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One of the most urgent problems that business and government to-day have in common is to make the housing construction
industry a major factor in our economic and social life* By the
very nature of its product, which is one of the three prime
necessities of life, this industry ought to be one of our largest
and most dependable sources of business activity and employment*
Actually, it has remained in a depressed state for the past eight
This is an urgent problem for business because the longcontinued lag in housing construction is a drag on all industry and
trade. All business needs the infusion of orders and the diffusion
of purchasing power that come when housing construction is thriving.
It is an urgent problem for government because the lag in housing
construction is the most deep-rooted retarding factor in national
income, budget balancing, and full employment of labor. Government
needs, as business does, the benefits of the greatly augmented
national income that would result from a vigorous revival of housing
Three or four years ago the fundamental nature of this
problem was well recognized.

Industry, labor, and government were

all agreed that the revival of housing construction on a large


scale was an essential prerequisite of widespread and sustained

Nevertheless, what then seemed self-evident to every-

one was for a time apparently contradicted by what was actually

We did have a great recovery of business generally

from 19S3 into the present year. But housing construction, far
from being the moving force and mainstay of the recovery movement,
had only a belated and minor part.
In the construction of housing, we had a partial recovery
in 1935, some further improvement in 1936, and continued gains
this year. Last spring, however, a sudden unseasonal downturn
occurred in this industry. The result was that the total number
of dwelling units erected during the 1937 building season fell
far short of what had been mdely anticipated. As to the causes
of this early downturn and its continuance during months ordinarily
marked by very active building, I shall have more to say presently.
What I wish to emphasize at this point is that the
failure of housing construction to make adequate headway in common
with business generally has been a most serious factor in arresting
industrial activity and bringing on a recession of industrial production and buying. The recovery which took place from 1933 to
1937 lacked the continuing impetus and support that could come only
from a much larger volume of housing construction—a volume large
enough to keep pace with the steady growth in our population, to
maintain or improve our housing standards, and to give work and


income to the great numbers of people that directly or indirectly
must look to this industry for employment.
Taking counsel with men both within and outside the
government who have given much practical thought to the broad
economic aspects of housing, I have obtained their assistance in
developing suggestions for legislative and administrative action
to deal with this problem in a big and decisive way. The purpose
of the measures which I shall submit for your consideration is to
bring about the private construction and financing on a nationwide scale of housing for sale or rent on terms that are within
the reach of the mass of our people•
This is something that private enterprise in this country
has not, by and large, been able to accomplish up to the present
time. fJhen we look about for the reasons why this is so, we find
that it is partly because of conditions within the construction
industry and partly because our methods of financing are not sufficiently adapted to the present realities of the housing market.
Government cannot directly improve the practices of the construction

It can, however, by improving the financial mechanisms

for building and owning housing, make practicable a more efficient
and more economical operation on the part of that industry.
The National Housing Act, which was enacted by the Congress
in 1934, provided a financial mechanism applicable to all types of
lending institutions that make loans for housing purposes. Pursuant
to this new method of financing, enabling legislation was subsequently

enacted by all the States. It is the most far-reaching means
we have yet devised to simplify the operations of private enterprise and private capital in the housing field.
Under this act, the Congress established the Federal
Housing Administration, which insures mortgages on certain types
of housing, but which itself makes no loans* The agency is
designed to become ultimately self-sustaining through the operation of a mortgage insurance fund, into which premiums are paid
by borrowers who obtain loans under the provisions of the act from
private lending institutions. An ultimate guaranty of loans that
may default is given by the Federal Government, but this guaranty
becomes operative only in the event that recoveries from the sale
of defaulted properties, together with all the monies in the insurance fund, should be insufficient to pay the insured claims.
Hence, even if any cost should result to the Federal Government,
it would be negligible when measured by the volume of construction
and employment induced by the fact that the guaranty is there
should it ever have to be availed of.
What is now proposed is an improvement and enlargement
of the framework of this existing legislation in the light of
practical experience. The changes suggested are of a threefold

first, to effect further reductions in financing costs;

second, to extend the insurance of mortgages to types of housing
operations not now adequately provided for in the act; third, to


make the funds of institutional and individual investors more
easily available for the financing of large-scale operations•
Because it takes the ordinary buyer of a house or
investor in housing a long time to pay for the property, the
cost of financing is in the long run one of the largest items
in housing costs• In the case of rental housing it is a determining factor, first in whether construction shall be undertaken
at all, and second in arriving at the scale of rentals to be

Likewise, to the family building or buying a house for

its own occupancy, a saving of 1 per cent or even \ of 1 per cent
a year in financing costs amounts, over a period of years, to a
considerable sum.
At the present time, institutions making loans under
the general provisions of Title II of the National Housing Act
are permitted by regulation to make an interest charge up to 5
per cent and a service charge of \ of 1 per cent, or a total of
5 r per cent. It is proposed to reduce this to 5 per cent net by
amending the administrative regulations.
As a means of further reducing the cost to the borrower,
however, I would ask the Congress to authorize the Federal Housing
Administrator to fix the mortgage insurance premium as low as \
of 1 per cent on the diminishing balance of an insured mortgage
instead of on the original face amount as now required by the act.
Further, as a means of giving special encouragement to the construction of houses for sale or rent to families of moderate income,

I would ask the Congress to authorize the Federal Housing Administrator to fix the mortgage insurance premium as low as J of 1
per cent on the diminishing balance of an insured mortgage in
cases where the estimated value of the property to be built does
not exceed |6,000 and where the mortgage is insured prior to
July 1, 1939.
This latter rate is frankly an experiment. It would be
applicable, however, only for a limited period and to a class of
risks in which the average mortgage, I am informed, would probably
be less than $4,000 over the country as a whole. Building costs
vary considerably in different localities, but the type of houses
to which this lowest rate of mortgage insurance would apply manifestly represents the widest sale and rental market for new
housing, so that in any event the insurance risk would not be
Another change that I would ask the Congress to make in
the existing legislation is to raise the insurable limit from 80
per cent of the appraised value of the property to 90 per cent in
cases where the estimated value of the property to be built does
not exceed $6,000.

I regard this change as of the utmost importance

In stimulating the construction of houses within reach of the mass
of wage and salaried workers.
The purpose of this proposed change is to take practical
recognition of the fact that most persons who desire to own homes

-7of their own cannot make a first payment as large as 20 per cent
of the purchase price. This is particularly true after the severe
depression of recent years, in which the savings of millions of
prudent and thrifty families were depleted. The number of families
that can and would pay from f250 to $500 to get into a new home is
of course enormously greater than the number that can pay from
$500 to f1,000 or more. Moreover, the lowering of the initial
investment required would similarly stimulate the building of
moderately-priced houses for rent*
The fact is not generally recognized, I believe, that
the majority of our urban families are not home-owners.

In the

larger cities, the proportion of rented dwellings runs from 60
to nearly 80 per cent of the total. The encouragement of private
enterprise to build houses and apartments for rent is therefore
an essential part of any comprehensive program to stimulate housing construction.
With this in view, some of the measures suggested for
your consideration are designed especially to facilitate the construction and financing, under the economies of a blanket mortgage
rather than piecemeal operation, of fairly large groups of houses
for rent, or for rent with an option to purchase. Such operations
would afford economies in construction as well as in financing,
and would therefore, I believe, lead to the formation of substantial
companies to avail themselves of the opportunities in this particular


field. Similarly, these measures are designed to encourage the
construction of apartment buildings of moderate size, such as
are particularly adapted to the requirements of our smaller cities.
In the construction of large-scale rental properties,
a small but creditable beginning has already been made under the

existing provisions of the National Housing Act applicable to
limited-dividend companies. These provisions are in need of some
clarification, however, in order to encourage a more extensive
development of large rental projects in the communities where
they are needed.
Among the most important of the measures to which I
would invite your consideration are those designed to facilitate
the financing of these large projects. Here there is a great gap
in our financial mechanisms. The large projects thus far constructed under the provisions of the National Housing Act have
been closely regulated as to rents, charges, capital structure,
rate of return, etc., and the excesses and abuses which widely
characterized the financing of apartment properties in the 1920's
have thereby been avoided. The very size of the loans in the case
of these large projects, however, makes it difficult to finance
them by means of a single mortgage.
I would therefore urge the

Congress to liberalize the

provisions of the act under which the chartering of national mortgage associations is authorized, and, among other things, to give


these associations explicit authority to make loans on mortgages
insured under the provisions of Section 207 of the act*

This is

the section dealing with large-scale properties that are subject
to special regulation by the Federal Housing Administrator •
The effect of the change here proposed T7ould be to
enable these properties to be financed by national mortgage associations through the sale of housing bonds or debentures amply
secured by the insured mortgages on the properties*

In order

that one or more such associations may be promptly organized, I
shall ask The Reconstruction Finance Company to make available,
out of the funds already allocated to The EFC Mortgage Company,
|25,000,000 for capital purposes. Under the amendments proposed,
this would provide the basis for #500,000,000 of private funds
obtainable through the sale of national mortgage association debentures .
As a means of obtaining these private funds on the most
favorable terras, I would ask the Congress to give to the debentures
of these associations tax exemption comparable to that afforded the
obligations of the Federal Home Loan Banks, the Federal Land Banks,
and the United States Housing Authority•
Another of the suggested amendments that I regard as of
special importance irouLd niake the limitation of $2,000,000,000 on
the amount of mortgages insurabla under the National Housing Act
apply to the amount of insurance to be outstanding at any time and


would remove the limitation of July 1, 19S9 now applicable to the
ultimate guaranty of the Federal Government*

These changes would

measurably encourage private financing under the act without
increasing the amount of the contingent guaranty provided in the
existing legislation*
As I have indicated, some of the measures which I have
in view can be accomplished by administrative action* Most of
them, however, would require legislative amendments*


in relation to existing provisions of the National Housing Act,
the Federal Reserve Act, the Federal Home Loan Bank Act, and
extensive enabling legislation that has been enacted by the several
States, the adoption of these measures would for the first time
provide all the financial mechanisms essential to a vigorous and
widespread revival of housing construction*
The terms of financing, moreover, would be the most
favorable ever made generally available in this country for housing purposes* On 20-year amortized mortgages for 90 per cent of
the value of houses up to |6,000, the maximum rate would be 5 J
per cent, including the cost of insurance. On 20-year amortized
mortgages for 80 per cent of the value of houses up to $20,000,
and multi-family properties up to $200,000, the maximum rate woiiLd
be 5§ per cent, including the cost of insurance*

On larger projects,

experience thus far has indicated that the rate urill not exceed
5 per cent, including the cost of insurance. These costs are half,


or less than half, the costs of loans of comparable proportions
under the system of first, second, and third mortgage financing
that was widely prevalent in the 1920*s.
The program as a whole is calctilated, therefore, to
rouse the interest of private enterprise and private capital in
what is virtually an unlimited market for labor, materials, equipment, transportation, and all the other elements that an active
construction industry draws upon. Under the measures proposed,
large and continuous activity and employment in housing construction, which is not feasible under our present limited methods of
financing, would be put decisively on a practicable basis•
The success of such a program, however, cannot be
assured by governmental action alone.

It will depend rather, in

very large measure, on the willingness of industry and labor to
cooperate in producing housing at costs that are within the consumers means. The goal at which both industry and labor will
have to aim is sustained large-scale production that will, as the
direct result of lowering costs to the consumer, give a greater
income to labor because of longer employment and a greater income
to industry because of larger output.
Because this was not the goal of industry and labor
during the past construction year, the result soon proved injurious
to both and to business and employment generally*

The sharp rise

that occurred in construction costs between September of last year


and March of this year, apparently in anticipation of something
like a building boom, lowered by 100,000 to 150,000 the number
of new dwelling units that competent authorities had estimated
were in prospect for 1937.
It is now clear that we cannot have a strong revival
of housing construction on the terms that were exacted by industry
and labor last spring. The rise in wage rates and material prices
was too rapid and too great for the consumer to bear. Nor was it
in the construction field alone that a rapid rise in costs checked
production and buying*
Clearly, no industrial or labor group would deliberately
adopt a policy calculated to defeat its own interests and undermine its own market*

I am not, therefore, essaying to blame

anyone for pushing up wages and profit margins too fast; I would
simply point out the obvious cause and effect in what actually

From what did occur, I think it is evident that we

must retrace our steps somewhat.

If we are to supply the housing

that our people need, we shall have to be guided by the maxim
that the surest way to gain our ends is to moderate our desires*
Our people as a isrhole have had a measurable success in
their incomes since 1935. Nevertheless, the budget of the great
mass of our families is not elastic, and for most of them the
point is quickly reached where increased costs react against
someone1s business and someone's employment. The problem of the


construction industry and its workers, then, is to find a
reasonable way, through continuity of production and employment,
to adjust the costs of housing to the consumer's means.
Toward this end, it is my intention shortly to initiate
a series of conferences with representatives of industry, labor,
and finance, with a view to giving housing construction a fresh
start in the coining building year and averting a recurrence of
the conditions that brought about the reverses of the present
year. If these groups will cooperate in this effort, as I
believe they will, the result cannot but work to the advantage
of our whole national economy*