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J u l y

1 Q f



Dear Mr* Eccles:
I hope that you will find a convenient opportunity
£o read the enclosed memorandum prior to the meeting of the
budget and relief group that the President has scheduled for
Tuesday* Please regard the memorandum as confidential, however, for it is Intended to provide the basis of Tuesday's
discussion •
Reflecting on what you said to me Thursday about the
major difficulty as you conceive it—that is, the unrealistic
approach to the wages-and-hours question generally—I am inclined to the view that you will make more headway at the
present time if you argue the matter in the specific terms of
housing than if you make a frontal attack on labor policy.
The President having put housing on the agenda of
the budget and relief group, he is evidently interested in
exploring the present state of the industry from the budget
and relief angles • It seems to me that this gives you an
excellent opportunity to illustrate your point in housing
terms rather than to argue it in general terms.
Will you try to find time on Monday to talk with
Lubin and me? I shall call Miss Benton about 11 o 1 clock to
see how your schedule stands* Let us make it at the lunch
hour if you have that open*
lours sincerely,

Honorable Marriner S. Eccles
The Shoreham Hotel
2500 Calvert Street
Washington, D. C.

c for White House Conference—July 15, 1957
Draffc^ v June 24, 1957

Its Relationship to Fiscal* Monetary* and Belief Problems

The group that is here today has as its main concern the
interrelated problems of balancing the budget, avoiding inflation,
and diminishing the governmental burden of unemployment relief.
Stated as a single problem, and in its simplest terms, the concern
of this group is that industrial production in the United States is
still too low.
In other words, notwithstanding the fact that industrial
recovery has proceeded a long way in the past four years, the volume
of industrial production is not yet great enough when measured by
our present-day population and our current needs • In still other
words, there is a continued lag in some extremely important areas of
industrial production, and in one of these areas—namely, housing
construction—there is actually a state of severe depression when the
present level,of home-building is measured either by past records of
construction or by the current shortage of housing accommodations.
We need, therefore, to take account of the outlook from the
present stage of industrial recovery. To begin with, we had a moderate

decline in tbac industrial activity in the spring of this year*
We had 1,600,000 fewer workers employed in May of this year than
in the spring of 1929. It now appears likely that there will be
some further recession in business and employment this summer after
present reduced backlogs in the cotton and wool textile industries
are exhausted and when automobile output is curtailed*
Although few observers expect this recession to be either
very severe or very prolonged—barring any more major industrial
disputes—there is reason to be concerned about the practical question of what sources of business and employment still remain to lift
the level of activity above that of the late 1920fs and absorb a
considerable number of the unemployed*

The increase since 1929 of

over 4,500,000 in the number of people who are of working age alone
requires a larger volume of activity to provide adequate employment*
The only major industries which are now lagging far behind
industry as a whole, and to which we may look for an important and
sustained expansion, are the building of homes, the further investment by railroads in maintenance and equipment, and new construction
and equipment for electric power and other public utilities*


in railroad and utility expenditures will concentrate employment primarily in a few manufacturing centers where equipment is made. These
industries are withholding certain expenditures at present because of
the uncertainty of their immediate outlook*

- 5 An increase in home building would be widespread and
would offer an opportunity for employment in virtually every section of the country. In the first place, the companies producing
building materials and equipment for homes are located in a large
number of communities well distributed throughout the country* In
the second place, most of the labor required in the actual construction of homes is labor at the site. Hence the opportunity for
widespread local employment is much greater in this industry than
in the manufacture of railroad equipment and in the construction
of power plant additions.
The housing industry is the most promising, therefore,
upon which to build the next phase of recovery, provided it can be
handled in a fashion which does not make for excessive building or
inflated values. There is a demand for housing in all areas, particularly for low-priced homes both for sale and for rent. The
number of families in the country has increased considerably in the
past 7 years. Meanwhile very little residential building has been
Vacant houses are now rare in most American towns. The
only exceptions are a few large cities where there is still a surplus
of apartments as a legacy from the speculative building of the 1920* s«
In some centers, where industry and trade are active, there is an
actual shortage of houses.
Rents are rising. The problem of today is the problem of
the families who need and want better homes. It is a consumerfs

- 4 problem* If the demand for housing is not met and rents continue to rise rapidly, the added cost of housing will absorb a
larger share of workers1 incomes and nullify the gains in real
income made in recent gains in earnings• So far, however, notwithstanding the existence of a market for housing, there has
been only a moderate recovery in residential building•
Modernization and repair of city homes got under way in
1954 and 1955, but it was not until the middle of 1935 that construction of new city houses began in any volume. Rural housing
improvements have been concentrated on modernization} few new farm
homes have been built with private funds. Last year housing was
provided for somewhat less than 500,000 families in American cities
and towns-—about 40 per cent of the average provided for in the
decade of the 1920*s. (insert chart). So far this year, residential construction in the United States as a whole has been running
well above last year, and in the first five months provided 60 per

cent more new dwelling units than last year.
Despite the gains over last year, the volume of home
building has tapered off in May and June, particularly in the large
cities. In 1936 there was a continued increase throughout the first
7 months. The decline in the number of dwelling units for which
building permits were issued in May was more pronounced than usual,
and early reports from several hundred cities indicate that this was
also true of June. In April, although the number of dwelling units

- 5 erected in cities and towns as a whole was larger than in March,
there was a considerable decline in cities of more than a half a
million population* In Detroit, where uncertainties over the
industrial situation offer a special problem, the volume of new
building permits privately financed in May and June was actually
smaller than in the previous year*
Building Costs:
The explanation of the slow recovery of private building
and of the decline during the late spring is partly to be explained
by rising building costs* Prices for materials, for labor, and for
finished houses have all gone up, particularly rapidly in the larger
cities* Prices of building materials went up between 11 and 12 per
cent in wholesale markets from September of last year to May of this
year. The peak was reached in March and April and since then there
has been a tendency for prices of some of the items to weaken, though
the recession has been only a slight one* At present the prices of
building materials are as high as in 1929*

(Insert chart)* Lumber

is one of the most important elements in this cost advance* Because
of the maritime strike on the West Coast, shipments were impossible
and production was held up this spring* As a consequence of this
situation and the gradual depletion of lumber stocks in the previous
year, there are actual shortages of certain grades of lumber* The
Procurement Division reports that seasoned lumber is practically unobtainable* Dealers have taken advantage of this shortage to mark


- 6 up their prices. Prices of plumbing fixtures, structural steel,
hardware and other metal products used in houses, and roofing
have all risen. Part of this increase is due to dealers taking
advantage of the opportunity for a wider profit margin.
A major part of the higher prices represents real increases in costs. Wage rates have risen in factories making fabricated building materials and there have also been advances in
prices of the raw materials which the factories use. To the extent
that the rise in prices is based on rising costs, prices will remain
high. The recent weakening of quotations for some materials, however, appears to indicate that the advance is attributable in part
to mark-ups.
As for labor costs, there is no good statistical measure
of the extent of recent widely reported wage increases, but it is
certain that there have been advances, as indicated by reports to the
Department of Labor and the Home Owners Loan Corporation. In some
areas there is a shortage of good skilled mechanics. For more than
eight years little building has been done and few new workers have
been trained. At present, also, the volume of construction under
public auspices is large and absorbs a considerable number of men.
This situation has enabled unions in large centers to advance wage
rates considerably. In some cities wages axe far above pre-depression
levels. In the Bronx, the new union contract for plasterers, for
example, calls for $2,00 an hour, a six-hour day, with time and a
half for overtime, or #18.00 a day for an eight-hour day.

- 7 In a number of other localities the increase has exceeded
10 per cent, as in Washington, D. C*, Kansas City, Los Angeles and
Spokane, Washington* Rising residential building costs in these
and other cities since the beginning of 19S5 are illustrated by
the chart* These figures represent primarily the cost of materials
and labor with a fixed allowance for overhead and do not give the
actual selling price of the house* Reports indicate that contractors
and builders have taken advantage of rising costs and have raised
their asking prices for finished houses, built at lower costs, in
an attempt to widen their own profit margins*
The net result of all this has apparently been to kill
the goose that laid the golden egg, for new home construction is
already beginning to taper off* Thus rising prices of materials
and higher wage rates may prevent thousands of workers1 families
from having better homes• A house represents a large and important
investment to people of limited means* If the price goes up by
even a few hundred dollars, many families will be unwilling or unable to buy* In the City of Washington, for example, there is clear
evidence of overbuilding of homes in the middle and upper price
brackets* Prices have been advanced*

Houses are not moving off

the market at their former rate* Some builders are in financial
The present price level is having another rather important
result* It is driving building out of the large cities into smaller
centers, where land is cheaper and labor costs and tax rates are lower.

- 8 If slackening demand for new houses proves its own
corrective promptly enough, it may have a very salutary effect
upon the whole home-building industry. If such a price correction does not take place, however, houses will not be provided,
either to rent or to buy, within the reach of the moderate-income
groups that have accounted for a very large proportion of the
market for housing in the recent revival of building activity*
Although the housing market is quite different in New York and
Chicago from Pontiac, Michigan or Peoria, Illinois, the present
preference of the majority of potential buyers outside of the
very large cities is for one-family houses, to sell for less than
$5,000 or for houses or apartments to rent for $15 to $35 a month*
Family Incomes and Housing:
The size of the typical family incomes for American city
families is a clear indication that the selling prices or rents
for new houses must be kept within certain prescribed limits, and
cannot go beyond recent past levels without bringing about a quick
recession in demand* The Bureau of Labor Statistics has just completed a study of consumption habits of American families in thirtytwo cities, covering the twelve months from mid-1955 to mid-1936,
ranging in size from very small cities up to New York City* lost
common family incomes in all but the largest cities were $l,000-$l,250.
In some of the largest cities, such as New York and Chicago,
most typical family incomes were $1,750 to $2,000. In other large

- 9 cities, such as Omaha and Denver, typical incomes were much
smaller. There were wide differences between cities in various
parts of the country, depending upon local conditions. In
general, incomes are lov/er in small than in large towns and
lower in the south than in the north*
The rule of thumb is that families cannot safely afford to purchase homes which are valued at more than two to three
times their income. At this rate, the largest market for homes
for sale will fall within a range not to exceed #5, OCX) to $5,000,
depending upon the part of the country, the size of town and its
location with relation to metropolitan centers.
Most of the housing accommodations that have been built
in this recovery have been one or two-family houses, built for
sale, not for rent* Too few have been built to sell at less than
$5,000* However, building techniques are being improved, and the
$5,000 or $6,000 home of today is a much better home than one at
the same price ten years ago. It may be that before long techniques
will be perfected to a point at which small, well-constructed houses
can be built in blocks of 100 or more to sell at low figures, utilizing local labor to erect pre-fabricated parts* Financing is fairly
readily available for owners of small homes, at prices which are
lower than in the 1920fs* The onerous short-term mortgages carrying
excessive fees for renewals, etc*, have virtually disappeared as a
result of the acceptance by lending institutions of the long-term


- 10 method of mortgage financing provided either directly through
the National Housing Act or through adaptations of that methods
Although it may still be possible that interest rates on amortized mortgages on owned homes will decline by another one-half
of one per cent, interest rates are not the problem* Financing
is the one big element in housing costs that has materially decreased in practically every section of the country since the
1920fs. However, the size of the down-payment required in the
purchase of a house is a deterrent to widespread home-ownership,
and this item becomes a still greater deterrent when the size of
the down payment required is increased as a result of increased
Thus far in the recovery* SWHWOT, there has been little
building of small houses for rent, and very few apartments outside
of the New York area and certain special moderate-rent developments like the FHA-insured Colonial Village in Clarendon, Virginia,
This neglects over half of the city dwellers in the United States,
who live in rented houses or apartments. In large cities such as
New York, Chicago, Philadelphia, Cleveland, etc., the proportion
of tenants is, of course, much larger than this. It is doubtful
whether it is desirable for many industrial workers to own their
homes. Ownership interferes with mobility if they lose their jobs
or mast move to other towns. Too often, as the history of individual
workers1 families in the last depression shows, the purchase of a


-11 home on a thin equity has absorbed all of the familyfs surplus
income and has meant the loss of their entire savings when payments could no longer be met. Thus any satisfactory program
for housing must provide for rental dwellings at moderate rents.

In prosperous 1929 and early 1930 rents paid by American
city families averaged in the neighborhood of $50.00 a month* The
amount varied widely over the country, much as family income varies.
Rents were lowest in the south and the mid-west; highest in the
north and east. Small town rents were much lower than those in
large cities. In towns of 2,500-5,000 population, for example,
average rent was about half as high as ±a cities of 100,000 population and over.
During the depression there was a sharp decline in rentals
and in property values and it was not until 1954 that rents began
to stabilize and not until 1955 that they began to advance. City
rents have gone up farthest and fastest in cities in which industrial or commercial revival and the influx of additional population
has increased the demand for housing. Los Angeles, Detroit, Cleveland, and Birmingham, where the increase for the past twelve months
alone amounts to 10 per cent or more, are examples. In Portland
(Oregon), Indianapolis, Denver, Memphis, Houston, Seattle and Atlanta,
there have also been large increases. New rental contracts show an
even greater advance than rentals of houses already occupied. Even

- 12 with this advance, however, rents are still lower in most centers
than they were in 1929 and 19S0, but for single-family detached
houses rents in many cities are fast approaching the 1929-1930
level. With smaller money incomes and lower rents prevailing for
most Jimerican families, homes must be built to rent at even lower
rates than in the 1920*s.
The 1935-56 studies of consumption in 52 cities indicate
typical rents in the vicinity of $50 to $55 a month in New York
and Chicago for families with typical incomes of $1,500 to $1,750*
In other cities of over a quarter of a million population,
such as Omaha, Denver, and Portland (Oregon), rent ranges from $20
to $25, In middle-sized cities of 50,000-70,000 population, such

as Dubuque, Iowa, Springfield, Missouri, and Everett, Washington,
etc., rents are lower, at $15 to $20 a month. In little towns, such
as Willimantic, Connecticut, end Peru, Indiana, families with typical incomes pay around $15 a month for their homes •
Rent is a very important item in the family budget of
families with moderate incomes. As a rule they spend 20 to 25 per
cent of the total for rent in the larger cities. In smaller centers,
rent takes a smaller proportion—15 to 20 per cent. In families
whose incomes are very small—who have $500 to $750 in cash to spend
in a year—rent may require as much as 50 per cent of the total.
Often these families, of course, go into debt or draw on other
sources than cash income for support. It is in these income groups

- 15 in the larger cities that rent delinquencies have been greatest •
Rising rents constitute a pressing problem to all families with
modest incomes.
Why is so little building for rent being done at the
present time? The answer probably lies in rising costs in relation to rents and in difficulties of securing private financing,
since most special loan arrangements have been for home-owners*
Private investors once looked upon home mortgages and houses and
apartments to rent as good investments. Mortgage moratorium laws,
rent delinquencies during the depression, and the complete disappearance of the former facilities for financing large residential
properties by means of bond issues, have made both the building of
rental housing and thefoiiidfngof mortgages on rental property uninviting for investment purposes.
Rural Housing:
The attention of most students of the housing problem has
concentrated on city housing • Little assistance has been given to
the improvement of farm housing. Here the problem is of a different
character. Farm cash incomes are small and the requirements of farm
production for machinery and buildings take precedence over household needs. It is often a cagfc of the small white house and the big
red barn. Up to the present time painting and repairs, and in some
areas the introduction of electricity, have been the principal improvements in farm housing. While there are no statistics on farm building,


- 14 indications are that few new farm homes have been built. Any
steps taken in this direction must take account of the realities
of the farm situation, where little cash can be spent and where
plans should be simple in order to use relatively unskilled farm
and neighborhood labor for building* It should also take account
of the differences between farm and city home financing. Our rural
credit agencies, with few exceptions, are lending only for production purposes, with land or chattels as security—a method which is
not conducive to the improvement of farm housing*

To summarize: There is both a great economic and a great
social need for the construction of a large volume of inexpensive
housing. The potential market for such housing is in fact enormous,
and affords the opportunity for widely-distributed and long-sustained
industrial activity and employment. Housing of this kind is not being provided rapidly enough, however, partly because of the successive
increases in labor and material costs, partly because of local shortages of skilled workers, partly because the problem of providing continuity of employment for building labor still remains unsolved, and
partly because important parts of the mortgage-financing mechanism
are still in a serious state of disrepair.
If governmental policy, therefore, is to encourage housing
construction, both for the purpose of raising the standards of human
habitation and for the purpose of dealing in a concrete way with

- 15 budget, credit, and relief problems, the housing policy of the
Government ought to be redefined in the light of present conditions and directed realistically toward the fact that the housing
industry is the only one that can now be looked to as a huge source
of production and employment beyond the present level. This is
another way of saying that the housing industry mast be brought
into balance with the rest of our economy if we are to effect an
appreciable increase in the national income and an appreciable decrease in the volume of unemployment; and this is why the housing
problem is so largely involved in our fiscal, monetary, and relief
Some of the matters that need to be considered in developing a new policy and program to meet the present state of the
problem are as follows:
1. The prevention of further advances in labor and material costs for housing, the discouragement of wage agreements in
the building trades that throw the hourly wages of building labor
still farther out of line with other wage groups, and the study of
means to assure building labor of adequate annual earnings by continuity of employment rather than by high intermittent wages*
2* The reduction to a minimum of government orders for
construction and equipment that tend (a) to interfere with the
supply of labor for housing construction and equipment and (b) to
accellerate the costs of housing construction and equipment*


- 16 Z. The development of means to increase the mobility
of building labor in order that workers on relief rolls, or unemployed but not on relief, can be shifted to areas where shortages appear in the skilled trades*
4# The revision of banking and mortgage legislation
to provide the financing mechanisms whereby private capital can
flow more freely into small-house construction and rental housing«
5* The encouragement of the repair and modernization
of rural homes in a manner similar to that employed for urban
homes in 1954-1935, and the encouragement of new farm-home construction as savings from farm incomes reach a point where such
construction becomes feasible•