of true 
savings. I think the people who actually save because they say, 
"Well, I will put this money away for some purpose next year or next 
summer," may have the idea of saving virtually now all they can, and 


it is only those who have idle sums of larger funds that use these 
facilities with the restrictions placed upon them. You would have 
therefore, more money immediately available for this year, but it is 
subject to a more rapid withdrawal. 

Acting Chairman Lubin. Is it fair to conclude from what you have 
said, that, by and large, the mass of the savings in this country is in a 
sense automatic and leadf! to the extent that a rise in the interest rate 
— and by a rise I mean within reason, not a doubling overnight— does 
not necessarily increase by any appreciable amount the amount that 
is saved? 

Mr. Bruere. I think that you will find that a modest rise in the 
interest rate does not increase rapidly the amount of true savings 
actually set aside in the form with which I am familiar. Of course, 
that is a question that ought to be borne out by statistics rather than 

Acting Chairman Lubin. Do you find any trend at the present 
time toward an increase in investment in real estate for investment 
purposes as such? Are people buying houses or apartments for rental 
in any increase in quantity as compared with last year? 

Mr. Bruere. Not in our locality. 

May I say something about the other question to which I made an 
answer somewhat incomplete. The stimulation to savings in response 
to increased rate of return must be governed and affected by the 
duration of the investment. I am familiar with the viewpoint of the 
building and loan associations. I think if we assume that those 
investments are long-term investments, that you probably, by in- 
creasing the rate, do secure from other forms of saving larger available 
-funds. If we, for example, would do as the British savings banks do, 
the trustee savings banks, have a differential rate on long-term 
savings, I think we would, by increasing the rate, increase the amount 
available for long-term investment. 

Acting Chairman Lubin. That doesn't mean that you have in- 
creased the gross amount of savings as such. 

Mr. Bruere. I would not think so. I would like to near what you 
have to say about that because you know a great deal more than I do 
about it. 

Acting Chairman Lubin. At least such evidences as are available 
show that during this period of at least 5 years of falling interest rate, 
savings have not decreased in amount; in other words, despite the 
fact that interest rates are going down, those people who do save 
apparently are not cutting down on the amount of savings. 

Mr. Bruere. I think there is a certain group of prudent people who 
habitually save and therefore go on doing it, hoping that the interest 
rate may improve, but at all events are mostly concerned with the 
availability of their principal funds. That is what we find. Having 
by the law of averages been able to develop virtually demand deposit 
banks on long-time investments because of the continual replenish- 
ment of funds shows that there is a large proportion at least of the 
people who habitually save if they are employed. It is a habit which 
has been engendered. It is not much stimulated over short periods 
by adjustments in the interest rate. 

' Mr. O'Connell. There is one other question I would like to ask 
you. Does your bank have a substantial smount of what is referred 
to as unwillingly held property, property that is foreclosed? 


Mr. Bruere. We hold about 5 percent of our total assets on fore- 
closed property. 

Mr. O'Connell. Have you any feeling as to whether the amount 
of unwillingly held property held by institutional lenders is a sub- 
stantial deterrent to expansion in new construction, and what should 
be done about liquidating those holdings, what is being done? 

Mr. Bruere. Yes. Our view is that it naturally has a material 
effect upon the point of view of investors if they know that all over 
the market there is a lot of property held temporarily in unwilling 
hands, institutional investors. For that reason, we have adopted a 
policy of classifying those properties. Those that we think, in all the 
laws of reasonable probability, may appreciate in value again with 
increased demand, or which are currently income-producing, we are 
attempting to keep off the market, unless we get too tempting an 
offer, which doesn't happen too often, and those that are deteriorating 
or old we are reducing so as to bring to the market level. All of us 
are doing that, and therefore the number of buyers available is 
strictly limited. But it is also true that where there is a large amount 
of foreclosed real estate held and on the market as against the areas 
where not so much is held, the volume of trading isn't apparently 
greatly affected. If a man could find a proposition on which he could 
make or hopes to make a profit through increment or make a reason- 
able and substantial return on his investment, he will buy it irrespec- 
tive of whether or not in some other locality in which he is not inter- 
ested there is cheap property available upon which he can't make a 
good return. I think while it is important, it isn't a controlling 
factor. The dominating thing is that people are not in the market 
for this type of investment. They have seen deterioration in value; 
they know that taxes are high; the situation hasn't cleared up enough 
to make them enthusiastic buyers. The rich don't want to tie up 
their funds in nonliquid investments. They are troubled by the 
inheritance tax. During the last few years, with readjustment in 
values, we have been experiencing social changes which have affected 
the point of view toward these investments. For a while there were 
going to be a lot of fellows come over from England and buy, but they 
didn't show up. There are a few persons of courage who go along 
and buy, who have a sense of values, who are a little shrewder than 
the rest of us and make a little money on it, but the general optimism 
and enthusiasm that you can buy today and sell tomorrow and go to 
Europe on the proceeds no longer exist. 

Acting Chairman Lubin. Mr. Bruere, you raised a very significant 
point in that last sentence which I think is something that should be 
clarified, namely, you give the impression, which is the impression 
that I have had, that most people who invest in real estate don't 
invest, by and large, for investment purposes ; they invest for trading 
purposes on the theory that they are going to buy today and sell 

Mr. Bruere. I think that was true in the heyday, but I don't 
think it is so true now, because there are relatively few investors to 
whom the speculative builder can sell. The speculative builder 
more or less gave up because he didn't see an investor's market for 
his product. In the old days I think a large proportion of people 
built to sell. 


Acting Chairman Lubin. That raises another question as to 
whether or not there is need in the United States for some sort of 
institution of an investment character where people can invest in 
real estate as an investment. Of course you do that through buying 
mortgages, but apparently there is no machinery whereby people 
either through corporations or other places go out and actually build 
on the theory that thi^ is an investment they are going to maintain 

Mr. Bruere. Of course there has been such development. A num- 
ber of organizations and corporations have gone into the building 
business with the idea of permanent ownership. Several occur to 
me at once in New York City. 

Acting Chairman Lubin. There is one large one right outside of 

(Representative Williams assumed the chair.) 

Mr. Bruere. Yes; one that was recently developed, and the Queens- 
boro Corporation on Long Island, early developed with the idea of 
permanent ownership. There are other groups and certain estates 
that continue to build to rehabilitate and to own, and we all are 
familiar with certain individual owners who have had great confidence 
in their properties. A number are still existing in New York which 
everyone knows about, but at the moment they are not developing in 
large numbers, for the same reason that other types of investment 
haven't developed, because of the uncertainty of the market, but I 
think that will come. We are very hopeful that it will come in- 
creasingly as we get these various conditions of transportation, city 
planning, and what-not worked out. 

Mr. O'Connell. Your bank is not legally empowered to -invest 

Mr. Bruere (interposing). No; we can't buy equities. 

Mr. O'Connell. Have you any opinion as to the advisability of 
institutions such as yours, or rather large institutional holders of 
savings, on that point? 

Mr. Bruere. I think our problem is, we can't get too far afield. 
We have got to stay somewhat in the realm of liquidity. We have 
now about 30 percent of our assets invested in United States Govern- 
ment securities with the idea that those are liquid, and we would have 
to regard the fact that our deposits are on demand. A life-insurance 
company has a longer viewpoint, perhaps, and therefore it would seem 
to me it would be more prudent for life-insurance companies to make 
the experiment which they are now doing, one or two of them, but 
eventually if we get stabilized it might be a very good thing' to do for 
a certain portion of our funds. I think the Birmingham Municipal 
Savings Bank, in England, has invested in houses of that type where 
they thought the community was more stable than some of ours, but 
for the present we don't think it is desirable. 

Would you permit me to leave this document with you for whatever 
merit it may have? It covers, I think, perhaps more explicitly those 
points which you have raised. 

I would like to call attention to one item which perhaps has already 
come to your notice, which I think is a very significant piece of work. 
It was a study made by the group of experts for the Federal Housing 
Administration in cooperation with some life-insurance companies, 
three of them, and three savings banks in New York, of which the 


Bowery was not one, of the potential demand for new housing of a 
multiple-dwelling type in New York City. I have never seen an 
attempt to look at the whole picture of the commune : so well devel- 
oped as this particular report, and if your experts in this inquiry have 
not seen it, I would like to call it to your attention. It is called 
"The Housing Demand of Workers in Manhattan, an Income Analysis 
of the Workers in Manhattan to Determine Rent Levels for New 
Apartments in the Lower East Side and Other New York Areas," by 
Homer Hoyt and L. Durward Badgley. 

Mr. O'Connell. Thank you, I will get a copy of that and make it 
available to the committee. 

Acting Chairman Williams. Thank you, Mr. Bruere. 

(The witness, Mr. Bruere, was excused.) 

Mr. O'Connell. I should like to call Mr. Ecker. Mr. Frederic 

Acting Chairman Williams. Do you solemnly swear the testimony 
you are about to give in the matter now pending will be the truth, 
the whole truth, and nothing but the truth, so help you God? 

Mr. Eckek. I do. 


insurance company investments in housing 

Mr. O'Connell. Mr. Ecker, will you please give your name and 
address to the reporter? 

Mr. Ecker. My name is F. W. Ecker, vice president of the Metro- 
politan Life Insurance Co., address, 1 Madison Avenue, New York 
City. - 

Mr. O'Connell. I should like to explain to the committee that Mr. 
Ecker has been called at this time to pursue a somewhat different 
topic than has been pursued by the three previous witnesses. Several 
times throughout the hearing reference has been made to the experi- 
ence of the Metropolitan Life Insurance Co. in constructing wholly 
owned large-scale rental housing projects. We thought it advisable 
to ask Mr. Ecker to come here and answer a few questions that would 
give the committee a general view of the experience of that company 
in the large-scale rental housing field. 

Mr. Ecker, I should like to ask you a few questions along this line. 
I take it that the Metropolitan Life Insurance Co. is authorized to 
engage in direct ownership of real estate. 

Mr. Ecker. Yes, sir. 

Mr. O'Connell. Is that by virtue of a recent law? 

Mr. Ecker. There are two situations. One amendment to the law 
was passed in 1922, at which time we were permitted for a limited 
period of time to invest in low-cost housing enterprises which would 
rent at $9 per month per room, as a demonstration to see whether 
that type of dwelling could be built by private capital, and then more 
recently in April of last year, the law was amended again, which per- 
mitted us for a period of 5 years to invest up to 10 percent of our 
assets in the development of housing for the middle- and lower-income 

Mr. O'Connell. Referring particularly to the early legislation, I 
take it that under that early legislation you constructed a large-scale 
housing project on Long Island? 


Mr. Ecker. Yes, we did. 

Mr. O'Connell. When was that project built? 

Mr. Ecker. That project was undertaken in J 922 and completed 
in 1924. 

Mr. O'Connell. And as I understand it, that was built under 
special legislation. 

Mr. Ecker. Yes; that was at a period when there was a consid- 
erable shortage in suitable housing facilities for the lower-income 
groups. In New York State in 1919 a committee known as the 
Lockwood committee of the New York State Legislature made an 
investigation of this subject and reported that for some period of 
time no dwelling had been built to be rented for less than $20 per 
month per room and most of them had been built to rent at $25 and 
more per month per room, and their counsel at that time came to our 
company, or at least in 1922 came to our company, and asked us if 
we would undertake the development of such a project which, as I 
said, was to be rented at $9 per month per room as a demonstration 
that this could be done by private capital. We thereupon, after 
further study of the situation, did go into it and we selected a site 
or at least several sites on Long Island within about 15 or 20 minutes 
of mid-Manhattan and built 54 individual apartment houses. These 
were all 5-story buildings with apartments ranging from 2 to 6 rooms 
to an apartment. 

Mr. O'Connell. You referred to the rent of $9 a room. Was that 
the maximum fixed in the legislature authorizing you to .undertake 
the development? 

Mr. Ecker Yes, it was, but I should add that at the same time 
a -New York City statute was passed which for a limited period of 
time gave us tax exemption as far as the building was concerned. 
The land has been taxable throughout. The building was tax-exempt 
for a period of 10 years up until 1932 and full tax*"= have been assessed 
since that time. 

Mr. O'Connell. In the construction of this project how did the 
company undertake that? Was that constructed by a contract with 
a general contractor? 

Mr. Ecker. In that particular case we took bids on a unit basis 
and the low bid was Henry C. Irons & Co. and they received the 

Mr. O'Connell. Can you. give us any figures showing the total 
cost of the project and the cost per dwelling unit and room? 

Mr. Ecker. Yes, sir. The total cost was $7,478,000 in round 
figures. This figures out a cost per apartment of about $3,519, and 
a cost per room of $787. 

Mr. O'Connell. Apparently each apartment averaged about 
five, rooms, then. 

Mr. Ecker. Yes, the apartments ranged from two to six, as I say, 
with most of them four and five. 

Mr. O'Connell. And the rent averages not more than $9 per room, 
is that correct? 

Mr. Ecker. That is correct. 

Mr. O'Connell. Does the Metropolitan" furnish, any service in 
addition to shelter for this rent? 

Mr. Ecker. -Yes, the customery service of heat and janitor service 
and so' forth/ 


Mr. O'Connell. Have you a rent schedule of the present rents? 

Mr. Ecker. Yes, the rent schedule at present is somewhat below 
$9 a room on the average. The present average is $8.37, I believe 
it figures out. The schedule is as follows: Two-room apartments, 
$18.12; three-room apartments, $27.09; three-room and dinette, 
$34.13; four-room and dinette, $37.62; four-room converted apart- 
ments, $43.25-; five-room apartments, $41.63; five-room and dinette, 
$43 ; and six-room apartments, $49.52 a month. 

Mr. O'Connell. Taking the year 1938, have you any figures you 
could give us as to the potential rent that might have been lost 
through vacancies? 

Mr. Ecker. Yes, in 1938 about 5.12 percent of the potential income 
was in vacancies. 

Mr. O'Connell. Was a substantial amount, or any amount, lost 
through noncollection of rent? 

Mr. Ecker. In 1938 about 0.42 percent. 

Mr. O'Connell. Have you any figures showing the average per- 
centage of loss through vacancies over the entire period of operations? 

Mr. Ecker. Yes, in vacancies over the entire period it was a little 
over 8 percent — 8.12. Of course, that was a poor period in there. 
For the first 6 years I would say it was practically full almost all the 
time, and then the period of the depression it went off. Subsequently 
it has increased again, and at the present time it runs around 2 percent, 
I think. It is better than it was last year. 

Dr. Lubin. Mr. Ecker, do you know what your real-estate depart- 
ment figures should be the maximum vacancy allowable in deter- 
mining the income of property for mortgage purposes? 

Mr. Ecker. We customarily use, I would say, 10 percent, but on 
this type of undertaking we expect the vacancies will not be as large 
as that. 

Mr. O'Connell. In other words, in effect, you are. customarily 
below what you expect? 

Mr. Ecker. Yes, sir; that is right, sir. Wait a minute. I would 
not say at the peak, I would say at the average. 

Dr. Lubin. When I say at the peak I mean at the peak of vacancies, 
the percentage of vacancies was less than what you figure as the 
average on other properties. 

Mr. Ecker. No; I say over the average of the years we have had 
this investment it has averaged less than 10 percent, it has averaged 
8 percent. 

Mr. O'Connell. Have you any figures showing operating expenses 
for the year 1938? 

Mr. Ecker. Yes. The operating expenses in '38 totaled $566,700. 

Mr. O'Connell. Can you break them down roughly? 

Mr. Ecker. A brief break-down would indicate water, $21,346; 
fuel, $74,450; repairs and maintenance, $153,789; 'other operating 
expenses, $167,240; a total of $416,826, to which should be added real- 
estate taxes of $149,874. 

Mr. O'Connell. Do those expenses include setting up reserves 
for replacement? 

Mr. Ecker. No, sir; they do not. 

Mr. O'Connell. Just ordinary repairs? 

Mr. Ecker. That is right. 

124491 — 40— pt. 11 rl4 


Mr. O'Connell. Have you any figures that would indicate how 
much you have charged off for depreciation over a period of years, 
or in '38? 

Mr. Ecker. Our procedure has been that this undertaking was 
built, you will recall, back in 1922, and the purpose of the demon- 
stration was to see if a 6-percent return could be obtained on capital 
in an undertaking of this type, so that it was set up on the basis that 
all income in excess of 6 percent would be used to write down the 
investment on the books of the company. 

Now, in that manner, about $1,750,000 was written off. In 19,36, 
things had not been going too well, consequently we thought it would 
be conservative to make an additional write-down, so about $200,000 
was written off in addition at that time — I should say about $300,000 
at that time, so the total decrease over the period has been $2,050,000. 

Mr. O'Connell. Two million, fifty thousand has been written off 
for depreciation sine 1934? 

Mr. Ecker. Yes, sir. 

Mr. O'Connell. Have you any figures showing the assessed 
valuation of the property in 1938? 

Mr. Ecker. Yes; the assessed value is just under $5,000,000. 

Mr. O'Connell. Just under $5,000,000? 

Mr. Ecker. Yes; $4,980,000. 

Mr. O'Connell. And the total construction $7,000,000? 

Mr. Ecker. Yes. 

Mr. O'Connell. Have you a figure indicating how much was paid 
for the lands? 

Mr.- Ecker. About $470,000 is my recollection, a little under half 
a million' dollars, was paid for the land. I am mistaken. It is 
$567,000 that was paid for the land, a little over half a million. 

Mr. . O'Connell. So that the land plus building would be in the 
neighborhood of about eight million? 

Mr. Ecker. No, sir; the figure of $7,477,000 included the land. 

Mr. O'Connell. I beg your pardon. Have you any figures 
showing what your profits were in 1938 and how they were figured? 

Mr. Ecker. I would not term this figure as profit. 

Mr. O'Connell. I see. 

Mr. Eqker. Before depreciation and amortization, the 1938 net 
income was $346,000, and that was 6.33 percent on the then book 
value, the depreciated book value. 

Mr. O'Connell. And on your method of handling this, I take it 
the 6 percent would have been considered as return on capital and the 
0.33 of 1 percent would be depreciation? 

Mr. Ecker. That is right. 

Mr. O'Connell. Have you any information as to the income 
level of the tenants who occupy that property now? 

Mr. Ecker. Well, we would say that they probably ranged from 
$1,500 up to about $3,000. I haven't any definite figures on that, 
biit I will put it this way, that in general we do not rent to anybody 
with an income in excess of $60 a week, and on the other side of the 
picture, we will not rent to them an apartment the monthly rent of 
which is more than their income for 1 week, in other words, four times, 
approximately speaking. That, in general, is the basis. 

Mr. O'Connell. And your policy is not to rent to people who make 
more than $60 a week? 


Mr. Ecker. That is our general policy. I wouldn't say there 
isn't an exception here and there, but that is our general policy; yes. 

Mr. O'Connell. And you haven't any definite or detailed figures 
indicating how the income level would be broken down? 

Mr. Ecker. No. I haven't seen any figures on that. We have 
some figures that were made of a study some little time ago, giving 
the* occupations of the various individuals that were there, and you 
can see from their occupations that they were in the middle- and lower- 
income groups, so to speak. If you are interested in that, I will be 
glad to present it. 

Mr. O'Connell. I don't know that it is necessary, but, in general, 
the minimum would be $1,500? 

Mr. Ecker. Well, possibly some under that. I would say there 
might be some; yes, under that in this undertaking, because you see 
a two-room apartment, $18 a month, they might well be under $1,500; 

Mr. O'Connell. Yes; that could be done as low as $1,000, couldn't 

Mr. Ecker. Very readily. Of course, the bulk of these apartments 
are 3, 4, and 5 rooms. I don't want to mislead you. 

Mr. O'Connell. As a matter of fact, I think the figures probably 
indicate the average would be nearer five. 

Mr. Ecker. Of course on these rOom figures you have to know 
whether you are dealing with half rooms or quarter rooms, and so 

I take it that this committee is entirely familiar with that method 
of figuring apartment rentals in the low-cos>t housing developments. 

Mr. O'Connell. I for one am not entirely familiar with it. 

Mr. Ecker. It is merely this, that in most of these situations that 
are spoken of, as renting for so much a room, there'is added cost, may- 
be a half-room cost for a bathroom, in a three-room apartment and 
under, for instance, and over that at times there is an extra charge of 
a half room for a dinette, or something of that sort. So that a three- 
room apartment, or a four-room apartment would not rent necessarily 
for four times the rental figures for one room. It might be four and a 
half times. In' a good many situations, a rule of thumb might be that 
you could add one-seventh. Most of the type of apartments are three 
or four-room , and'when you add a half room to each one of those, you 
will have one additional room for every seven rooms. You count the 
bathrooms as a half room in figuring the rent. 

Of course, it is obvious that when you build a two-room apartment, 
for instance, and supply a bath, the cost of that apartment is going to 
be more per room than to build a five-room apartment and supply a 
bath. This is a method of compensating for that. I believe it is a 
quite general practice. 

Mr. O'Connell. I think that is sufficient explanation. Can you 
tell me generally if your experience with this particular inyestment 
from the time of its inception in 1922 has been a fortunate experience 
for the company? 

Mr. Ecker. We consider it entirely satisfactory; yes, sir. 

Mr. O'Connell. Has the average return to the capital invested 
exceeded the 6 percent that you hoped for? 

Mr. Ecker. It was originally set up at 6 percent, with the expecta- 
tion that there would be 2 to 4 additional for amortization. Since so 


large a portion of the particular life of this property has been in a 
very depressed period, we have not realized as much as anticipated 
on that basis. But at the same time we have a substantial lowering 
in interest rates, and I would consider the return entirely satisfactory 
from a financial standpoint. 

Mr. O'Connell. Going back to what you indicated earlier about 
the $9 per room maximum, is that a maximum in the legislation which 
will continue to regulate the rates that you charge for rooms? 

Mr. Ecker. Oh, no; that was in section 20-A of the law, and was 
for a limited period of time. We could no longer build under that 
particular authorization. We now are undertaking a newer develop- 
ment in the Bronx under section 20-B, which is a different section of 
the law. 

Mr. O'Connell. Are you right now limited by law to $9 a room 
on the Long Island property? 

Mr. Ecker. I think that is a legal question that I would rather not 
answer. The law specifically gives us the right to sell, for example, 
and somebody else would not be bound by it. Whether we are bound 
by it after our tax exemption ihas "expired or not, I am not clear, but 
we have no intention at the present time of disposing of it, and we are 
able to undertake this, or at least we are able to operate at $9 or less, 
and that is the purpose for which this undertaking was built and we 
are continuing to do it. 

Mr. O'Connell. I wanted to know if you happened to know what 
the legal situation was. There is in New York legislation which pro- 
vides for limited dividend housing corporations or projects under the 
supervision of the State housing authority, and in return for tax- 
. exempt privilege, I believe they are limited in the return they can 
make, which in turn, of course, would operate as an upper limit on the 
rents they can charge, but you are not entirely clear whether in this 
particular project you are so limited legally. Your tax exemption 
was a limited privilege, only for a period of years. 

Mr. Ecker. That was a limited period of time. That tax exemp- 
tion has expired. If I were to guess, I should say we could raise the 

Mr. O'Connell. I would like to ask you a few questions about the 
more recent project in the Bronx. That project as I understood you 
to say was undertaken pursuant to much more recent legislation than 
the legislation referred to in 1922. 

Mr. Ecker. Yes. We had been giving consideration to this type 
of undertaking for some little time and we felt that there was a need 
in this lower- and middle-income group which we could fulfill in this 
manner, and thereby provide a sound investment. 

Mr. O'Connell. Referring again to the legislation, as I understand 
it, the legislation authorized life-insurance companies to invest up to 
10 percent of their assets in housing projects, is that the substance of it? 
Mr. Ecker. Yes; life-insurance companies licensed to do business 
in New York State, is my recollection. I would like to refresh my 
memory on just how that law reads. I have a copy of it here some 
place. (The witness failed to locate a copy of the law.) 

Mr. O'Connell. I don't think it is important. In any event, the 
Metropolitan is authorized to invest up to 10 percent of its assets in a 
development of that kind. 
Mr. Ecker. That is correct. 


Mr. O'Connell. And that is a limited period of 5 years? 
Mr. Ecker. That is limited to 1943. 

Mr. O'Connell. And pursuant to that legislation you determined 
to build that housing development in the Bronx. Can you tell me 
what determined the location of the project in general? 

Mr. Ecker. We made a considerable study of all possible locations 
in that section. In the first place, we picked generally New York 
because of an existing condition there, and also because I presume it 
was a relatively new undertaking and we could thereby give it closer 

I recall that we studied particularly some 25 different sites and found 
that this particular site was for our purposes the most desirable. 
We chose a site formerly owned by the Catholic Protectory, property 
on Fordham Road, adjoining the One Hundred and Seventy-seventh 
Street Station of the Interborough Rapid Transit. It was particularly 
desirable because in one ownership was 125 acres of this land, and, in 
addition to that, because this ownership had been in one place for a 
great many years, the titles were relatively clear, no rights of streets 
had been given to the city, and, oh, various considerations of that sort. 

Mr. O'Connell. Is that the approximate area of your develop- 
ment, 125 acres? 

Mr. Ecker. It is somewhat larger than that — 129K acres. In order 
to round out the undertaking we had to buy a few acres more around 
the edges. 

Mr. O'Connell. How many families do you estimate will be ulti- 
mately housed in this development? 

Mr. Ecker. About twelve thousand two hundred and sixty-odd 

Mr. O'Connell. Could you tell me what the estimated total cost 
of the project is, and how much of the total cost would be attributable 
to land? - 

Mr. Ecker. There is some $4,705,000 in land. We estimate the 
cost in the neighborhood of 45 million. We anticipate and hope that 
it will be at a lower figure than this. 

Mr. O'Connell. Is that being constructed by a contractor or on 
the same basis as the other project? 

Mr. Ecker. No; in this instance the builder is the firm Starrett 
Bros. & Eken who are undertaking this work at a percentage fee, but 
a fixed upset limit to that fee, phis cost of construction. In under- 
taking this work, we conceived that the best manner in which to go 
about it was to put together what we termed a ''board of design." 
We went out to obtain those individuals whom we felt were available 
to us who had the best knowledge of this type of undertaking. This 
board of design was headed by Mr. Richmond H. Shreve, architect, 
of the firm of Shreve, Lamb & Harmon. In addition to the architect, 
the builder, Mr. Andrew J. Eken, president of Starrett Bros. & Eken, 
is on the board. 

Then a city planner, Mr. Gilmore D. Clark, city planning and 
landscape engineer, whom you probably know, is a third member of 
the board. Irwin Clavan is associate architect. Both Mr. Clavan 
and Mr. Shreve had had considerable experience in the Williamsburg 
Housing Development, as had also Mr. Eken. 

Our own representative who came with our company to undertake 
this work is Mr. George Gove. Mr. Gove has been the executive sec- 


retary of the New York State Board of Housing for a number of years. 
The last member of the boaYd was Mr. Henry C. Meyer, Jr., of the 
firm Meyer, Strong & Jones, as engineer. 

So we endeavored to put together there a group of men, each one 
of them outstanding in his particular field and could give us the 
most efficient assistance in this undertaking. 

Mr. O'Connell. What exactly was the function of the board? 

Mr. Ecker. The board of design planned this whole undertaking 
and supervised its construction, of course under the direction and re- 
porting to our company officials. It is unfortunate that the Chairman 
of our. Board, my father, is not here at this time, because this partic- 
ular field of housing and all its ramifications has been a particular 
study of his for a number of years. 

Mr. O'Connell. Mr. Eken who is a member of the board is also 
in direct charge, or his company is in direct charge of the construc- 
tion ; is that true? 

Mr. Ecker. That is correct. 

Mr. O'Connell. Is it an advisory board? I don't quite understand 
the function of it yet. 

Mr. Ecker. The board of design has planned and is supervising the 
construction of this undertaking. They study the thousands of differ- 
ent questions that come up in connection with the most efficient plan- 
ning and operation of an undertaking of this type. 

Mr. O'Connell. This board, then, is made up of persons — were 
they employed by the company? 

Mr. Ecker. They are employed on a fee basis; yes, sir. 

Mr. O'Connell. Is Mr. Shreve a member of the firm of architects 
that did the actual designing? 

Mr. Ecker. Under Mr. Shreve and his associate, Mr. Clavan,-our 
own architectual force was set up to do this particular piece of work. 

Mr. O'Connell. Could you tell me how far along the construction 
•is at the present time- — how long it will take to complete it? 

Mr. Ecfer. Most of the purchasing has been done. The actual 
construction is in the neighborhood of 20 percent completed. We 
anticipate by January of next year the first quadrant will be open for 

Mr. O'Connell. It will be opened progressively; some units fol- 
lowing others? 

Mr. Ecker. Yes, it is designed to be built over a period of 3 years. 

Mr. O'Connell. In view of the large amount of building and labor 
involved in such a project, was any attempt made to work out any 
special arrangement with labor? 

Mr. Ecker. We gave considerable thought to this subject at the 
time this work was started, but we did not find that it was feasible of 
accomplishment, so that the building is being built with all union 
labor at union wage scale. We haven't had any difficulties of that 
sort and we don't' anticipate any. 

Mr. O'Connell. Did you make any attempts, or how do you pur- 
chase, or how had the materials been purchased which are undoubtedly 
being used in large quantities? A re they being purchased from manu- 
facturers or the middlemen in New York, or do you happen to know? 

Mr. Ecker. The purchases are made in practically all instances 
under competitive bidding. There may be a few small items where 
that doesn't apply. 


Mr. O'Connell. I was merely trying to bring out for my own in- 
formation whether or not there were any substantial economies in 
construction cost through labor savings or material savings in terms 
of the bargaining power of your agency as against the small-scale 
individual home. 

Mr. Ecker. Now of course in buying in bulk, in large quantities, 
there is some saving in cost, because "the manufacturer naturally is 
willing to sharpen his pencil more, he can give employment to his 
people, he can cover his overhead for a longer period of time, and 
particularly in a period such as we have been going through, un- 
doubtedly they have sharpened their pencils on th:t. But where the 
bulk of the saving is involved in an undertaking of this sort, it seems 
to us, is not so much in that field as it is in what we have been able to 
accomplish through this board of design in the planning of this under- 
taking, and all of the advantages of having a large-scale operation of 
this sort. You see, in the first place, there is the advantage of having 
control of a neighborhood, and so by this means we can maintain the 
character of that neighborhood. It is not subject to deterioration 
because of outside influences. Secondly, there are the subsidiary 
advantages of an undertaking of this size in that we have stores and 
theaters and garages and other business enterprises of that sort located 
right on the property. Thereby, any income from these subsidiary 
sources accrues to us or accrues to this particular undertaking and 
thereby permits you to reduce the rents accordingly. In addition, 
I spoke of the advantage of bringing together a group of men of this 
character, each one outstanding in his particular field, and with special 
experience along this line. In the planning which we attribute, of 
course, to this board of design, they have — well, one indication, for 
example, of planning is that in this development the buildings only 
occupy 27.4 percent of the total land area, whereas in the ordinary 
gridiron layout it is at least 32 percent. The streets only occupy 
21.2 percent, whereas ordinarily up to 47. I have got those figures 
reversed that I just read to you. 

The landscape and recreation in this undertaking, 51.4 percent, 
whereas ordinarily, only 20. 

In its design I think it would be well that we produce some of these 
pictures that we have right here which will give you a concept of this 
thing. It is pretty hard to visualize in talking only statistics, but 
you will see, for example, this is the layout-out here, with two 
streets going through this way and the buildings so located that they 
get the maximum amount of light and air and never any closer than 
60 feet between any building, or at least any windows of any building, 
and the bulk of them a great deal larger distances than that. There 
are some five different areas that might be considered as parks and 
garages around the exterior, two theaters, a business section over in 
here. This gives an architect's drawing of an airplane view, so to 
speak, of what it will look like when completed. This gives probably 
a better conception of what we are shooting at. 

Acting Chairman Williams. Right in that connection, how many 
of those buildings are there? 

Mr. Ecker. There will be 51 buildings but 171 units. I have a 
floor plan here and you can get a better idea of what I mean by that. 
That is a unit, but we quite frequently, as you will see from the 
design, will hook two or three or four units together. In the design 


of these buildings, our board has constantly had in mind producing 
the maximum amount of usable area for the minimum amount of con- 
struction necessary, by designing largely in the form of a square, for 
example. This is just one little indication. A square gives you the 
smallest perimeter which will surround a given number of square feet, 
and you will notice that the bulk of these units have been designed in 

The core of the building is in tne center of each unit, you will 
see, and then the apartments added around that, so that four 
apartments lead to each stair and elevator entrance. In standardiza- 
tion of the various types of wings whicn are to be fitted onto the core 
and onto each other, of course, there are savings in price and materials 
because of the volume that can be bought in that manner. 

Indicating other mutters which they have had in mind, all of the 
fill in this entire development approximately balances . all of the 

Mr. O'Connell. Mr. Ecker, could you tell me what the estimated 
rents are to be, or what you estimate they will be? 

Mr. Ecker. The rents have not been definitely set. As I told 
you, we- will not open up until the first of next year, and they have 
not been set, but we estimate that the two rooms will range between 
$32 and $34 a month; three rooms $40 to $51 ; four rooms, $52 to $60, 
and five rooms, $63 to $69. Included in these rents will be gas and 
electricity, no extra charge for gas and electricity, also no extra charge 
for bathrooms as half rooms, or dinettes or anything of that sort, 
as we were talking about before. 

Mr. O'Connell. Have you made any calculation as to what in- 
come group you think this project will serve? 

Mr. Ecker. Yes; we expect that an undertaking of this sort 
will serve the income groups, say, from $1,500 to $4,000. 

Mr. O'Connell. Very few in the $1,500 group, don't you think? 

Mr. Ecker. Well, by comparison, yes, I think very few. I would 
say largely from $2,000 to $3,000 will be the bulk of it, in through 
there. But there will be some probably at these rents. 

Dr. Lubin. You figure about $12 to $15 a room, roughly, the 
range running from $12 to $15 a room, roughly? 

Mr. Ecker. On a comparable basis with other undertakings. Yes, 
somewhere in there; I would say under $15. Twelve or $lt would 
be closer for comparative purposes. 

Mr. O'Connell. If your smallest apartments rent for $32 'a 

Mr. Ecker (interposing). Yes; but you have, to take off gas and 
electricity for one thing. 

Mr. O'Connell. How much do you take off for that; a couple 
of dollars a month? 

Mr. Ecker. Yes, $2.50, something of the sort, probably. 

Mr. O'Connell. Taking your formula of 1 week's salary for 1 
month's rent, I take it that the person with an income of $1,560 
would probably be able to rent a two-room apartment; that is about 
the bottom of the group. 

Mr. Ecker. We said thirty-two to thirty-five. Take thirty- 
three and cut it down $2.50. 

Mr. O'Connel: T took thirty. 


Mr. Ecker. That is $360. You are multiplying that by what — 

Mr. O'Connell. You can multiply it by four. 

Mr. Ecker. All right; $1,440, yes. 

Mr. O'Connell. I did it a little bit differently. I took 1 month's 
rent as the equivalent of 1 week's salary — $30 a week, 50 weeks a 
year, giving $1,500 which would be as low as you can conceivably 
get; isn't that so? 

Mr. Ecker. I don't anticipate that there will be very many people 
with a $1,500 income in this development. We are not building 
for that group, but in a group above that. 

Mr. O'Connell. That is what I was trying to get at. Generally 
speaking, this committee has been discussing the possibility of en- 
couraging construction to meet an income group which isn't being 
served at the present time, and while it is an approximation, we had 
used a group of $1,000 to $1,750 to $2,000 a year, and just speaking 
generally this development will serve a group which is above the 
group that we have been discussing. 

Mr. Ecker. That is correct. 

Mr. O'Connell. Do you anticipate that you will have any par- 
ticular device for determining who your tenants will be comparable 
to the one used in Long Island? 

Mr. Ecker. Yes. We expect to go into that very carefully. I 
have here a form of the type that we expect to use for the application, 
which will inquire as to the present address, how long the individual 
has Uvien there, previous landlord, number of persons to occupy the 
apartment, the names, and so forth, of the individuals in the family, 
the name and address of the employer, any |bank references, and 
other items of that sort, in addition to which it is our expectation 
to make an investigation right back at the home of these individuals 
who make applications for apartments. 

Mr. O'Connell. Generally speaking, the things that you have 
indicated would be for the purpose of determining their acceptability 
as tenants and as to their adequacy of income. What I was interested 
in was the upper group, the top. 

Mr. Ecker. I think I failed to state that also in this form we 
require a statement as to the amount of income. 

Mr. O'Connell. But what I was thinking of, generally, was, Do 
you anticipate that you will make an attempt to limit occupancy to 
persons whose income is not in excess of a certain sum? 

Mr. Ecker. In general; yes. 

Mr. O'Connell. Have you made any calculations as to what you 
estimate your return on your investment will be accoraing to your 
tentative schedule of rates? 

Mr. Ecker. We are anticipating a return of A}{ percent. 

Mr. O'Connell. And what period of amortization do you figure for 
your capital investment? 

Mr. Ecker. In the neighborhood of 30 to 33 years. 

Mr. O'Connell. Thirty to 33 years. 

Mr. Ecker. Yes. 

Mr. O'Connell. That is probably not nearly the useful life of the 

Mr. Ecker. It is not the useful life,, probably. We can build today 
to 50 years or 75 years or maybe 100 years, but obsolescence takes 


place and it is a pretty difficult thing to be sure of guarding against, so 
it is entirely conceivable that at the end of 30 or 35 years the income 
obtainable would not be in excess of the operating expenses. 

Mr. O'Connell. That is true. I didn't indicate there was any- 
thing wrong with using that amortization period. I wanted to be sure 
there was no real connection between the physical life of the property 
and the amortization period. You have other factors to take into 
consideration. I also take it that you have minimized the risk of 
what was referred to as neighborhood obsolescence by having built 
your own neighborhood. 

Mr. Ecker. That is what we believe. That is why we believe this 
type of thing is a safe investment for us to put our funds into. 

Mr. O'Connell. The legal limitation on the Metropolitan engaging 
in direct housing construction is that it may not invest more than 10 
percent of its assets. 

Mr. Ecker. That is correct. 

Mr. O'Connell. It isn't necessary to go into that, and that only 
for a period of 5 years. 

Mr. Ecker. Only for a period of 5 years, but in that period of time 
it may possibly be extended under legislation. 

Mr. O'Connell. There is no tax exemption? 

Mr. Ecker. No tax exemption whatsoever. 

Mr. O'Connell. Would you care to state whether or not in your 
opinion the sort of enterprise that is evidenced here is a thing which 
holds hopeful outlook for substantial expansion in the future for 
institutions such as yours? 

Mr. Ecker. Well, I don't feel I can express any opinion as to other 
people's point of view on these things. It is their responsibility. 

Mr. O'Connell. Just express your point of view. 

Mr. Ecker. As far as we are concerned we naturally having gone 
into this thing believe it is a safe and sound thing to do. 

Mr. O'Connell. I think that probably was an unfair question. 

Representative Williams. Have any other institutions undertaken 

Mr. Ecker. The Prudential has built some low-cost housing. I 
don't believe it has been done on a very large scale as yet. 

Representative Williams. Do you know what their success has 

Mr. Ecker. They are watching us, I suppose. 

Representative Williams. And you are watching them. Do you 
know what their success has been? 

Mr. Ecker. It is my impression that it has been entirely satis- 
factory, but I am not familiar with just what their experience has been. 
* Mr. O'Connell. Mr. Rogers testified the other day very briefly 
about the experience of the Prudential with building a low-cost 
housing project in Newark, I believe, or Jersey City, and he expressed 
it as having been a little less favorable than Mr. Ecker. He said 
that the Prudential had undertaken it as a semiphilanthropic move 
under special legislation that permitted that particular development, 
and that is the Prudential experience, I believe. 1 

Representative Williams. What is your tax-assessment percentage 

Mr. Ecker. Around 3 percent. 

i Supra, p. 5081. 


Representative Williams. That is your rate, and what is the assess- 

Mr. Ecker. In this situation it is about 3 percent, my recollection 

Representative Williams. What is your assessed valuation? 

Mr. Ecker. I gave that for the record. 

Representative Williams. I don't mean your particular one. I 
mean what is the percentage of the market value or true value of the 

Mr. Ecker. Well, in New York City they attempt to assess at true 

Representative Williams. At real value of the property. 

Mr. Ecker. Yes. 

Mr. O'Connell. I have here the tax rate for various counties or 
boroughs in New York City in 1938, and the rate was 2.93 in Man- 
hattan, 2.92 in the Bronx, 2.94 in Kings, and 3.04 in Queens. My 
understanding is that the law of New York forbids the assessment to 
be in excess of the fair market value, and whether or not the assess- 
ment actually reflects the fair market value I think would be very 
difficult to say. The law says that it shall not be more. In the case 
of the Long Island project, as I recall the figures, the cost of the 
project, land and buildings, was something over $7,000,000, and the 
assessment was something slightly over five. Am I correct? 

Mr. Ecker. That is at the time. The property has depreciated. 

Mr. O'Connell. And you have ta~ken about $2,000,000 in depre- 
ciation during that period. 

Acting Chairman Lubin. Mr. Ecker, what do you estimate to be 
the actual construction costs of the new project, leaving out such costs 
as utilities, sewers, roads, streets, landscaping, and so forth, the actual 
cost of construction of the building? 

Mr. Ecker. I am sorry, Dr. Lubin, but I cannot answer that at 
this time. After we have completed it we shall be very happy to give 
you any information. 

Acting Chairman Lubin. May I ask another question? liow many 
dwelling units will there be in all? 

Mr. Ecker. Forty-two — no, 12,000. Forty-two thousand rooms. 

Acting Chairman Lubin. Which means you are going to buy 12,000 
bathtubs and 12,000 toilets and 12^)00 lavatories, and so forth. 

Mr. Ecker. Yes. 

Acting ^Chairman Lubin. I take it you have already placed orders 
for some of those. 

Mr. Ecker. That is correct. 

Acting Chairman Lubin. Do you know how much cheaper you are 
buying them than the average builder of a single house would have to 
pay for the same product? 

Mr. Ecker. No; but I think it would vary very materially in 
different undertakings. -: 

Acting Chairman Lubin. You say you get them under bid, but are 
you getting these bids from retail distributors or from the manu- 
facturers direct? 

Mr. Ecker. I have to ask for help on that. 

Mr. Eken. 1 We really bought that stuff direct in this way: We in- 
sisted upon carrying on negotiations in the case of the manufacturer, 

' Andrew J. Eken, president, Starrett Bros. & Eken, New York City. 


in the case of bathtubs with Kohler direct, but the order was finally 
placed with the plumbing contractor. 

Acting Chairman Lubin. May I ask another question. Were there 
any materials at all that you were unable to purchase through direct 
negotiation with the manufacturer? 

Mr. Eken. No. There were some cases where we didn't buy 
material direct, where the subcontractor bought it, but we had no 
difficulty buying direct in any case where we saw fit to do so. 

Acting Chairman Lubin. Would Mr. Eken know what the relative 
price of bathroom fixtures was that you paid as compared to the 
going rate in New York for similar Kohler products? 

Mr. Eken. As a matter of fact we didn't pay a great deal of 
attention to the going rate. We had in mind certain standards that 
we tried to buy to. I think there is a great deal of misconception on 
this thing. I think a lot of people have the wrong idea as to what 
comes out of this question. I think that you get great economies 
when you are buying up to a certain point. I think after you buy to a 
certain point there is very little economy beyond that. That has been 
our experience in many large operations. W e have built a great many 
— I won't say a great many, we built the biggest of privately owned 
operations and we built the biggest of the Government's, and it has 
been our experience that up to a certain point we get these economies 
and beyond that the thing flattens out and there isn't a great deal 
maintained by additional. 

Acting Chairman Lubin. A contractor who testified here recently 
when asked why he didn't go to Kohler, said Kohler wouldn't let 
him on his property ; he had to work through a subcontractor who had 
to purchase at retail. 1 

Mr. Eken. You know, of course, that in the city of New York 
you can't buy a bathtub and put it in; it has to be bought through a 
plumber, and that was so in our case, but we made it our point to do 
the negotiation and finally bring it to the place where the plumber 
bought it. 

Acting Chairman Lubin. But at a price negotiated between you 
and the manufacturer. 

Mr. Eken. Yes ; we negotiated it. 

(The witness, Mr. Ecker, was excused.) 

Acting Chairman Lubin. The committee will be in recess until 
10:30 tomorrow morning. 

(Whereupon, at 4:40 p. m., the committee recessed until 10:30 a. m., 
Friday, July 7, 1939.) 

1 Supra, p. 5009. 


FRIDAY, JULY 7, 1939 

United States Senate, 
Temporary National Economic Committee, 

Washington, D. C. 

The committee met at 10:45 a. m., pursuant to adjournment on 
Thursday, July 6, 1939, in the Caucus Room, Senate Office Building, 
Representative B. Carroll Reece presiding. 

Present: Representative Reece (presiding), Messrs. Davis, Berge, 
Arnold, O'Connell, Lubin, and Brackett. 

Present also: Messrs. Lowell J. Chawner, Department of Com- 
merce; Gordon Dean, Department- of Justice; William T. Kelley, 
Federal Trade Commission; Hardwick Stires, Department of Com- 
merce; Gerhard A. Gesell, Securities and Exchange Commission; and 
Peter A. Stone, coordinator of construction studies for the committee. 

Acting Chairman Reece. The committee will come to order, olease. 

Are you ready to proceed, Mr. O'Connell? 

Mr. O'Connell. I am, Mr. Chairman. I should like to make a 
very brief statement before we hear from the first witness. Today 
the committee will hear testimony relative to other major factors in 
the cost of housing and the possibility of effecting substantial reduc- 
tions in costs there. I refer more particularly to the cost of labor and 
materials employed in the construction of dwelling accommodations. 
I think it appropriate to explain at this time that the treatment to 
be given this matter of labor and material costs insofar as this presen- 
tation before the committee is concerned, will differ substantially from 
that given finance costs. This is so for two reasons: First, to make 
the type of investigation necessary to acquaint the committee with 
the nature and extent as well as the effect of the deterrents to con- 
struction that are generally held to prevail in this field, and to do so 
in anything but the broadest of general terms would have involved 
time in both preparation and presentation not presently available to 
the committee. Secondly, the Department of Justice has been for 
some months past and is at present engaged in making a broad 
investigation in this field as a part of the regular duties of its antitrust 
division. This work, about which you will hear more shortly, has 
not been completed and to anticipate its results would be untimely, as 
would an attempt on the part of the committee to duplicate it be 

It is true that the restrictive practices in this field have already been 
referred to briefly before this committee, and it is also quite probable 
that the testimony of subsequent witnesses will include further dis- 
cussions along this line. However, it is our belief that the testimony 
of the next witness will operate not only to indicate generally the 
nature and extent of the practices to which I refer, and the scope of 



the program which the Department of Justice now has under way in 
connection with them, but also to make clear the considerations which 
made it necessary that the committee examine, this area only -in a 
general way at this time. 

I should like to call the first witness this morning, Mr. Thurman 
Arnold, Assistant Attorney General in Charge of the Anti-Trust De- 
partment, and a member of this committee. 

Acting Chairman Reece. Do you solemnly swear that the testi- 
mony you are about to give in this proceeding will be the truth, the 
whole truth, and nothing but the truth, so help you God. 

Mr. Arnold. I do. 


Mr. Arnold. I am going to impose on the committee and read my 
statement rather than to take the longer way of presenting it orally. 
The reason I do that is that this statement representing future activi- 
ties of the Department of Justice in connection with the buildmg in- 
dustry necessarily deals in expectations; they are expectations which 
have to be weighed by the committee in determining remedial legis- 
lation, but since it is connected with possible cases I think that great 
care is necessary in the statement and therefore I will read it. 

Acting Chairman Reece. The committee will be very glad to have 
you proceed as you have stated. 

Mr. Arnold. The central problem in the building industry was 
sharply outlined by Dr. Lubin when he said that we needed 525,000 
housing units per year for 10 years in order to maintain even our 
present inadequate isvel of housing in this country. It appears from 
the testimony already given that we have no chance of getting these 
units under present conditions. My testimony today will deal with 
the functions which antitrust enforcement can perform in solving this 
problem provided it operates on a broad scale in coordination with 
other Government agencies and with private capital. 

As a preliminary summary of the matter I am about to present I 
shall make a few general observations: 

1. Unreasonable restraints of trade, nearly all of which are prob- 
able violations of the law, are, in my opinion, the most conspicuous 
reasons for high construction costs. They appear, today, at every 
level of the building industry. 

2. The effect of these restraints is not only to maintain prices at a 
high level but also to increase them when volume increases. The 
result is the ridiculous spectacle of a rise of buildmg costs amounting 
in some cities to nearly 25 percent which choked off the building boom 
of 1936 and 1937. 

3. The combinations which cause these price rises in the face of 
increased volume have prevented even State and Federal subsidies 
from giving adequate stimulus to private housing. . .. - 

4. The building industry does not seem capable of curing itself. 
Operating alone, without Government protection from the aggression 
of others, a single heavy industry, or the distributors of its products, 
or the contractors which install them, or the labor which works on 
them, only handicap themselves to the advantage of others when they 
prevent price competition. 


5. The most effective tools at present available to attack these 
restraints are the antitrust laws. 

Sooner or later it will become the duty of this committee to consider 
remedial legislation, and the antitrust laws do not fill the entire pic- 
ture. Financing, the development of more efficient organizations, 
plans to reduce seasonality and to abandon wasteful practices in a 
coordinated fashion, land costs, local taxes and fees, all require affirm- 
ative action which goes beyond mere prosecution. However, any 
study of affirmative action by new legislation must be preceded by a 
careful examination of the remedies available under present laws. 
Such an examination necessarily deals with the future and not with 
provable facts. However, an estimate of the probability of success 
of the Department's efforts under present laws is an important factor 
in determining whether additional legislation is required. 

I shall begin with a summary of the high points in the Department's 
prosecution program. These points together constitute a method 
of coordinating the activities of the Department of Justice with other 
Government agencies and with business, with the hope of getting 
more homes for Americans. The purpose is to achieve this objective 
with the utmost reliance on competitive private initiative: 

1. The. objective of antitrust enforcement should be to establish a 
free and independent economy in the building industry — not Govern- 
ment controlled or dominated. Legal procedures should be utilized 
in a reasonable way to get constructive results. Trust busting 
should not be considered an end in itself. 

2. To accomplish such an objective an antitrust program in the 
building industry requires simultaneous action on a Nationwide scale 
against all the restraints which affect the price of the final product — 
the completed house. This is essential so that by attacking one 
group we shall not handicap them in the total situation. It is als6 
essential in order to show the effect on interstate commerce of re- 
strictions which might otherwise appear to be local, and finally, it is 
essential in order to permit development over a broad area of experi- 
ments in mass .production of housing. 

3. Such a program should be coordinated if possible with voluntary 
allocation of funds by State and Federal financing agencies to the 
localities which are first freed from the paralyzing effects of price- 
fixing combinations. In this way increasing volume should lead, to 
lower prices instead of higher. 

4. Such an enforcement program should be coordinated if possible 
with the efforts of private organizations interested in- cheaper houses, 
which are now forced to compromise with various aggressive combina- 
tions for the privilege of constructing homes. 

This program has been made possible, for the first time in the his- 
tory of antitrust enforcement, by appropriations of Congress. which 
have more than doubled the personnel of the Antitrust Division since 
I came into office. With this program all of the individual members 
of the committee are, of course, familiar. Indeed, it is one of the 
important products of these hearings. 

As evidence of that I point to the fact that from 1890 to the forma- 
tion of this committee no attempt was made to form an organization 
adequate for the enforcement of the antitrust laws. In the trust- 
busting campaign of Theodore Roosevelt there were only 5 lawyers 
and 4 stenographers engaged. At the beginning of this administration 


there were only 18 in the Antitrust Division. Today we have 140 
lawyers and with the present appropriation will be able to increase our 
staff to over 200. For the. first time antitrust enforcement on a Na- 
tion-wide scale is a possibility. The present possibility of actual en- 
forcement is due, I believe, to the interest in the monopoly problem 
created by these committee hearings. The Department acts only on 
complaints of businessmen. Since the hearings of this committee 
began such complaints have increased enormously. In my opinion 
this is due to the fact that through the activities of this committee 
for the first time in many years businessmen harassed by aggressive 
combinations have had reason to hope that their difficulties were being 
given consideration. 

So much for the general picture. I shall now attempt to develop 
these observations in more detail. 


Mr. Arnold. "By a wise, judicial construction, so long settled that 
it is removed from the possibility of argument, the Sherman Act 
prohibits only those restraints of trade which are unreasonable. It 
is, therefore, not designed to break combinations simply to celebrate 
the moral value of trust busting. 

Broadly sneaking, combinations which are necessary in a machine 
age to creat' efficient mass production or distribution, and which pass 
the savings onto consumers, are not unreasonable under the antitrust 
laws. This is not true where complete monopoly is the result, but 
that problem seldom arises in the building trades. Therefore, the 
problem of unreasonable restraints in the building industry today is 
not primarily whether a concern is big or little. It is as unreasonable 
for a small organization to prevent the use of standardized products, 
which can only be produced on a large scale, as it is for a large organiza- 
tion to eliminate the competition of small units which offer lower prices. 
Indeed, the boycott of standardized materials is one of the principal 
restraints of trade today in the building industry. .The stoppage of 
the flow of competing materials and services in commerce is equally 
illegal whether it be done by vertical combinations, by manufac- 
turers, by contractors, by labor, or by municipal ordinances and 
State laws, many of which in reality are not building regulations, but 
protective tariffs against other parts of the Nation. 

Therefore, I believe the principles of the antitrust laws are adequate 
to accomplish an economic purpose in the building industry. The 
main problem is the development of an effective procedure and an 
adequate organization. 

I am aware of the fact it is impossible to employ a rigid formula or 
rule of thumb in defining restraints of trade. This bothers those who 
search for definite and certain plans. Nevertheless it is one of the 
outstanding advantages of the antitrust laws. Practically applied, it 
means that we can take up one industry at a time in the light of its 
particular facts. This practical case-by-case approach is the best 
guaranty of economic freedom. It does not lead to certainty. Yet, 
broadly speaking, there are only two ways by which government may 
exercise supervision over industry. One is to appoint an adminis- 
trator to run the industrial organization like a parade. Such an 


administrator can tell businessmen what to do in advance. He can 
command them to execute "squads right" and "squads left" and there 
is no uncertainty in that process. The competitive way is to put the 
courts in the position of an umpire in a baseball game. A player 
who runs from second to third base under that system cannot expect 
the umpire to tell him in advance whether he will be safe. He must 
take his chance on being called "Out" That process has its hazards, 
but they are the hazards of economic freedom. That is the procedure 
in the antitrust laws, by way of a rough analogy. The only alterna- 
tive in the long run is regimentation. 

This does not mean that certain "toll bridges" over which every- 
one must pass can be operated without strict government control. 
The main channels of trade can still be free only if the necessary toll 
bridges and public utilities are properly located and controlled. 
The advantage of the antitrust laws is that they permit us to de- 
termine where those necessary toll bridges must exist through the 
method of examining the problems of each industry separately. 
They permit us to take up the building industry as a separate prob- 
lem. And that, I assert, is the only practical way to do it. 



Mr. Arnold. About a week ago Senator King asked if this series 
of hearings upon the building industry would take up the question of 
agreements and "restraints which had the effect of increasing building 
costs. Thus far relatively little has come into the hearings on this 
subject. I should like to make clear for the record that the absence 
of any detailed study of such restraints during these hearings is due 
to the committee's deference to a request made by.the Department of 
Justice. The Department now has under way a Nation-wide investi- 
gation of violations of the antitrust laws in the housing field. This 
investigation contemplates legal proceedings wherever the facts 
warrant. It is obviously unwise to use the present hearings in a way 
which would warn violators of the law that their particular practices 
are under investigation or to give such violators a chance to claim 
immunity as a condition of testifying .before this committee. It also 
would be obviously unfair in this preliminary stage of our investiga- 
tion to hale before the committee, upon partial evidence, individuals 
or groups whom we might later find to be innocent. Hence, it was 
decided to limit the discussion of restraints of trade in housing to a 
general summary of the extent, character, and significance of such 
restraints. I have been asked to present this summary. 

Restraints^ of trade are not scarce in the housing field. They are 
so prevalent and their aggregate effect so important that the situa- 
tion is no longer tolerable. Throughout the history of the Antitrust 
Division about 25 percent of the cases instituted have dealt with 
manufacturers and distributors of building materials or with building- 
trades contractors or building trades labor. I offer the committee as 
an exhibit a list of these cases, showing the name of each case, the 
year in which it was instituted, the character of the offense charged, 
and the action which was finally taken. 

Mr. O'Connell. We offer these for the record. 

Acting Chairman Reece. They may be admitted. 

124491 — 40— pt. 11 15 


(The document referred to was marked "Exhibit No. 866" and is on 
file with the committee.) 

Mr. Arnold. The Federal Trade Commission, too, has conducted 
many proceedings in the building field. Through the courtesy of the 
Commission, I am offering as an exhibit a copy of each complaint 
and order concerning building issued by the Commission in the last 
4 years. These include actions for price fixing against such important 
manufacturing industries as cement, window glass, and building wire, 
and against such important distributing groups as Nation-wide asso- 
ciations of material dealers, regional associations of lumber dealers, 
and regional groups of organized contractors. 

Mr. OConnell. Was it your intention to offer these for the record 
to be filed? 

Mr. Arnold. Both of these are to be filed. 

Mr. O'Connell. Not to be printed in the record? 

Mr. Arnold. I see no reason why they should be printed. 

Acting Chairman Reece. They may be so received. 

(The document referred to was marked "Exhibit No. 867" and is on 
file with the committee.) 

Mr. Arnold. In spite of the sustained activity of the Federal 
agencies enforcing the laws against monopolistic combinations and 
unfair competition, the restraints in the building field have scarcely 
yet been checked. The scope and vigor of the complaints which 
have come to the Antitrust Division during the last few months are 
evidence of that. Most of these complaints are by businessmen, con- 
tractors, building-material dealers, manufacturers, and architects, 
who want help against the gangs which are trying to force them into 
agreements or out of the market. The Attorney General's announce- 
ment of our intention to proceed on a broad front against these 
restraints has been greeted by a general approval both within the 
construction industries and outside them such as I have never en- 
countered in any other field in which the Antitrust Division has 
been at work. Many groups concerned with building are so anxious 
to end an intolerable situation that they will willingly run the risk of 
being themselves involved in our prosecutions. 

Unreasonable restraints of trade appear at every level of the build- 
ing industry. To give a picture of the problem I shall repeat a list 
I have utilized before of typical practices which have been found 
in recent Government proceedings or investigations or alleged in 
substantial complaints to the Antitrust Division. 


Mr. Arnold. Producers of building materials have fixed prices 
either by private arrangement or as the principal activity of trade 
associations. Owners of patents on building materials have used 
them to establish restrictive structures or price control, control of 
sales methods, and limits upon the quantities sold, in direct contra- 
diction of the broad intent of the patent laws to encourage, through 
inventions, the development and spread of new productive methods. 
Some of these patent holders have taken advantage of their control 
over patented products to require their licensees to give them control 
over unpatented products also. By the use of basing point systems, 
and zone price systems, various building-materials industries have 


established by formula a rigid structure of uniform prices throughout 
the country; and in some of these industries such price formulas 
have encouraged the wasteful location of industrial plants and the 
wasteful shipment of products to great distances. 

The use of joint selling agencies has been another means by which 
some of these groups have undertaken to Antain their prices. In 
some groups the various producers have subscribed to the theory that 
every member of the industry should have a definite share of whatever 
business there is to be done, and that no concern should try to get 
more than its share by price competition. 

Supplementing these various' devices for keeping . the prices of- 
buildmg materials high have been a series of other devices used to 
discipline competitors who are unwilling to play ball. In one industry 
the means is cutting off the supply of raw materials. In another it 
is starting a series of harassing lawsuits. In a third it is the harass- 
ment of distributors by selling through the seller's own factory 
branches at prices lower than those at which the distributor is permitted 
to resell. In a fourth it is the maintenance of orthodox channels of 
distribution by concerted refusal to sell to groups representing new 
methods of sale or new price policies. 

Overlying this mass of practices, often as a result of the pressure 
placed upon the weaker and smaller competitors, there is a growing 
concentration of control in many of these industries. For the most 
part the increase in the size of the business unit has not been the 
necessary result of more expensive machinery and bigger plants; it 
has come about by the merger of competing enterprises which con- 
tinued after their union to produce in very much the same way as 
before. Its chief significance has been an increase in the power of 
the. particular business unit and a greater ease in reaching an under- 
standing with the two or three other large concerns in the industry. 


Mr. Arnold. Various groups of distributors of building materials 
engage in two kinds of restrictive practice; First, they try to raise 
the price of their services by establishing a fixed mark-up between the 
price they pay the manufacturer and the price at which they resell. 
For this purpose they collusively determine their mapk-up or their 
selling price, and sometimes agree among themselves to boycott manu- 
facturers who will not cut off supplies from price-cutting distributors. 
Sometimes they conspire with manufacturers' groups to "establish a 
joint price control binding upon the manufacturers' and the dis- 
tributors' organizations alike. 

The second type of restraint by distributors arises from the effort 
to see to it that all business passes through their hands and that no 
new methods of distribution are introduced which wall dispense with 
their services. The great weapon in this field is the boycott. Groups 
of wholesale distributors may boycott those who sell direct to retailers. 
Groups of retailers may boycott those who sell direct to mail-order 
nouses or direct to the ultimate consumers . Sometimes the members 
of a distributors' organization will boycott any manufacturer who 
sells in their territory to nonmembers. To secure freedom in methods 
of distribution, some manufacturers have found it necessary to pay 
the distributor, a commission on sales even when the customer and the 


manufacturer have dealt direct and the distributor has had no part 
in the transaction. 


Mr. Arnold. Contractors who erect buildings add their own sys- 
tems of restraint. Many contracting groups maintain bid depositories 
in which copies of all bids and estimates are supposed to be filed prior 
to the award of the contract. In some of these depositories the bids 
are opened before the contract is let and the information thus obtained 
is 'used to coerce low bidders to withdraw or raise their bids. Other 
contractor groups maintain central estimating bureaus which calcu- 
late the cost of the job and supply the various contractors with the 
bids they are to make. In still other groups a central bureau deter- 
mines the specifications for materials and labor to be included in the 
bid, and the contractor is expected to apply standard* prices and labor 
rates to these specifications and thereby to arrive at the same bid 
as everyone else. Some bidding rings determine in advance which 
contractor is to get the job and arrange their bids so that everyone else 
bids higher than he. 

In addition to these efforts to control their charges for service, 
many of these groups set up little closed markets from which they 
exclude outside contractors or new types of services. They may try 
to keep all the contracting work for local contractors or for contractors 
who are members of the association. They may refuse to use mate- 
rials which have been bought from any source of supply other than 
themselves. They may insist that prefabricated products not be used 
in the buildings they work in. They may cooperate with contractors 
interested in other materials, so that no contracting group will work 
on a building if a product assembled at the factory is used contrary 
to the wishes of some other group. 


Mr. Arnold. The building-trades unions often participate in these 
policies of restraint and add new restraints of their own. In recent 
years they have frequently been used as the strong-arm squads for 
collusive agreements among contractors, refusing to supply labor 
where the contractors' ring wishes labor withheld. In other cases the 
unions themselves have refused to permit the use of new products 
or new processes because of their fear that the new method might 
make it possible to erect a house with fewer hours of labor than the old. 


Mr. Arnold. Such practices as I have just described crystallize 
and lead to legislative restraints on trade. Many building regulations 
are, in reality, protective tariffs. The licensing and registration of 
contractors by boards of contractors affords a means of discipline 
over contractors. In one State a contractor who must take out a 
license is one who undertakes "to construct, alter, repair, add to, 
subtract from, improve, move, wreck, or demolish any building, high- 
way, road, railroad, excavation, or other structure, project, develop- 
ment, or improvement, or to do any part thereof, including the erection 
of any scaffolding or other structure or works in connection therewith." 


In other words, if you drive a nail to put up a shelf in the house, the 
contractor is offended. 

To this broad class of work, which includes practically everything, 
the statute applies a method of rating bidders according to vague 
standards interpreted by the contractors themselves. It then puts 
handicaps on out-of-State contractors and out-of-State products. 
This is not an isolated example. 

On top of legislative restrictions are added municipal ordinances 
designed to restrain competition. They start out from the fact that 
there must be protection from fire and safeguards of minimum health 
requirements. They develop into legally established boycotts, partic- 
ularly relating to walls, roofs, electrical work, and plumbing. I am 
reliably informed that plumbing which is good enough for the magnifi- 
cent Department of Justice building cannot be used in private homes 
in many cities. 

I do not need to elaborate the significance of these restraints. Most 
of them are intended to raise or maintain prices and have been suc- 
cessful in doing so. Although the decline in the volume of construc- 
tion was conspicuously greater than that of most other industries 
during the depression which began in 1929, the level of building mate- 
rials prices and of building costs fell less than other prices. When 
building recovery began, the effect was just the reverse. By 1936 the 
volume of construction, including public work, had recovered from 
the $4,000,000,000 of 1933 to about $8,000,000,000. From 1936 to 
1937 it rose less than half a billion dollars, and in the latter year 
totaled not quite $8,500,000,000, a little less than two-thirds of the 
volume to be expected at prosperity levels. Urban residential 
construction rose about 27 percent during the year, but was still only 
40 percent of the 1929 level. 

Nevertheless, during that year the cost of constructing a small 
house rose more than 10 percent throughout the United States and 
in some large cities rose more than 25 percent. Building costs have 
moved flexible upward but not downward; and the aggregate effect 
of the restraints in the building industry appears to be a gigantic 
stairway of prices and costs in which the level attained during the 
period of rising prices becomes the taking-off point for the next period. 
The significance of this kind of behavior in building has already been 
brought out before this committee. Figures presented on the open- 
ing day of these hearings showed that more than half of the families 
of the country cannot afford to occupy houses costing more than 
$4,000 to build. At present levels of cost this means that the com- 
mercial building industries have priced themselves out of half the 
market and have left the need to be met, if at all, by various forms 
of public subsidy. 



Mr. Arnold. Here, of course, I am talking in terms of expectation. 
Of course, I do not suggest to the committee that unlawful restraints 
are the only source of high construction costs. Credit faculties offer 
one of the outstanding means of reducing ultimate costs. Land values 
are often high. Fees and charges are imposed on everything from 
the building permit to the recording of the title deed. Rem^es 


must be found to supplement the removal of restraints by antitrust 
enforcement. Such remedies, however, are not within the scope of 
this report. 

The economic effect of restraints of trade in building may be divided 
into five categories: 

1. They have kept prices from dropping when purchasing power 
dropped; and when purchasing power rose, they have raised prices 
still faster. 

2. They have harrassed, boycotted, and eliminated competitors 
able and willing to reduce prices. 

3. They have kept the industry horizontally split into groups whose 
separate contributions to the final product are so limited that no single 
group can get increased volume by lowering prices. Thus they have 
created a situation where the incentive of each group is to raise prices 
to obtain for itself the greatest share of any new money available for 

4. They have handicapped the use of prefabricated materials and 
thwarted the development of methods of mass production in the 
industry. < 

5. Finally, and most important, these practices have prevented 
experiment m housing design, materials, and methods of construction. 

The competitive system should give freedom to the man with a new 
idea to try it out, even if he goes broke in the process. The advant- 
ages of such experimentation are to be measured by the inventive 
genius of the American people and they can't be measured by cost 
accounting. The housing industry is full of new ideas. At present 
the execution of such ideas must be a compromise with existing gangs. 
Hence, no one knows how a house ought to be built, what materials 
are most economical, nor how they should be distributed. 

It is as impossible to put a dollars-and-cents value to the economies 
that can come from free competitive experimentation as it would 
have been to predict the development of the modern automobile at 
the time when Henry Ford first broke through the combination which 
was keeping him out of manufacturing under the pretext of stabilizing 
the capital structure and profits of the older automobile companies. 


Mr. Arnold. The key to effective enforcement o*. the antitrust 
laws is to attack simultaneously all of the restraints which interfere 
with .the distribution of the final product to the consumer. Combi- 
nations exist at every stage of every industrial process. Businessmen 
caught in such a situation are unable by themselves to change the 
pattern. They have to violate the law in order to survive against 
aggressive combinations which are attacking them. If, therefore, we 
pursue single corporations or individuals and leave others alone, or 
prosecute them at a later time, we simply give an advantage to the 
-violators who do not happen to be under investigation. We must 
take up at one time all combinations which affect a final product in 
order to get results. 

This is true in general, but it is particularly true of building. In 
the pastjve have spent most of our energy m pursuing complaints 
against^particular concerns scattered all over the country. 


A house is the product of a tangle of goods and services. There- 
fore, such helter-skelter activity has had little effect. No one who 
furnishes any single element which goes into the completed product 
can greatly raise or lower the cost of the whole product. No major 
economic purpose can be attained by pursuing in an uncoordinated 
fashion a labor union in Los Angeles, a group of contractors in Chicago, 
and a heavy industry in New York for antitrust violations in the 
building field. Of course, I must add it is our duty to prosecute com- 
plaints, and isolated prosecutions may protect particular competitors 
from injury. But the economic results in housing can only be accom- 
plished by prosecuting on a Nation-wide scale, and simultaneously, 
the various combinations which are creating the log jam in the building 

This procedure involves the simultaneous investigation and prose- 
cution of all restraints affecting the building trade in typical cities all 
over the United States. It has the following advantages: 

1. It will make it easier to show that particular building restraints 
which by themselves appear local are actually affecting interstate 
commerce substantially and on a broad scale. In a coordinated pro- 
gram one prosecution will throw light on another. This is already 
being demonstrated in our investigation. 

2. The home builders in one city by a coordinated Nation-wide 
program may become aware of how restraints in their home towns 
are affecting them in comparison with practices in other cities. 

3. The constructive purpose of the antitrust laws will be empha- 
sized. Enforcement will not appear to be an attack on any individuals 
for the purpose of enforcement of the law as an end in itself. 

4. A Nation-wide enforcement may be coordinated with State and 
Federal agencies which subsidize housing. Local enforcement cannot 
be so coordinated. For example, it is not unreasonable to expect that 
out of a number of prosecutions a break in building prices will result 
in particular cities. With that evidence that the underbrush has been 
cleared away, funds from State and Federal agencies may be put to 
work in those cities to increase volume of construction. Thus the 
spectacle of Government or State money being spent where the ex- 
penditures result in a price increase may be avoided. Public funds 
will have an increased purchasing power. That increased purchasing 
power may be reflected in the increased purchasing power of private 

5. A coordinated program therefore, may pave the way to price 
decreases. Here I am going to give a mere hypothetical assumption. 
Assume that a drop in the prices of the industries which produce 
building materials would lead to a substantial increase of volume. I 
have talked with some of the leaders in those industries about the 
possibility. They were afraid that any decrease in price would be 
absorbed elsewhere in contractors' profits or in labor's reward. One 
large manufacturer said, "I am at the mercy of my dealers." Simi- 
larly, building-trades labor thinks that to reduce labor costs is not to 
create more employment, but to enhance the contractor's profit; and 
contractors see no profit in reducing their own charges when labor and 
materials can take up the slack. If we proceed on a broad front, we 
can protect those who see the necessity of j price drop. We can open 
the door for substantial price reductions in the heavy industries. We 
can carry on the effect of that drop by liberating the real competing 


contractor. And finally, we can say to labor, "You can get the same 
thing that the heavy industries are getting; a greater annual income, 
based upon having more work to do during the year, without need to 
stretch the hours of work and the rate of pay on each particular job." 
Without such assurance it is certainly nor fair to expect labor to take 
the brunt. It is neither fair nor practical to deal with any element of 
the situation without dealing with all of them. 


Mr. Arnold. I am going to speak of the use of the civil procedure 
because, in general, this has been connected with the preventive 
measures which the antitrust provisions contain. For prosecution 
designed to clear away restraints is only the first step in what must 
be done. The development of a more efficient organization for the 
building industry will, no doubt, require at some points affirmative 
action to reduce seasonality, to develop new materials and processes, 
and to abandon in a coordinated fashion wasteful practices which 
cannot be tenninated by mere prosecution. 

The equity suit and the civil decree are available as means of meeting 
these needs. The door is open for any group which wishes to propose 
a constructive solution for the problems of its industry to submit its 
proposals. The cooperation of the Department of Commerce is 
available to us in considering them. If we think that they offer the 
user of the product not only the removal of unlawful restraints but 
further advantages which cannot be achieved by prosecution, we are 
prepared to submit them to a court with a recommendation that the 
court adopt them as its decree in the case. The final 'decision by a 
Federal court affords a safeguard against arbitrary administrative 
action on our part and against the acceptance of illusory remedies 
which may be offered. 

I want to be particularly clear on this point. The Department will 
not recommend the court's approval (and I trust no court would 
accept) any decree which is in violation of the antitrust laws. It will 
not, except in cases where past acquiescence or other equitable con- 
siderations make prosecution impossible, recommend a decree which 
goes no further than the discontinuance of unlawful practices without 
penalty for past action. We do not conceive the consent decree as a 
device for smuggling unlawful cartels into American economic life, 
nor for freeing offenders from penalties. We shall be glad to use it 
where it accomplishes not only the purpose of ending violations of 
the law but also the further purpose of providing safeguards for the 
public interest which could not otherwise be provided. 


Mr. Arnold. The procedure outlined offers a constructive oppor- 
tunity for private industry which is devising new methods or using 
new materials. It is hoped that houses designed to be safe from fire 
hazards and safe according to health standards may be simultaneously 
offered by private contractors in a large number of cities at once. 
There are ahtsady organizations in the field devoted to experiments 
with this kind of private housing. They are now hampered at every 
turn. Such an organization would prove a testing ground for un- 
reasonable restraints, particularly those of a legislative character. If 


in a State or city it is impossible for private industry to build a house 
of this kind which is healthful, safe, and also cheap, it becomes the 
immediate duty of the Department to find out why. Unnecessary 
construction luxuries must not be forced on those unable to afford 
them, such as, expensive plumbing, roofing, and walls. Local building 
regulations or practices which do this, or which in reality are local 
protective tariffs, should appear clearly in their true character against 
such a background. Thus the Antitrust Division may cooperate 
with and encourage Nation-wide experimental activity of this char- 
acter. It may clarify the problem for the courts by furnishing them 
concrete examples of experimental housing which is being restrained. 
Such a coordinated effort should bring home to the public the cost 
of a system of domestic protective tariffs. This plan to protect safe 
and cheap housing experiments on a Nation-wide scale is as yet in 
pure embryo form. My only justification in giving the idea public 
circulation at this time is to interest builders in it. Several of them 
have already started to investigate its possibilities, but I wish to 
point out and make perfectly clear that the initiative must come from 
private industry. It cannot come from the Antitrust Division, 
because we cannot enter the construction game. 


Mr. Arnold. Senator O'Mahoney, with the approval of this com- 
mittee, has recently introduced a bill which will permit the greater 
use of the civil proceeding. At present the only preventive effect is 
found in criminal proceedings. The present utihty of the civil pro- 
cedure is limited to cases requiring some sort of constructive organiza- 
tion of the industry in order to maintain or reestablish competitive 
conditions. It looks to the future. The criminal procedure is now 
the only penalty for past misconduct and hence offers the only 

The bill introduced by Senator O'Mahoney would provide a more 
adequate device for penalizing past conduct and would eliminate the 
necessity for using the indictment exclusively in cases where a penalty 
is needed. It does not prevent the use of the criminal indictment. It 
only provides a speedier and more equitable method in cases which 
are more in the nature of public torts than crimes. I want to say 
that in addition to what I have written here I have noted a good deal 
of misunderstanding about the nature of this bill. It seems to be felt 
in some quarters that it is adding new hazards to the businessman 
which did not exist before. Of course, it isn't. It is simply providing 
that they may .jo prosecuted without the necessity of putting them 
through the criminal courts, and I do not consider it a revolutionary 
amendment ; I consider it an ameliorating and more effective amend- 
ment in cases where due to the fact that a man is caught in one of 
these situations where he can't do anything else in following th6 pat- 
tern, the criminal indictment, even if we admit that it is only in the 
nature of misdemeanor, is obviously inappropriate. 

There are other procedural changes which I desire to present to the 
committee at a later time, but inasmuch as they go so much further 
than building I think the .time is not yet ready. One has as its pur- 
pose the speeding up of our somewhat cumbersome procedure by per- 
mitting the Federal Trade Commission to aid the already overbur- 
dened Federal judiciary, acting as master in the finding of facts, and 


I have been discussing that with the Federal Trade Commission. The 
distinguished record of the Commission, their peculiar skill and exper- 
ience, make them an admirable instrument for this purpose. 


Mr. Arnold. I am aware that this program, like all programs to 
the future, may fall short of its hopes. Nevertheless, an outline of 
its purposes and its hopes is essential in considering the general prob- 
lem of housing now before the committee. And finally, since the 
public interest which has led to this program is due to the investiga- 
tions of this committee, it is well to have the record show the present 
activities of the Department of Justice. 

Mr. O'Connell. Mr. Arnold is available for questions by the com- 
mittee if any of the members wish to refer to the material that he has 

Actina: Chairman Reece. Do any members of the committee wish 
to ask Mr. Arnold a question? 

Mr. O'Connell. There are one or two I would like to ask. Early 
in your statement you referred to the wise judicial construction 
which has made only unreasonable restraints of trade illegal, and 
then a statement appears to the effect that, broadly speaking, com- 
binations which are necessary in the machine age to create efficient 
mass production or distribution, and which pass the savings on to 
consumers, are not unreasonable under the antitrust laws. 

Could you explain somewhat more in detail what that contemplates, 
what type of combinations that would involve ordinarily? 

Mr. Arnold. It is a little difficult to state it more specifically with- 
out going into our positions in particular cases. I would say in general 
that if you have a magnificent research organization which is con- 
stantly decreasing the price of the product, it obviously is not economic 
to break that organization up. If that organization is also maintain- 
ing an artificial price level, then the magnificence of the organization 
should not save it from being prohibited in exercising that particular 

Mr. O'Connell. Specifically, assuming we had a combination of 
competitors which in fact fixed prices but it also could be made to 
appear that the price structure was such that savings were passed on 
to the ultimate consumer, would you conceive that that was not an 
unreasonable restraint? 

Mr. Arnold. No; I would conceive that any combination under the 
law — and that is a broad general statement — which actually fixed 
prices, unless you got into this rather extreme type of case represented 
by the Board oj Trade case l where the price quotation of the night before 
was allowed to be fixed to maintain it for the next morning — any 
combination fixing prices could not be justified. 

Now the Appalachian Coal Company case 2 goes as far as any case on 
the subject, and I would say as to that case that its doctrine should be 
carefully examined and limited only to industries which are like the 
bituminous situation. 

One of the techniques of the antitrust law is that it must be considered 
as taking up one industry at a time, and I don't think that we should 
start the argument of saying that because this thing is necessary in 
the bituminous-coal industry, it offers a justification for some practices 

i 246 U. S.231. 
« 288 V. S. 344. 


in the movies. In other words, the principle is clear that we don't 
want to interfere with a decent, orderly market for the goods, but it 
is not the kind of a principle which can be carried on from one industry 
to another as a rule of thumb. 

Mr. O'Connell. Taking a situation comparable to the one made 
to appear in the Appalachian Coal case, you wouldn't conceive it was 
the function of the Department of Justice as distinguished from the 
court to decide that that particular combination or price fixing 
arrangement was illegal? 

Mr. Arnold. The Department of Justice has necessarily, due to 
the limited personnel in the past, in practice made such decisions by 
declining to prosecute, and from 1890 on, a very great proportion of 
our business has ended in what was known as the consent decree. 
With the increased personnel, I think it will be less and less necessary 
to involve ourselves in that kind of acquiescence. It is not a legal 
acquiescence but it is an actual effective acquiescence. You can't 
win a case if you have only been looking at memoranda and' 
listening to people for many years. Our hope would be never to get 
acquiescence in any of these cases, but only to develop the cases which 
would actually be presented to the court. Then, of course, the whole 
decision is on the court. 

Mr. O'Connell. So that, generally speaking, a combination whieh 
would have the effect of fixing prices would be, except in a rare case, 
comparable to the Appalachian case, unreasonable restraint of trade. 

Mr. Arnold. Unquestionably. 

Mr. O'Connell. And also generally speaking, the reasonableness 
or unreasonableness, to the extent you do so, would be a question 
for the court to decide. 

Mr. Arnold, it is always a question for the court to decide. The 
Department can never as a matter of law decide on the reasonableness 
or unreasonableness of a practice. As a matter of fact, the Division 
has been forced in the past to a position, by letting things alone so 
long, that a general principle which I often refer to as the doctrine 
that you can't unscramble eggs, has grown up in judicial decisions 
and you will find decisions saying, "You have left this thing alone 
so long you can't do anything about it." 

Mr. O'Connell. That has been largely the result of a lack of 

Mr. Arnold. I think it is entirely the result of lack of personnel, 
because of course, if it wasn't, then the law would be clear. 

Mr. O'Connell. Is the consent decree available to you in civil 
as well as criminal cases? 

Mr. Arnold. I don't like to use the word consent decree. I prefer 
to say civil decree. I can illustrate how every civil decree involving 
a readjustment of a great organization must have an element of 
negotiation of consent. Assume we win the Aluminum case, there is a 
corporation involving over $100,000,000 which must divest itself of 
whatever holdings we will assume the court determines it will divest 
itself of, or split itself up in such a way as the court determines it 
shall split — a rule which of course must be dependable upon the situ- 
ation, a reasonable, practical solution of the particular situation. 
You can' a situation of that character which requires financing, 
which requires negotiations between individuals, without getting up a 
decree involving the element of both parties getting together, and 
therefore I would like simply to say civil decree. It always has an 


element of consent because the civil decree ordinarily involves doing 
something about an existing combination, breaking it up, dissolving 
it, di vesture or something of that sort. 

Mr. O'Connell. That brings me to one more question. On page 18 
of your statement, referring to civil decrees, the statement appears — 

The door is open for any group which wishes to propose a constructive solution 
for the problems of its industry to submit its proposals. The cooperation of the 
Department of Commerce is available to us in considering them. 

Does that assume an antitrust prosecution? 

Mr. Arnold. Of course not. Businessmen are entitled if it is 
possible, to find out at some stage or other what the Department is 
going to do and what their rights are. We attempt to give them a 
guide to our prosecution policy by public statements. In other words, 
we never tell them, of course, what we will do in a particular case 
but they ought to be able to spell out a consistent policy through 
these reasons and public reasons we give for prosecutions we have 

In addition to that, the businessmen might require the protection 
of res judicata, that is, the protection of a court saying that this 
combination would be reasonable. For instance, the Ford and Chrysler 
decree tells Ford and Chrysler by virtue of the pronouncement of the 
court that it is not unreasonable for them to advertise a plan, use 
their united efforts to advertise a plan which is fair to the purchaser 
of automobiles and which insures decent collection efforts. That sort 
of thing will, if we have time to investigate it, of course, be presented 
to the court for its accord or disapproval, and of course, it is the 
court method of doing it instead of the method which was forced upon 
the Department with only 5 or 10 people in it, of having a whole stack 
of memoranda by businessmen telling the Department frankly and 
honestly what they were trying to do and the Department just shoving 
them away and saying nothing or writing some sort of letter. 

Mr. O'Connell. As I understand it, in the Ford and Chrysler case 
there was a criminal action pending which resulted in a consent decree. 

Mr. Arnold. Whether there is a criminal action pending doesn't 
make the slightest difference. Mr. Jackson first announced in the 
hearing before Congress, in an investigation of Judge Geiger's dis- 
missing the grand jury, that the Department would use a civil and 
criminal proceedings concurrently, a practice that in the past has 
been approved by the Supreme Court, and later when I first assumed 
office on May 18 of last year — and to make it accurate I would like 
to get that release in the record if I may, the release of May 18 — 
I announced, first, that no consent decrees, no chil decrees which 
involved the dismissal of prosecution would be entered into merely 
on the promise of cessation from present illegal activities, but if 
there were presented a decree which went greatly further in the 
interests of the consumer, or 'of the public, or of preserving compe- 
tition, and which was within the antitrust laws, we might then nolle 
prosse the criminal indictment. 

May I say further that we never under any circumstances make 
any suggestions as to what those decrees contain. Of course, the 
businessmen always ask for suggestions. We never make them. 
Our invariable answer is to say, "This is your industry. If you 
have any ideas as to how you could prevent these unfortunate situa- 
tions arising in the future which have forced you into this pattern, 


we will be very glad to hear them," but we will not assume the expert- 
ness which we can't assume covering all fields of American industry 
and suggest them ourselves. 

(The release referred to was marked "Exhibit No. 868" and is 
included in the appendix on p. 5498.) 

Mr. O'Connell. I don't think I made myself entirely clear. The 
cases you have been discussing are cases where either a criminal or 
civil case was started, which resulted in a consent decree. The 
language here seems to me to indicate a procedure something along 
the lines of what is referred to as administrative declaratory ruling. 

Mr. Arnold. No ; the civil suit is a completely separate suit. Let's 
take the process. Take the Ford and Chrysler case. You come in 
with a reasonable method which will eliminate the necessities which 
created those violations, the necessities being the elimination of loan 
sharks and bad collection practices. Now those things have got to 
be eliminated. Competition can't reasonably go on with outrageous 
interest rates and outrageous collection methods. 

Now the Ford and Chrysler proposed plan is that a petition is 
drawn up, the court approves it, that suit is entirely separate on the 
docket ; it would be entered into regardless of whether there had been 
a criminal suit pending. The relationship to the criminal suit pend- 
ing is usually this: Ordinarily businessmen do not come in with any 
kind of suggestion ; in fact, it is very seldom that they come in with 
any kind of suggestion unless there is a suit or investigation pending. 
I had hoped that maybe that will change, but at present they are 
usually connected with civil suits. 

Mr. O'Connell. That is what I was getting at. These two sen- 
tences seem to me to indicate the door was open for a group to come 
to the Department of Justice which in cooperation with the Depart- 
ment of Commerce would give them something in the nature of ah 
advance ruling as to whether or not what they proposed to do was 

Mr. Aenold. Not an advance ruling. 

Mr. O'Connell. Would there necessarily be a lawsuit? 

Mr. Arnold. In a case brought, the court by some appropriate 
decree — let's take the Aluminum case; the court by some appro- 
priate decree breaks up the Aluminum case. That could be a contested 
suit or the Aluminum Co. could come in and say, "We are under 
constant attack, we don't like the present situation, and therefore 
we will do it without contest." That is just about the only difference 
between the two processes. 

Mr. O'Connell. You mean both are in litigation? 

Mr. Arnold. Surely, there is a suit started. 

Mr. O'Connell. That is what I am getting at. It is a condition 
precedent that an action is started. 

Mr Arnold. Yes. For instance, the Aluminum Co. would come 
to us — and this is a purely hypothetical example ; I am using it merely 
as an example — and say, "We think we had better come in and help 
you straighten these affairs out," and we will have the entire result 
of that case in a friendly manner, or have it in a contested manner. 
It is exactly the same situation as if I sued you for a thousand dollars. 
You come in and say, "I admit I owe it" and we work out some 


Mr. O'Connell. As explained in your statement it seems to me 
that it does involve what is in effect an administrative declaratory 
ruling approved by the court. 

Mr. Arnold. Every civil decree that has ever been put in does. 
There is a great deal of difference, I think, in the effect of doing it this 
way and doing it by administrative ruling. The difference may be 
illustrated, for instance, in one decree, and I am going to use X Y Z 
because I don't like to discuss cases. Here are 375 concerns which 
were complainants before the Department of Justice. Their com- 
plaints we thought were justified. We therefore commenced an 
investigation, and when we got through there were offers of a plan 
which didn't suit the 375 complainants at all but which was much 
fairer than anything those 375 would have put in. One of the largest 
and most important of these complainants came into the office and 
he was financing the fight against the decree. I said, "What are you 
doing it for? Obviously it is to your interest. You are not interested 
in these practices, holding an umbrella over the inefficient man." 

He said, "Oh,>I can't help it, I am president of the association and 
I have to do it." 

In other words, had we gone in there with all those people before an 
administrative tribunal, the pressures would all have been to hold an 
umbrella over the offender. Under our present method we were able 
to get the action. This case I am talking about has never come to 
litigation. We would be able to get the actual practical judgment of 
a court unbiased by all those pressures, so there is an enormous differ- 
ence betwe in the case by case litigation of attacking restraints of 
trade through the Antitrust Division and the process of a general 
administrative ruling. 

Of course, every civil decree that was ever written and every cease 
and desist order which the Federal Trade Commission gets out 
necessarily determines the limits for the future of what those people 
are going to do. 

Mr. O'Connell. I think I am fairly clear in that. As I understand 
it, then, the Department has nothing in prospect which involves 
advance rulings to a group of businessmen on their conduct un- 
supervised by court decree, or otherwise, in connection with either 
a civil or criminal case. 

Mr. Arnold. Not only that, but the Department frankly couldn't 
operate on the basis of giving advance rulings to business men. 

Mr. O'Connell. I appreciate the difficulties, that is why I wanted to 
make sure that I understood it. 

Mr. Arnold. It is utterly impossible, if a business man comes to 
see us and wants to know whether such-and-such a practice is legal, 
for us to ever answer him. One businessman said, "Let's get together 
and talk this thing over and see what can be done," and I said, "That 
isn't the technique we can operate. A dog talks by barking and we 
talk through litigation." It is the only way we can say anything — is in 
litigation, and we can say then something open, we can preface it by an 
explanation of what we are trying to do, we can subject ourselves to 
public criticism, which I think we should have; in other words, we 
must be out where the people can look at us, where Congress can look 
at us, and I think it is the only safe policy = 

Dr, Lubin. Mr. Arnold, hi view of the existence of fair-trade laws 
in so many of the States, how do you plan to overcome the legal 


hurdle that you will find relative to prices of building materials where 
the existing laws are made use of as a protective device? 

Mr. Arnold. I have an answer to that question, but nry only 
hesitancy is, am I going to start trying a couple of cases. Let me 
consult a moment. I think I can say in general, Dr. Lubin, without 
involving any comment on litigation, although, as I say, it is always 
dangerous for a person in my position to extemporize upon the legal 
position in any situation, that I conceive that no legal privilege, 
whether it is a corporate franchise, whether it is a patent, whether it 
is a cbpyright, or whether it is a fair-trade law, can be used to un- 
reasonably restrain trade. I conceive that the thing which you and 
I could properly do between each other couldn't be done if we were 
in a position that dominated industry and actually blocked the flow 
of commerce. 

Now I have great encouragement in that position in what I con- 
sider one of the greatest opinions which has ever been written on 
the antitrust laws, and that is Mr. Justice Stone's opinion in the 
Interstate Circuit case, 1 which I read to take just that position regard- 
ing a copyright. 

Now I will give you another complaint, and this is not yet proved, 
but I have every reason to believe it is so. In one of the States of 
the United States they have a very simple method of estimating their 
cost of doing business to comply with the State unfair practice act. 
They send out postcards with the cost of doing business all filled in. 
All the dealer has to do is to send it back, the thing probably is 
tabulated before it comes out. That type of thing I wouldn't have 
any difficulty with; there is a clearly unreasonable use of a State 
law. I think I could go on from th,ere and the Interstate Circuit case 
gives me a charter to handle cases like this one and to deal with many 
of the cases' which may arise under State fair-trade laws. 

Mr. Chawner. Mr. Arnold, in these hearings a number of witnesses 
have called attention to difficulties in lowering costs through tech- 
nological processes which now according to local agreements are 
required, for example, glazing of a house. Local agreements make, it 
impossible for a builder to have that work done in a mill. The 
same thing is true with plumbing; if the plumbing comes completely 
put together, according to those local agreements it has to be taken 
apart and put together again. In your judgment do you feel that 
the antitrust laws are adequate to deal with a situation of that type? 

Mr. Arnold. I do. I am going up against a lot of litigation. You 
don't always win your cases, but I am going into it with a great deal 
of Optimism and I think the whole situation has been tremendously 
cleared by the Intestate Circuit decision. Of course, I want to say 
this about the antitrust laws: the antitrust laws are not clarified 
in a good many instances because cases have not been brought to 
provide the test. That is the only reason. They are not clarified 
in the doctors' suit because nobody ever brought a case against 
doctors. They did in England in 1918, and the English courts said 
"Of course that is a restraint of trade." Our courts have not said 
so for the simple reason that they have never had an opportunity to 
say- so. I think we are going to develop the law rapidly. I think 
we are going to have better luck with the courts if they understand 
our purpose. In fact, that is the only real justification for my 
getting out in public at this time with the statement which I am 

' 306 U. 8. 208. 


making here, that if the courts themselves realize that these laws 
have a direction that reasonableness has some kind of a constructive 
meaning, I am inclined to think that they will. get their own cases 
in proper perspective and that the public will get their cases in proper 
perspective, so I think we will be aided in that situation by people 
knowing what we are about. 

Acting Chairman Reece. Are there any further questions? The 
committee appreciates your making the statement, Mr. Arnold. It 
is a contribution to the work of the committee. 

Mr. O'Connell. I should like to call General Robert E. Wood. 

Acting Chairman Reece. Do you solemnly swear that the testi- 
mony you are about to give in this proceeding will be the truth, the 
whole truth, and nothing but the truth, so help you God? 

General Wood. I do. 



Mr. O'Connell. General Wood, will you please give your name and 
present address to the reporter? 

General Wood. Robert E. Wood, Chairman of the Board of 
Sears, Roebuck & Co., Chicago. 

Mr. O'Connell. Mr. Chairman, before starting with General 
Wood, we propose to discuss with General Wood fairly briefly the 
experience of his company in the construction field in the sense that 
they have actually done construction as a company for their employees 
and with that in mind I should like to ask General Wood a series of 
questions along that line. I take it, General Wood, that your com- 
pany has in the past made some efforts to construct houses directly 
for your own employees. Is that correct? 

General Wood. We conducted this experiment about 2 years ago. 

Mr. O'Connell. Where was that? 

General Wood. Kankakee, 111. 

Mr. O'Connell. And you constructed a number of houses for 
your employees there? 

General Wood. We had a large factory there. The factory had 
grown very fast and there weren't any housing accommodations in 
the town, so we decided to put up 52 of these houses to take care of 
these men, and they were sold to the men at cost and they got their 
F. H. A. loans. The experiment was quite successful. They were 
snapped up right away, and in no case did the cost of amortization, 
in other words the cost of owning the home, exceed the rent that the 
man had previously been paying. Those houses were put up at a 
cost of about $270 for the lot, a lot 50 by 150, and a 5-room house 
and garage, total cost including the lot $3,400, which was very low. 
They were all constructed by union labor at Kankakee. 

Mr. O'Connell. They were four or five-room houses, frame houses? 

General Wood. Frame houses. 

Mr. O'Connell. Kankakee is just outside Chicago? 

General Wood. Fifty-six miles south. 

Mr. O'Connell. Do you have any information as to the average 
monthly cost to the present owners of those houses? 


General Wood. It runs about, I think, from $25 to $28 a month. 

Mr. O'Connell. That would include their financing charges, their 
fix,ed charges? 

General Wood. Everything, interest and amortization. At that 
rate they pay out in 13 to 15 years. , 

Mr. O'Connell. That is about the average term of the mortgage? 

General Wood. I think so, I am not absolutely sure. 

Mr. O'Connell. Is the figure that you give us, $25 to $30 

General Wood (interposing). Twenty-five to $28. 

Mr. O'Connell. That is the fixed charges? 

General Wood. Everything. 

Mr. O'Connell. Would it include taxes? 

General Wood. No, it doesn't include taxes, but they are low. 

Mr. O'Connell. It would include the finance costs. 

General Wood. Finance, interest, amortization. 

Mr. O'Connell. As a result of this experience, which I take it 
from the point of view of the company was generally satisfactory, 
have you conducted any further 

General Wood (interposing). It was very successful from the point 
of view of the men. I mean the company made no money on it, but 
we were so encouraged that we thought we would build 50 or 100 
houses in "or near Chicago, but when we attempted to do that we 
found that the land at Kankakee worked out about 3 cents a square 
foot, and the land at Chicago, the very cheapest we could find, was 
about 50 cents a square foot, about 17 times as much. A house that 
cost $3,100 at Kankakee cost about $4,800 at Chicago. 

Mr. O'Connell. $4,800 as against $3,100. 

General Wood. $3,100. 

Mr. O'Connell. That is exclusive of land. 

General Wood. Yes. 

Mr. O'Connell. Then in Chicago you had a very much greater 
land cost, but the other items that went to make up the cost of the 
house were higher too? 

General Wood. Very much higher, and it illustrated the high costs 
in a large city where most of your construction difficulties are — I 
mean where your high construction costs are. 

Mr. O'Connell. The difference in cost of the house was the differ- 
ence between $3,100 and $4,800. What, in general, would you think 
were the major factors that would explain the great difference in costs? 

General Wood. Well, there were materials, labor, and restrictions on 
labor in Chicago as against Kankakee. 

Mr. O'Connell. You had union labor in Kankakee too? 

General Wood. Yes, we had union labor, but there are no restric- 
tions On installations, on materials, in Kankakee. There are a great 
many in Chicago ; there are also certain things in the building code in 
Chicago which add to the cost. 

Mr. O'Connell. Would you be a little more specific on the things 
that you refer to as labor restrictions? 

General Wood. Well, in Chicago the labor will only install ma- 
terials of certain companies or certain contractors. For instance, in 
plumbing, my company has an enormous plumbing business all over 
the country, and. in all the smaller towns and cities we use union labor 
that will install our material as well as anybody else's; in our own 

124491 — 40 — pt. 11 16 


city we ean't install any plumbing in any new building or in any com- 
mercial building including our own ; we can't use our own stuff. 

Mr. O'Connell. Do I understand that in building these houses in 
Chicago for yourself you could not install your own equipment? 

General Wood. Not our own equipment. We never built them, 
understand, after we found out the cost. We abandoned the project 
after we found out the cost, because we felt that our employees would 
have to pay too much. It was no bargain for them; it didn't help 
them any. 

Mr. O'Connell. You mentioned building codes. Was it neces- 
sary to adopt a different type of construction in the Chicago area? 

General Wood. Yes. You have to have brick instead of frame, but 
there are many other minor restrictions. You have to use certain 
contractors. For instance, to illustrate the difference, it costs $20 to 
install a bathtub in Chicago — I mean $30; it cost's $20 in Detroit. 
You are restricted to certain contractors and certain materials, and 
that raises your costs in the large cities. Now when you get away 
from the large cities and when you get into the South you don't 
have those restrictions either in labor or materials. I am speaking 
generally, but in the large cities of the country you run into those 

Mr. O'Connell. Who would impose a restriction that would pre- 
vent you from using your own bathtubs or bathroom fixtures in 

General Wood. The union, plus the contractor. 

Mr. O'Connell. You mean the contractor wouldn't use them be- 
cause the union wouldn't let him? 

General Wood. Well, it was reciprocal. 

Mr. O'Connell. Why is it to the advantage of the contractor or 
the union not to use your plumbing fixtures? 

General Wood. Well, frankly, we don't know. We know that that 
system only prevails in the great cities of the United States. It 
doesn't prevail anywhere else. We could go to Charleston, S. C, or 
Knoxviile, Tenn., or Macomb, 111., and we could get a union plumber 
or any contractor we please, but when you get into Boston, Philadel- 
phia, and New York, Chicago, and San Francisco, you run up against 
these things, and of course your building costs are very high as a result. 
That, plus the land cost. 

Mr. O'Connell. Of course the difference between the 3,100 figure 
and the 4,800 figure ; 

General Wood. I may say that I think that 4,800 includes the land. 
I would say it is the difference between about 4,000 and 3,100. 

Mr. O'Connell. I see, and I take it that some of the restrictions 
such as your building code restrictions, requiring brick construction 
rather than frame, have at least a background of fire protection? 

General Wood. The brick instead of frame in a great city is not an 
unreasonable ) striction. For instance, in Chicago there is only one 
plumbing installer and one steam and hot water heating installer, and 
two warm air installers who will quote a price on installing our 
merchandise; can't get it from anybody else; no one else will quote. 
On all warm air furnace installations in Chicago we are required to 
use union fittings and, although these fittings are made in Chicago, 
they cost us 50 percent more than similar fittings bought from outside. 


There is only one company in Chicago from which we can buy these 
union-made fittings. 

Then I have a comparison of these costs of installation between 
Detroit and Chicago. If you took a smaller town the difference in 
cost would be greater, but for instance installing a bathtub, $20 in 
Detroit; $31,76 in Chicago. 

Dr. Lubin. May I interrupt a minute, please? That $31 includes 
cost of the material plus labor? 

General Wood. That is just the installation; that is just the differ- 
ence in the cost of the labor. 

Dr Lubin. The price you paid to the master plumber for putting 
it in? 

General Wood. Yes. Now I don't want to be misunderstood. As 
•far as the' question of labor is concerned, when you get outside these 
great cities youl union labor is perfectly reasonable and you get fair 
costs. It is only in a certain number of the great metropolitan areas 
where you have this condition. 

Dr. Lubin. Do you by any chance have a break-down as to how 
much of that $31 goes to the laborer who does the work and how much 
goes to the master plumber? 

General Wood. No, I .don't. 

Mr. 6'Connell. Were you going to continue the comparison of 
the costs of some of these items between Detroit and Chicago? We 
might be interested in that. 

General Wood. To replace closet tank, $3 in Detroit; $5 in Chicago ; 
closet bowl, $4 in Detroit; $6 in Chicago; closet combination, $5 in 
Detroit; $9.57 in Chicago. 

Mr. O'Connell. Are those prices actually fixed at that price per 
installation of a fixture of that type, or is that what the labor would 
figure out on the basis of the hourly wage? 

General Wood. No; these are actual costs, quotations; they are 
actual costs. In Detroit, for instance, we have a very large business 
in plumbing fixtures and these are taken from the records of the 
actual costs of installation and they are also taken from the records in 
Chicago, where we are permitted to install, which is only in replace- 
ments; no new buildings. 

Mr. O'Connell. I don't want to press you on this, but referring 
again to the use of your own materials such as plumbing fixtures, you 
referred to a reciprocal arrangement between labor and the contractors 
that would make it impossible to use your fixtures, but I am not clear 
as to — it doesn't seem to me that can be the whole picture. I don't 
see the advantage to either of the two groups, that you mention in not 
using your fixtures. 

General Wood. Well, as I told you, there is no advantage to the 
union plumber to pull the chestnuts out for the master plumber, 
though that is what he is doing in these big cities. Now what the 
deal is between the master plumber, the material dealer, , and the 
manufacturer is I don't know; I only know the facts. 

Mr. O'Connell. But it is difficult for me to see the advantage, 
even to the master plumber as such, in using one type of material as 
against another, so there must be some other factor in the situation. 

General Wood. Of course the master plumber is not only a labor 
contractor, but he is a merchant and a very poor merchant. In other 


words, he gets no profit on the Sears bathtub ; he does get a profit on 
the bathtub that he buys and sells to the people for whom he installs 
it. That is the advantage of the master plumber. 

Mr. O'Connell. Well, now, speaking generally, as I understand 
it, you moved into Chicago, or at least you made an examination of 
the situation in Chicago to see whether it would be economically 
feasible for your company to build 50 or some number of houses for 
your employees, and because of the cost, which seemed to you exces- 
sive, largely because of increased land costs and the increased labor 
and material cost, to which you have referred, it was not economi- 
cally feasible, and you abandoned the project. So you never built 

General Wood. It wasn't economically feasible for the employee. 
We weren't going into this as we would sell merchandise to other 
people; we were doing it to house our employees. 

Mr. O'Connell. But even at cost you could not build houses at a 
price which your employees could afford to live in? 

General Wood. Which we thought they could afford. 

Mr. O'Connell. I have no further questions. 

Dr. Lubin. Are there any other materials other than bathroom 
fixtures that you sell that cannot be installed, except through con- 

General Wood. Furnaces. 

Dr. Lubin. Whole heating equipment? 

General Wood. Heating equipment and plumbing are the only 
places where we had trouble. 

Dr. Lubin. Now would the difference in the cost of plumbing and 
heating equipment be sufficient to account for that difference of $1,700 
between Kankakee and Chicago for cost of construction? 

General Wood. Oh, no. Now, for instance, there is a difference of 
20 to 25 percent in the union scale between Chicago and Kankakee. 
Furthermore, production of the Kankakee plumber is much greater 
than the production of the Chicago plumber, and that is true whenever 
you compare the costs in the great cities* of the country with the 
smaller cities of the South. We built a plant in Memphis, Tenn., and 
all our plants but one have been built entirely with union labor, and 
the difference between that plant and the Boston plant ran about 35 
percent. It is a difference not only in scales but in the productivity. 

Dr. Lubin. Your firm is a very large distributor and also manufac- 
turer in parts and building materials of various types, is it not? 

General Wood. Partially, yes. In roofing, insulation, paints, 

Dr. Lubin. Would it be an exaggeration to say that m terms of 
paints, roofing, and plumbing that you are one of the largest dis- 
tributors in America as to volume? 

General Wood. I think so; we are the third largest manufacturers 
of paint in the country; I don't know how we stand on roofing or 

Dr. Lubin. Do you have any idea offhand as to the relative price 
that you get for your roofing as compared to the so-called standard 
advertised brands? 

General Wood. Well, we sell very much less. 

Dr. Lubin. Do you have^any idea as to what the difference would 
be in percentage? 


General Wood. It varies from year to year; some years 10 percent; 
some years 25 percent. 

Dr. Lubin. You have no trouble, however, in having your materials 
used on new construction of various types? If I personally wanted to 
build a house I would have no difficulty in specifying Sears-Roebuck 
roofing, would I? 

General Wood. I have never run across a difficulty there. Your 
trouble in the plumbing, where your highest cost comes in the great 
cities, is because your master plumber is both the labor contractor and 
a merchant. 

Dr. Lubin. Have you ever run across a case where a local ordinance 
prohibited the use of your plumbing fixtures because they didn't 
meet the specifications set for that particular community? 

General Wood. I think there have been one or two such cases. 
Not often. We are often hampered, though, by the master plumbers 
and city inspectors getting together. 

Dr. Lubin. Thanks. 

Acting Chairman Reece. Any further questions? 

Mr. Chawner. General Wood, one of the objectives of this com- 
mittee has been to attempt, if possible, to discover a way of providing 
a house at lower cost to the final purchaser, and it has been* suggested 
that possibly with the increase in shop fabrication and central dis- 
tribution, the sale of completed houses, that that might aid in the 
lowering of the cost to the final purchaser. I am aware of this, your 
company has sold certain materials, ready-cut materials, but it would 
be of interest to know what your judgment was with regard to the 
possibility of lowering the cost of a completed house by central 
manufacturing distribution. 

General Wood. I think it could be done. I think you have a field 
in mass construction of a house, just as you have a mass production of 
automobiles. You can't apply that everywhere, of course, but you 
have a field for lowering the cost. The whole building problem you 
have to take in two parts ; one is the great cities, and the other is the 
rest of the country. Now when you get to the country outside of the 
great cities, when you passed the F. H. A. law and reduced the carry- 
ing charges you accomplished a great step in lowering the cost to the 
small man. Now you take — I saw the computation in England on a 
$3,000 house which has to be paid out by the small man in 17 to 18 
years; the difference between 8 percent interest and 4 percent amounts 
to $1,955 over the period. Now you couldn't possibly reduce mate- 
rials and labor to get a $1,955 saving on a $3,000 house, so when the 
F. H. A. law was passed and your carrying charges were reduced, you 
accomplished a great step toward getting houses within reach of the 
small man. 

When I am talking of the small man I am talking of the man with 
an income of $20 to $30 a week, who under our former system had no 
possible chance of owning his house. Now in the smaller towns and 
cities of the country in the South, where you don't have these restric- 
tions, where there are relatively few material combinations you can 
build reasonably today. Your great problem is in the great cities 
of the country, where you have first exhorbitant land costs; second, 
your union restrictions are bad, and as I say we have had all our 
work done by union labor and outside of these great cities union labor 
is reasonable and fair. And you also have an alliance in the great 


cities between dealers which hike prices, so your problem of high 
construction costs is largely in the great cities. 

Dr. Lubin. May I ask one further question? General, it is your 
opinion that if there were available in the United States building 
contractors who undertook to build housing in volume, even under 
existing methods, that the mere volume could lead to rather important 
cuts in costs for the materials they use? I understand that you 
yourself have had some experience recently in cutting the cost of 
certain commodities that go into building of a house, just on the 
theory that at a given price level these products could be sold in 
greater volume, and the mere volume itself cut your cost so it was 
possible to lower those prices? 

General Wood. That is our whole theory of doing business, the 
same as Ford's. Every time you lower costs you tap another market. 
Now we had that experience in roofing several years ago. At that 
time the roofing manufacturers held pretty well together ancl were all 
quoting the same price, so we started into manufacturing of roofing, 
and we have continuously reduced the cost, and we have had a very 
profitable enterprise, when nobody else in the business was making 
any money. 

Acting Chairman Reece. We thank you very kindly for your tes- 
timony, General Wood, 

(Whereupon the witness, General Wood, was excused.) 

Mr. O'Connell. I should like to call a witness for about 5 minutes 
to introduce a report. I would like to call Wallace H. Walker. 

Acting Chairman Reece. Do you solemnly swear that the testi- 
mony you will give in this proceeding shall he the truth, the whole 
truth, and nothing but the truth, so help you God? 

Mr. Walker. I do. 



Mr. O'Connell. Mr. Walker, will you please state your name and 
address for the record? 

Mr. Walker. Wallace H. Walker, Washington, D. C. 

Mr. O'Connell. And you are an assistant general counsel of the 
Home Owners' Loan Corporation, is that correct? 

Mr. Walker. I am. 

Mr. O'Connell. Did you within the past few years make a study 
of the cost -of title examination and other legal costs in connection 
with home mortgage loans, based on the experience of the Home 
Owners Loan Corporation? 

Mr. Walker. I did. 

Mr. O'Connell. Would you please tell the committee briefly the 
circumstances under which this study was made, and the procedure 
followed in making it? 

Mr. Walker. I was directed by the subcommittee on law and 
legislation of the Central Housing Committee to make this study, 
based upon the experience of the Home Owners' Loan Corporation in 
making loans throughout the United States. Ten States were chosen 
as the subject of the study. There are four principal systems of title. 


examination and proof used in the United States, and these 10 States 
were chosen with the object of getting the greatest possible geographic 
diversification and at the same time getting the maximum possible 
representation of the four principal systems of title examination and 

Those four systems are, first, the title-company system, where the 
examination of the title is conducted by a title company which gen- 
erally insures the title or the hen. 

Second, the abstract system, where an abstract of title is made by 
an abstract company and turned over to an attorney for examination, 
and the closing of the transaction. 

Third, the attorney system where the entire examination of the 
title and the closing of the transactions conducted by an attorney 
without the benefit of a title policy or an abstract. And fourth, which 
is really an off-shoot of the third, is used in the States where land 
title registration laws are in effect, Torren's Laws, where the attorney 
conducts the examination of the title but where, the land being regis- 
tered under the Torren's system, the examination is a much smaller 
task. Approximately 500 loans for each of these systems in use in 
each of the 10 States were studied and the results of the .study were 
published in special report No. 3 on Land Title Procedure with 
Particular Reference to the Legal Costs of Home Mortgage Loans, 
submitted to the Central Housing Committee by the subcommittee 
on law and legislation, August 1, 1936. 

Dr. Lubin. Is this a copy of the report to which you have just 

Mr. Walker. That is a copy. 

Dr. Lubin. I should like to offer this report not to be printed but 
merely to be filed with the committee. 

Acting Chairman Rbece. It may be admitted. 

(The report referred to was marked "Exhibit No. 869" and is on 
file with the Committee.) 

Mr. O'Connell. Without going into detail as to what the material 
is contained in the report, since I believe the 'report is fairly self- 
explanatory, have you any general comment you would care to make 
as to conclusions to be drawn from the report? 

Mr. Walker. The report is summarized on pages 5 and 6 thereof, 
and in my opinion the conclusions which may fairly be drawn are, 
first, that the cost of title examination and proof is a deterrent to 
home ownership, particularly among the lower income groups. For 
example, we found that with one exception the cost of title ex- 
amination and proof to the borrower from the Home Owners Loan 
Corporation was in excess of one monthly installment on his loan. 
Another conclusion to which I am led is that the land title registra- 
tion system or Torren's system, as it is popularly called, if adopted 
in a workable form, will materially decrease the cost of land title 
examination and proof. 

Mr. O'Connell. There is no great amount of uniformity in the 
systems in the various States, is that correct? 

Mr. Walker. There is no great amount of uniformity. It works 
in three States and one Territory, where the Home Owners Loan 
Corporation has made loans, and works very successfully. 
Mr. O'Connell. But is only in use in three or four States? 


Mr. Walker. There are Torren's acts on the books of some 17 
States and 1 Territory. It actually works-only in the Territory of 
Hawaii, in Massachusetts, in Minnesota, and in Illinois. 

Mr. O'Connell. Well, I take it that in general the conclusion 
might be drawn that uniformity in State laws in this field and that 
uniformity along the lines of the land registration system would be 
desirable in the sense that it would cause a reduction in the cost of 
home ownership? 

Mr. Walker. Yes. 

Mr. O'Connell. That is all that I have. 

Acting Chairman Reece. Any questions by the committee? If 
not, we appreciate your appearance. 

(Whereupon the witness, Mr. Walker, was excused.) 

Mr. O'Connell. Mr. Chairman, I have no other witnesses at this 
time, and if the committee please I would suggest that we adjourn 
until Monday morning. I had no thought we would meet this 

Acting Chairman Reece. The committee will stand in recess 
until 10:30 Monday morning.' 

(Whereupon the committee recessed at 12:30 noon until 10:30 
Monday morning, July 10.) 


TUESDAY, JULY 11, 1939 

United States Senate, 
Temporary National Economic Committee, 

Washington, D. C. 

The committee met at 10:40 a. m., pursuant to adjournment on 
Friday, July 7, 1939, in the Caucus Room, Senate Office Building, 
Representative B. Carroll Reece presiding. 

Present: Representative Reece (acting chairman), Senator O'Maho- 
ney, Messrs. O'Connell, Lubin, Henderson, and Brackett. 

Present also: Messrs. Lowell J. Chawner, Department of Commerce; 
Willis J. Ballinger, Federal Trade Commission; Ernest Meyers and 
George Williams, Department of Justice; Ernest Tupper and Miss 
Grace Knott, Department of Commerce; and Peter A. Stone, co- 
ordinator of construction studies for the committee. 

Acting Chairman Reece. The committee will come to order, 

Mr. O'Connell, are you ready to proceed? 

Mr. O'Connell. I am, Mr. Chairman. 

This morning the committee is going to hear about the structure 
of the construction industry from a man who has been connected 
with it for some time and who is peculiarly well qualified to discuss 
this topic this morning — Dr. Willard Thorp, of the Department of 
Commerce. I think Dr. Thorp has already been sworn in in connec- 
tion with these proceedings so if it please the committee I would sug- 
gest that we just permit Dr. Thorp to proceed and develop the 
material that he has prepared relative to the construction industry in 
his own way, and if the committee members have any questions as he 
proceeds I think Dr. Thorp will be willing to pause and answer them. 

Acting Chairman Reece. The committee will be very glad to have 
you proceed as you like. 

COMMERCE— Resumed 


Dr. Thorp. Mr. Chairman, Dr. Lubin testified that the construc- 
tion industry itself in 1929 employed 5% percent of the total gainfully 
employed nonagri cultural workers. 1 When to direct construction are 
added the materials which it uses, construction accounted for about 
15 percent of the commodities produced between 1919 and 1935. 

1 Supra, p. 4942. 



The 1938 total volume of construction is estimated at around 
$9,000,000,000. I introduce that merely to remind the committee 
of the tremendous importance of the industry which we are to discuss 

My share in the presentation is that of description, to present as 
clearly as I can the meaning of the phrase "the construction in- 
dustry," with as much light as can be shed on its structure and organi- 
zation and the economic forces which operate in it. 

As a background for understanding and appreciating the processes 
and problems of the construction industry, I want first to point out 
what the job is which this industry endeavors to perform. 

I am going to state its characteristics, or one might say its compli- 
cating factors, in three simple propositions and then elaborate them 
somewhat. This is, one might say, qualitative discussion. Then I 
shall move on into certain data which will more exactly describe the 
various conditions which I shall indicate. 

The first thing one has to remember about the construction in- 
dustry is that it produces a product which is not uniform. That is 
tremendously important. It is not like most manufacturing in- 
dustries, where one has a fairly limited variety of produ . created. 

The construction industry has no uniformity in its prodi it. First, 
as far as type and design are concerned, the construction industry is 
producing things all the way from subways, factories, and houses, 
down to screens for the back porch, and down to the repainting and 
papering of the upstairs room. Moreover, as far as each of these 
things itself is concerned, there is no uniformity. One subway is 
different than another subway; one house is different than another 
house. To some extent, these variations are essential; nothing can 
be done about them. To a larger degree, however, they are the result 
of personal desires — one person likes a left-handed sink and another 
person likes a right-handed sink, and that is a matter of personal 
preference. So that in terms of the type and design of product, 
we have to remember that this is an industry which operates on a 
made-to-order basis, a custom industry rather than an industry which 
produces a large number of identical products. 

The second way in which the product is not uniform is in terms of 
location. The same thing is never done twice at exactly the same 
place, and as far as location is concerned the work has to be done at 
the site. That means that the industry cannot be geographically 
concentrated but must be scattered Over the entire country. Housing, 
for instance, must scatter very much as population is scattered. 
About 40 percent of the nonfarm dwellings which were produced in 
1937 and 1938 were in cities of over 25,000; about 20 percent were in 
satellite communities. Perhaps a third of all the houses were in 
communities of less than 10,000, which means necessarily that the 
construction industry must operate all over the country, and its 
product, as far as location is concerned, cannot be uniform. 

Then, as to size, I want to emphasize the extreme variety which 
one finds in the construction industry. Some of our larger construction 
projects, like the big dams, involve as much as $100,000,000, the 
Triborough Bridge, $44,000,000. At the other end are probably many 
jobs which involve $5 or less, where a little painting or a little repairing 
is done. 


All thi3 is to emphasize my first proposition about the character of 
the construction industry — that its product is not uniform ; that there 
is never an exact duplication ; that one cannot, therefore, easily estab- 
lish a routine which can be followed over and over again. 

The second of what I call complicating factors in the construction 
industry is the fact that its product is not simple. There is a tre- 
mendous variety of materials involved in most of these construction 
enterprises, a large number of different sizes of parts, and of designs. 
One authority says that thet'average house requires 30,000 parts. 
At any rate, we do know that the number of different materials which 
go into a construction enterprise is very high. 

And, of course, it is changing. There are alternative materials. 
For example, the development of plastics has shown itself at many 
different points in house construction. 

In the same way, there is also a variety of skills which are required 
in a construction enterprise. As a matter of fact, in the building 
industry one finds probably more of the old idea of individual work- 
manship, of skill in the sense of training which the worker must have, 
than in most other branches of activity. That is shown, for instance, 
in the subcontracting groups. Five of these broad groups that do 
about 80 percent of all the subcontracting work, and they indicate 
roughly the different types of skills. The carpenters, the electrical 
installers, the heating and plumbing contractors, the painters and 
paperhangers, and the roofing and sheet-metal contractors— each one 
of those groups has its own particular skill. 

For example, I remember once talking with a carpenter who had 
tried to operate in a particular city and had been subjected to an 
examination to qualify, and in the examination they had asked him 
how one would put shingles around a chimney. He said he hadn't 
happened to put shingles around a chimney for 20 years and was 
completely unable to meet that technical requirement in the examina- 
tion. Thus we have an illustration of the variety of skills which are 
involved in the different trades in the construction industry. 

So that this second proposition, that the product is not simple, 
carries along with it the conclusion that an important factor in this 
industry is the factor of organization. 

The third complicating factor about the construction industry is 
that its demand is irregular. That follows in part from the type of 
Product and in part from other characteristics. For example, the 
lemand is essentially local, so that within the country one finds 
jxtremely different tendencies. 

Just to illustrate that, I should like to compare the first quarter of 
this year with the first quarter of last year, for some of our leading 
cities. These comparisons are based on building permit figures for 
new residences as compiled by the Bureau of Labor Statistics. Com- 
paring the first 3 months of 1939 with the first 3 months of 1938, 
Baltimore, Boston, and Jacksonville show almost the same level of 
building activity; Philadelphia, Washington, and Los Angeles have 
about doubled; Denver and Detroit have about tripled; and Chicago 
is at about four times the level of a year ago. So that one can see 
that the influences which operate in this industry are to a large 
extent local in nature, and there is no degree of uniformity over the 


I should like to add the point that the demand and thejoperation of 
the industry are highly seasonal. Finally, inasmuch as new construc- 
tion is an addition to a total population of buildings, it is a sort of 
incremental factor, and therefore can fluctuate very widely without 
an immediate corresponding fluctuation in the total volume of housing 
which is available. New construction, m other words, is competing 
with existing construction from the point of view of the total market 

So from the proposition that demand is irregular we can draw the 
conclusion that this nonrepetitive operation in the construction in- 
dustry leads to an erratic and uneven flow in its operations. 

Now, some things have been done to reduce these complications 
somewhat. I spoke about the variety of design. A substantial 
amount of work has been done searching for certain standardized 
designs of houses which can be used over and over again. The prob- 
lem of location is being met in some degree by moving the work away 
from the site to some other point, through the process of prefabrica- 
tion. For instance, one used to see cement being mixed at the site. 
Then a mixed cement was produced, a dry-mixed cement^which had 
to have water added, and now one sees trucks on the streets which 
carry on the process of mixing as they deliver the cement to the 
operation. So that to some degree one has seen a shift in location as 
prefabrication has developed. 

Kitchen equipment, for instance, now comes, in much larger units 
ready for installation than used to be the case some years ago. Then 
there has been some development with regard to eli min ating the tre- 
mendous variety of materials through standardizing parts. The 
work of the Bureau of Standards has helped to some extent to reduce 
the number of varieties. For example, it used to be true that there 
were 428 sizes of nails and tacks, and now there are somewhere around 
185. It used to be true that there were 75 different varieties of 
common and face brick and with some small exceptions there now 
are two standard varieties. 

So that to some extent the variety has been reduced. Some other 
types of products have not yielded to this in spite of great efforts. 
Window frames have not been susceptible of standardization, partly 
because of the variety in plans as architects develop them and partly 
because of regional differences in the types of window frames de- 
manded. So that that still remains a product in which there are a 
great many different sizes and varieties. 

1 should like to start my testimony with these general propositions 
concerning the activity of the construction industry : 

First, that its product is not uniform as to type, design, location, 
or size; 

Second, that its product is not simple as to materials or skills; 

And, third, that it is an industry having a highly irregular ard un- 
even demand. 

Now, I want to put those generalizations into somewhat more 
specific terms so that these complications are very clear to the com- 

First I should like to present a chart which is a simplified picture 
of what happens when one tries to build a single-family house in an 
urban area. 

Exhibit No. 870 


























































124491— 40— pt. 11 (Face p. 6174) 

oi wnat nappens when one tries to build a single-family house in an 
urban area. 


You all have copies of this chart. As a matter of fact, if we had 
put all the complications on it that could be there, I probably couldn't 
read it even standing as close as this.- 

Each one of these boxes on the chart indicates some type of special- 
ized person that is apt to be involved when one undertakes the building 
of a house. 

Mr. O'Connell. Would you mind reading the title of the chart 
and offering the chart for the record? 

Dr. Thorp. I beg your pardon. This chart is entitled "Major 
Participants in the Construction of a Single Family House in an 
Urban Area." 

(The chart referred to was marked "Exhibit No. 870" and appears 
facing p. 5174.) 

Dr. Thorp. If one starts to build a house, he first must contact 
certain people who are in the real-estate business. That may involve 
a real-estate broker, title examiner, title-insurance company, recorder 
of deeds, and so forth. Next, he must contact a financing institution*. 
We haven't tried to develop the complexities which might arise there, 
but let's assume that he is ready to go ahead and build his house. He 
has his property and his financing, then he has to arrange with some- 
body to take over the carrying through of the details. After all, most 
purchasers of houses are not skilled with regard to the construction 
industry. It is not something which one does frequently and, there- 
fore, one brings into the picture someone who will act as an expert. 
It may be the architect who appears here, or it may be a general 
contractor. Those people in turn have to deal with various types of 
subcontractors. Perhaps, if it is in a new development, there will be 
all sorts of people involved in the process of land development, such 
as the city sewer department, the electric company, the gas company, 
and so forth. These subcontractors in turn — I won't bother to go 
through the whole list — have to work back and get their materials 
through material dealers. 

Now, there is no typical design which operates. Some people will 
use an architect, some won't use an architect; some people will have 
a general contractor, or perhaps the general contractor will be one of 
the subcontractors who will work out details with other subcontractors. 

Maybe these subcontractors will buy through one or another type 
of dealer. There is no typical pattern. The thing that I want to 
emphasize is the number of different individual operators who are 
involved in the building of a relatively simple construction operation, 
a single-family house in an urban area. 

This picture might be more complicated if the houses were built by 
a speculative builder, for example. He would then have problems of 
selling this property, which would bring him into contact with a num- 
ber of other people. If this were a multifamily dwelling, a large 
apartment house, it might involve many more detailed subcontractors 
than are shown here on the chart. 

I think it is important also to note that sometimes people omit 
many of these things. It happens once in a great while that a person 
may build his house entirely by himself. Certainly some houses will 
omit electric installation, for example; some other houses may skip 
having linoleum installed, or wallpaper. However, if one tries to get 
a picture of the whole, it will look something like this, and I suspect 
that this is an oversimplified rather than elaborated illustrution. 


I want to be sure that I make clear this picture of the complexity 
which faces a person entering into a construction enterprise ; so I wish 
to submit for the record and to discuss for a moment with you the 
chronological record of contacts made by a home owner and general 
contractor during the construction of a house. 

I wish to offer that for the record and I shall discuss it for a moment. 

(The record referred to was marked "Exhibit No. 871" and is 
included in the appendix on p. 5500.) 

Acting Chairman Reece. I may say a very good procedure 
would be for the Committee to authorize the admittance of the vari- 
ous charts as they are identified and if there is no objection, it will 
be so ordered. 

Dr. Thorp. This happens to be the record kept by an individual 
who had that type of mind, of the detail which he went through in 
connection with the construction of his house, day by day — the story 
of what he or the general contractor had to do. The house is described 
in the record. It is a house costing somewhere in the neighborhood 
of $8,000 or $9,000, and is in the general locality of Washington. 

I want to point out one or two interesting types of things that are 
shown here. First, I should like to point out the number of people 
contacted in the building of this house just as we run through the 
record. For instance, starting, say, in April, 1938 [reading from 
"Exhibit No. 871"]: 

General contractor obtained bids from four lumber companies. This involved 
two or more contacts with each company. General contractor obtained bids 
from two contractors for the brick and masonry work. General contractor 
obtained bids from three carpenters. Owner had stock company's architect 
make small revision and addition to plans. General contractor obtained building 
permit from county. Surveyor marked off house on lot according to plans. 
County inspector condemned surveyor's work; claimed house was too close to 
building line. Surveyor marked off house according to new regulations. General 
contractor subcontracted excavation of basement. 

So it runs on, and there are four or five pages of continuous con- 
tacting of new people in order to carry on the work. 

I should also like to note that in this kind of procedure purchasing 
does not seem to be particularly well organized [reading further from 
"Exhibit No. 871"]: 

May 11: General contractor purchased from hardware store 3 kegs of nails for 
rough lumber work, 1 shovel for laborer, 1 quart of linseed oil, and 1 gallon of 

May 19: General contractor purchased 1 gallon of turpentine from hard- 
ware store. 

May 24: General contractor purchased wood laths and roofing felt from two 
different dealers. 

May 25: General contractor purchased 1 gallon of paint. 

May 28: General contractor purchased 20 pounds of finishing nails, 20 pounds 
of galvanized nails, and 1 roll of tar paper. 

June 1 : General contractor purchased 50 pounds of roofing nails. 

And so forth on through the record. 

I should like to point out the degree to which this general con- 
tractor has to operate as an employment agency, stepping into this 
picture almost anywhere [reading further from "Exhibit No. 871"]: 

July 2: General contractor engaged two laborers to complete grading the yard 
about house. 

July 6-9: General contractor obtained bids from two painters for interior and 
exterior painting. 


The record includes floor finishers, installers of oil burners, paper- 
hangers, and so forth, in each case someone that the general contractor 
has to go out and deal with. 

I mentioned the difficulty with the surveyor. Here is another little 
illustration of some of the types of complications that developed. 
This is from July 25 to 29. It is a little complicated [reading further 
from "Exhibit No. 871"]: 

Paperhanger refused to work while floor finishers were working. Floor 
finishers had to wait day for paperhanger to finish. Painter couldn't put on 
final coat of paint in some rooms until floor finishers were through. Plumber was 

nterfering with floor finishers because of the necessity of fixing leaks in radiators 

n room where floor finishers were working. 

So you got the poor contractor tangled up trying to get his work 
done when each of these various people had to wait for the other to 

I think that these two demonstrations, while they are merely single 
cases, ought to be sufficient to emphasize the point that this is an 
industry in which we are talking about a very complicated process, 
a process which already appears to be handled by a number of different 
specialists who have to be organized in some way or other to carry 
it through. 

So far I have been talking in qualitative terms. Now I want to 
talk about the construction industry in statistical terms so that you 
can see more clearly what this amounts to in the national total. 

Now, there are some difficulties about doing that. The first diffi- 
culty is that we have to make some arbitrary decision as to what we 
mean by construction and the construction industry. Like all prob- 
lems of definition, there is nothing that is entirely correct; and, like 
most problems of definition, there are a number of different definitions 
whic^ actually are in use at the present time. For example, in the 
records of the Bureau of Internal Revenue, which I shall present later, 
ship construction is part of the construction industry, while in the 
records of the Social Security Board, ship construction is included as 
a manufacturing rather than a construction industry. 

There is no neat pattern. The installation of linoleum is regarded 
as part of the construction industry, whereas the laying of rugs is 
not a part of the construction industry. The planting of shrubbery 
around the yard might be regarded as part of the construction industry, 
whereas the sowing of grass on the lawn might not. There are many 
boundary cases that make it rather difficult. Then there is the 
question of new construction as against repairs. - About half of 
the work done by subcontractors is repairs and maintenance, and 
half of it is new construction. When we talk about such things as 
building permits for new construction, we are covering only part of 
the activity of the construction industry in the United States. 

Acting Chairman Reece. The expression "construction industry," 
if the qualifying term "new" is not used, would include maintenance 
and repairs, would it not? 

Dr. Thorp. That is the customary procedure; yes. 

The places where one runs into the greatest difficulty are, for 
example, in the public-utility industry, where the question arises as 
to whether the installation of a turbine is or is not a part of the onn 



Conceptually, from the point of view of business organization, there 
is another reason why this industry is difficult, and that is because 
many of the parts of it shift in and out. A carpenter, for instance, 
may work for several months on a job as a journeyman carpenter, 
and then he may take on a subcontract and himself become a sub- 
contractor, on another enterprise. He is an employee in his first 
capacity; he is an employer in his second capacity. How one. would 
include him in the picture of the construction industry, whether as an 
entrepreneur or employee depends on the particular moment at which 
you are counting him. 

We have scattered information with regard to the construction 
industry and first I should like to put a chart into the record entitled 
"All Construction Activity," which merely serves to classify and show 

Exhibit No. 872 




(for others) 


(for own use) 

















for what area of the industry we will have the statistical material. 

(The chart referred to was marked "Exhibit No. 872" and appears 
on this page.) 

Dr. Thokp. The industry is broken down here between the con- 
tract construction group, those who undertake construction activity 
for others, and the construction which is done by people on their 
own account. For example, many manufacturing enterprises are 
continually engaged in construction on their own account and 
use their own employees, and therefore would come under this 
latter category. The contract construction group is broken down 
into what might be called the contract construction industry, that 
which is primarily engaged in construction, and secondly, certain 
types of contract construction which is done as a side line or as a 
secondary activity by other enterprises. 

It is this contract construction industry for which some statistical 
material is available. Our mai" so' 1T *qe of information is the census 


of construction which was taken in 1935. I have not had that material 
charted because I don't want to overemphasize it in this picture of 
the construction industry, because the Census Bureau has never been 
able to obtain complete coverage in its investigations of the con- 
struction industry. 

It necessarily has limited itself to enterprises which have establish- 
ments with signs over the door indicating that they are engaged in the 
construction industry, but we all know that a very large part of this 
industry is carried on by people who have no establishments, who 
operate from their homes or from their hats or their hip pockets, 
or however one wants to designate it; and who come in with pencil- 
and paper and make a bid on a job, and who then, if they obtain the 
bid, proceed to start operations. That whole group has never been 
covered by the census, and therefore the census information is re- 
stricted pretty much to the larger and more permanent operators in 
the industry. 

Dr. Lubin: Mr. Thorp, in reality these people that you have just 
mentioned who are not covered by the census are brokers. They are 
not in a sense constructors — they don't have their own labor force, 
they don't have their own materials, they don't have their own 
equipment; all they have, as you say, is a hat or a pocket. They 
make these bids and once having secured the contract they go out 
and get subcontractors to do the work, do they not? 

Dr. Thorp. I think in a good many cases they are the subcon- 
tractors and do the work themselves. The type of situation which 
you describe does happen very frequently, but very often those who 
are missed by the census are carpenters, for example, who operate 
some of the time independently] and some of*the time as employees 
for someone else. 

Dr. Lubin. But they would be covered if they were subcontractors 
by the census figures, would they not? 

Dr. Thorp. Not necessarily. They would be covered if the census 
found them; if they had establishments which brought them to the 
attention of the census,. but they would not otherwise be covered — 
that is, the census did* not make a door-to-door canvass. 

Dr. Lubin. Is any information available showing the relative per- 
centage of the "so-called contractors who are nothing more than 
brokers as opposed to a contractor who has his own staff and actually 
is engaged in .employing people? 

Dr. Thorp. There are no figures available except that I shall, in con- 
nection with discussing the Social Security data, make a guess which 
may be far wide, but will be the best that we can do with regard to that. 

I should like to offer for the record a table entitled "Contract 
Construction Industry, Number of Establishments, Work Performed, 
and Number of Employees by Kind of Business in 1935." 

(The table referred to was marked "Exhibit No.'873" and is in- 
cluded in the appendix on p. 5503.) 

Dr. Thorp. This is the result of the census of which I have been 
speaking, and covers 75,000 establishments. Of those 75,000 estab- 
lishments, about 11,000 are general contractors, and 64,000 special 
trade contractors. A third of those special trade contractors are in 
the heating and plumbing group. 

I have mentioned that this material is limited in coverage. I now 
want to present some material obtained from the Social Security Board 

124491— 40— pt 11 17 


which will give us a little different picture of the industry. This 
appears oh the chart "Number of Employers and Employees Con- 
tract Construction Industry, 1938." 

Exhibit No. 874 





















Source:-Soc/a/ Security Board frre//m/nory afotq) 

(The chart referred to was marked "Exhibit No. 874" and appears 
on this page. The statistical data on which this chart is based are 
included in the appendix on p. 5504.) 

Dr. Thorp. First we must remember that the records of the 
Social Security Board include only operators who had employees, 
so that in this picture we are covering the contract construction 
industry only to the degree in which it is an employing industry. 


These figures are based on records for the first quarter of 1938. 
The number of employers applies to the period January to March, 
while the number of employees is as of the last pay-roll period in that 
quarter. I might point out that obviously this is not the period 
of the year in which the construction industry is at its largest, and, 
therefore, if one had annual figures they might appear somewhat 

This shows nearly 100,000 employers in the construction industry, 
with over 800,000 employees. 

The general contractors in the building end of the construction 
industry are 22,000 in number, 8,000 in the other types of activity; 
and the large balance, nearly 67,000, are the special trade contractors. 

I said that these were the cases which represent enterprises with 
employees'. The best guess that we can make, based on sample 
material and the earlier census information, and so forth, is that 
there should be about another 50,000 added to this of people who 
operate on their own in the construction industry, but who would not 
at this time have employees. Quite possibly some of these employers 
included in the Social Security reports would drop out of the picture 
and have no employees; at some other date, some of these other indi- 
viduals would come in with employees. But our best guess is that 
one should think of the construction industry as having about 150,000 

I might say that this material is preliminary and unpublished, and 
subject to somerevision before it can be regarded as final. 

Now we can turn to the problem of the size of these enterprises in 
the construction industry. One can see from this (referring to 
"Exhibit 874") something about the averages involved in this case. 
Disregarding the enterprises with no employees, there are something 
like eight employees to the average enterprise. The average is larger 
for the general contractors and appreciably smaller for the special 
trade contractors. 

Now, we have this same material from the Social Security Board 
in terms of a frequency distribution, appearing on this chart, the 
title of which is "Distribution of Employers and Employees by Size 
of Business Concern, Contract Construction Industry, 1938." 

(The chart referred to was marked "Exhibit No. 875" and appears 
on p. 5182. The statistical data on which this chart is based are 
included in the appendix on p. 5504.) 

Dr. Thoep. Perhaps I might at this time, Mr. Chairman, catch 
up on myself, because I failed to do one thing which I had intended to 
do as we went along. At each point where a chart appears, I should 
like to introduce also into the record the supporting statistical material. 

Acting Chairman Reece. That may be done. 

Dr. Thorp. This chart is based upon the same underlying material 
as the previous one. The black lines indicate the percentage of enter- 
prises or of employers which employ the various specified number of 
employees, and the lighter areas represent the percent of all the em- 
ployees in each group of employers. 

The significant comparison of this chart is with the chart of con- 
centration which I presented in December. 1 I think I can briefly 
summarize that so that you can get a clearer picture of the construc- 
tion industry itself. 

1 See "Exhibit No. 56," Hearings, Part I, p. 97. 



In the comparison, remember this: The chart for all industry was 
for the last half of 1937, whereas this is for the first quarter of 1938. 

One other difference is that our earlier chart was based on the 
number of wage items, the number of employees at any time on the 
pay roll during the previous 6 months' period. This is based on the 

exact number at a specified pay-roll time, but with those qualifications 
in mind, I should like to compare the two groups. 

In this particular chart, if we take enterprises with one or two or 
three employees, that represents 53 percent of all the enterprises. In 
our general size distribution, 51 percent were in that group, so that 
they are approximately the same. 


The thing that is significant is the fact that in this case, 1 1 percent 
of all the employees are employed by these small employers, whereas 
in our over-all size distribution it was only 4 percent. 

That difference becomes clearer if one includes all this block, those 
with 1 to 9 employees. In our earlier picture of all enterprises, the 
1 to 9 group had 76 percent of the enterprises, here it includes 83 
percent. In the all-industry it included 11 percent of the employees. 
In this case nearly a third of the employees are in these smaller 

Over at the other end is also a significant comparison. For all 
enterprises, this bar which represented the number of employees in 
enterprises with a thousand or more went up to 32 percent; in the 
construction industry it goes up to only 3.6 percent. 

One final comparison. If one tried to locate half the employees, 
one would find half the employees for all industry in enterprises below 
250, and the other half in enterprises above 250. In construction 
that dividing line is between 27 and 28, so that half the employees in 
construction are in enterprises with 27 or 28 employees. 
Mr. Henderson. Twenty -seven and twenty-eight, or less. 
Dr. Thorp. Or less; yes. 

The difference between these two sets of evidence makes very clear 
the fact that we are talking, when we talk of the construction industry, 
of an industry in which the enterprise in general is a small-scale 
enterprise, and this includes, of course, not merely housing, but high- 
way contractors, bridge builders, and all branches of the construction 

Dr. Lubin. There is nothing in that chart which would make it 
clear as to whether or not these employees 'were construction em- 
ployees. In other words, it is possible, is it not, that some of these 
firms employing three, four, or five people may be employing only 
office people, and as far as affording direct employment to carpenters, 
plumbers, and so forth, they are not in the picture at all. 

Dr. Thorp. That would be perfectly true. These concerns are 
classified according to their major activity, and certainly it would not 
be true that all these employees should be thought of as employees 
on the job. They would include all the employees engaged by the 
enterprise regardless of their type of activity. 

Mr. Chawner. Is it not true that that would be, particularly the 
case in this period, in March, when in some types of work no employ- 
ment at all on the site is possible? 

Dr. Thorp. Yes; that would be true. I think one needs to keep 
in mind always the fact that this is the first quarter of the year and in 
some of the northern sections of the country activity is necessarily at 
a lower level at that time. I think it is important to realize that that 
is a fairly local situation, and the coverage is estimated to be between 
eighty-five and ninety percent of the year's average as of the end of 

I should like also to present some information concerning the size of 
construction enterprises, measured in terms of assets. In this case, I 
have no chart to present to you, and only material with regard to 
corporations which are engaged in construction activity. This 
material will appear in a table entitled "Distribution of Construction 
Corporations by Total Assets, 1936," and is based upon records from 
the Bureau of Internal Revenue 


(The table referred to was marked "Exhibit No. 876" and is in- 
cluded in the appendix on p. 5504.) 

Dr. Thorp. I have not charted it because it represents necessarily 
only a small part of the industry. There were 16,645 active corpora- 
tions classified as being in the construction industry in 1936 by the 
Bureau of Internal Revenue. That is less than a tenth of the number 
of construction enterprises. 

I shan't take time to discuss the accounting problems involved in 
any measure in terms of assets. I should like to say this, that the 
picture that one gets in terms of corporations necessarily over- 
emphasizes the share of the work done By large enterprises because 
the omissions are by and large omissions at the small end of the 
frequency distribution. In spite of that fact it is important to realize 
that there is no other general industry group which shows as little' 
concentration in large enterprises as the construction industry. That 
goes for trade, as well as for manufacturing, mining, and other types 
of activities. 

If one takes the case of corporations with less than $50,000 of assets, 
for general corporations other than financial companies, about 60 
percent fall in this group of below fifty thousand in assets, while in 
the construction industry about 70 percent are below the $50,000 

On the other hand, if you consider enterprises with over $5,000,000 
of assets, for general corporations other than financial, they have 71 per- 
cent of all the assets. In the construction industry they have only 25 
percent, and even that is high because the Bureau of Internal Revenue 
includes shipbuilding and ship repairing in the construction industry, 
and shipbuuding is a fairly large-scale industry. So that even with 
shipbuilding included one gets from the assets picture, also, an indi- 
cation of the fact that construction is a small-scale industry. 

I should like briefly to introduce a chart which ties together to some 
extent this matter of assets and employment. I don't want to spend 
any time discussing it. This is a chart entitled "Average Inventory 
Value of Equipment Per Employee in the Contract Construction 
Industry as of 1929," and it is based upon the census material. 

(The chart referred to was marked "Exhibit No. 877" and appears 
on p. 5185. The statistical data on which this chart is based are 
included in the appendix on p. 5505.) 

Dr. Thorp (continuing). The height of uhe bar represents the 
amount of equipment required per employee in each one of various 
types of activity. There are 44 categories giyen here. Several of 
them seem to run up fairly far. These cases that stand out well 
above the line are all cases involving marine work where dredges and 
such types of equipment are required. Of the 44 categories here, 
there are only 10 in which a thousand dollars of equipment is required, 
or is the average per employee. In other words, in an industry with as 
many small employee enterprises as this one, it is obvious that the 
capital requirements, from the point of view of equipment at any rate 
are relatively slight. 

Acting Chairman Reece. If you don't mind being interrupted, in 
some sections the building supply companies construct houses. That 
is, the company will have an architect, or at least someone who is a 
draftsman and sufficiently skilled to draw up the plans for a house. 
There is no one intervening between the building supply man and the 



owner of the house, and according to my observations, that accounts 
for a very considerable part of the building in the smaller cities. I 
am wondering just how that type of construction comes into the data 
which you have assembled. 

Exhibit No. 877 










.11.1 lllllll'.l 1 


ll 1 

'iih lis 

§s is I 


I S ii i 3 3 1 3 3 s s s 



; 5 O 


% * y> *o 

? s s ? 








Dr. Thorp. It is very difficult to answer that question. I can 
merely say this, that the Census Bureau tries to sort out these types 
of activities and include them according to which is major and which 
is minor. One of the difficulties which I shall not be able to meet 
when I discuss the supply situation is the fact that the suppliers* and 


dealers are so often engaged in work at the site. Our contractors also 
are frequently manufacturers in the sense that they may saw lumber 
and do things of that sort. The possibility of sorting out these 
various parts in the industry is very slight. In the size figures, the 
activity would be classified as construction only if that were the 
major activity. If a concern's major activity was retailing or selling 
to other contractors, then it would appear in the distribution group. 

Acting Chairman Reece. In the smaller cities the building-supply 
man occupies, it seems to me, an entirely different position than he 
does in the large cities, and performs quite a different service. 

Dr. Thorp. There is an appreciable difference according to the 
kind of building supply that you are talking about. Lumber yards 
are less apt to be engaged in construction work than plumbing-supply 
people where the plumber may alsp act as a supply dealer. 

In getting at this picture of the kind of work that goes on at the 
site I should like to introduce a chart which shows the location of 
work performed. This chart is entitled "Distribution of Work Per- 
formed, by Location, Contract Construction Industry, 1935." 

(The chart referred to was marked "Exhibit No.'878" and appears 
on p. 5187. The statistical data on which this chart is based are 
included in the appendix on p. 5506.) 

Dr. Thorp. This chart indicates how much of the work done by 
various types of operators is done in the home city, how much is done 
in the home State outside the home city, and how much is done outside 
the home State. It is interesting to note that among the general 
contractors, two-thirds of the building operators are in the home city. 
Heavy construction is more scattered. Highway construction, while 
most of it is done within the State, also has a great deal done outside 
of the home city because that is where highways are. 

When one comes to the special trade contractors, the picture is 
much more emphatic in terms of operating within the home city. As 
one gets down to the heavier types of activity, however — stone set- 
ting, steel erection, excavating and foundations, and the "all other" 
group, which includes such things as elevator installations, wrecking, 
ornamental iron works, and so forth — one finds that there is more 
work done outside the home city. 

But again, considering the number of cities in the country, this is a 
further indication of the fact that the construction industry, in oper- 
ating at the site, tends to be small scale and tends to be a locally 
operating industry. 

Mr. O'Connell. Dr. Thorp, I am informed you have been remiss 
about submitting tables to support the last several charts. Are they 
all in the record? 

(The clerk indicated the tables were in the record.) 

Dr % Thorp. I should like to make a few observations if I may with 
regard to the significance of an industry whose organization is of the 
type which I have been describing. I have tried to show some of the 
reasons why one can explain the character of this industry, the diversi- 
fied type of task which it has. Its organization is an organization of 
many small specialized units, not focusing so much on the final 
product as focusing on the part which each unit has to do. 

Now, in comparison with other industries, this situation leads to 
certain obvious costs which I should like to point out. First is the 
difficulty of organizing and planning an efficient work program on the 


part of the enterprise. The many parts which have to be brought 
together are brought together in varying ways, in varying places, on 
various types of operation, and it becomes a major problem of organi- 
zation to bring tins about in any efficient way. 

Exhibit No. 878 


40 6O 



















Percent of wortr performed in tiome city. 

Percent of work performed in home state outside home city. 

Percent of wort! performed outside home state. 

Source: — Bureau of the Census 

Secondly, a characteristic of the industry is expensive purchasing — 
purchasing in small lots. I indicated in the illustration which I gave 
the buying 'of 1 gallon of paint — that sort of thing. This small-lot 
purchasing is a result of a small-scale industry. 

It is expensive in its purchasing practices, it is expensive in its 
selling practices. Because the selling practices essentially are through 


the process of bidding, the result is that in connection with building 
one house there may be a hundred bids which are prepared by various 
people who wish to participate in that activity, although there may 
be, let's say, only 10 contracts which are finally awarded. So jt is 
necessary for all the people who would like to participate in this 
enterprise to work out a tailor-made estimate for a particular job, and 
necessarily that involves an expensive form of selling their services. 

It makes for an uneven flow of work and employment. With as 
many small enterprises as these, and as many projects, the evenness 
which can come from averages is not present. It is a continual up-and- 
down effort to find new work and necessarily even within the locality 
there is great unevenness as the result of this type of organization. 

With so many small enterprises there are always questions of 
inadequate and unstable financing. With so many small enterprises 
it is not surprising that there is virtually no research carried on by 
the construction industry in itself, and a resistance to new methods 
and materials because of the fact that the members of the industry 
are not active in the technical and engineering front. 

Over all, it is an industry where there is no basic responsibility, no 
one person. It is an industry in which there are a great many people 
concerned, and therefore not one which is concerning itself with the 
over-all developments of construction. 

Acting Chairman Reece. To what extent do the manufacturers 
assume some responsibility for research in their respective lines and 
bring into the factory representatives of the building supply people 
or the smaller contractors, and in that way keep them abreast more 
or less with the developments? 

Dr. Thorp. That is the point, Mr. Congressman, where research 
is done in the industry, but I have been talking so far about the con- 
struction industry in terms of that wh«.h happens at the site; those 
who are actually engaged in the building of structures, dams, bridges, 
highways, and so forth. I am going to move a little later into the 
supply area, and then finally back into the building materials area, 
but the construction industry itself, as I have been discussing it here, 
is the direct construction industry, and the direct construction indus- 
try itself has, I think, a very limited record as far as its research work 
is concerned. 

Mr. Chawner. Dr. Thorp, isn't it true that the question the 
cli airman raises with regard to research is different in different sorts 
of items that go into a house? For' example, in electrical and heating 
and plumbing facilities, the manufacturers have developed approved 
units by research, but in the structure itself, which has to be prepared 
on the site, handicraft methods still more or less prevail. There is a 
conspicuous difference between the various parts of a house as regards 
the amount of research which has been put into it because of the fact 
that it has been possible in one case for the manufacturer to develop 
completed units and in the other case it has not been possible. 

Dr. Thorp. Yes; I think that would be a fair generalization. 

These comments I have been making are general comments from 
the broad economic point of view. I should like also to point out what 
this type of industry means for the individual businessman who is 
engaged in it. In an industry where there are as many small units 
as this, and such a movement in and out of the industry, the natural 
tendency would be for there to be a very disorderly and bitter com- 


petition. It is hard to see how this industry could operate with cost 
controls because cost experiences would mean very little when carried 
from one job to another. Furthermore, in many of these enterprises 
the proprietor is himself a major part of the labor force and that per- 
mits some fluctuation in his estimates of costs. 

I, haven't emphasized the fact that much of the industry is carried 
on on a speculative basis. There are no satisfactory figures on that, 
but somewhere between a third and a half of all one-family residential 
building is done for sale or rent, anjd that is mostly for sale. That 
means that a very considerable part is what is usually thought of as 
speculative building, which adds a financing pressure to the processes 
of the industry. 

Now, in this sort of situation where one might expect this disorderly 
and bitter competition, it is not surprising, therefore, that the members 
of the industry should seek to protect themselves from that type of 
economic - pressure. They seek protection first against other con- 
tractors, for example, who may perform the same sort of thing as 
they; and secondly, where they are specialists they seek protection 
against substitute materials and substitute skills which may reduce 
their market. So that, as an actual consequence of the organization 
of the industry, one finds, as results of this search for protection, agree- 
ments, collusions, price controls, the use of building codes, union 
restrictions, such things as bring into the picture what, from the point 
of view of the business entrepreneur, might be described as order, but 
which I should prefer to describe as protection. 

I should like to add one other point about this type of industry. 
Being an industry in which the whole is made up of many parts, 
a price reduction by any one part is not significant in terms of its 
effect upon the total. Therefore the tendency is for any one part to 
try to hold up the rest of the industry for its own advantage, and that 
is the way in which its own advantage will appear. This is an indus- 
try in which the demand is a demand for a composite product, in which 
a great many of these parts have participated, and therefore one can 
find no one part responsible. The whole tendency in terms of its 
effect on. prices is for each part to find that its profit lies in increasing 
its own charges on the industry rather than in reducing them, because 
a reduction will have such a small effect upon the total demand. 

Now, I should like to move to a discussion of the suppliers and 
dealers from whom these contractors get their materials. This is 
particularly difficult to discuss because it is not a clear-cut group. 
Very often one will find a given enterprise not only operating as a 
contractor on the job, but as a supplier of materials, and, in fact, as 
a manufacturer. A lumberyard, for instance, may act as a sub- 
contractor at times. It may act as a retailer or as a wholesaler, and it 
may also operate a planing mill and to that extent be a manufacturer. 
So it is very difficult to find any precise definition of the people that are 
in this intermediary group. 

I might add also that the distribution problem has become more 
difficult because many building materials are now distributed through 
general stores. A 5-and-10-cent store, for example, will sell certain 
of the lesser building materials, and department stores and mail- 
order houses, and various other general types of stores are engaged in 
distributing building materials. 


I wish to put in the record the evidence which has been collected 
by the census with regard to retail dealers, in the table entitled 
"Retail Dealers in Lumber, Building Materials, and Hardware." 

(The table referred to was marked "Exhibit No. 879" and is included 
in the appendix on p. 5506.) 

Dr. Thorp. According to this census report, which covers the year 
1935, there are 73,000 stores falling in this general category. The 
table which I shall introduce gives a break-down by size of store. As a 
general overall comparison, I might say that all stores in the United 
States average about $20,000 a year sales. These in this building 
materials group average $26,000 a year sales. There are more large 
stores in the building materials group than in the general-store 
group. When one gets to the retailing picture, one begins to find 
more in the way of size, than in the work at the site picture. 

As far as wholesalers are concerned, I might repeat the difficulty 
that one faces in definition. For example, one of the most difficult 
problems of definition which the N. R. A. faced was to decide what was 
a wholesale lumberyard and what was a retail lumberyard. The 
census has classified slightly over 1 1,000 establishments as being whole- 
sale distributors of construction materials, and I should like to intro- 
duce for the record, tables from the census giving the picture of 
wholesale distributors of construction materials. 

(The table referred to was marked "Exhibit No. 880" and is 
included in the appendix on p. 5507.) 

Dr. Thorp. And a second one giving a break-down by size. 

(The table referred to was marked "Exhibit No. 881" and is 
included in the appendix p. 5508.) 

Dr. Thorp. This break-down by. size shows that in the wholesale 
group, there are a considerable number of relatively large establish- 
ments, some of them with sales exceeding $1,000,000 a year. 

One thing perhaps should be emphasized about these suppliers and 
dealers in building materials. I have mentioned size in terms of sales. 
It also should be noted that in general they have to carry rather 
h.eavy inventories, so that if one measures size in terms of inventories, 
they are even larger as compared with the ordinary retail or wholesale 
enterprise. For all retailing the turnover in the United States is 
something like eight times a year. For building materials the turn- 
over is about three and a half times a year, so that they have to carry 
more than twice as much inventory per dollar of sales as is customary 
in most distribution. 

So much for the number and size of enterprises in the field of dis- 
tribution of building materials. I have not felt that it was important 
to take more time on it. But I do want to indicate now and discuss 
briefly the problem of competing channels of distribution, because 
even these statistical tables tend to over-emphasize the proposition 
that there is a clear-cut retailer or clear-cut wholesaler group. I 
should like therefore to presen' a group of charts which show the 
channels of distribution through which building materials flow. 
The first chart is entitled "Sales Distribution of Wholesalers in 
Selected Kinds of Business, 1935." 

(The chart [referred to was marked "Exhibit No. 882" and appears 
on p. 5191. The statistical data on which this chart is based are 
included in the appendix on p. 5508.) 

Dr. Thorpe. The black portion of the bar indicates the sales by 
these wholesalers te contractors or to consumers. The next section 


in the bar, the shaded portion, indicates sales to retailers, and the 
last smaller section represents sales back to other wholesalers or for 

These census records are the best records that we have, although 
there has always been some question as to whether the manufac- 

Exhibit No. 882 






PLIES (Full line) 









40 60 







24 3 








Sales to contractors, and industrial and household consumers 

Sales to retailers 

Sales to wholesalers and for exports 

Source:- Bureau of the Census 

turers themselves had records in this form and whether or not the 
census was exactly accurate. Despite their limitations, I think it 
is important to note that these records show that a considerable 
part of the flow does not go through retailers at all, but directly to 
contractors. This varies according to the nature of the product. 


When one gets into the lighter products, such as wallpaper and hard- 
ware and paint and varnish, for example, the tendency is for it to 
flow through a retailer as well as a wholesaler. When one gets into 

Exhibit No. 883 














40 6Q 





I 9 

I 3 
I 8 



I 69 


I 7 8 

3 I 

27 7 

I^^H Safes to contractors, and industr/a/ and household consumers 

K^vwi Safes to retailers 

1— —* Safes to who/esa/ers and for export 

Source- Bureau of the Census 

the heavier things such as structural steel, it is much more apt to go 
directly to the job, as one might expect. 

Now we carry that one step further to a chart which shows sales 
distribution of manufacturers' wholesale branches in selected kinds of 


(The chart referred to was marked "Exhibit No. 883" and appears 
on p. 5192. The statistical data on which this chart is based are 
included in the appendix on p. 5509.) 

Dr. Thorp. These are cases where the manufacturer himself has a 
wholesale branch. The picture is very much the same with the 
exception that there is a tendency for his wholesale branch to do less 
direct selling. His wholesale branch is much more likely to sell to a 
retailer or back to another wholesaler. The black bars in general are 
less sizable than they were on the earlier chart. 

There is one more chart with regard to this problem of distribution 
which relates to the manufacturers' own sales. This chart is entitled 
"Sales Distribution of Manufacturers in Selected Industries, 1935." 

(The chart referred to was marked "Exhibit No. 884" and appears 
on p. 5194. The statistical data on which this chart is based are 
included in the appendix on p. 5509.) 

Dr. Thorp. In this chart again we have the black showing the sales 
to industrial and household consumers, and to contractors, sales 
which do not go into the hands of dealers. Then sales to retailers, 
sales to their own wholesale branches, and sales to wholesalers and 
jobbers. I think one of the most interesting cases on this chart is the 
case of wallpaper in which, as far as the census records go, you will 
find that all sales by manufacturers are either sales to retailers or sales 
to wholesalers. There are no sales in that case either to consumers 
or to contractors. 

Roofing presents very nearly the same picture. When one gets 
into the heavier things such as concrete products, structural and orna- 
mental metal work, one finds that the sales are made very frequently 
directly to the consumer or to the contractor. 

I should like to emphasize the fact that these channels are very 
important for a certain number of business people. To the whole- 
saler it is most disturbing if a manufacturer undertakes to sell 
directly to contractors. The same is true for the retailer. Natur- 
ally it is the interest of each person in this flow of goods to preserve 
his own position. 

In the intermediary group of suppliers and dealers I should |ike 
to emphasize that very frequently they are identified in their interest 
either with contractors or with manufacturers. In many cases they 
are identical persons. For example, the contractor may also be a 
dealer in some product, and obviously he is concerned about pre- 
serving his position both as contractor and dealer, or in having his 
product maintain its position in the market as against some other. 

To take a special case, a plasterer subcontractor necessarily is 
concerned in seeing that every building has as much plastering work 
in it as possible. He is naturally eager to see that people use plaster 
rather than wallboard or paneling or other wall materials. He may 
work with a dealer in plaster. There may also be a wholesaler as 
active in the plaster field. The ordinary intermediary, however, 
might not himself be much concerned as to whether he sells plaster 
or wallboard. 

At the other end, the manufacturer also is interested in having 
plaster go into the job. So that upon this supplier pressures are 
exerted by the contracting group and by the manufacturing group, 
both of whom are eager to have his assistance in maiataining the use 
of this particular type of material. That assistance, as in the effort 


of the contractor to preserve himself, may make itself felt in building 
codes, in union restrictions, in exclusive dealing agreements with manu- 
facturers, in price agreements, and many others which could be noted. 

Exhibit No. 884 



40 60 


100 dol ° l F a«s 











— H Sales to Jndu stria/ and household consumers, and contractors 

E55%a Sales to retat/ers 

ES^ Sales to own wholesale branches 

1 i .Sbvfes In wholesalers and jobbers 

Source: Bureau of" the Census do Si 

I should like to emphasize, therefore, that this intermediary or 
supplying group has a passive position in that it is not concerned as 
to whether it handles plaster or wallboard as such. But members of 
the group are often forced by the more direct interest of the people 
in front of them and behind them to take an active position with 
regard to the kind of material that shall be used. 


The intermediary group, however, does have an interest in the 
preservation of its own position. For example, a wholesaler is neces- 
sarily very much concerned to make sure that goods flow through his 
hands rather than go directly from the manufacturer to the contractor. 
The same thing is true with regard to the dealers. So, as another 
very active type of force which operates in this industry, we have the 
effort on the part of these intermediaries to preserve their own posi- 
tion in the channel of distribution. From that point of view, they 
are no different than intermediaries elsewhere. Wholesalers and 
retailers in general take this same attitude. This is not surprising. 
But in the case of building materials, it is emphasized and exagger- 
ated by the pressures which come from the people to whom they 
sell and the people from whom they buy. 

There is one other phase of distribution which I should just like to 
mention and on which I should like to introduce a table. That is the 
phase of transportation, because it is important to realize that, in the 
total operations of the construction industry, transportation plays a 
very important part. That is necessarily so for two reasons: One, the 
actual operations are carried on over a wide geographical area and 
most of the materials must be brought to the site; and two, building 
materials are usually very heavy, and necessarily have a heavy freight 

I present for the record some material from the Interstate Com- 
merce Commission in a table entitled "Estimates of Freight Revenue 
and Value of Commodities Transported, Class I Steam Railways, 

(The table referred to was marked "Exhibit No. 885" and is 
included in the appendix on p. 5510.) 

Dr. Thorp. These estimates are based on carload traffic and the 
figures here are for a small number of commoditiest 

This, of course, is only for the part of the commodity which moved 
in freight, but it is interesting to note that for gravel and sand — and 
40,000,000 of tons of gravel and .sand moved in freight in 1936 — the 
freight absorbed 57 percent of the value at the destination. Gravel 
and sand had the highest percentage. Next comes plaster with 33 
percent of the value at destination absorbed by freight revenue. 
Cement is 24 percent; common brick 28 percent. At the other ex- 
treme, we have iron and steel pipe and fittings 8 percent, and paint 
only 4 percent. The average for all commodities, not just building 
materials but all commodities, is about 8% percent. So that when one 
cites such figures as 28 and 33 and 57 percent, it is obvious that the 
transportation cost is itself a very heavy part of the cost and also 
tends to bring about geographical decentralization of the production 
of the material. So that for these products with heavy freight, as far 
as possible the industry has tended to decentralize. 

Mr. Henderson. In that whole group, Dr. Thorp, the only in- 
dustry which would have an interest in the transportation industry 
itself is the steel industry; isn't that true? That is, there are certain 
of the railroads which are owned in whole or in part by steel com- 
panies. That isn't true of the others, is it, so far as you know? 

Dr. Thorp. There may be a few cases where lumber is interested, 
but I am afraid I can't do any more than just suggest that possibility. 
In most cases what you say is quite correct. As it happens, the heavy 

124491— 40-^pt. 11 18 


freight-paying groups are the parts of the building materials industry 
which are small scale. 

Acting Chairman Reece. Doctor, you made reference to the 
effort which the retailers and the wholesalers had made to retain their 
position in the distributing system. I am wondering if you intended to 
infer that the retailer and wholesaler had ceased to become a desirable 
factor in our distributing system, and my question is not prompted 
altogether by the statement that you made but also by a statement 
which one or two other witnesses appearing before the committee had 
made, and I am wondering if you feel that the distributing system has 
been so perfected now that the wholesalers and retailers have ceased 
to perform a useful function in it. 

Dr. Thorp. I think I could give a brief answer to that along these 
lines: That there are certain things which must be done which we 
can describe as wholesaling and retailing functions. Someone has to 
do those jobs. The question of who should do them is a matter 
which has been undergoing considerable change in recent years. The 
manufacturers are doing much more direct selling and retailers are 
doing much more direct buying than was the case 20 years ago. 

If there was in my comment any judgment at all, it was merely a 
judgment that it seems to me such matters ought to be allowed to 
develop according to the efficiency, the cost, and the normal and more 
proper economic forces rather than by trying to control them through 
some planned arrangement — a planned arrangement either set up by 
the interested group, or in some cases by a State or Federal law. 

1 think certain developments have been going on and the issue is not 
a question as to whether these functions should be performed, but 
rather how should the decision be made as to who should perform 
them. . 

Now, I come to a general discussion of building materials. I shall 
have to break that discussion in two parts because I have a rather 
long series of material to present; but perhaps I can get started and we 
can pick it up again after lunch without too much difficulty. 

When one talks about building materials, dne runs into a number of 
difficulties. The main one, of course, is that there are very few 
materials which are solely building materials. They are used for 
various other purposes so that we have to remember that when we are 
talking about building materials, it. may well be that only a part goes 
into the construction industry. 

In general, this can be said about the building materialsindus tries: 
There seem to'be two general types of situations. One is the case 
where the industry has deve" ped on a local basis, sand and gravel, 
for example; and there are a great many of these small-scale units 
scattered around the country. The other group is engaged more in 
the fabricating and the mining and metal products industries, where 
we find operations on a relatively large scale. 

I want to start this discussion by presenting some maps which can 
indicate more quickly than I can tell the differences in these various 
building material industries. These maps indicate the counties in 
which the specified products were produced in 1935. Perhaps we 
might start with a comparison of hardware and planing-mill products. 

(The maps referred to were marked "Exhibits Nos. 886 and 887" 
and appear on pp. 5197 and 5198.) 








< ^ 

1 1 1 1 1 

z o 

= 8 « S I 

< 5 S 3 I J 

o * z d * a 





o J z o ^ 2 z , 
-i a o « 5 - < 



■2 5 S % t 

o i z a. o < 



o « 

2 S 


o ^ 

3 3 


o o Z 

i J 5 


Dr. Thorp. The hardware industry, you will notice, has 405 estab- 
lishments. There are 405 dots on that map, very much concentrated 
in the northeastern part of the country. The planing-mill products, 
on the other hand, have 2,753 spots, and they are scattered all over 
the country, about *s one would see if one had a similar type 
population map. 

Here are cement and glass. 

(The maps referred to were marked "Exhibits Nos. 888 and 889" 
and appear on pp. 5199 and 5200.) 

Dr. Thorp. Cement has 153 spots scattered fairly widely over the 
country; whereas glass, with its 213 establishments, is very much con- 
centrated in the northeast and in the Oklahoma and the Texas area. 

The other two industries, sheet-metal work, and stoves, ranges, and 
warm-air furnaces, again snow a contrast. 

(The maps referred to were marked "Exhibits Nos. 890 and 891" 
and appear on pp. 5201 and 5202.) 

Dr. Thorp. The sheet-metal work is conducted on a much more 
widely scattered basis than the stoves, ranges, and warm air furnaces 

Thus one finds that "building materials" as a phrase must be 
reviewed in terms of various types of building materials. One of the 
important characteristics is that the production of some building 
materials is local and others are scattered, while the production of 
some other building materials is concentrated into larger establish- 
ments, in particular areas. 


Dr. Thorp. I have a considerable amount of information which 
I am going to present now, with regard to concentration in the building 
materials industry. 

The charts and the data are taken from special tabulations of the 
Division of Manufactures, Bureau of the Census, prepared hy sworn 
employees of the Bureau of the Census for the use of the Temporary 
National Economic Committee. The data for the most part are based 
upon the confidential reports of manufacturers submitted in connec- 
tion with the Biennial Census of Manufactures, 1937. In some cases 
reports for the year 1935 have been utilized. This is true of the con- 
centration percentage for the four leading companies in the industry 
as a whole shown in the individual industry analyses. These percent- 
ages are based upon special tabulations prepared by the Census Bureau 
for use by the National Resources Committee. 

Certain qualifications will be useful in interpreting the following 
material. The regular reports of the Division of Manufactures use 
the physical plant or establishment as the unit for which data are 
collected and published. 

The data here presented, however, are on a different basis, using 
an entire company as the unit. In this case we have included in the 
company all of the plants or establishments under a single ownership, 
together with subsidiary corporations where there was majority stock 

This material has been worked over with great care. There are 
certain limitations on what we can present because of the legal limi- 
tations of the Census Bureau with respect to disclosure of individual 


operations, and all this analysis has been done with extreme care to 
make certain that there would not be any disclosure of individual 

Mr. Henderson. When you come to an important segment in these 
construction material industries, in which you cannot present the in- 
formation because the number of firms is less than five, would it not 
be of significance to indicate that to the committee, Dr. Thorp? In 
that way the committee might be apprised as to particular industries 
in which there was such a concentration either locally or nationally 
that prima facie there was a concentration of ownership which the 
Census rules prevent disclosing. 

Dr. Thorp. Yes; we do intend to present all the cases in which we 
are not allowed to present the cases. [Laughter.] 

Mr. Henderson. I think even I ought to be satisfied with that. 

Dr. Thorp. These three charts should be read together as one pre- 
sentation. They are all entitled, "Selected Industries Producing 
Construction Materials." These charts must be kept separate from 
all the subsequent charts because they are on an industry basis and 
after this I shall move to a product basis. That distinction is very 
important to keep in mind. 

(The charts referred to were marked "Exhibits Nos. 892 and 893" 
and appear on pp. 5205 and 5206. The statistical data on which these 
charts are based were marked "Exhibit No. 894" and are included 
in the appendix on p. 5511.) 

Dr. Thorp. The census groups establishments by industries, ac- 
cording to the major product of the establishment, and, therefore, an 
industry frequently includes enterprises which make, as secondary 
products, goods which should fall in various other categories. 

It should be noted that this heading "Construction Materials" is 
also somewhat misleading because within these industries may appear 
products which quite properly belong within the industry but which 
are not construction materials. For example, in the marble and granite 
industry, there are included tombstones, although it is something of 
a stretch to regard tombstones as a part of the construction industry. 

Plastics, which are often used in modern housing, would appear in 
the chemicals industry, and not be in this £,/oup. We can't correct 
for that situation in this table. It is corrected later when we discuss 
individual products. This table presents for the leading 25 construc- 
tion materials manufacturing industries, the percentage of the prod- 
uct of the industry produced by the four leading companies. 

Now, that is for all the products that are in each industry. It 
will vary, as one sees here, from, I believe, the highest, 81.6 percent, 
for asphalted felt base floor coverings and linoleum, to 4.5 percent for 
lumber and timber products. 

This, as I indicated before,' includes a consolidation of the enter- 
prises into companies and is not on an establishment basis. 

The scatter is rather considerable, as you can see, in something like 
fans. One finds about 8 percent of the concrete products produced 
by the four leading companies, whereas for gypsum products the 
figure runs as high as 75 percent. 

Acting Chairman Keece. The committee will stand in recess until 

(Whereupon, at 12:20 p. m., a recess was taken until 2:15 p. m. of 
the same day.) 



Exhibit No. 892 


















100 1937 

$6 I O 
3 I 3 

™^" 1 I - 

^^^ 1 I I 

^^ I I 






I 63 





I I A 

I I* 


Percenl produced by (be four /ead/rfccmpa/t/es mead; spec/f/ed/rfustry aas 

Source -Bureau of ' 6he Census and A/ot/ono/ lumber Manufacturers Asiocialior. 

DO 39- 174- A 



Exhibit No. 893 



.*. M ..~ rn w PERCENT MILLIONS 

INDUSTRY o zs so is too 1937 















I 33 


10 I 





Percertproducedtyt/K> fovr/eod//}f ) coflpo7?/&/f?e(x6 spec/f/ed industry, /sas 

Source:- Bureau of Me Census and Notiona/ Lumber Mont/poclurers Assoc/ain 




(The committee resumed at 2:15 p. m. on the expiration of the 

Acting Chairman Reece. The meeting will please come to order. 
You may proceed, Dr. Thorp. 

Mr. O'Connell. Will you continue where you left off this noon? 

Dr. Thorp. At the conclusion of this morning's session, I was 
discussing certain measures of concentration in 25 census industries 
whose dominant activity was in the field of construction materials. 
I believe that we had completed the discussion of these census indus- 
tries but to finish that picture, I wish also to include in the record 
a similar analysis prepared by the Bureau of Mines for seven indus- 
tries whose products are mining products. I have no chart, but I shall 
introduce this material in the form of a table, "Building Materials 
Mined 1935 and 1937" and summarize briefly the concentration index. 

(The table referred to was marked "Exhibit 895" and is included 
in the appendix on p. 5512.) 

Dr. Thorp. I might say that the four leading companies in all 
these cases are leading in terms of value of products, using 1935 
rather than 1937 material. 

The percentage of the total production done by the four leading 
companies are as follows [reading from "Exhibit No. 895"]: 

Limestone 11 

Sand and gravel 10 

Gypsum 80 

Granite 18 

A wide scatter from the limestone and sand and gravel at one end 
to gypsum and marble at the other is apparent. 

I t hink I indicated this morning that one of the difficulties with 
this type of measure is that it is on an industry basis. It is per- 
fectly possible, for example, for an industry to have 10 products of 
equal importance. Suppose each of those products was manufactured 
100 percent by a single company, so that there were 10 companies in 
the industry, each producing all of 1 of the 10 products. A measure 
of this kind would show that the 4 leading companies produced 40 
percent of the total production in the industry. We have felt, there- 
fore, that a much more significant measure would be that of showing 
concentration with reference to the individual products, the concentra- 
tion for specific commodities rather than the industry concentration. 
To that end we have made rather elaborate tabulations. The work is 
not completed, but I shall present as much of it as is now ready. 
This also is based on census material ; it is supplementary material 
which is filed in connection with the Census of Manufacture in 
which each manufacturer reports the value of products and in many 
cases the volume of certain specified commodities. 

In working with this material we have been able to refine it to this 
degree: For any specific commodity we have been able to in- 
clude the production of that commodity by companies classified in 
other industries, so that we have been able to take total production 
rather than merely the production within the census induscry itself. 

This is much too voluminous to present in detail. I should like 
to put in the record the results as far as we have them for these com- 

Sandstone 33 

Marble 84 

Asphalt 63 


modities and then I shall discuss three of the groups to indicate the 
kind of evidence that they make available. The material covers 
16 census industries as follows: Lumber; plumbers' supplies; asphalted 
felt base floor covering; iron and steel; structural and ornamental 
metal work; cement; marble, granite, slate, and other stone, cut and 
shaped; clay products and nonclay refractories; gypsum products; 
wallboard and plaster; lime; heating and cooking apparatus,, except 
electrical; concrete products; planing-mill products; roofing ma- 
terial; and glass. 

Mr. O'Connell. Is it your intention that all of that material be 
inserted in the record? 

Dr. Thorp. I think perhaps it is the most significant material 
that we have to present today. I hope it can be. This covers [16 
census industries and 275 products. 

(The exhibit referred to was marked "Exhibit No. 896" and is 
included in the appendix on p. 5512.) 

Dr. Thorp. I should like to illustrate the significance of this product 
break-down by one illustration. You may recall that on our earlier 
chart the four leading companies in the lumber industry accounted 
for A% percent of the total production. 1 If one examines that by spe- 
cific products, as we have done, we find that — using lumber cut as our 
measure — the four leading companies cut 22.8 percent of the Douglas 
fir; for Ponderosa pine, the four leading companies, 15^ percent; for 
Southern pine, the four leading companies, 7 percent. Thus, if one 
examines this by products, the concentration is much higher than if 
one groups all the products together. 

Now, I should like to present three of the industries in some detail. 
First, I shall refer to the chart entitled "Plumbers' Supplies, 1937 — 
Relative Production of the Four Leading Companies," and then the 
"Plumbers' Supplies, 1937 — Products Classified According to the Pro- 
portion of the Leading Companies' Production to the United States 

(The charts referred to were marked "Exhibits Nos. 897 and 898" 
and appear on pp. 5210 and 5^21 1 . The statistical data on which these 
charts are based are included in the appendix on pp. 5541 and 5544.) 

Dr. Thorp. In this chart each horizontal bar relates to a specific 
product within the plumbers' supply industry. For example, the first 
bar to enamel iron bathtubs, the second bar to enamel iron lavatories, 
the third bar to enamel iron laundry tubs, and so forth. 

The bars are of differing widths, or perhaps I should better say 
different vertical heights, according to the importance of the product 
in the industry. Thus, the broadest bar, "other plumbers' brass 
goods," is as broad as it is because it represents 31 percent of the total 
value of the plumbers' supplies industry. 

The black section of each of these bars represents the production of 
the four leading companies in that particular product. 

It may be quite a different group of four companies producing "other 
plumbers' brass goods" than the four companies making "galvanized 
iron range boilers." 

In the plumbers' supplies industry there are 208 companies. The 
column at the left indicates how many of these companies were active 
with reference to each product. The vertical dotted line at about 
35 percent indicates the percentage of the total value of product of 

i See "Exhibit No. 892" supra, p. 6205. 


the total industry contributed by the four leading companies. This 
was shown on the earlier chart. 

So that that is our industry concentration as against the product 

In this particular chart, one finds that nearly all of the products 
show a much higher degree of concentration than is shown by the 
industry in general. For a number of the products, 60, 70, and even 
90 percent of the production is done by four leading companies. 

Dr. Lubin. Dr. Thorp, would you point out specifically what 
commodities in this category of plumbers' supplies are concentrated 
to the extent that the four companies do 75 percent or more of the 
total output of the country? 

Dr. Thorp. Enameled iron laundry tubs, enameled iron sink and 
laundry-tray combinations, enameled iron flush tanks, enameled iron 
drinking fountains, vitreous china siphon-jet closet bowls, vitreous 
china reverse-trap closet bowls, vitreous china lavatories, vitreous 
china stalls, other vitreous china bathroom and toilet fixtures, and 
semivitreous or porcelain plumbing fixtures would all fall above 75 

The second chart which I should like to discuss as part of this 
analysis relates to the proportion of each one of these products pro- 
duced by the leading company, the one leading company in producing 
that product. It is on a percentage basis, but I can also give you the 
exact figures. 

The black bar represents the distribution of these various products. 
For example, for six of the products the leading company falls in the 
10 to 20 percent group, that is, produces between 10 and 20 percent 
of the total value of each product. For five products, the leading 
company falls in the 20 to 30 group, six in 30 to 40, four in 40 to 50, 
and two in 50 to 60 percent. The other bar indicates how important 
those products are in the total output of the industry, in this case it 
being very evident that the higher degrees of activity on the part of 
single companies are found in products of lesser importance in the 
industry, while those products in which there is the smallest import- 
ance shown by the leading company happen to represent more than 
half of the products in the industry. 

There is one other chart with reference to this industry which will 
come a little later because we have put the material for three industries 
together as a summary in a later chart. 

Acting Chairman Reece. Do you wish to put these other charts 
and the other data which vou may get together in the record at that 

Dr. Thorp. You mean to complete the 25 census industries? 

Acting Chairman reece. Yes. 

Dr. Thorp. Yes, I think it would probably be very desirable to 
have that all brought together in the record at some later time, 
when we can complete the analysis. 

This analysis is in a sense a byproduct cf our work. We are doing 
this for somewhat over 2,000 commodities of all types throughout the 
whole economic system. What I am doing here is merely presenting 
the material for 275 of those which are pretty much in the building 
materials industry, and we hope at some later time to have a broad 
report on concentration which would not be limited to building 
materials but would cover all types of commodities 



Exhibit No. 897 








I 2.1 








W Perce nt prodc/cecf 6y tf)e /bur/ead/nf) comp/vn/es manufactur/ntf spec/f/eo" 'product 
^.y'-l Concentration not ' snown Aecouje of neteroyene/ty of product 
V////A Concentmf/on not 'snourn to afO/dd/scAsure of/nd/ir/ducr/ ' cperaf/onj 

Percent of totof pfumderj suppf/es produced t>y tie fb&ir feod/hf Compon/euo tf>e /ndvjtry, fS35 

Af Less tf?an one-Aa/Sof Of percent 

Source ■ -Sureou of 'tf>e Census DO 39- 



Exhibit No. 898 

PLUMBERS' supplies 








I I I 



10.0 20.O 


19.9 29.9 



40.O 50.0 


4-9.9 59.9 


u%^a r s^T^ror1,L ,/VG aMf/twyjF ™oouct,on to r„e 

Source- Bureau oft/?eG>r 

I Percent of *toto/<- A/umber of products 
^mftsrcentoftotof-Va/ue of products 







124491 — iO— p t. 11 19 


The next pair of charts, paralleling those which were just presented, 
relate to "Roofing, Built-up and Roll, Asphalt Shingles, etc., 1937." 

(The charts referred to were marked "Exhibits Nos. 899 and 900" 
and appear on pp. 5214 and 5215. The statistical data on which these 
charts are based are included in the appendix on pp. 5544 and 5546.) 

Dr. Thorp. Jn this case there are 69 companies in the industry, 
and the various measures of concentration are shown in the same way 
that they were shown in the other chart. In this particular illustra- 
tion therj; is much less black on the chart than on the previous chart ; 
the concentration measures are lower. There is, however, one case, 
that of asphalt roof cement, which exceed 75 percent. 

It is an interesting situation in which the industry figure, somewhere 
in the neighborhood of 40 percent is higher than was the industry 
figure in the previous chart, but when one analyzes it by individual 
products, the concentration picture does not stand out to the same 

Dr. Thorp. Taking the second chart on this same subject it is 
apparent that for these commodities, of which there are 13, the 
leading companies appear most frequently in the 10 to 20 group, and 
over 90 percent of the product is in that group. 

I have one other case to represent the other extreme. That is the 
case of asphalted felt base floor coverings and linoleum. 

(The charts referred to were marked "Exhibits Nos. 901 and 902" 
and appear on pp. 5216 and 5217. The statistical data on which these 
charts are based are included in the appendix on pp. 5546 and 5547.) 

Dr. Thorp. In these two charts the percentages run much higher. 
The lowest is that of piece-goods, 12/4 and wider, where 66.5 percent 
are done by the 4 leading companies. This is an industry in which 
there are only 11 companies engaged. All 11 are active in making 
this product. In the linoleum field where there are only 4 companies, 
it is obvious that our black line necessarily goes to the very end of 
the clrart. 

In making the analysis with reference to the percentage of the 
leading companies in this case, we find that most of them fall in the 
30-to-40-percent group. 

Dr. Lubin. A significant thing about these figures which interests 
me is the fact that here you have 3 important industries that cater 
to the Nation, cater to a hundred thousand contractors in a sense, 
that is, a hundred thousand potential customers, who in turn repre- 
sent millions of other potential customers who take the finished 
products after they have been assembled, and yet under plumbers' 
supplies, for example, there are only 13 firms in the whole country 
which manufacture bathtubs, enameled sanitary iron; only 8 manu- 
facture enameled iron sanitary flush tanks; and you find similarly in 
the roofing industry, only 30 of them make asphalt smooth roll roof- 
ing; and down the line you find that only 11 of them make water- 
proofing fabrics; and similarly one could go on to linoleum, where you 
mention the case of 4. Would you say this was typical of manufac- 
turing as a whole? In other words, would you find as small a number 
of firms engaged in manufacturing a product which is so universally 
used in other types of industries? It certainly wouldn't be true of the 
textile industry as such where you have fifteen or sixteen hundred 
producers in different types. 


Dr. Thorp. No; I hesitate to say, though, at this time, whether it 
is typical or not. I think we shall be able to answer that much better 
when we are finished with our 2,000 commodities. My guess would 
be that one will find rather a tendency that products are made either 
by a few or by a considerable number. 

I am going to show in a moment why some of the cases in which 
we apparently have a great many engaged are as a matter of fact 
much more concentrated than would appear. I think it is probably 
fair to state, though, this is not supported by data and may be dis- 
proved when we finally have our evidence. I should expect that our 
picture through these building material industries will show as high 
a degree of concentration as in any other general branch of manufac- 
turing activities. 

Dr. Lubin. The thing that impressed me is that in plumbers' 
supplies, which are essential to every house, there is onty 1 branch 
of that industry, namely, faucets and spigots, that has as many as 
40 firms engaged in the manufacture. You have your other plumbers, 
brass goods, which is a combination of goods, and that adds -up to 123. 
That seems to be an awfully small number of firms engaged in making 
an essential that is used by everybody in the country. 

Dr. Thorp. I think the only comments I should like to make are 
to make sure that this is technically accurate. The first comment is 
that the census includes only establishments which produce $5,000 or 
more of products, so that there may well be some small manufacturers 
not important in the total number, but perhaps important in number 
who are not shown; and the other is that we are working with census 
material and have to take it as reported to the census. 

Dr. Lubin. I am not questioning that. I am pointing out the 
significance of the fact that we like to think of industry as scattered 
and owned and controlled by large numbers of people. 

Dr. Thorp. I think some of the additional material will emphasize 
that point. It is perhaps the most significant point that can be made 
about the building materials industry, namely, the fact that it is an 
industry in which at any given point there are relatively few producers. 
_ I said that I had some additional material on these three industries 
and it now appears in this chart "Frequency of Appearance of the 
Same Companies Among the Leading Four Producers." 

(The chart referred to was marked "Exhibit No. 903" and appears 
on p. 5218.) 

Dr. Thorp. Now, you remember for each product in the plumbers' 
supplies industry we'had recorded the 4 leading producers. This is a 
matter, therefore, of going over 23 products and finding out how many 
times the same company appeared. It is a rather interesting picture. 
Here is 1 company that appeared somewhere within the first 4 in 18 
of the 23 products. Here were 2 companies that appeared somewhere 
within the first 4 in 14 out of the 23 products. At the other end of 
the scale are 28 companies which just appeared once, maybe in fourth 
position for some one of the products. From this you get a very clear 
picture of 2 types of performance in the industry. Certain enterprises 
sweep through a number of products, while other enterprises achieve 
prominenctt in connection with 1 or 2 of the products. In the roof- 
ing industry there were fewer nroducts, 13 products, and in that case 
the company which appeared most often appeared in connection with 



Exhibit No. 899 










I Percent produced by (he Sur leading companies manufacturing specified product 
1 Concentration not shoivn because of heterogeneity of product 
XWM'/A Concentration not shown to ovoid disclosure of individual operations 

p ercen l f total products manufactured by the four lead/of companies in theii>dust/y/9i5 

Af Not available 
Source - Bureau of the Census 0039-16* 



Exhibit No. 900 









I 1 I. 








O 10.^ 20.0 30.0 40.0 5 0.0 


9.9 19.9 29.9 39.9 49.9 59.9 


— Percent of tota/~Num/ber of products 
\ 1 Percent of tola/- yo/ae of products 

XJ/nc/udea m/ue of one product c/ass/fieO 7/7 t/re preced/nf froop to oro/O 'd/Sc/ow/a ofqpenxuoofind/y/dixi/ ' estoi//s/i/7i&)t> 
SoL/rce-Bi/reots of tt?e Censc/s do 39- /m a 



Exhibit No. 901 











1/%/ .A5PERCENT0F 

100 ALL 


■■■ Percent produced by the four ieodinf compon/es manufoctur/nf) specified product 

fercent of totof products produced by the four /eadinf companies in the industry 

Source- Bureau of 'the Census 00.39-170 



Exhibit No. 902 









u/vireo states total 

^^M Percent of tote/- A/umber of products 
VZ&7\ Percent of toto/-lto/ue of products 

Jfovrce- Bureau o/*//te fien&ts dds9'7o-a 



8 of them. In the asphalted felt-base floor coverings industry I did 
note there were still fewer, 4 products, and in that case 2 companies 
appeared in 4 cases. 

Exhibit No. 903 




















































Soorce:- Bi/reav o/Y/V Censi/f 

a a 39-i tt 

The only evidence which I can give you on all 275 commodities, 
other than the full details in the table which has gone into the record, 
is a summary for all these commodities of the importance of the lead- 
ing company in each case. I think that it is sufficiently important for 
me to read the frequency distribution as it appears. There are 11 of 
the products which we were not able to analyze for various technical 
reasons. We have 264 for which we have the activity of the leading 


company. For 19 of them, the leading company produced under 10 
percent of the national-total; for 67 of them, 10 to 20 percent; and for 
48 of 'them, 20 to 30 percent. That happens to be almost exactly 
one-half, so that for one-half of these products the leading company 
produces less than 30 percent. For the other half the leading com- 
pany in the production of that product produces more than 30 percent 
of the total national production. As one pushes on from 30 to 40 
percent, there are 51 products; from 40 to 50 percent, 43 products; 
from 50 to 60 percent, 23 products; and over 60 percent, 13 products. 
It happens that those 13 products are relatively small in terms of 
value of product. But I think it is of some significance that for about 
13 percent of all these products which we have analyzed, with no 
particular selection about it except that they happen to be all the 
products in 16 census industries," the leading company produces more 
than half of the production of the product in the United States. 

(The table referred to was marked "Exhibit No. 904" and is in- 
cluded in the appendix on p. 5548.) 

Dr. Thorp. There is one other thing which I can indicate. I am 
sorry that Commissioner Henderson isn't here because he was in- 
quiring about it this morning. We spoke about the adequacy of the 
tabulation and the degree to which it was impossible to complete 
these tabulations without violating the census rule of disclosure. I 
should like to say that in the tables which have been filed in the record, 
the products for which we could not present figures are indicated by 
a footnote as those which would violate the principles of disclosure. 
The disclosure rule is based upon a legal requirement that the figures 
must not be published in such a way that anyone can deduce from 
them the records of an individual company. 

At this point, I should like to express my appreciation for the coop- 
eration which the Census Bureau has given us in this enterprise. 
Already burdened with its regular duties, it has aided us greatly in 
making our analyses, and it has scrupulously upheld its legal obliga- 
tions. The knowledge and experience of it's technical staff has been 

Of the 275 cases there are 41 products for which it is not possible 
for us to make tabulations without violating the disclosure rule of 
the Census Bureau, and those products, I think, are noted by a foot- 
note to the table. 

Mr. O'Connell.. In other words, Doctor, in 41 of the products the 
degree of concentration was so high that to demonstrate it would 
have violated the rule of the Bureau. 

Dr. Thorp. There is one other complication appearing in this pic- 
ture that occasionally happens. If you took an industry and gave 
the figure for four producers and there were only five plants, then 
someone who knew his census statistics could take those four and 
subtract them from the five. This would create a kind of disclosure. 
But in general I think your proposition would be correct. The dis- 
closure rule works where there is such concentration in the industry 
that anyone who knows a part of the industry well would be able to 
deduce the results of the rest of the industry from this information. 

Dr. Lubin. Could you name the commodities on which you can't 
publish information for the record? ! 

1 These commodities are indicated by special footnotes in "Exhibit No. 896," see appendix, p. 5512, et scq. 


Dr. Thorp. Yes; they are in the table. You don't happen to have 
that full table, I am sorry. It is something like 60 pages long. If 
you would like, we could list those commodities separately and have 
them put in the record. 1 

Acting Chairman Reece. That may be done. 

Dr. Thorp. I should like to make it clear that it may be a matter 
in which there are so few companies in the industry that the disclosure 
would result from that rather than that it is dominated by one or 
two companies. 

There still remains one serious difficulty about this type of analysis. 
Perhaps that is an understatement. There remain several, but I shall 
take up one at this point. For certain of these building materials, 
where their production is essentially local in nature, a national analysis 
fails to indicate the importance of concentration in any particular 
market. To illustrate that, we have made an analysis for two indus- 
tries with reference to certain specific markets. 

First, let us take the case of common brick. This chart is entitled 
"Common Brick, 1937." 

(The chart referred to was marked "Exhibit No. 905" and appears 
on p. 5222. The statistical data on which this chart is based are 
included in the appendix on p. 5548.) 

Dr. Thorp. We have selected five areas in which we have made an 
analysis of the degree of concentration of common brick production. 
The national concentration for common brick is about 7 percent in 
the four leading producers, but obviously common brick having such 
a heavy cost of transportation does not move completely around the 
country. We have this analysis broken down and this is the result. 
For the area which we call the District of Columbia — in this area 
it is the District plus the State of Virginia — there are three producers. 

For the Philadelphia area, where there are 10 producers, the 
4 leading producers do a little over 60 percent. For San Francisco 
and Oakland, there are only 2 producers. 

In Los Angeles, there are seven producers, but we can't present the 
figures because it would be a disclosure. In New York-Newark, 
New Jersey, there are seven producers, but we cannot present the 
figures because it would be a disclosure. Thus, if a product such as 
common brick is taken, one finds much greater concentration within 
any particular market than would appear from national figures. 

We have a similar analysis for planing mill products which I want 
to present, because it not only illustrates this point, but illustrates 
one or two other points as well that are useful here. 

These three charts are entitled "Planing Mill Industry, 1937." 

(The charts referred to were marked "Exhibits Nos. 906, 907, and 
908" and appear on pp. 5223, 5224 and 5225. The statistical data on 
which these charts are based were marked "Exhibit No. 909" and are 
included in the appendix on p. 5549.) 

Dr. Thorp. They represent a similar analysis with reference to 
certain planing mill products for six of the areas in the country. Now, 
in this particular case, there are various types of doors — pine doors, 
Douglas fir doors, hardwood doors, other doors, garage doors — and 
sash, window and door frames. One can follow it through for the 
different areas. For example, of the 40 companies producing window 
and door frames in the Chicago area. 4 of tliem did nearly 60 percent; 
in Milwaukee, 53 percent; in the Kansas City area, we can't give 


figures because of disclosure; in the Seattle-Tacoma area, 58 percent; 
in the Los Angeles area, 52 percent; and in the San Francisco -Oak- 
land, 38 percent. 

I should like to have you keep this in mind, because it emphasizes 
one further point with regard to this type of analysis. When one 
is discussing concentration in terms of specific commodities, one may 
sometimes overstate the situation by failing to recognize that there 
may be a number of commodities which are interchangeable. For 
example there might be only one man producing pine doors, but he 
still might be affected by the people producing Douglas fir doors, 
hardwood doors, other doors, and so forth. One of the things that 
one has always to keep in mind in any product analysis is the fact 
that certain products may stand alone while others are faced by 
substitutes. Thus, the effective concentration is by no means as 
great as might appear. 

I have one further chart to present which makes certain of these 
comparisons for the years 1935 and 1937. 

(The chart referred to was marked "Exhibit No. 910" and appears 
on p. 5226. The statistical data on which this chart is based are in- 
cluded in the appendix on p. 5552.) 

Dr. Thorp. I am introducing to indicate that it makes a certain 
amount of difference as to when one happens to take these measures. 
In most cases the percentages were fairly close. But there are a few 
cases, particularly in the clay products industries, where revisions 
within the census, made by the Census Bureau, have, we think, made 
the data not perfectly comparable. 

In general, from this material one cannot discover any indication 
whether or not there has been an increase or a decrease in the amount 
of concentration in the 2-year period. That, however, may be one 
of the interesting things that will appear as one makes further analyses 
of this material. 

At this point I merely want to emphasize the fact that there are 
shifts from time to time. For example, for thermostats, 65 percent 
were produced by the four leading companies in 1935; 75 percent in 
1937; while for asphalt smooth-roll roofing the percentage dropped 
from 41 to 33. 

One thing that needs to be emphasized in getting at this picture is 
that we have isolated for the purpose of this analysis individual prod- 
ucts, and companies have been tabulated only with reference to that 
particular product. ; 

Another part of our work in the Department of Commerce, which 
I can discuss at the moment only enough to indicate the type of result, 
is to trace some of these companies through a considerable number of 
products, thinking of them not solely in terms of any particular 
product, but in terms of their total activity. 

I can present to you as illustrations two companies, both of which 
are in considerable measure active in the building materials industries. 
The first of tliese companies, and in this case we are using 1935 infor- 
mation, operates between 20 and 30 plants in census industries and 
produces 111 census products. In other words, if one were following 
the type of product analysis which I have made, there would be 111 
different points at which that company might: appear as one of the 
leading four, or might not. 



Exhibit No. 905 











100 0F 



■■i Percent produced ty the four /cod/of companies in each sefected industr/o/ oreo 
V///X Concentration not shown to oro/d disc/osure ofindiyiduo/ operations 

Source - Bureau of the Census 



Exhibit No. 906 









"> 5 






I 8 


25 50 75 


Pine doors for 0enera/ construction 

Dou(S/os f/r doors for (fenera/ construct /o n \ 

Hardwood doors for genera/ construction 

Other doors for tfenero/ construction 

Gararde doors I 

Other doors 


' ; ; •• 1 

Window and door frames 













Pine doors for (fenera/ construct/on \ 

Obud/os fir doors for (fenera/ construction 

Hardwood doors for 0enera/ construction 
Other doors for (fenera/ construction \ 

Garage doors 

Other doors 


Window and c/oor- frames 


^MB Percent produced by the four /podinf companies mom/bc/urind specified products mse/ected area 
1^2^22 Concentration not shown to ovoid disc/asure of tndiir/ai/a/ operations 
_A/ Withheld to ovoid disc/osore of/ndiv/doo/ operations 

Source- Bureau of the Census 0039 ice* 



Exhibit No. 907 

















. 25 50 75 


Pine -doors for genera/ construct/on 

Douglas fir doors for genera/ constrochio" 


Hardwood doors for genera/ construct/on\ 
Other doors for p"enero/ construction j 

Garage doors 


>ther doors 


Window and\door frames 



Pine doors for genera/ construction 



Doug/as f/r dpo/j for genera/ construction 

Hardwood doprs for genera/ construction 


Other doors for genera/ cons/ruction 

Garode doors 

Other doors 


Window and door frames 



I 0.1 

I 0.1 







MMi Percent producer/ 'by thpfoor lead/no' compompj mo/xfatw#sp^ifdfv<xfix:tsirixlKteda/va 
\L 'd^i Concentration /tot shoirn to avo/d disc/osure of individuo/ operations 
A/ Witne/d to ovoid disc/osure of indi vidua/ operations 
•Source:- Bureoo of the Censc/s do. 39-ite-B 



Exhibit No. 908 












I 2 








25 50 75 


Pine doors for penero/ construction 


Doug" /as fir doors for genera/ construction 

'" . 

Hardwood doors for genera/ construction 

Other doors for genera/ construction 

; -■■ .. : 

Qarode doors] 

; • 

Other doors 



Window and door frames 


Pine doors forPenero/ construction 

DoufHos fir doors for oenera/ construction 


Hardwood doors for genera/ construction 

Other doors for Genera/ construction 


Other doors 



Window and door frames 












B Percent produced by the four /eodinq~ compon/es manufacturing specified products in selected area 
Y//j£tA Concentration not shown to ovoid disclosure of" mdividuo/ operations 
Ay Withe/d to oyo/d disc/osure of indi vidua/ operations 

Source.- Bureau of the Census odj9-/6s-c 



Of these 111 products, I think it is important to know that in 28 
cases we cannot get a percentage because the product itself is so non- 
standardized. In 52 of the cases this company produces less than 10 
percent; in 14, from 10 to 20; in 7, from 20 to 30; in 5, from 30 to 40; 

Exhibit No. 910 

1935 AND 1937 









. ' .. ' /.■".! 


...'.>/■:.: ' '. . ., .-.. • T 













^^^S^^^^^ ^^^j 


. . . ,-. /.. . . , ' . Trr 

;;, • ■■; . ::.r 

>, .. , ■;,, '^ : . .'. y,.\ 

• . - . 

'•••■ v///////;///. 



~ 7T, 



r7^ ... v , . , - . vv . , ; . ^ zzzx 



. . : -..•• •■•; ; •.••/: .••■/.■.■.■•■ 




I fercent produced 6y the /"our leading compa/ties 
Specified product, /937 


I ferceat produced 6y the four leading companies ma/iu /acturtnjf 
Specified product , /935 

Source- Bureau of the Census 

and in 5, from 40 to 50 percent of the national total. In other words, 
here is a large company making 111 products, in some of which it is 
relatively unimportant; in fact, in half of them it produces less than 
10 percent of the national total, and in only 5 of them it reaches 40 
Dercent. Those five amount to about 1 1 percent of its total activity. 


Now let's take another company. In this case also there are be- 
tween 20 and 30 establishments, which fall in 16 industries and pro- 
duce 79 products. Only 3 of those are we unable to analyze. In 51 
of them this company produces less than 10 percent of the national 
total; in 4 of them, from 10 to 20; in 7, from 20 to 30; in 3, from 40 to 
50; and in 2, from 50 to 60 percent. All of those products which rep- 
resent over 40 percent of the national total, of which there are five, 
amount to 7 percent of this company's total production. 

I put this into the record merely so that one doesn't get the over- 
simplified concept of a company operating on a particular product 
only, but remembers that in our economic system as it actually func- 
tions these companies appear with respect to many products. I think 
that point has a bearing, Commissioner Lubin, on the point which you 
made with reference to the number of companies appearing in those 
tables. Those companies might have been the same companies ap- 
pearing over and over at various points in the tables, and actually 
there may be a much smaller number of companies engaged than 
would appear if one took product by product. 

One other general caution needs to be made. As far as this picture 
goes, it is a picture of companies plus subsidiaries in which they have 
a majority stock ownership. There may be many other types of rela- 
tionship which bring companies together into an operating unity, 
which would not appear in these tables. From that point of view, 
the tables would understate the concentration rather than overstate 
it. On the other hand, as a caution in the other direction, I should 
like to repeat the point that many products are substitutable. This 
fact raises a definite question as to the meaning of a word such as 
monopoly. Is there a monopoly if one company is the sole producer 
of a given product, when some other product is an immediate and 
direct competitor of that product for its use? I think we know very 
little about the degree to which products are substitutable, and that 
is one of the types of- analysis that still remains to be done with regard 
to this material. 

I think the summary of this picture of the building materials indus- 
try Las to be made in these terms. Certainly in comparison with the 
earlier phases of the economic activity which we have discussed, 
namely the work at the site of construction and the operations of the 
dealers, manufacturing appears to be much more highly concentrated. 
Even in those cases where there appears to be a considerable number 
of producers, the products seem to be largely products which are sold 
locally. Thus for the national products, there are small numbers of 
producers, and where there are many producers, those producers are 
not operating in the national market but are operating in local mar- 
kets, so that the numbers at that point are also reduced. 

I still have one other point on which I wish to present some infor- 
mation, and that is with regard to~urade associations in these indus- 
tries. We are engaged in the Department of Commerce in making 
a study of trade associations, particularly national and regional associa- 
tions, and I am able to give you some of the preliminary results of 
that survey with reference to the building industry. 

We find that the national and regional trade associations are some- 
what as follows., There are three, primarily for general contractors, 
with about 2,500 members. You may remember that our figures 
showed over 30,000 general contractors. There are eleven trade asso- 

124491—40 — pt. 11 20 


ciations of subcontractors, with about 15,000 members. You may- 
recall that our estimates (including enterprises without employees) 
ran well over 100,000 subcontractors. There are thirty-eight associa- 
tions of distributors, with 45,000 members. The census figure there, 
as I recall it, was somewhere around 80,000, including retailers and 
wholesalers as distributors. 

In the building materials industry, on the other hand, there are 133 
associations, and because there is so much overlap I can't give you 
the figure of membership. 

I should like to submit for the record a table of the number of 
national and interstate and regional trade associations, which not 
only give these figures which I have quoted but breaks down the 
building materials producers into various general types of building 

(The table referred to was marked "Exhibit No. 911" and' is in- 
cluded in the appendix on p. 5552.) 

Dr. Thorp. I think it would be fair to state that as far as national 
and regional organization is concerned, the further one gets away 
from the actual building job, the more there is of formal trade asso- 
ciation activity. Among contractors and subcontractors, national 
associations are relatively unimportant. I should add that our 
figures, which total 185 associations, do not include technical and 
professional associations, or those in the real estate or financing field, 
or various activities allied to the construction industry. 

I am also able to present some information with regard to the 
extent of coverage of these associations as they have reported to us, 
in terms both of membership and of the percentage of total industry 
activity which they cover. 

(The table referred to was marked "Exhibit No. 912" and is in- 
cluded in the appendix on p. 5553.) 

Dr. Thorp. I have the detailed figures for filing in the record. 
Perhaps I might only cite the figures with reference to 60 percent or 
more. Take first the table of membership. Only 17 percent of the 
contractors' associations cover 60 percent or more of their eligible 
members. Most of them, in other words, have a smaller coverage. 

Of the distributors, 56 percent of the associations cover 60 percent 
or more; and of the building material producers, 46 percent cover 60 
percent or more of their eligible membership. If one reduces that to 
activity, it is apparent that the larger enterprises are the members of 
these associations because the percentages are much higher. 

(The table referred to was marked "Exhibit No. 913" and is in- 
cluded in the appendix on p. 5553.) 

Dr. Thorp. I have one other table which gives us a good deal of 
light on these associations. Thjs material relates to their yearly 
expenditures. We have the detail for 182 associations. I think it 
is rather significant to note that in all these lines — building materials 
producers, distributors, and contractors — over half of the associations 
spend less than $20,000 a year in their budgets. They are not major 
enterprises. On the other hand, if one considers those that expend 
more than $50,000 a year, the concentration is largely among the 
building materials producers. 

(The table referred to was marked "Exhibit No. 914" and is in- 
cluded in the appendix on p. 5553.) 


Dr. Thorp. There are only three building distributors' and two con- 
tractors' associations which exceed $50,000 a year in their budgets. 

I should like to emphasize the fact that these national associations 
have rather elaborate programs, and as one gets back into the building 
material producers' groups, one finds a considerable volume of' tech- 
nical research is done. Down at the level of the distributors and of 
the contractors, there is not that same degree of emphasis. I merely 
cite two illustrations, not to single them out, but to indicate the type 
of thing that is .done by some of these national associations. The 
National Lumber Manufacturers' Association, for instance, has' been 
the leading force in developing the national small homes demonstration 
procedure which has created so many demonstration homes around 
the country, usually under $5,000. The Portland Cement Association 
is now developing a light traffic road of cement to cost about $5,000 
a mile, which gives promise of- excellent results. 

When one gets down, however, to the State and local associations, 
we have almost no information concerning their activities. We are 
able to estimate that there are about a thousand of them throughout 
the country which actually can be regarded as organized associations. 
As to their activities, our information is very slight except as they 
happen to have run afoul of the laws of one sort or another and 
therefore appear in court records. 

I should like merely to emphasize the fact that these State and 
local associations are associations primarily of dealers and of con- 
tractors. Thus as an over-all picture we have a rather large group 
of strong national associations at the building materials level,, while 
the associations of the dealers and of the subcontractors, with few 
exceptions, aje local or State rather than national. 

Mr. O'Connell. Dr. Thorp, may I ask a question there on trade 
associations generally? Do you expect that the Department of Com- 
merce will at a later date present material to the committee relative 
to the activities of trade associations more generally? I was interested 
in the general observations you made as to the size of national trade 
associations and the several mstances you gave of type of activity that 
they undertake. Is the Department going to go into more detail 
at a later date before the committee as to what their activities are? 

Dr. Thorp. That is one of our major research projects, I think. 
As to whether or not we present it before the committee will depend 
on the committee's 

Mr. O'Connell (interposing). You are at work collecting ma- 

Dr. Thorp. We are preparing material and hope very much to be 
able to make a report on the trade association movement which will 
cover all trade associations, and I present this material merely as illus- 
trating some of the things which we are getting for all associations. 
We have much more material about the activities of these associa- 
tions but it is not in a form in which I can present it as yet. I know 
we will be delighted to present it to the committee at some later 

Mr. O'Connell. One more question: Is the sort of information 
you are collecting as to the activities of these large trade associations, 
their activities which you might call their charter activities; that is, 
the activities that are included in their certificate of incorporation, we 


might say, as distinguished from what they might actually do in 

Dr. Thorp. -'What we are actually doing is asking them what they 
are doing and getting a picture from them of the things which they 
say they do. I think we are also trying to get the picture from various 
other sources as to what other people may think they do. We are 
going to try to get, not a picture of their activities as it might show 
up on paper or chart, but as it would show in their budgets and their 
own allocation of people and types of committees which they have and 
various indirect evidences as to what the activities are. 

This concludes the presentation of material and I should like merely 
to try to summarize it if I may very briefly. 

I think one of the unfortunate things about the construction in- 
dustry is that one tries to generalize about it, and I would be just as 
guilty as anyone else now of generalizing. I think it is important, 
however, to get some feel about the whole situation. I should like to 
summarize it this way: The construction industry in general is one in 
which through all its stages there is an underlying tendency for the 
sellers to be stronger than the buyers. This is true all the way from 
the producers of building materials, who are in many cases large and 
concentrated, down through to the poor ultimate consumer who buys 
the product — a purchaser who is an amateur, who makes one pur chase 
and knows very little about it, and who has nothing to speak of in the 
way of bargaining strength. 

Now, it is true that along that line at various points, groups have 
been able through one method or another to gain strength, so that in 
some particular places and in some particular lines (it may be in the 
dealer group, or it may be in some other areas) some particular 
group of raw material producers has been able to achieve strength. 
By and large, however, we have to think of this as an industry which 
starts at one end with small numbers in producing groups and at the 
other end with small numbers in local specialized building groups. The 
net result, as I have pointed out a number of times, is for these various 
specialized groups of material producers, of subcontractors, of dealers, 
to endeavor to strengthen themselves. The effect of this on the gen- 
eral economic behavior of the industry may be summarized as follows: 
No activity or segment of the industry is important enough that any 
price reduction which it makes will increase its profits by increasing 
its volume of work; and every activity is important enough that it 
can increase profits by holding up the rest of the industry. 

You have a situation, in other words, where the multiplicity of 
parts tends to make no part feel responsible for the totality, and 
yet each part is in a strategic economic position whereby it can 
endeavor to strengthen itself at the expense of the whole. 

Above all, there is no central responsibility for this industry. 
There are many parts which are brought together temporarily for one 
job and temporarily for another job, but there is no central agency, no 
central pattern, no central organizing force in the construction in- 
dustry. That seems to me to be one of its most significant char- 
acteristics, and is particularly important in a product in which the 
demand expresses itself not in terms of any of these parts but in terms 
of a finished product in which each part is relatively unimportant. 

Mr. O'Connell. I have no question. Do any members of the 


Dr. Lubin. Dr. Thorp, as I get your testimony the thing that 
impressed me particularly was the fact that in the building materials 
industries the number of firms engaged in making any specific com- 
modity is relatively small, and within each small group in many in- 
stances 4 or fewer firms dominate production at least to the extent 
that they account for a very large portion of the total output. Now, 
that in itself, of course, cannot be taken as an absence of competition 
because it is conceivable that you can have more effective competition 
"among 5 competitors than you would among 500. 

On the other hand it does in a sense create a situation where through 
price leadership or other devices, it becomes possible for the competitor 
forces to be delayed in their operations. Do you have any figures 
which show what has happened to building material prices as compared 
to other prices, say, during the past 10 or 15 years? 

Dr. Thorp. Mr. Lubin, I suspected I might be led into the question 
as to what all this means from the standpoint of prices, and I have 
some material, though I must say that our work in the field of building 
material prices is by no means complete. As a matter of fact, I be- 
lieve that much of the research for the Temporary National Economic 
Committee on this general subject is under your jurisdiction rather 
than mine; but I do have some material on building material prices 
in general, which I can talk about briefly as indicating varieties of 
behavior. I should like first to refer to a chart entitled "Trend of 
Wholesale Prices." 1 

(The chart referred to was marked "Exhibit No. 915" and appears 
on p. 5232. The statistical data on which this chart is based are in- 
cluded in the appendix on p. 5554.) 

Dr. Thorp. On this chart the heavy black line represents "All 
Commodity Prices," and the dotted line represents the category "Pro- 
ducers' Goods — Building Materials." From our point of view the 
other lines on the chart, "Producers' Goods For Human Consumption," 
representing goods which are to be further processed before they be- 
come consumers' goods, and "Producers' Goods — Capital Equipment' 
can be disregarded. I want to concentrate on the first two fines. 
One of the things which I think it is important to keep in mind is 
that the construction industry experienced a very severe decline in the 
depression, far more severe than that for industry in general. Having 
that in mind, it is of some significance to note that building material 
prices fell to perhaps 76, with reference to the 1929 level, while all 
commodities fell to about 62. While they came closer together again 
briefly in 1935 and in 1937, we have a very wide spread at the present 
time, when the building materials prices are perhaps 92 as against 
the general index of 78. 

To me the significance of this situation is that, if one is thinking of 
comparative groups of commodities, it takes much more to buy the 
same amount of building materials than it would take to buy a 
fixed amount of other commodities. In terms of exchange among 
commodities, the building materials group has definitely moved up. 
It didn't decline as much in the depression, and it has held up much 
better during this latter period. 

I think it may be worth while, also, to point out this extraordinary 
advance in building materials in the 12 months from the summer of 
1936 to the summer of 1937, a period in which building materials prices 
moved up more than the prices of all commodities. Having once 

' See also, in this connection, testimony of Dr. Theodore J. Kreps, infra, p. 5446. 



returned to their 1929 level, these prices have since declined relatively 

Now, if I may, rather than stop with the picture of building mate- 
rials as a general index, I should like to introduce into the record these 
statistics of certain specific building materials, using the Bureau of 
Labor Statistics data for their wholesale price movements from 1926 
to 1939. This is important because we always get into trouble, I 








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think, when we talk in general terms about such broad things as build- 
ing materials or the construction industry. 

The charts referred to were marked "Exhibits Nos. 916 and 917" 
and appear on p. 5233 and facing p. 5233. The statistical data on 
which these charts are based are included in the'appendix on pp. 5555 
and 5559.) 

Dr. Thorp. If one examines these charts for all building materials, 
one finds that the patterns have been very different. 

Certain of them have considerable sections where the price hasn't 
changed ; as, for example, cement, structural steel, plaster, and So forth. 

Exhibit No. 917 

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Source:- tfc/rea'ty o/loSor S6ai/s6/'cs 

1926 '27 '28 '29 '30 '31 '32 '33 '34 '35 '36 '37 '38 '39 

124491— 40— pt. 11 (Face p. 6233) 



Certain others show considerable variation. Lumber, for instance, 
shows, I believe, the largest reaction to the recession, while the price of 
red-cedar shingles has moved up well above its 1926 base. 

I think it is important to realize that among these different products 
there is no absolute identity of pattern. The variations appear to be 

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grouped. The lumber variations, for instance, are similar, though 
beyond that the patterns are quite different. But the net result — and 
from the point of view of the construction industry it is the net result 
which is important — the net result of these various patterns in these 
various specific materials has been to make building materials rela- 
tively much more expensive than other commodities. 



Dr. Lubin. Could you, for the record, insert a statement ag to the 
various building materials that are today selling at a level equal to or 
in excess of 1929? ' 

Dr. Thorp. I should be glad to do that provided the Bureau of 
Labor Statistics would give us the data. [Laughter.] Can we con- 
sider it to be done? 

I have one more chart which I think is rather interesting, a chart of 
"Common Building Brick," showing its variation throughout this 
whole period. I don't believe it is possible to keep in mind for com- 
parison the exact variations of the general price index; but you may 
recall that while this follows fairly closely the general price trend in the 
earlier period, it is rather more level in this later period than prices in 

Exhibit No. 918 








1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 



general. Also, there- is rather an amazing increase which appears at 
the end of 1938. 

(The chart referred to was marked "Exhibit No. 918" and appears 
on this page,.) 

Acting Chairman Reece. That is one of the materials, as I remem- 
ber, in which in certain marketing areas all of the materials were 
produced by four companies. 

Dr. Thorp. Yes. One of the difficulties about any measure of 
prices of common building brick is the difficulty always faced when a 
commodity does not have a national market, but operates in local 
markets. I believe from the technical point of view, it is extremely 
difficult to feel content with any measure of common building brick 
prices because of the wide variation among these different local markets. 

Acting; Chairman Reece. Are there any other questions? 

i A statement or price increases in the most important individual building materials, 1929. 193?>, and 1937, 
was en f -5d later by Dr. Theodore J. Kreps, see "Exhibit No. 936," appendix, p. 5566. 
Se^ also data subsequently submitted by Dr. Lubin, appendix, p. 5588. 


Mr. Chawner. I was wondering if the witness could prevail upon 
the Bureau of Labor Statistics to supply information on wage rates 
at the same time it supplied information on building material prices. 
There has been a fundamental difference in trends there too. 1 

Acting Chairman Reece. You mean as compared to 1929? 

Mr. Chawner. Yes. 

Acting Chairman Reece. As cooperative as these two agencies have 
been I should think there would be no difficulty in getting these matters 
worked out. 

Dr. Lubin. We will be glad to do it. 

Mr. Chawner. Could I ask a question about the matter of organi- 
zation, the size of the enterprise? Dr. Thorpe pointed out the com- 
paratively small enterprises in the contracting field, and the small 
amount of equipment which they use and the great variety of materials. 
Some people, such as Mr. Holden of the F. W. Dodge Corporation, have 
suggested that one of the answers to this question is to concentrate 
the building of housing units into large enterprises rather than con- 
tinue on a small-scale basis as you have described. Would that be an 
appropriate suggestion from the point of view of cutting into this 
question of costs? 

Dr. Thorp. My function today has been primarily to describe the 
construction industry as it is, and not to offer any prescription. I 
think probably the answer has to come along a great many different 
lines. Undoubtedly one of the lines that is important is a greater 
tendency toward prefabrication, because that does tend to eliminate 
certain of these expenses and costs and the unevenn esses which develop 
when work is so scattered around the country, and so erratic in its 
flow. I think you will have to put a construction man and an archi- 
tect and such people on the stand rather than me to prophesy the 
future of the prefabricated house. 

Acting Chairman Reece. Do you have any further questions? 

The committee appreciates very greatly the presentation which you 
have made, Dr. Thorp. 

(The witness, Dr. Thorp, was excused.) 

Mr. OIConnell. I should like to call the next witness, Mr. William 
Stanley Parker. 

Acting Chairman Reece. D» you solemnly swear the testimony 
you are about to give in this proceeding shall be the truth, the whole 
truth, and nothing but the truth, so help you God? 

Mr. Parker. I"&o. 



Mr. O'Connell. Mr. Parker, will you please state your name and 
present address for the record? 

Mr. Parker. William Stanley Parker, 120 Boylston Street, Boston. 

Mr. O'Connell. Mr. Parker, am I correct in saying that you are a 
fellow in the American Institute of Architects, general chairman of 
the Construction League of the United States, member of the Public 
Works Committee of the National Resources Committee, past 
secretary of the American Institute of Architects, past president of the 

' Subsequently submitted, see appendix, p. 55SS. 


Boston Society of Architects, a past member of the Massachusetts 
State Planning Board, chairman of the Boston City Planning Board, 
and a member of the board of governors of the National Association 
of Housing Officials? 

Mr. Parker. That is unfortunately correct. 

Mr. O'Connell. Have I omitted anything you think might be 
mentioned as to your qualifications? 

Mr. Parker. No, sir. 

Mr. O'Connell. That is enough. 

Mr. Chairman, before asking Mr. Parker the few questions I wish to 
propound to him, I might say that I expect to ask Mr. Parker a few 
questions which will enable him to present to the committee some gen- 
eral observations that he wishes po make as to the construction indus- 
try generally, at which time I sould like to ask him to refer to a study 
which was made several years ago in the City of Boston relative to the 
tax burden on various types of real estate. Due to the fact that we 
are a little late, I am afraid that his testimony will be a little briefer 
than we had anticipated, but we will try to cover the material which 
I think will interest the committee, as briefly as possible. 

Mr. Parker, as I understand it you have some fairly definite con- 
victions as to what obstacles there are to recovery in the construction 
industry, and preliminary to discussion of them, I should like you to 
explain to the committee what you mean by the construction industry 
and how it is broken down. 

Mr. Parker. I would like to present the construction industry to 
you, not in the detailed way that it has just been presented, but in 
four broad classifications which seem to me to have particular charac- 
teristics and varying characteristics, varying possibilities inherent as 
sources of trouble, sources of fluctuation and possibilities for stabilizing 
the construction industry. 

Those four subdivisions, which are roughly equivalent if one elimi- 
nates the excess of residential construction during the peak years of 
the twenty's, I have called: public works, public utilities, non- 
residential private enterprise and residential private construction. 
Those are the four main categories, and I think that the further con- 
sideration of methods for stimulating construction and methods for 
stabilizing construction will be facilitated if they are focused on those 
four major classifications'. 

Mr. O'Connell. Mr. Parker, the major emphasis of this phase of 
the committee's inquiry relates to the private residential construction, 
so I suggest that we might pass fairly briefly over the other three ele- 
ments of the construction industry, if you would care to discuss those 
briefly in order, and then we can defer the discussion of the residential 
field until last. 

Mr. Parker. First the nonresidential private construction followed 
the trend of all private construction. In fact, all the different cate- 
gories of private construction followed very closely parallel lines. 
They all dropped in the depression from 80 to 90 percent of their vol- 
ume. The figures that I am using are the Department of Commerce 
figure^ in a chart which I have filed with the committee, a cumulative 
chart which shows the total just under $14,000,000,000 in 1927. 

The nonresidential construction, it seems to me, is less needful of 
particular discussion because I think there is less that one can do in 
that by direct action than in any other field. 


Mr. O'Connell. By nonresidential construction you mean indus- 
trial construction and business construction? 

Mr. Parker. Industrial and business and educational, institutional 

Public utilities and public works are two very important phases 
which represent roughly in good times half of the construction industry 
and in bad times more than half. Public utilities and public works I 
think may properly be brought together in the diagrams because in 
both of those categories there is a definite public interest, although 
there is a different method of finance. Public utilities shrank during 
the years of the depression, from '30 to '33, to the tune of at least 
$2,000,000,000 a year, and considerably more than that, about two 
and a half if the electrical equipment and power equipment were 
included. In that way, the operation of the construction and public 
utilities was a very important factor in aggravating the depression, 
cutting nearly 20 percent out of the employment in the construction 

Public works, which was in total at the peak somewhat more than 
public utilities, although not much more than public utilities if that 
added factor of plant was included, went up to something over three 
and a half billion, and then dropped to just under two billion by '33. 
The more significant part of that drop was in the nonfederal category 
of public works, which seems to me perhaps the most significant and 
most important category to consider. The total of non-Federal public 
works at the peak in 1930 was something over $3,000,000,000, about 
three billion and a third, and it dropped in '33 to one billion and a 
third. In other words, that category also pulled $2,000,000,000 out 
of construction in 2 or 3 years and created perhaps in the rough 
2,000,000 unemployed that theretofore had been normally employed in 
the performance of private enterprise, servants of private enterprise., 
the employees of private enterprise serving local municipalities and 
States in the field of construction. 

The most significant part of the chart to me is the line indicating 
the development of the financing of local public works since '33, 
which on the dollar volume has lifted only from about one billion two 
hundred twenty-five million to one billion and a half, a very slight 
increase compared to the increases in the other major sections* of the 
construction industry; and the fact that our States and munici- 
palities have practically remained at the low level of activity so far as 
their financing of construction was concerned, has remained one of the 
perhaps most important trials and difficulties of the Federal Govern- 
ment in its program of endeavoring to stimulate construction and 
offse*t the depression in the construction industry. That is the field 
in which, it seems to me, in the future most important concentration of 
attention should be given — a very brief indication of a theory — to 
the stablizing of public utilities and local public works on a policy of 
steady development and with reserves of finance that will make that 

Heretofore local public works have fluctuated exactly parallel to 
private enterprise. It seems to me we must expect private enterprise 
to fluctuate in the temperamental way that it does on the basis of 
self-interest. Public works is the public business and it seems to me 
they should be administered in the public interest, and the public 
interest is certainly not to have them add to the difficulties of fluctua- 


tions of private enterprise, but at least tend to steady their own 
operations so as not to add to the difficulties which the Federal 
Government will find itself burdened with in trying to offset depres- 
sions in private enterprise. 

Mr. O'Connell. Let me see if I understand you. As I understand 
you, you couple public utilities and public works on the theory that 
they are both affected with the public interest and that in normal 
times public works and public utilities construction has constituted 
about 50 percent of all construction, and that it is your view that 
stabilization and long-range planning of that 50 percent of the con- 
struction industry will help to stabilize the industry and to mitigate 
the fluctuations in the other 50 percent about which little can be done 
in terms of stabilization, is that correct? 

Mr. Parker. Yes; that" those two are the only two sections in 
these four sections of the construction industry that are vested with a 
definite public interest, and that steps should be taken to administer 
those in the public interest, and that if that half of the construction 
industry can, by long-term planning and controls which now exist in 
both of those phases to some extent, be stablized, the fluctuation of 
private enterprise in the other two sections will be very greatly reduced 
because undoubtedly the shrinkage in private residential construction 
would have been very greatly reduced if the fluctuation had not 
occurred in employment in the fields of public utility construction 
and public works construction which threw perhaps 4,000,000 people 
out of work and undoubtedly affected the market for private resi- 
dential construction. 

Mr. O'Connell. If it meets with your wishes, I should like to have 
you discuss with us briefly the fourth category of construction, namely, 
private residential construction. As I said before, that is the field 
which the committee is most interested in at" the time, as the field 
which holds the greatest possibilities for expansion by the encourage- 
ment of private capital on an investment basis or otherwise. Have you 
any general comments you would care to make about, that field? 

Mr. Parker. I think perhaps the field might be broken down 
desirably into two main categories of multiple urban housing and the 
single family suburban housing. First in the multiple urban housing, 
the speculative demand will take care of apartment houses in the 
urban areas. The difficult problem there is in the depreciated areas of 
our larger cities. The less depreciated areas should be handled by 
private enterprise if possible, but they are full of- lifficulties on account 
of the multitude of ownerships, the separate controls, the difficulty of 
assembling the properties into a neighborhood which will permit a 
consistent, protected development, and the,. fact that even in any such 
development it is almost essential that a neighborhood be redeveloped 
for a higher rental group in order to take care of the cost of the-develop- 
ment, that it cannot be redeveloped to take care of the same level of 
rents that are now occupying the depreciated building, and it is not 
always easy to find the areas that permit that shift in tenancy, bring- 
ing in the new higher rental group to take the rehabilitated structure. 
It is a most difficult field to work in. Various suggestions have been 
offered, in almost every case I think based upon neighborhood controls, 
in some cases, after a reasonable amount of organization, giving to 
such groups on a limited dividend basis some public opportunities and 
responsibilities to take by eminent domain and to tax. They become 


immediately extremely complicated mechanisms to bring about de- 
velopment of neighborhoods, and so far as I know, practically nothing 
of that sort has actually been accomplished. 

In the lower rental, more depreciated, more obsolete sections of 
our larger cities, the situation is even more difficult and even less 
likely to be handled by private enterprise, and that gets into the 
field where apparently public operations, with some form of subsidy, 
the U. S. IT. A. program, appears to be about the only solution of 
those sections. The cost of taking the existing structures and 
throwing them away is something that private industry doesn't 
face with equanimity, and the communities have been certainly to 
a considerable extent responsible for creating the conditions of 
structures and density and slum conditions that have been built up, 
and they have taken the taxes from those conditions of over-con- 
gestion that have resulted in very undesirable community conditions, 
and undoubtedly it is becoming evident that it is in part a public 
duty to carry some of the burden of costs involved in throwing away 
and reconditioning those depreciated and slum areas. 

Mr. O'Connell. Would it be fair to interpret what you have 
said as indicating that the problem of what is generally referred to 
as slum clearance and providing adequate housing facilities for the 
lowest sector of our population, is something that we cannot hope 
to meet with private capital at the present time? 

Mr. Parker. I should say so! I see no other way. 

Mr. O'Connell. Moving a little higher into what is referred to 
as the middle income group, which is the group which we have dis- 
cussed at great length before this committee — by that 1 mean families 
having an income of more than $1,000 a year and less than $2,000 
a year, that is an area which according to testimony before this 
committee has not been reached to any appreciable extent by private 
capital at the present time, and at the same time there is substantial, 
some people say tremendous, unsatisfied demand for dwelling ac- 
commodations in that area — have you any feeling as to what the 
future holds or what can be done to bring about additional activity 
in that area? 

Mr. Parker. I think that field is of course very seriously affected 
by the unemployment and the relief situation. The largest section 
of the single-family field is certainly houses costing $5,000 and under. 
Now all the unemployed families, practically speaking, are in that 
category, and constitute a very definite drag on the business of 
building houses in that category for sale. 

Mr. O'Connell. As a matter of fact, Mr. Parker, I believe the 
statistics are generally to the effect that even eliminating the un- 
employed and taking those persons who are gainfully employed, a 
majority of the family incomes in this country would probably fall 
in the range of persons who cannot afford dwelling accommodations 
costing as much as $5,000. 

Mr. Parker. I think that is true. 

Mr. O'Connell. So that excluding relief people and unemployed 
people and confining ourselves to those people gainfully employed, 
you would have a very substantial market which is not being met 
by the construction industry at present price levels. 

Mr. Parker. I was referring of course 'to all of the families with 
$5,000 and less, and it seems to me the drag there will exist in various 
levels in that group, due to the unemployed situation. 


So far as houses built for sale are concerned, all those families, 
however, are susceptible to rental housing, and they are all renting 
housing, and if housing could be built for rent, the drag on the market 
in that field would not be the same and it would be possible to provide 
housing that would appeal even to the families that now have. reduced 
incomes, due to some element of unemployment within the family. 
It seems to me perhaps the most unfortunate phase of the small-house 
market is that it has had no interest whatever in the part it might 
play, except in the large apartment houses on a single plot of land, 
to provide rental housing for those of the lower income groups, and 
that is the great need, in my mind, to find some way to interest 
equity money in the production of long-term protected neighborhoods 
in rental housing. 

Mr. O'Connell. Mr. Parker, that interests me. There was quite 
some discussion before the committee several times on the encourage- 
ment of home ownership as distinguished from the encouragement of 
rental housing for persons in the middle income group. One or more 
of the witnesses took the view that the future of the construction 
industry for this middle income group was largely in the rental 
housing field, large scale housing projects to be rented to persons 
in this income group. Another witness felt that everything should 
be done that could be done, to encourage home ownership as dis- 
tinguished from rental housing. Have you any definite conviction 
or belief as to that general proposition? 

Mr. Parker. I think that home ownership is a luxury that should 
be enjoyed by those who can afford it and who have the reasonable 
assurance of sustained income in that locality. Unless a family is 
reasonably sure that they can live in that locality for a substantial 
number of years with a sustained income, home ownership seems to 
me a somewhat hazardous operation because a forced sale of a house, 
with the family having to move quickly, without much background 
and not being ready to carry the equity in it for a long time, is pretty 
certain to involve a pretty considerable cut in the equity of the prop- 
erty and therefore a financial sacrifice. It seems to me that a great 
many families, probably due to the home-ownership campaign, all of 
which is desirable for those who can afford it— that this campaign 
has led a good many who can't afford home ownership and who haven't 
the security that warrants it, to attempt it, and I think. that has un- 
doubtedly been unfortunate for a great many houses and neighbor- 
hoods. I think there is a very great need for rental housing in neigh- 
borhood units, held for permanent ownership by housing corporations 
making that a business and providing a diversified background of 
housing investment back of the capital funds of the corporation. 

Mr. O'Connell. In other words, as I understand you, while you 
would have no quarrel with the concept as to the social desirability 
of having every man own his own home, you would question the eco- 
nomic feasibility of encouraging home ownership among persons who 
do not have stability of employment and who would be in a position 
possibly of putting their small amount of savings into an equity on a 
house which they might lose if they lost their employment. 

Mr. Parker. Yes. There are many difficulties of course in develop- 
ing rental housing that might be touched upon, if you desire to go 
into that at this time. 

Mr. O'Connell. You might mention a few of them. 


Mr. Parker. The problem being that if you are going to build 
neighborhoods of small units of housing on a rental basis, it is necessary 
for the corporation to build on a large scale. It is necessary for them 
to build better than the speculatively built house in the same general 
market, because the speculative builder passes the maintenance on to 
the purchaser, and in the case of large scale rental projects, the owner 
has to maintain his own house, so he will be forced to build better. 
In many cases, in most cities that I am familiar with, wages are not 
a particular factor in the small house field because they are generally, 
even in the vicinity of a unionized municipality, built on nonunion 
wages, substantially below the union rate. 

A large scale operation, however, in that field would probably be 
forced to adopt the union labor rates. If that were necessary, if that 
were accomplished, it would create two handicaps that would make it 
extremely difficult for a rental project to earn its keep. One is, it 
would have to be built better in competition with the speculative 
builder, and the second is, it would have to pay more wages. There- 
fore, it is essential as an outlet to that type of project, in my mind, 
that agreement be reached for special wages for low-cost housing, and 
for special rates based upon longevity of guaranteed employment, 
whether it is an annual wage or some longer period than the day-to- 
day employment at the normal rates. And I think perhaps recogni- 
tion could be given and could be agreed upon that if a company 
building large-scale, low-rental housing had business in the community 
which could guarantee to employ mechanics, say, for 3 months at a 
time or 6 months at a time, a preferential wage in exchange for that 
longer term of employment would permit the saving and the economy 
that I think would be essential in developing adequately the large- 
scale rental projects. 

Mr.- O'Connell. That whole problem of the per-hour wage and 
the very unsteady employment in the building trades as against a 
steadier employment and something comparable to the annual wage 
is a very difficult problem, is it not? 

Mr. Parker. Very difficult. 

Mr. O'Connell. I have heard nothing that seems very definitive 
in the way of an answer to that problem. 

Mr. Parker. A great deal has been discussed in regard to the 
annual wage. The only answer that I know is somebody on the other 
side of the fence agreeing to pay the wages. It has frequently been 
put up to the labor unions in the past that if they would reduce their 
rates 25 percent, there would be so much more business they would 
make more money in the end. 

I know of one case a good many years ago in St. Louis. It was a 
question whether with leveling of wages owners would guarantee the 
additional amount of employment. If not perhaps it would be 
better, the mechanics felt, to take their present rate. 

Mr. O'Connell. On that same point, I think Dr. Thorp indicated 
the difficulty in persuading any particular group or any persons 
representing any particular element in construction cost.. It is very 
difficult tc persuade them it is to their self-interest, to take a sub- 
stantially lesser price for their product either in material or labor, 
because it is such a comparatively small part of the total cost that the 
increased demand would not take place. 


Mr. Parker. And in the large centers seasonal unemployment is a 
serious factor. Our studies in Boston back in '21 and '22 showed the 
average building mechanic got about 3 months' vacation without pay, 
and that necessarily affected their impression of what they ought 
to get per hour while they were working by and large during the year. 
It was said they were paid by the week and lived by the year, and it 
was necessary to get a higher union wage in an industry that couldn't 
guarantee steady employment. The only answer to that is individual 
owners, individual corporations that can guarantee employment, and 
it is a settled fact in the maintenance crews of department stores and 
various other kinds of maintenance work that that agreement for 
long-term employment is met with a lower wage; it always has been 
so, it is not a new principle. It would merely mean applying it 
particularly to assist this field of large-scale rental housing which I 
think is absolutely dependent upon some type of agreement of that 

I don't believe that it can develop otherwise, because I think any 
corporation without a definite agreement would be stalled at the start 
and never would be able to get started. 

Mr. O'Connell. Also, it would seem to me you have indicated the 
possibility of achieving anything in the way of steady employment or 
annual wage depended upon large-scale rental housing. 

Mr. Parker. The large-scale operator is the only one that can 
guarantee steady employment, and I believe it would be an excellent 
idea if each large city had one large housing corporation, organized'as 
the Bridge )ort housing corporation was organized before the war, to 
provide lc ^v* rental housing in that metropolitan area. I think it 
would be highly desirable, but I think these other steps in regard to 
wages would be essential if such a thing could be made practical, 
because they will be in competition with the rentals and other factors 
involved in the speculative building field. 

Mr. O'Connell. If you have nothing more to say on that particu- 
lar point, I should like to refer to the work that you did or were con- 
nected with in Boston in making a survey of the city of Boston with 
a view to ascertaining the tax burden and the areas which bear the 
greatest share of the real estate tax burden in that city. Will you 
take a few moments just to tell us what brought that study about 
and what it involves and what its general conclusions are? 

Mr. Parker. The study was stimulated by a study made by 
Howard Whipple Green in Cleveland, which, however, was a study of 
one slum area. I't seemed to me indefinite because while it said that 
area produced about $250,000 in taxes and cost the community about 
a million and a quarter annually to run, that it didn't indicate to me 
what those relative figures were in other typical sections of the city. 
I thought perhaps all the residential areas were in the red. We 
made a tentative study of six areas in Boston to test that and found 
such a wide range of results that we applied it later to the entire 
city, in wh^h there are 127 census tracts. We used the census tract 
as the basis, and we appraised for each census tract the taxes and 
fees collected and then on as careful and logical a basis as possible, w e 
appraised the share of the municipal expense that should be allocated 
into each of those census tracts. That is in many ways necessarily 
a somewhat arbitrary allocation. So far as we could, we allocated 
the costs actually on a service basis, street cleaning by the area, 


or running feet of the street; we allocated carefully the types of 
collection of garbage, and so forth. The schools we could, of course, 
allocate into the residential areas according to the residence of the 
pupil and according to the grade of school that they occupied. The 
overhead expenses were more difficult. Police and fire, for instance, 
constitute a double factor, a readiness to serve and the service, and 
lacking any fairer method in those cases, we divided the cost in two 
and assessed half the cost as a readiness to serve. In the fire depart- 
ment this was on the assumption that if the city was as fireproof as 
we could probably make if we probably wouldn't cut the service 
more than in two, because we still would need the protection to life.- 
The other half was allocated on the basis of where fires were and the 
police service actually rendered in the different districts. 

When that was accomplished, we found that 78 percent of the area 
of the city was in the red, and about 22 percent was in the black. 

Mr. O'Connell. By being in the red, what do you mean? 

Mr. Parkeh. Meaning the census tract produced less in taxes than 
it cost the city to run it, in the colloquial sense. That is largely due 
to the fact that the two major items in the municipal budget are 
schooling and welfare, and those all had to be allocated into the resi- 
dence areas, of course, where the individuals that received the welfare 
and received the schooling live, so that is the place where we put it. 
That meant that in that 78 percent of the area which covered almost 
all the residence area, except a very few residential areas, was also 
included half the industrial areas or more than half. 

They built up, out of a budget of 65 million for the city as a whole, 
or thereabouts, a deficit of eighteen million over and above the taxes 
that they produced, which had to come out of the excess profits of 
the taxes in those congested areas, the downtown central business 
area, and the high rental residence areas that didn't send their children 
to the public schools, and that had very many fewer children per dollar 
of property value. There was only one suburban residential tract 
that was paying its way, and only just doing so. So the study 
showed that the downtown business area which covered about 2 
percent of the tract of the city produced eleven out of the eighteen 
million deficit to carry the expenditures in other areas, and the 
balance was produced in a few other districts of the high rental 
residence areas that I have suggested. This pointed to the extreme 
importance of protecting that basket of eggs that were carrying all 
the burden, the downtown high value areas. It showed, of course, 
that it was a good deal more expensive to service individuals than to 
service buildings, and, of course, the service costs due to welfare and 
schooling are necessarily charged into the residential areas. 

To show the effect of the balance in the low rental areas, the deep 
red in the map which you have shows the concentration, of the net 
loss, and they are all the concentrated poyerty areas, the slum areas 
of the city. 

Mr. O'Connell. Have you any figures showing the relative taxes 
against the cost of service? 

Mr. Parker. Roughly speaking, the low depreciated slum areas 
cost the city about $4 for every $1 that they paid [providing taxes 
"are paid} and that includes the taxes from the retail business properties 
in those residential areas, because they are all mixed in with the 
residence areas in the census tracts. Each census tract is listed 

124491 — 40— pt. 11 -21 


according to its major characteristic, 70 percent occupancy, so there 
is a substantial amount of taxes coming from movie houses and retail 
trade establishments in those various residential areas. 

Dr. Lubin. These figures then are figures which show the actual 
amount spent by the municipality in maintaining those areas as com- 
pared with the actual amount paid in direct taxes to the muncipality 
from those areas. 

Mr. Parker. Yes. 

Dr. Lubin. They do not, however, include the taxes that these 
same people pay when they buy things downtown 

Mr. Parker. Oh, no. 

Dr. Lubin. Which in turn go back to the city. 

Mr. Parker. Oh, no. This is an analysis of the city's budget, 
the books of the city, how the different census tracts stand in the 
money that they provide directly from the property tax and personal 
tax, poll tax, and the automobile and the liquor licenses, and those 
are allocated into the census tracts. 

Mr. O'Connell. I know it is very difficult to generalize it, but 
thinking of real-estate taxes as being one of the possible deterrents 
to construction in the residential field, if we take the city of Boston 
as an example, and use the test that you have used as to the cost to 
the city of services, and balance against that the taxes collected from 
the residential areas, it wouldn't appear as though those areas were 
paying more than their proportionate share, as much as they should. 

Mr. Parker. The thought that appeals to me there, if you con- 
sider the lower cost housing, let us say that would be assessed at 
$4,000 per housing unit, and take a $40 tax rate, you have got a tax 
from that piece of property of $160, and that family, except for these 
taxes which Mr. Lubin has referred to from purchases of materials, 
the other taxes, most of which, however, don't go to the community 
but go to the Federal Government, that $160 represents about the 
entire amount that that family pays in taxes for the support of the 
city, perhaps $14 a month, and I am wondering if that is an excessive 
fee for that family to pay for schooling, hospitalization, street cleaning, 
fire protection, police protection, and all the other services of the 
city. That family probably would not pay much of any income tax 
to the State. 

Mr. O'Connell. Assuming the validity of the method of allocation 
of services arid assuming that the city is providing services which it 
should not be expected to provide,, and taking Boston as an ex- 
ample, the residential property is not bearing more than its share? 

Mr. Parker. It is bearing, of course, much less in taxes than 
it is getting in service from the community, but, Of course, it isn't 
necessary to assume that it should pay on the basis of this allocation 
the full amount allocated. That is an arbitrary basis and these figures 
must be used with caution. It is not proper to say in the slum area, 
for instance, that because the city gets $250,000 in taxes, and it costs 
the city a million a year, that if you rebuild it witri a housing project, 
you will save $750,000 a year, of course, because the expense of that 
tract is largely the expense of poverty, of people that cannot afford 
to pay for the services that the city requires as an essential of the 
community life; so that it is quite improper to use these figures as an 
argument of the savings that will accompany reconstruction of the 
slum area. There will be the imponderable savings of hospitalization 


and crime and police and fire that are undoubtedly caused by the bad 
fire conditions and bad housing conditions, but those are the more 
difficult elements to figure but they are hidden in the community costs. 

Mr. O'Connell. I should like to offer this report to which Mr. 
Parker has referred and suggest it be filed with the committee. There 
is a lot of interesting information in it that we haven't had an oppor- 
tunity to cover. 

(The report referred to was marked "Exhibit No. 919" and is on 
file with the committee.) 

Mr. O'Connell. I have no further questions to ask of Mr. Parker. 

Acting Chairman Reece. Are there any questions by the members- 
of the committee? If not, we thank you very kindly, Mr. Parker. 

(The witness, Mr. Parker, was excused.) 

Mr. O'Connell. I should like to call Mr. Gerhardt F. Meyne. 

Acting Chairman Reece. Do you solemnly swear that the testimony 
you are about to give in this proceeding shall be the truth, the whole 
truth, and nothing but the truth, so help you God? 

Mr. Meyne. I do. 



Mr. O'Connell. Will you state your name and address and 

Mr. Meyne. My name is Gerhardt F. Meyne; my business address, 
7 South Dearborn Street, Chicago ; and I am a building contractor. 

Mr. O'Connell. What type of construction work does your com- 
pany undertake? 

Mr. Meyne. "We do heavy construction to some extent and also do 
considerable reconstruction and reconditioning, industrial work, and 
occasionally some residences. 

Mr. O'Connell. One general question, Mr. Meyne — would you be 
in accord with the view that has been quite generally expressed before 
this committee that additional expansion in the construction industry 
will flow to a large extent from a removal of the deterrents which at 
present unduly, increase the cost of such construction, and that a 
reduction in such costs would stimulate additional demand? 

Mr. Meyne. I certainly do. 

Mr. O'Connell. As a contractor, Mr. Meyne, would you care to 
state to the committee what you consider the principal deterrent to 
recovery in the construction industry in the area in which you 

Mr. Meyne. I would say that the chief reason why building is being 
retarded is that the builder is unable to produce his product in line 
with the other fellow's ability to buy or rent. The ( tenant's pocket- 
book doesn't seem to be able to cover the requirement to give a 
reasonable return on investments. 

Mr. O'Connell. Well, what specific items of cost would you con- 
sider appropriate to consider as ones which have not been brought 
down but which might be? 

Mr. Meyne. Well, I consider the cost of materials, I think, the cost 
of transportation, the cost of fuel, which go into the manufacture of 
material, labor, and so forth. 


Mr. O'Connell. That is practically everything. Let us take some 
of them specifically. You mentioned material costs. Have you any 
views as to whether material costs in general are too high or anything 
specific to give us on that subject? 

Mr. Meyne. "Well, general material costs are fairly high. They 
are high chiefly because of high transportation costs, as Dr. Thorp 
brought this morning in a discussion here in which he showed that 
the freight, )Fer instance, on the rough material, sand and gravel, was 
56 percent of the cost of the material, and when I first started in 
business, back in 1909, and 1910, we used to buy a yard of gravel 
delivered on the job, for a dollar and a dollar ten cents, and today the 
freight-rate transportation alone is a dollar six cents. 

Mr. O'Connell. "Would that be typical, or would that be attributed 
to the fact of going farther away to get the material? 

Mr. Meyne. Well, no, the sources of material are the same sources 
of material, Lake Michigan is the same, same Gainesville, same 

Mr. O'Connell. Are there any other things you think unreasonably 
affect the price of materials as well as transportation? 

Mr. Meyne. I think the labor monopolies that go into the making 
up the cost of material from the very first pick and shovel to the last 
delivery, and installation m the building, all have to do with the 
extraordinary cost of building. 

Mr. O'Connell. Could you be a little more explicit on what you 
mean by labor monopoly? I am not clear. 

Mr. Meyne. By labor monopoly I mean, generally speaking, a 
labor union council, as we understand it, and known as the Building 
Trades Councils. 

Dr. Lubin. Are those people engaged in manufacturing labor 

Mr. Meyne. He asked me the question, What was generally the 
high building cost? 

Mr. O'Connell. You said materials cost. You mentioned high 
materials cost. I was' going to refer to labor after you had discussed 
materials. Now, in connection with materials, you referred to the 
high cost of transportation, which Dr. Thorp also mentioned this 
morning. Are there any other factors which seem to you to have 
unreasonably increased the cost of materials? 

Mr. Meyne. Cost of fuel is unreasonably high in comparison to 
former years. Back in '16, '18, and, '20, and '23, and '24. 

Dr. Lubin. Do you have any material showing what has hap- 
pened to the actual fuel cost per unit of production? All the data 
we can find show us, determining actual cost per pound of coal used 
for horsepower generally, have been going down steadily and that is 
why people are not buying so much coal as they did. The efficiency 
of the use of coal has been stepped up so far, we find in many in- 
stances, while the price of coal has gone up, the cost has gone down 
in terms of productivity. 

Mr. Meyne. Lcan't give you that but I do know that the cost of 
coal is a decided factor in it, because we used to buy coal in '12, a 
dollar five at the mine, and in '38 we paid two and five in the mine 
and the freight rate I can't give to you at this minute, so the coal to 
us now is quite an item in the manufacturing of the material. 

Dr. Lubin. What happens to its efficiency, the efficiency of the 


Mr. Meyne. They have been improved and also cost more. You 
mean in the line of B. t. u.'s? 

Dr. Lubin. Yes. 

Mr. Meyne. Efficiency of B. t. u.'s there is some merit to it, but 
it isn't sufficient, in my judgment, to offset the high cost of fuel and 
the transportation involved in fuel. 

Mr. O'Connell. In view of the fact that you are primarily en- 
gaged in the construction industry, perhaps we had better confine 
ourselves to things with which you are more familiar in your day-to- 
day work, and another thing you mentioned was that one of the 
difficulties in expansion in construction industry was labor cost, and 
then you referred to labor monopoly. Would you explain what you 
have in mind there? 

Mr. Meyne. What I had in mind in the labor monopoly is chiefly, 
particularly to building-trades council. 

Mr. O'Connell. What are building-trades councils? 

Mr. Meyne. Building trades council is a council of a number of 
unions where they are controlled by a group of men or group by 
their delegates, which is headed into committees, and those com- 
mittees usually control the entire labor policy in the building industry 
of the city. 

Mr. O'Connell. Well, now, do you mean there is anything in- 
herently wrong in having labor organizations such as unions and in 
turn to have these organizations organized into building-trades 

Mr. Meyne. No; I certainly do not. I certainly do not think so, 
that there is anything wrong in having the labor unions, but where 
the difficulty comes in is that the leaders of the labor unions are so 
apt to develop into racketeers. 

Mr. O'Connell. Well, possibly we would get along a little more 
rapidly if you were to give us something a little more specific in terms 
of your experience. 

Mr. Meyne. You are meaning to ask mof as= I =get=it, if a-labor 
union is a racket, how it gets that way. Is that it? [Laughter.] - ' 

Mr. O'Connell. Possibly we might say that. I understood you 
to say that unions were all right, but that mere was a tendency in 
unions to have policies in some instances controlled by persons whom 
you referred to as racketeers. With that as a starting-off point, I 
wanted you to be a little more specific and tell us what you mean by 
the term "racketeers," and how the unions are used by these racketeers 
for unsocial purposes. 

Mr. Meyne. Well, I just wanted to say this, that in order — the 
labor leaders usually become leaders by being elected and playing 
politics. Now, they usually are constantly reelected due to the 
apathy or lack of understanding of the average union member. 
Now, what makes them become a racketeer is the fact that he is not 
content with merely being satisfied with the wage or salary that he 
gets from the union, but he devises ways and means whereby he can 
impose on the building public other income besides his regular salary. 
Mr. O'Connell. Well, you mean, then, that in cases of the type 
to which you refer, the labor leader would in effect betray his union 
members and do things incompatible with their best interests? 
Mr. Meyne. That is right. 

Dr. Lubin. Would you be willing to generalize and say that is 
true of labor leadership as a whole or in general? 


Mr. Meyne. No; I wouldn't generalize that as a labor situation as 
a whole. I am talking specifically as I know it in the building 

Dr. Lubin. Would you think it was typical of the building industry 
as a whole? 

Mr. Meyne. No; I only know it as I know it in Chicago, and as 
I have read about it in other large cities of the country. 

Dr. Lubin. Would you say that it was typical of labor leadership 
in Chicago? 

Mr. Meyne. No; but I would say that it was typical of many of 
the building industry leaders of Chicago. 

Mr. O'Connell. You first referred to a building-trades council. 
Does that involve a combination or group of combinations in the 
building trades? 

Mr. Meyne. Yes. 

Mr. O'Connell. Is that the group to which you are referring? 

Mr. Meyne. Yes. 

Mr. O'Connell. Could you be more specific than you have been 
as to the activities of the labor leadership in that* particular group? 
Possibly that js a rather difficult question. 

Dr. Lubin. I think, Mr. O'Connell, it is an important question. 
The charge has been made that this group has been dominated by 
racketeers, and I think it is important that specific instances be put 
in the record. 

Mr. O'Connell. If Mr. Meyne can answer the question, I wish 
he would. 

Mr. Meyne. Well, let's see. I have a newspaper clipping where a 
school building was put on a strike only a few months ago, where the 
contractor's bond was being challenged, or whatever you call it, 
because the stonecutters' union v demanded the cutting of the stone, 
which was shipped up from Bloomington, or from the oolitic stone 
center in Indiana, to Chicago. Now, the stone for years, on decent- 
sized jobs, has been shipped from Indiana to Chicago, and been set 
and handled by Chicago people. 

Now, the stonecutters demand the cutthjg of that stone be done 
right in Chicago rather than in Indiana. Now, your W. P. A. money 
is going into this particular project; it is money from all over the 
country, yet our particular stonecutters are demanding that this 
work be awarded to them. That is what I call racketeering. 

Mr. O'Connell. If I may say so, I think that is a little different 
type of situation than I. thought you had in mind when you referred, 
to racketeering. That is a condition which I thfnk we will refer to a 
little later, and it involves, as I understand itt^ a general attempt on 
the part of laboring people to preserve for themselves, and I think a 
certain amount of it is legitimate, as large a share of the work in 
connection with the particular activity of the building as is possible. 

Now, racketeering, it seems to me, involves a much more nepharious 
concept. I wish you could be a little more specific. If that is 
racketeering, it isn't what I thought of as racketeering, frankly. You 
had used the word racketeering in connection with the practices of 
labor leaders. 

Mr. Meyne. Who brings the attention of the situation to the labor 
trades council, but the labor leaders? 

Mr. O'Connell. That is undoubtedly true, but I still was under 
the impression when you started that by referring to racketeers you 


were thinking of practices indulged in by labor leaders which were 
clearly against the best interests of the group that they represent in 
their community. 

Mr. Meyne. All right, I will have to go back a little further. I 
didn't know that this questioning was going to take a turn in this 
particular kind of way. Probably it is my fault. 

In one of my buildings — this was quite a few years ago — certain 
boilers were to be made in Waukegan, Wis. Those boilers were 
shipped. The day they arrived, a strike was called. Thirteen or 
fourteen trades were called out. There wasn't any shop big enough 
in Chicago to manufacture those boilers. 

Somebody claimed that these boilers were made by nonunion men. 
They were, I later found out. It took us about 15 weeks to get that 
strike settled. The fact that money was passed was evident, and 
quite a few of those men were indicted, later pleaded guilty, and were 
fined. Now, is that racketeering? That is what I would call racket- 
eering in that sense. 

Mr. O'Connell. You think that is racketeering. 

Mr. Meyne. That is racketeering. 

Mr. O'Connell. Have any other instances that you would care to 
relate, some that are more current, that would reflect what you are 
referring to as racketeering? Frankly, the only reason I have for 
bringing it up is I hadn't realized we were going to discuss labor 
leaders as racketeers, but since it has been mentioned, I think with 
Dr. Lubin it is only fair that you should tell the committee specifically 
whatever you can recall of practices that involve that general 

Mr. Meyne. You go along, and in the meantime my memory will 
come back to me. I am not used to being on the stand, as it were, and 
if you will go along and carry on your line, I will guarantee my memory 
wUl come back and I will be able to recite probably quite a few of them. 

Mr. O'Connell. All right. Now, from your knowledge of the 
construction industry and the building industry generally, can you 
tell us anything about your view as to the labor supply in the various 
trades and whether or not it has been in recent years maintained? 

Mr. Meyne. Well, the labor supply has not been so very well 
maintained. In the present abnormal times, there are sufficient 
mechanics, but the average age of the mechanics is about 52 years 
in the building industry. Of course, in the years of the immedate 
past, '33 and '34, there were quite a few. In '36 and '37 it was rather 
difficult to get skilled men who had a knowledge of the job and knew 
what it was all about. 

Mr. O'Connell. When you say that the average age of building 
tradesmen is now about 52 years, I take it you mean that it should be 
less, and that new apprentices and people are not coming into the 
field. Is that it? 

Mr. Meyne. That is what I mean. I mean the apprentice situa- 
tion is such that we are not training any apprentices in the building 

Mr. O'Connell. Before we go any further with that, when you 
refer to the building industry, I take it that you are referring primarily 
to a situation that exists in and around Chicago where you are most 
familiar with it. 

Mr. Meyne. That is right. 


Mr. O'Connell. And that we must not generalize too much from 
what you say or are you of the opinion that the situation that you 
describe as existing there would be of general application to the 

Mr. Meyne. No; it is not a general application to the country, 
but it is generally in large cities. 

Mr. O'Connell. Now could you tell us something about the train- 
ing of apprentices, as you understand it? 

Mr. Meyne. Well, there is comparatively little, if any, training of 
apprentices in the building industry. The unions, of course, are 
fairly liberal in the number of apprentices that we are able to take on, 
but we can't criticize them on that score, that we can't get enough 
boys and will not take enough boys, but the conditions that they 
impose of bringing up an apprentice is such that it is practically im- 
possible, certainly unprofitable. The starting pay of an apprentice in 
our building industry is 25 percent of the original mechanic's pay, 
which in most trades would be somewhere around 45 or 50 cents an 
hour to start with. 

In the second year his pay is increased, and the third year it is in- 
creased some more, and in the fourth year it is about 75 percent of a 
mechanic's pay, but the condition that additionally is imposed is that 
you have to keep this apprentice on your pay roll constantly. You 
have to guarantee him employment and you have to send him to 
school 1 day a week. Now the mechanic only works 5 days and 
you send your boy to school 1 day, so he only works 4 days. By the 
time you are through why he has cost you more than the hiring of a 

Besides that, he is spoiling materials and takes up the time of the 
foreman and of the other mechanics, and therefore we just don't take 
them, and I suppose that outside of probably where we ought to in 
Chicago be having somewhere around six or seven hundred, we prob- 
ably have only 40 or 50 apprentices in the various trades. 

Mr. O'Connell. If I understand you correctly, then, it isn't a 
situation in which the unions 

Mr. Meyne (interposing). The union is not to blame. 

Mr. O'Connell (continuing). Discourage having apprentices enter 
the field, but rather that the employers do not feel it profitable to 
train apprentices, and I suppose it is also true that there is no other 
way of training apprentices than to have them employed on the job? 

Mr. Meyne. Yes; there is. 

Mr. O'Connell. Is there? 

Mr. Meyne. You can train apprentices, s~>me apprentices, in" 
certain trades, by intensive training. It doesn't take 4 years to 
always make a mechanic. He may not have structural knowledge 
by intensive training. You take a boy out of high school and you 
can make a mechanic out of him very much quicker than 4 years. 

Mr. O'Connell. But traditionally, I take it, the method has been 
training apprentices by actual work on the job, hasn't it? 

Mr. Meyne. Yes; for example, when labor was scarce back in '23 
and '24, we made bricklayers in 6 months, pretty good bricklayers 
at .that".; and they didn't have construction knowledge, but they could 
lay comers and they could earn a day's pay. We made plasterers in, 
9 months-; we made tile setters in 6 months, by giving them intensive 
training in the school. 


Mr. O'Connell. That would seem to indicate, too, that if there 
were substantial expansion in construction that we wouldn't have a 
serious and long-continued shortage of skilled workers to contend 

Mr. Meyne. If unions would permit us to give them intensive 
training rather than traditional 4 or 5 years, why it wouldn't take 
long to make mechanics in a number of the trades. You see, a boy 
of 18 can take knowledge much faster than a boy of 12, when we 

Mr. O'Connell. Well, generally, I take it you feel that not enough 
young people are in a position to learn to enter one of the building 

Mr. Meyne. Well, that is another thing. You see it is rather 
difficult to enter the building trades. The initiation fees in the build- 
ing trades are rather high; the cheapest initiation fee in Chicago that 
I know of in the building trades is $100. From that it ranges up to 
$500 to become a member of the union. The laborer, common laborer; 
must pay $5 initiation fees, and the dues range from $2.25 a month to 
$6 a month, plus such assessments and fines for infractions of rules 
as may occur from time to time, and the rates of initiation fees are 
for the various trades — the bricklayers and masons is $100, $3 a 
month dues. The carpenter's is $100 and a dollar and a half a month 

Mr. O'Connell. This is in Chicago? 

Mr. Meyne. This is in Chicago. It runs in the same general run 
in other large cities. Electricians, first-class journeymen, $350; the 
B and C class journeymen, $200, and the apprentice must pay $100 
initiation fee before he is ever taken. 

Mr. O'Connell. You haven't mentioned any apprentice initiation 
fee for the other trades. Generally speaking, is the initiation fee a 
fee that is paid after the period of apprenticeship? 

Mr. Meyne. That is arranged afterward, as far as I remember. 
Mine is quite a while ago, but I had to pay mine before we started. 
That was only a few dollars then, $10 or $15. 

Mr. O'Connell. I take it there wouldn't be any apprenticeship for 
labor, would there? 

Mr. Meyne. There is no apprenticeship for labor. 

Plasterers' are $150 to $125; plumber, journeymen, $200; steam- 
fitters, $300; painters, an average of $100; and the plumbers' quarterly 
dues are $15 and the steamfitters' quarterly dues are $10.75. 

Now another rather peculiar thing about this is that even though 
the unions are supposed to be national organizations, the transfer of 
membership from one city to another and from one part of the country 
to another is often found be be as difficult for a journeyman to get 
into a union in a strange town because the ranks are closed and they 
have a phrase, what they call "the books are closed," and they won't 
take any mechanics from strange towns. 

Mr. O'Connell. Well, now, that particular situation, I take it, 
would tend to make it difficult for a member of the union in one area 
to move to another and find employment on a union job. Referring 
for the moment to the initiation fee, I take it from your reference to 
the size of the fees in connection with some of these trades, that you 
believe that to be an unequitable or unfortunate situation? 


Mr. Meyne. Where is a young man going to get $500 or $100 or a 
man that comes from the Country to learn his trade and comes to the 
city, where is he going to get the money to join the union? The 
initiation fees are exorbitant and in my past experience most of the 
young men that have come to the cities have come from the country. 
I think that is one of the things that this committee might give some 
sympathetic thought and study to, to see what could be done in 
correcting that sort of situation. 

Mr. O'Connell. How much effect do you spppose that situation 
has on the matter of the cost of the finished product, the house that 
we are talking about? 

Mr. Meyne. That is pretty difficult to say. I would like to say 
this, that every foreman that has been in my employ has either come 
from the country — they don't seem to raise them in the city; that is a 
startling statement, but that is nevertheless true ; nearly every super- 
intendent that comes into the large city comes from the country, or 
is foreign-born. 

Dr. Lubin. Mr. Meyne, I understood you to say a minute ago that 
as far as you knew there was no shortage of building mechanics in 
Chicago at the present time? 

Mr. Meyne. Not at the present time. 

Dr. Lubin. Has there been in the past 2 or 3 years? 

Mr. Meyne. In '37 there was a shortage, beginning to be felt, and 
the beginning of '38; there isn't any particular shortage at this time. 

Dr. Lubin. When you say "beginning to be felt," you actually 
couldn't get enough people? 

Mr. Meyne. We could get them, but there wasn't any selection of 
men, efficient and proficient in the work. 

Dr. Lubin. If, for example, his initiation fees were lowered tomor- 
row, as far as your supply of labor is concerned, it would have no 
effect? I mean, you see, right now you have plenty; anyway, you 
have no trouble getting it? 

Mr. Meyne. We haven't any particular trouble getting them now. 

Dr. Lubin. So it is really a question of anticipating a shortage? 

Mr, O'Connell. Well, generally speaking, I would gather that it 
was your complaint with the situation that young people find it 
difficult to get the wherewithal to join the union or to become con- 
nected with the building trades generally, and to that extent it limits 
their opportunity for employment? It really doesn't, I gather, mean 
that you were concerned with any imminent shortage in that type of 

Mr. Meyne. No; of course I must confine myself to my particular 
personal knowledge, and my own particular work, which is probably 
high-grade and a high-standard, and I have had a following over a 
period of time, that whenever I need any men they would leave other 
people and come to me, so that also affects my viewpoint, but never- 
theless these men are getting older and older and they are getting less 

Mr. O'Connell. Referring again for the moment to the material 
prices to which you referred, have you any first-hand knowledge as 
to other deterrents that might affect the price of materials — you see, 
when we speak of transportation costs and such things, I don't con- 
ceive of those as being the sort of deterrents to which I am referring*! 


I am thinking of things that are artificial and which arbitrarily increase 

Mr. Meyne. I think that building materials cost more than other 
important things in our civilized life, and that are made under the 
jurisdiction of labor monopolies; by that I mean generally speaking, 
broadly speaking, unions. 

Mr. O'Connell. Now we are still getting confused, I think, be- 
tween materials and labor. 

Mr. Meyne. By materials you mean such things that go in as 

Mr. O'Connell. I mean lumber, cement, steel, raw materials that 
go to make up the house. I am thinking of the cost of the materials 
now as distinguished from the cost of putting materials together on 
the site of the project. Have you any first-hand information as to 
any practices that might have had the effect in your area, to your 
knowledge, of unreasonably incresaing the price of materials? It is 
one of the elements — I have no way of knowing whether you have 
any comparative answer or not; it happens to be one of the major 
elements that enter into the cost of the house. If you haven't any 
first-hand knowledge of it, why we will pass the question. 

Mr. Meyne. Well, I was just thinking about some of the practices 
of material dealers. For instance, we can't buy any materials from 
any manufacturer — of course they may have their own reasons for 
that, but it does seem to me that in many of the instances we ought 
not to be charged more for our material than is reasonable. Now to 
get specific, a sack of cement costs about $1.70 to produce; at least 
that is what they tell us. If we buy it in Chicago delivered by 
freight, it costs 29 cents freight rate, yet the rate is only about 14 
cents. If we send a truck or trailer to the bins of the cement com- 
pany, their charge is $1.70, but 15 cents a barrel for loading. Now 
if you can tell anybody that knows anything about handling cement 
that it costs 15 cents to load it on the truck when it doesn't cost 
anything additional to load it on a car, I can't quite understand it. 

Now then if we want to buy Chicago cement m Milwaukee, it is 
the same price as it is in Chicago. You can buy cement that is made 
down-State in Chicago for the same price that you can buy Chicago 
cement for. Now that is the sort of a thing I mean when I say 
"dealer prices are not fair to our own people." Did I make myself 

Mr. O'Connell. I take it that you mean the price structure in 
the cement industry 

Mr. Meyne. That is the price structure in the cement industry. 
Now the other industries, of course, the dealer and jobber situation 
is that we feel we would like to in many cases, especially where we 
have large quantities to buy, be able to buy direct from the dealer. 

Mr. O'Connell. Well, generally speaking, do you mean that you 
are not able to find a competitive price situation in buying certain 
types of materials that you wish to buy? You have explained what 
the situation was, but you haven't made clear to me what the cause 
of the situation was, or what a more desirable situation would be. ■ 

Mr. v Meyne. Well, of course a more desirable situation would be — 
and we could produce homes for less money if we could buy our mate- 
rials cheaper. Now to get to the cheaper market, we ought to be 


able to get direct to the manufacturer, to the wholesaler, instead of 
the jobbers. Now we have had in times past a number of what we 
call set-ups or combinations. They have come and they have gone. 
I remember the first one back in 1916 or '18 with the ornamental 
group that had a bidding practice in Cleveland. 

I have seen the sheet-metal men having groups and being indicted 
and prosecuted, and fined; the carpenters and the carpenters' union 
had a collusive agreement back in 1918 when a number of contractors 
were fined. The Chicago mill men were fined. Some of the labor 
leaders were fined. One of them even had to go to jail. And we 
have seen the glazing situation where glass cannot be purchased in 
the sash. If you buy a sash you must buy it and fit it and then the 
glazier comes on the job and puts in his gloss. 

If you could buy these various materials fitted, if you could buy 
glass right in the sash where it would be glazed in the shop, you 
would have quite a saving, and, speaking again of racketeers, only a 
few years ago, comparatively a few years ago, if you bought a medi- 
cine chest and it had the glass in it, it was set in the State of Indiana 
or some other State, the glass would have to be taken out and reset 
by a Chicago glazier or some business agent would have to be satis- 
fied, and he would be fined, and the glass and medicine chest might 
be set. 

If you had a situation where you didn't have the union label on 
certain mill work, you couldn't get the carpenters to install this mill- 
work. That is what I mean by — and I think you are trying to get 
out of me by asking if there are any further retardents in this business 
of materials. 

Mr. O'Connell. You have indicated just now a number of prac- 
tices, some of them, I take it, a matter of union rule, and some of 
them a matter of combination between material men and contractors 
or some other group, all of which, to some extent have had the fact 
of unreasonably increasing the cost of the finished product, and I 
take it you also mean that while some of the instances to which you 
have referred are historical in the sense that they happened a number 
of years ago, it is your belief that those practices or similar practices 
continue to exist. 

Mr. Meyne. There is no question about that, that they exist. 
Now, further, if we could have prefabricated houses — by that I don't 
mean houses that you bring whole sides to the building, to the job, 
but precut lumber — if you could buy your lumber cut, if you could 
have your doors and windows fitted in the mill and have it shipped to 
the building, the erection labor would be considerably less. You 
haven't that privilege now. There is no reason why you should, if 
you could buy a kitchen cabinet that you couldn't buy that from the 
makers of these things completely made up with drawers fitted and 
doors fitted, and hardware applied, and completely finished, but we 
can't. If we want a wooden kitchen cabinet, we have to buy it and 
make it up. We have to fit the doors on the job. We have to fit the 
door and apply the hardware, and we have to paint it in the kitchen. 
All of those things are multiplying the cost. 

Dr. Thorp this morning referred to the laborers and concrete mixer. 
Now, we in Chicago haven't the privilege of using such a thing as a 
batch mixed as he indicated was outmoded by the fact that you already 
have used ready-mixed concrete, that you have a device where you 


ship the concrete, that somebody within a few minutes of the point 
of destination applies the water, and by the time it is ready to be 
backed up and dumped into the hopper you have ready-mixed 

Now, just see what that means to a small operation of a home where 
you only have fifty or a hundred yards of concrete. You must set up 
a plant; you must haul the mixer; you must haul your equipment to the 
job; you must then set it up, and then you go after it the old-fashioned 
way of 30 years ago, of wheeling your wheelbarrow and dumping it 
into the mixer and it churns around and you take it out at the other 
end. Well, now the modern way is that you just merely have the 
truck back up to the hopper and dump it. No; we in Chicago are 
not allowed that sort of thing; we must pay the full price of having 
all of these things done in the old-fashioned way. 

Mr. O'Connell. Then I understand you to say that the modern 
way as Dr. Thorp referred to of having ready-mixed concrete and 
deliver on the site is not available to you in Chicago, and by virtue 
of the rule 

Mr. Meyne (interposing). Not by virtue of the rule, but by virtue 
of a dictation of the labor unions their leaders will not permit them 
to work on any job where batch concrete is delivered. The rule very 
definitely says that they shall not interfere with the use of any machin- 
ery of any kind, but that does not mean anything, apparently. 

Mr. O'Connell. In your experience, have you anything you can 
tell the committee about the restrictive effect of building codes? We 
have had some testimony from persons of various areas and all of 
them have indicated outmoded provisions of building codes had the 
effect of unduly hampering the introduction of new materials. 

Mr. Meyne. All I can say, it took us 12 years to get a new building 
code in Chicago that we should have been able' to get in 6 months by 
intelligent application of engineering minds and architects and build- 
ers. Naturally, when you have a building code where somebody has 
in the past set up for himself a special privilege, and that special 
privilege is being removed, he resents it; he is trying to keep his 
position, as was outlined here this morning, and he uses influence of 
every kind that he'can to persuade those who are in charge of adopting 
the code, to keep the old privilege intact. 

Mr. O'Connell. Those interested parties, they would not be con- 
fined to any particular group, would they? 

Mr. Meyne. There may be a number of groups. To illustrate, the 
plasterers' union had a bill introduced in Illinois which would compel 
three coats of plaster and put every plasterer on a licensed basis. The 
painters also had a bill introduced which would compel every painter 
to have a license. It would prohibit any home owner from painting 
a dado in his kitchen. Fortunately the bill didn't pass, but it did pass 
second reading and was given consideration. 

We endeavored to have the exits of an ordinary three-flat building 
to withstand 3-hour fire test, but no, we couldn't get by with that in 
a change of our ordinance ; we had to have extra heavy brick walls and 
tiles and things of that sort. 

Mr. O'Connell. Well now, that type of pressure or interest 
wouldn't be confined to the labor group, would it? 

Mr. Meyne. Oh, no; I didn't mean to infer that the labor group is 
at fault. There are a number of people there that have a privilege. 


Mr. O'Connell. That is what I wanted to bring out, the privilege 
you refer to as being solidified 

Mr. Meyne (interposing). No, the plasterer employer was just as 
guilty of trying to get a license for himself and his people as the labor; 
in fact I believe he pushed it more than the labor. 

Mr. O'Connell. There is general resistance to change, then I take 
it, by various groups; they might be material people or manufacturers 
of a particular type of product which was approved under the building 
code or it might be a labor group who would resist change in a building 
code or in other improved methods of construction. Is that correct? 

Mr. Meyne. Yes; speaking of improved methods of construction, 
we have constant resistance against the use of new methods, like the 
use of compressed air for steel riveting and steel drilling and stone 
cutting and carving and concrete cutting — we have had all those 
things and we have had resistance against electric tooling. To 
illustrate, back about 15 years ago the stone cutters over all the period 
compressed air was being developed, refused the use of cutting stone 
with compressed air. After a very serious strike and a compromise, 
an award by an umpire gave the employer the right to use compressed 
air. The result was not one tall building was built in terra cotta 
after that but they got all of that work of building all the skyscrapers 
in 15 years in Chicago out of stone. So you see what the resistance 
to an improvement meant to them. It called for men from all over 
the country to come in and help men cut stone in Chicago by giving 
them the new methods, and so it is all the way through. 

Mr. O'Connell. That is a rather difficult situation to correct, 
is it not? 

Mr. Meyne. Oh, education. 

Mr. O'Connell. It is a long-range program of making little prog- 
ress at a time, I take it. 

It is getting late. Dr. Lubin — oh, he has gone. 

Acting Chairman Reece. He said he would forego asking any 

Mr. O'Connell. If the committee have no further questions to 
ask Mr. Meyne on this material he has discussed, I have none. The 
chairman has suggested, and I feel quite sympathetic with it, that you 
might desire to possibly change what you had said about racketeering 
or at least make it a little clearer that by racketeering as developed 
you were meaning something a little different from racketeering as 
we had understood it in the first instance. Are you willing to stand 
on your statement as it is developed? 

Mr. Meyne. If I understood you correctly, and you understood 
me correctly, probably we had better change my definition of racket- 
eering as it later developed in the answering of your questions and 
if you 

Mr. O'Connell (interposing). Let me say this and see if you are 
in accord: In developing the practices to which you are referring, it 
seems to me that what you had in mind was practices which have been 
indulged in and are being indulged in on the part of unions which have 
for their purpose the obtaining of as large a share of the labor cost of a 
completed house as is possible for that particular special group, and 
that you are unsympathetic with that view and that it is that type of 
practice that you were thinking of when you referred to racketeering. 

Mr. Meyne. Yes; I was thinking of that particular thing; but at 


the same time when men can settle things for money, and cause situa- 
tions to be created so that they may get money, why that is racket- 

Mr. O'Connell. I have no quarrel with you on that. My feeling 
is that while we are now in accord on the definition of racketeering 
it is a very dangerous thing to make allegations to the effect that 
racketeering exists to an extent in the building trades without being 
in a position to be fairly explicit, because you are almost in a position 
of tarring a lot of people with a brush without indicating the extent 
to which they should be so tarred. If you are willing to stand on the 
general statement that that kind of practice, which we will agree is 
racketeering, exists in Chicago and at the same time unwilling or 
unable to be specific as to instances, why I take it that that is the 
state at which we will have to leave the record. 

Mr. Meyne. Well, I'll tell you, I prefer to have it deleted from the 
record for this reason — that I can't afford to get into an awful lot 
of lawsuits. 

Mr. O'Connell. I'm not sure about how successful we will be in 
deleting it from the record but let us say for the purpose of the record 
that the practices which you primarily had in mind on the part of 
labor unions were those which were for the purpose of obtaining for 
that group as large a share of the labor employed in housing as it was 
possible and that it is your view that that is not a desirable practice 
socially and that you are entirely unsympathetic with it and that is 
as far as you care to go in discussing labor practices with this 

I have no further questions tonight. 

Mr. Meyne. I am sorry that I made such a poor witness. I have 
been on the train all night. 

Acting Chairman Reece. I think you have 'made a very splendid 
presentation and the committee has enjoyed, it very much. Your 
testimony, I think, has been very helpful. 

Mr. Meyne. I thank you very much. 

Acting Chairman Reece. The committee will stand in recess 
until tomorrow at 10:30. 

(Whereupon, at 5:20 p. m., a recess was taken until Wednesday, 
July 12, 1939, at 10:30 a. m.) 



United States Senate, 
Temporary National Economic Committee, 

Washington, D. C. 

The committee met at 10:45 a. m., pursuant to adjournment on 
Tuesday, July 11, 1939, in the Caucus Room, Senate Office Building, 
Senator Joseph C. O'Mahoney presiding. 

Present: Senator O'Mahoney (chairman), Representatives Reece 
and Williams, Messrs. O'Connell, Henderson, Lubin, Hinrichs, and 

Present also: Messrs. Lowell J. Chawner, Department of Com- 
merce; Ernest Meyers, Department of Justice; Gerhard A. Gesell, 
Securities and Exchange Commission; and Peter A. Stone, coordinator 
of construction studies for the committee. 

Chairman O'Mahoney. This committee is now in order. Are you 
ready to proceed? 

Mr. O'Connell. I am, Mr. Chairman. 

Before calling the first witness I should like to make a very brief 
statement. From time to time during the course of these hearings 
various witnesses have referred to the part that labor plays in de- 
termining the cost of housing. And it has on several occasions been 
suggested or intimated that this particular element of cost has been 
and is now inordinately high. As was pointed out by 'Mr. Arnold 
last week, it has not been possible or practical to examine at this time 
this angle of the whole problem with the degree of particularity that 
one might wish, and for this reason labor and labor practices have 
come into our picture incidental to testimony on a broader basis. 
However, such practices have been referred to and it has been felt 
that it was only appropriate to bring before the committee a repre- 
sentative of organized labor so that also in a general fashion the posi- 
tion of labor might be stated from its point of view. 

With that preliminary statement I would like to call Mr. Daniel 
Tracy. - 

Chairman O'Mahoney. Do you solemnly swear that the testimony 
you are about to give in this procedure will be the truth, the whole 
truth and nothing but the truth, so help you God? 

Mr. Tracy. I do. 

Chairman O'Mahoney. Please be seated, Mr. Tracy. 


124491 — 40— pt. 11 22 




Mr. O'Connell. Mr. Tracy, will you please state your name, 
present address? 

Mr. Tracy. Dan W. Tracy, 1200 Fifteenth Street NW., Wash- 
ington, D. C. 

Mr. O'Connell. What is your position? 

Mr. Tracy. President of the International Brotherhood of Elec- 
trical Workers. 

Mr. O'Connell. And that is an organization of the local unions 
of electrical workers, is that correct? 

Mr. Tracy. Yes; United States, Canada, Panama, Alaska, and 
other possessions of the United States, known as an international 
labor organization. 

Mr. O'Connell. And that in turn is an affiliate of the American 
Federation of Labor, I suppose. 

Mr. Tracy. American Federation of Labor and all of its branches. 

The Chairman. Any other foreign countries than Canada? 

Mr. Tracy. Not yet, Mr. Chairman. 

The Chairman. You have some hopes, apparently. 

Mr. Tracy. We have had in the Republic of Mexico, local unions, 
but under the present political administration, we have none. 

Mr. O'Connell: How many members are there in your organiza- 
tion, Mr. Tracy? 

Mr. Tracy. Approximately 200,000 members in the United States 
and those countries which I have mentioned. 

Mr. O'Connell. I suppose the vast majority of the members are 
in the United States. 

Mr. Tracy. Yes; that is true. 

Mr. O'Connell. Are all of the members of your unions connected 
with the construction 4 industry? 

Mr. Tracy. No. There are 42 percent only of that number that 
are employed in the construction industry; the balance, 58 percent, 
listed in other fields, namely, the electrical utility, telephone, electrical 
manufacturing, railroads, marine, radio broadcasting, and kindred 

Mr. O'Connell. I see. Then the .58 percent includes maintenance 
crews for public utilities and other organizations? 

Mr. Tracy. Yes. 

Mr. O'Connell. Includes some workers in factories, electrical 
manufacturing groups? 

Mr. Tracy. That is right. Now the maintenance and repairs, 
alteration men, come under this 42 percent. 
— -Mr. O'Connell. They would? 

Mr. Tracy.- Yes. They come under what is known to us as the 
inside branch of our trade, which covers all construction workers. 
We consider maintenance, alterations, and minor extensions, con- 

Mr. O'Connell. I see. Mr. Tracy, I take it you are generally 
familiar with the construction industry, been connected with it for 
quite some time? 


Mr. Tracy. Yes; quite familiar. For many years I have handled 
the business of the local unions in the local industry and believe 
I am familiar with their problems and with the problems of the con- 
struction industry. As president of the Brotherhood there pass 
through my office every day and every year the major problems that 
confront the workers in the construction industry. 

Mr. O'Connell. We have had some testimony before the com- 
mittee as to what you might call the fragmentary character of the 
industry, particularly the number of small units engaged in the indus- 
try on the site of the project. Has your experience been that the 
description of the industry as given by Dr. Thorp yesterday was sub- 
stantially a correct one? 

Mr. Tracy. Well, I didn't hear Dr. Thorp's full testimony. I 
haven't had the time to read it, either, so, therefore, I couldn't- answer 
that particular part of your question; however, your first question 
is a very good one in my opinion. I would like to answer that. 

Mr. O'Connell. All right. 

Mr. Tracy. The construction industry, as every one knows, is of 
a large scope. Taken as a whole, it is a big business. Recently a 
questionnaire was sent out to the electrical contractors in this coun- 
try, including large and small, and this mailing covered 15,000 in 
the classification of electrical contractors. Our international union 
has contracts with 4,000 of those electrical contractors. Even the 
so-called large firms or companies in the construction industry are 
small businesses when compared with the giants such as the Bell 
Telephone System, the General Electric Co., the Ford Co. and the 
General Motors. 

The very decentralized and local character of the construction 
industry appears to preclude an assumption of collusion in restraint 
of trade or monopoly. If v?e had a centralized industry with a few 
large firms, it appears to me the assumption of monopoly would be 
more justified. 

Mr. O'Connell. I hadn't intended to discuss that particular phase 
of the problem at this time, but since you have mentioned it, I am 
not entirely clear as to why large units and a few units are necessary 
to monopoly. If by monopoly we mean an absolute monopoly, that 
is one thing, but-if by monopoly we are thinking of monopolistic prac- 
tices or restrictive practices, it has always been my impression that 
those practices would flourish in localities where there are a number 
of otherwise competing units. Would you care to elaborate on that 
statement of yours at all? 

Mr. Tracy. Yes; I might do that. The construction industry 
today, from our own experience and knowledge, is chopped up between 
so many. First, you have the architects, you have the general con- 
tractor who in many instances operates as a broker, does very little 
of the construction job directly by himself. He sublets, such as 
the foundation work, such as the brick work, the plastering, plumbing, 
electrical work, and he has nothing to do with the plans of the architect. 
In many cases the plumbing engineer, the electrical engineer, draw 
the electrical and plumbing specifications and plans for a- job, for the 
architect, which are accepted and then used in the generalcontractor's 
bid that is submitted, and with the many ramifications in the construc- 
tion industry today, it has created a condition of chaos in the con- 
struction industry, for in former years the general contractor did 


practically all of the work on the job which he secured, except plumb- 
ing and electrical, and those were let out to employers who specialized 
in those two branches of the construction industry. 

That is why I state that the character of the construction industry 
appears to preclude an assumption of collusion in restraint of trade 
because there are so many in it. It is not one big business. As a 
whole you might call it a big business, but it has rather loose con- 
nections of different types of people. 

Mr. O'Connell. I certainly would agree it would be as a practical 
matter impossible to combine all of the many different groups en- 
gaged in the construction industry into one large combination in 
restraint of trade, and I don't want to pursue this further.. It has 
been suggested from time to time, though, that it is entirely possible 
to have collusive arrangements and combinations in restraint of trade 
among groups representing a particular part of the construction 
industry. For example, there wouldn't seem to me to be any unsur- 
mountable difficulty to haviDg a combination between the retail 
lumber dealers in a given area, or a combination between the plumbers 
or electrical contractors or any of the many groups that go to make 
up the whole picture. I don't think we ought to pursue that. I 
merely wanted to indicate that I wasn't entirely clear that monopoly 
or restricted combinations in restraint of trade were impossible in the 
construction industry. 

The Chairman. Mr. O'Connell, it might be well to say that there 
is a frequent misconception of what is meant by monopoly. I 
suppose there is a popular impression that when one speaks of mo- 
nopoly, one is speaking of a single unit dominating and controlling 
an entire field, whereas, as a matter of fact, the Sherman antitrust 
law was not restricted to that interpretation. The Sherman anti- 
trust law not only forbade monopolies in attempts to monopolize in 
that sense, but it also forbade combinations of conspiracy in restraint 
of trade and a combination of conspiracy in restraint of trade might 
be committed at a crossroads town as well as in the big city of New 
York, so long as it was operated in interstate commerce. 

I think that distinction is not frequently understood. 

Mr. O'Connell. That is stated much better than I could have 
stated it. Would you care -to*"a'dd anything to what you said? 

Mr. Tracy. No; I don't believe I care to go into that any further. 

Mr. O'Connell. All right. There has been some testimony before 
the committee as to the relative cost of the various elements that 
enter into the capital cost of accounts. Have you any statistics as 
to the percentage of the cost of construction of residential housing 
that goes to labor on the site of the project?^ 

Mr. Tracy. Yes. This has shrunk considerably during the last 
7 years. For many years the ratio was 50-50, that is 50 percent of 
the builders' funds went to purchase the building material, and 50 
percent to labor. The ratio now is about 35 to 65. That is, 35 per- 
cent of the construction job goes to labor and 65 percent to materials. 
Even put upon a most conservative basis, I can state with assurance 
that the ratio now is from 33 to 42 percent for labor as compared 
with 67 and 58 percent for materials. 

A report made by the Public Works Administration to President 
Roosevelt in June 1939, states, and I quote, ; '0n a P. W. A. project, 
35.7 percent of the expenditures are for labor; the balance, 64.3 goes 


for material." This report is borne out by figures we have gathered 
on residential building both of public and private character. As 
early as October 1932, the Monthly Labor Review of the United 
States Department of Labor has evidence of this trend toward lower 
labor costs. In Atlanta, Ga., the labor cost on construction jobs 
was as low as 29.9 percent. In Dallas, Tex., it was as low as 26 per- 
cent. The highest figure given was for Boston, Mass., at 43.1 percent. 
Purdue University housing research project, so-called, places the 
percentage of labor between 28 and 33 percent. Incidentally, we 
should state that the electrical part of any given job or project repre- 
sents only 3 percent of the total cost of the job or project. 

Mr. O'Connell. Mr. Tracy, you referred to the fact that some 
years ago the ratio as between labor and materials was about 50-50. 
To what do you attribute the decrease in the percentage of labor or 
cost on the site, has it increased mechanization? 

Mr. Tracy. Yes; and evolution in the construction industry, the 
replacement of manpower bj machines, the fabrication of certain 
equipment and material, and manufacturing plants and other types 
of plants, and the change of manufacturing, of certain materiel th«t 
permits an individual worker to put in more different types of work 
than he did under the old system. 

Mr. O'Connell. Have you any figures as to how much workers in 
the electrical field make per hour, per week, and per year? 

Mr. Tracy. Yes; our research department keeps a rather close 
check on employment problems in our union. If an electrical worker 
worked full time, a 40-hour week for 52 weeks, he would have worked 
1,038 hours, or, in 1938 — I beg your pardon, he would have worked in 
1938 2,080 hours per year. Figures from 47 cities indicate, however, 
that the average hours per man per year was 1,276.9 hours. This 
indicates a subnormal employment based upon a full-time year. The 
average hourly wage for inside electric workers, and, by the way, that 
is those people that are employed in construction — the average hourly 
wage for inside electrical workers for the entire inside section of the 
union, was $1.20 an hour. These figures are based upon reports from 
140 cities. 

On the basis of average hours worked, our men earned $1,532.28 
in 1938. Following the same line of figuring in 1939, the average 
wage is $1.21, which would mean an average of $1,545. Now, you 
will notice that we took two of the best years for those figures that we 
have had since 1929. This, I think, you will agree is not a profiteering 
income for skilled workers in a basic industry. These figures of 
$1,532 must be regarded as a more or less theoretical figure, because it 
represents work hours in principal industrial cities rather than in small 
towns and outlying districts. 

Mr. O'Connell. As I understand it, then, in 1938, taking 140 cities, 
the average number of hours worked was 1,276 and had they worked 
full time, that is, 40 hours a week for 50 weeks, 52 weeks, in the year, it 
would have been 2,080. That indicates that] the average employ- 
ment was not greatly over 50 percent, that is, in hours. Now, the 
wage rates, you say the average wage rate in 140 cities was, in 1938, 
$1.20 an hour? 

Mr. Tracy. That is right. 

Mr. O'Connell. Is there a substantial variation between the high- 
est union rate and the lowest?, union' rate within those -cities Z. 


Mr. Tract. Yes; there is a range there from $1 an hour to $2 an 

Mr. O'Connell. And in determining the $1.20 average, that is, an 
average by cities, or is it an average by individual workers? 
Mr. Tracy. Average by cities. 

Mr. O'Connell. Would you think that, with the average taken in 
terms of the actual workers, that it would change the figure very much? 
Mr. Tracy. I figure it would change it, yes; downward to some ex- 
tent. As to how much, I could not say. We have not had time to 
work it out on that basis. 

Mr. O'Connell. Now, those figures relate to members of your union 

Mr. Tracy. That is correct. 

Mr. O'Connell. Can you give ,us any information as to the extent 
of unionization in the residential building fields generally? I am 
referring now to your union, primarily. 

Mr. Tracy. Yes; I can do that. As a matter of fact, numerous 
low-cost housing projects have been erected under Government super- 
vision on a purely nonunion basis; moreover, the residential field, 
so-called, throughout the United States, has been characterized by 
nonunion conditions; in view of the fact that there is a differential of 
10 to 40 percent between union and nonunion wages, it is apparent 
that the reason for the failure to produce low-cost housing on a low- 
cost basis cannot be traced to wage conditions at all. It seems to me 
that the whole theoretical case against unions and union wage scales 
in this particular field falls to the ground upon this fact alone. 

Now, as close as we could figure it in these United States, 90 percent 
of the small homes throughout this country are erected and equipped 
by workers not members of any labor organization; 90 percent is done 
by nonunion people. 

Mr. O'Connell. You are speaking about residential construction? 
Mr. Tracy. I am talking about residential construction. 
Mr. O'Connell. The large projects as well as the small, that is, 
individual homes and large homes? 

Mr. Tracy. Homes ranging from $3,000 to $12,000, up to as high 
as $15,000. 

Mr. O'Connell. But are you referring primarily to the single- 
family type of construction? 

Mr. Tracy. I am referring primarily to the single-family, yes; 
because, as the cost of the residence goes up, the more modern equip- 
ment is placed in that home and a higher type, of skill is required. 
Mr. O'Connell. And when you get into the large multiple-dwelling' 
type of construction the probabilities are that the percentage of 
unionization would be higher? 
Mr. Tracy. Is greater. 
Mr. O'Connell. Would it not? 
Mr. Tracy. Yes. 

Mr. O'Connell. And you referred to the fact that some Govern- 
ment housing projfects had been constructed on a nonunion basis. 
You haven't any idea how extensive that is; that is probably a fairly 
small percentage of Government activity, isn't it? 

Mr. Tracy. Well, we have done just about — that is, the organiza- 
tions and the American Federation of Labor has done very little of 
the Government work under the F. H. A. and other branches of the 


Government, including the housing programjinderJP. W. A. Now, 
in the District of Columbia here, where there happens to be at this 
time and.has been for a year and a half, quite a housing program both 
by Government and private industry, while my organization does 
possibly more of that work — except the plumbers do about an equal 
amount of work on those residences — all of the other trades are non- 
union. Now, that condition exists right here in the District. It is 
here for anybody to see. The wage rates for mechanics in all branches 
of the building trades are as low as 50 and 60 cents. Our organiza- 
tion has tried to meet that situation in order to gain control of that 
earning opportunity for our people and we have reduced our rates 
of wages materially to get that work, and we have reduced it almost 
100 percent. 

Now, some of the other trades have done the same thing but we 
find that when we as a labor organization, reduce our rates, the 
nonunion" employer then in turn advises his people that the union 
has reduced the rate and therefore he is compelled to reduce his, . 
until today, in our own great capital here, we have got a mechanic's 
rate on housing as low as 50 and 60 cents for mechanics, and, under- 
stand, that takes in the electrical workers as well as other trades. 

Now, we find that the real-estate people and lumber people and 
materia] people secure the services of competent nonunion mechanics, 
they underwrite the cost for that job and pay him as a rule a fore- 
man's wages, and he secures only nonunion people because union 
people will not give their services on that type of a job. 

Now, that condition prevails here in the District of Columbia and 
I think I can safely say that in the greater majority of the cities in 
this country that same condition prevails. There may be some 
exceptional cases. I know that there are a few within our organiza- 
tion and there are a few possibly within some of the other labor 
organizations, in this field of activity. 

Now, with that condition of wages, no working rule is established 
under those conditions other than probably the 8-hour day, and you 
can see, I think, that the labor cost is not a factor in retarding this 
housing program throughout these United States. 

Dr. Lubin. Mr. Tracy, when you talk about the housing con- 
struction in Washington, you are talking about all types, large as 
well as small, multiple? 

Mr. Tracy. I 'am talking about, Doctor, residences from $3,000 
up to $15,000 — I dare say there have been some up to $25,000 that 
have been done. 

Dr. Lubin. How about lighter scale big apartment houses? Are 
they usually union or nonunion? 

Mr. Tracy. I wouldn't say that they are 100 percent union, 
Doctor. Some trades are successful in getting employment on it, 
probably through friendship for a contractor who secures Ascertain 
part of that work. I can't speak for the other trades. I only know 
those conditions from my own personal observation and mention 
only those. I would say that the apartment work, the majority of 
that, I would say, is union. The majority of it being done even 
in what we call the downtown area — a lot of it has been done not 
exclusively by union labor but 80 percent union. 

Dr. Lubin. In other words, as far as the individual trades are con- 
cerned there is no attempt to make any job completely union. In 


other words, the plumbers will install plumbing in a building that has 
been erected with nonunion bricklayers. 

Mr. Tracy. Yes; in the District of Columbia; and the electrical 
workers will do the same thing because there is no way to control the 
contractor who comes into existence today to build one or more houses 
and after he has completed that he goes out of business as a rule, 
uiJess there is further opportunity for him. 

Dr. Lubin. Would that be pretty general throughout the country? 

Mr. Tracy. I would say yes, Doctor, that it is pretty general. 
However, there are certain cities in the United States that have 
successfully maintained that earning opportunity for members of the 
respective craft organizations. Take in the city of Chicago, all those 
residences there are done by union labor simply because the union has 
had in effect for several years to my knowledge a lower wage bracket 
for that type of work. 

Dr. Lubin. That is an interesting point you raise there. Is it quite 
common for the unions to agree with the contractors to accept low wage- 
rates for lower-cost housing? 

Mr. Tracy. That is right. That is, pretty generally. 

Dr. Ltubin. Is it growing? 

Mr. Tracy. That is pretty general in my organization, and I have 
some knowledge that it is pretty general in one or two others that 
there is a differentiation. For illustration, in -the District of Columbia 
on the large Government-controlled work the wage rate for the elec- 
trical work is a dollar eighty cents an hour. On the apartment work 
it is $1 an hour. On the residence work and the extreme outer part of 
the District of Columbia a 75-cent wage rate has been established. 

The Chairman. Would it be proper to say that the larger the con- 
tractor, and the more stable the business of the contractor, the more 
easy unionization becomes? 

Mr. Tracy. I think we can safely say that, Mr. Chairman. 

The Chairman. The difficulties that the union organizer meets are 
more apparent with the small contractors than the big operators. 

Mr. Tracy. That is right. 

The Chairman. So that this situation in which complete unioniza- 
tion is to be found is usually on large projects? 

Mr. Tracy. Generally, yes. There are some cities, however, where 
the larger contractor you know doesn't care to go into this housing 
work. It builds up his overhead and he just really doesn't care for 
it, and the competition is so keen in it he doesn't find it worth while, 
and we know the competition is keen for it. But we find that we have 
what we call the individual contractors that make a specialty of follow- 
ing this housing work. They go. out and solicit the contract, they 
either supervise the contract or they may do the work themselves. 
In our case, we have individuals who call themselves electrical con- 
tractors, and they do contract for electrical work, but they solicit the 
work, they install the work, and they collect for it themselves as an 
individual. That is the keen competition that we have now, and that 
exists generally over the country; there is no doubt about that at all. 

The Chairman. So the figures you are giving with respect to union- 
ization, particularly among electrical workers, have to do with housing 
.projects from the small house of $3,000 up to about fifteen thousand 
all through the country. 
* Mr. Tracy. That is right. 


The Chairman. And most of that work is done by nonunion con- 

Mr. Tracy. Ninety percent of it is done by nonunion people. 

The Chairman. That is very interesting. 

Dr. Lubin. May I ask another question? Is there any difference 
in your labor cost per unit of installation on a big project as compared 
to a little? In other words, is it almost as easy for a man to pay $2 
an hour when you have to put in 150 fixtures in a building, than it 
would be to hire a man at $1 an hour where you had only 6 or 7 to 
put in? In terms of the actual cost to the contractor, is there a differ- 
ence in the day's work you get out of the men when you have a big 
job as compared to a little job? 

Mr. Tracy. I think that an employer paying $2 an hour gets $2 
worth of service. 

Dr. Lubin. I am not thinking of it in that sense. Here is an 
employer who has a big building, 300 apartments. He puts a crew 
of electricians to work. In terms of the units of work done, is it 
possible to get more work done in a day on a job like that than would 
be if you had only a small job? 

Mr. Tracy. It is our experience he will get greater production and 
greater efficiency, yes, out of the individuals. It is my opinion that 
if you employ 60-cent labor, you are going to get 60 cents worth .of 
work an hour. 

Dr. Lubin. I was thinking of your own case where you have a $2 
rate for some jobs and a $1 rate for other jobs. 

Mr. Tracy. The type of fixture where the $2-an-hour rate applies 
is of the type we have in this building here. The type of fixture the 
dollar-an-hour man hangs is what is known as a single unit. It is 
true he can put up more single units than the type of fixtures which 
appear in this room, it is quite natural he would because they are 
very simple — a single unit with a base, a canopy of this type that is 
just fastened on the ceiling, fastened to the outlet box. 

I would say, Doctor, on the big buildings where those fixtures are 
hung — however, there is a differential in the rate for hanging of 
fixtures in the electrical contracting industry; that $2 an hour doesn't 
apply to hanging of fixtures. .We have no $2 an hour for the hanging 
of fixtures. 

Representative Reece. What is the source of the figures on which 
you base your estimate that 90 percent of the mechanical work on 
houses ranging up to $15,000 is done by nonunion labor? 

Mr. Tracy. The check by our local unions through the permits 
issued by the municipalities. The great majority of the municipalities 
have electrical ordinances where permits are required before starting 
the job; by that I mean electrical permit. The size of the job or the 
number of outlets is made known upon that permit, and we check 
those permits in the city halls and find out what the volume of work 
was that was done in that city per month or per year. Of course we 
know who the union employers are, we know " T ho the nonunion 
employers are, so it is a very simple matter to checK it. We can get 
all the individual projects that were done in that particular area and 
then we can separate it and know how much we did and how much the 
nonunion men did. 

It is through our local units i;nd our research department who make 
that check, and we have set up in all of our local unions an educational 


committee whose responsibilities are to check that permit list in the 
city hall. 

Representative Reece. The houses ranging up to $15,000 in cost 
would represent a majority of the residential construction in cities of 
100,000 or less, would they not? 

Mr. Tracy. No ; I wouldn't say that. I would say that they were 
in a minority because in the majority workers don't purchase that 
type of homes. They purchase a smaller home than fifteen thousand. 
I would say, now you take Tulsa, Okla., which I am quite familiar 
with and have made somewhat of a survey there recently, the average 
type home there is $15,000 or less. 

Representative Reece. Your statement then did not include the 
houses, the cost of which was less than three thousand? 

Mr. Tracy. No; because we don't go below that. We have some- 
what of a check on that, I believe, but that is going pretty low when 
you go into a home of less than three thousand. There are very few 
of those, I think. 

Representative Reece. Is that work done with union or nonunion 

Mr. Tracy. About three thousand? 

Representative Reece. Yes. 

Mr. Tracy. It is done exclusively by nonunion. We do very, 
very little of that. I would say that is exclusively lost to the union 
worker if it is a project below $3,000. 

Representative Reece. My question was, In cities of a hundred 
thousand or less, would not the residential construction ranging up to 
$15,000 include a very large percentage of the residential construction? 

Mr. Tracy. I don't know whether I grasp your question. May I 
ask a question to find out whether I have -you right? You mean if in 
cities of a hundred thousand or less 

Representative Reece (interposing). I will restate my question. 
In cities of a hundred thousand or less, is not a very large percentage 
of the residential construction of less than $15,000 in cost? 
~Mr. Tracy. Yes; I would say— below $15,000. 
-^Representative Reece. Then, according to your statement, in 
cities of a hundred thousand or less, most of the mechanical work on 
residences is done by nonunion labor. 

Mr. Tracy. Yes; done by nonunion labor. I made that statement. 

Mr. O'Connell. Mr. Tracy, how did your organization in its 
dealings with employers of labor — does it have individual contracts 
with employers, or does it establish a union scale for an area, or just 
how does it operate? 

Mr. Tracy. The labor organizations operate exclusively on a con- 
tract basis with our employers. We have many reasons for that. 
Those contracts are entered into by collective bargaining through 
negotiation of the employer and committees representing our local 
unions, and those contracts are entered into individually by the 
contractor and by the local union. No contract can be finally con- 
summated between a contractor or a group of contractors and any one 
of our local unions until it first has the approval of the international 
organization, or the international president, and we do make contracts 
exclusively throughout the country, which contract covers the wages, 
7/orking conditions for the members of the union. 

Mr. O'Connell. Some unions don't operate that way. Isn't that 


Mr. Tracy. As I understand it, there are very few that do operate 
that way. 

Mr. O'Connell. And your contract with individual contractors 
embodies wages, hours, other working conditions. 

Mr. Tracy. That is right. 

Mr. O'Connell. Tell me first, does your contract cover a particular 
term for a particular period? 

Mr. Tracy. Yes, it does; some are entered into for a period of 12 
months, some for a period of 24, and some for a period of 36. Others 
are what we term as perpetual agreements. 

Mr. O'Connell. Supposing that I as a contractor wished to make a 
contract with your umons fixing wages, hours, and other conditions 
of work over a period which would conform to the period of a particular 
construction job that I propose to undertake; would that be possible? 
I mean in general would it be possible for me to protect my labor cost 
on a particular job by contracting with the union? 

Mr. Tracy. Yes, it would be good business on your part to do so; 
because of the fact that on signing that contract for that job or for 
several jobs, you would be given a guaranty from the union that that 
job would be completed upon the terms contained in the agreement 
at the time that the job started. Does that answer your question? 

Mr. O'Connell. Yes; I can see that would be very desirable. 

Mr. Tracy. I might elaborate a little more on that. Agreements 
with us are very sacred, and contractors operate in San Francisco 
under a union contract with us and operate any place throughout the 
United States and Canada under that same contract. However, 
should there be a change of conditions in the territory outside of 
San Francisco, what the conditions are in San Francisco, the only 
requirements upon him are that he comply with those conditions in 
the territory in which he is doing the work. He also has the oppor- 
tunity to send his own men in to supervise the work and look out after 
his own personal interest. 

We service him in New York and Canada or any other part of the 
United States as long as he operates in his home town as a union 
employer, and that contract covers him no matter where he goes. 

Mr. O'Connell. Generally , speaking, I take it he would be ex- 
pected to obtain his union workers from the territory in which he 
happens to be operating. 

Mr. Tracy. That is quite right. If he should come into the 
District, he would be required to get his workers from the union in the 
District here