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O r Problem Child?
Pace of Housing Starts Slows As
Deposit Growth at S & Ls Declines
Helping Americans Get Mortgages
FEDERAL RESERVE BANK of PHILADELPHIA
business rerieu*
IN THIS ISSUE . . .
Rent Controls: Panacea, Placebo,
Or Problem Child?
. . . The topic of rent controls evokes varied
responses, and clarification of the arguments
concerning their effects on society can be
accomplished by examining some basic
econom ic principles.
Pace of Housing Starts Slows As
Deposit Growth at S & Ls Declines
. . . Much of the slowdown in the housing
sector can be attributed to the slower growth
of deposits at S & Ls as savers turn to higher
yielding Governm ent securities.
Helping Americans Get Mortgages
. . . By creating a viable secondary market
for home mortgages, Uncle Sam's hom e
financing agencies have strengthened the
lending institutions that make mortgage
loans and have increased the attractiveness
of mortgages as investments.
On our cover: M orven is the residence of the Governor of New Jersey as well as a national historic
site. The eighteenth-century mansion, located in Princeton, was built and occupied by the prom
inent Stockton family for generations. Richard Stockton, grandson of the builder, was a signer of
the Declaration of Independence. His wife, Annis Boudinot Stockton, named the house “ M orven."
W alter E. Edge, the late former Governor, purchased the property in 1945 and deeded it to the state
in 1954 for a year-round Governor's residence. (Photo courtesy of the N ew Jersey Department of
Environmental Protection.)
BUSINESS REVIEW is p ro d u c e d in the D e p a rtm e n t o f R e sea rch . T h e auth o rs w ill be glad to re c e iv e c o m m e n ts
on th e ir articles.
Requests for a d d itio n a l c o p ie s sh o u ld be addressed to P u b lic In fo rm a tio n , Fed eral R e se rve B a n k of P h ila d e lp h ia ,
P h ila d e lp h ia , P e n n s y lv a n ia 19101. P h o n e : (215) 574-61 15.
Rent Controls:
Panacea, Placebo,
Or Problem Child?
By Howard Keen, \r. and
Donald L. Raiff
The falling gavel signals the opening of a
meeting of the Verdant Valley Tenants Associ
ation. The evening's program features the
financier and builder of the community's largest
apartment complex who will explain why he
hiked the rents on his housing units. The guest
of honor proceeds to explain about his increas
ing costs, the effects of not being able to pass
on cost increases, and the increased demand
for his units from employees of the new plant
down the road.
Timothy N. Tenant opens the question-andanswer session, complaining about "exorbitant"
rent increases and asking about the "shortage"
of alternative rental housing units. The verbal
jousting continues until boredom descends, and
the meeting is adjourned. The issues remain
unresolved, but the Association is more resolved
than ever to seek relief through rent controls.
Meetings such as these could be occurring in
communities throughout the land. Some levels
of government are now feeling the political clout
of tenant associations. Tenant groups regularly
air their grievances before voter-sensitive city
councilmen. Rent control measures have been
debated in the halls of Congress. And, only re
cently in New Jersey the state Supreme Court
upheld the legality of local rent controls
ordinances.1
The push for rent control legislation appears
at first glance to interest only tenants and
landlords. However, if allocation problems arise
in any sector of the housing market, all other
sectors stand to be affected. Rent controls have
costs which must be compared with their bene
fits both for renters and the rest of society.
Understanding these costs and benefits requires
knowledge of the probable effects of this form
1
1nganamort et al. v. Borough of Fort Lee et at., 62 N. J.
521 (1973).
3
BUSINESS REVIEW
JANUARY 1974
prevent only “ unreasonable" rent increases.
(Of course, agreement might be difficult to reach
among renters, owners, and the general public
as to what is gouging or unreasonable.) But
why do rent hikes in particular bring forth
these claims of “ gouging" and “ unreasonable"
increases? Part of the answer is that not everyone
understands how the rental housing market
operates. Another part is that the rental market
has a couple of characteristics that leave renters
feeling helpless when faced with stiff rent hikes,
such as high relocation costs, information costs,
and time-lags in changing the stock of rental
housing.2
Consider, for example, the effect of relocation
costs. Besides the problem of moving his be
longings, a renter's living habits often undergo
major disruptions whenever he has to move.
Suppose Mr. Tenant estimates the cost of dis
rupting his daily habits and moving to a new
apartment to be roughly $1,000. If at leaserenewal time Mr. Owner raises the rent above
the value that Mr. Tenant places on his living
quarters, then the renter might be expected to
move. This would force Mr. Owner to compete
with other landlords for new tenants. However,
if the rent increase, computed over the full
duration of Mr. Tenant's expected stay in this
rental market, falls short of the relocation cost
estimate of $1,000, he'll not move. In this
instance, relocating would cost more than the
rent saved by moving to the less expensive
apartment.
Moreover, the cost of obtaining information
on both sides of the rental housing market can
be quite high if the information is needed
quickly. Renters want to know about the loca
tion and quality of services they can expect for
of government intervention on the price and
availability of rental housing relative to that
found in an uncontrolled housing market.
The topic of rent controls evokes varied
responses. Many people view rent controls as a
solution— a panacea of sorts— for the nation's
immediate and long-range housing problems.
Others hold that such controls make little dif
ference one way or the other. Still others
(landlords, homeowners, and even some renters)
see the controls as creating more problems than
they solve— in other words, begetting a per
petual problem child. Clarification of the argu
ments concerning rent controls can be ac
complished by examining some basic principles
of economics.
NOT NEW BUT LARGELY FORGOTTEN
Rent controls are nothing new to Americans.
Uncle Sam used them from 1942 to 1952. In
the late '50s and '60s only New York City had
them. Then in '71 under Phase I, rents along
with other prices were controlled. Phase II
decontrolled about 45 percent of all rental units
affected, and Phase III lifted controls on the
remainder. Today under Phase IV rents remain
uncontrolled, despite strong political pressures
on Congress to revive them.
Demands for government intervention in the
rental housing market appear to be one of the
many reactions to escalating rental prices. If
rents climb faster than before, then controls are
presumably a way of harnessing these increases.
Rents, as measured by the rental component
of the Consumer Price Index, increased at an
average rate of 1.6 percent per year from 1960
to 1969. The average annual increase from 1970
to 1972 was 4.1 percent.
RENT CONTROLS: A RESPONSE TO AN SOS
FROM THE RENTAL H O U SIN G MARKET
2
These characteristics (see below) cause the rental housing
market to fall short of the economists' idealized notion of
"perfect com petition." The basics of "perfect com petition"
are many small buyers and sellers, a homogeneous product,
free m obility of resources, and low market-information
costs. The rental housing market meets only the first
condition to a high degree. A partm ent locations and
surroundings differ widely, relocating can be expensive,
obtaining information on other units takes time and effort,
and building new units quickly is costly.
In general, rent controls are a response to large
or rapid hikes in rent; however, their specific
purposes often are unclear and not uniformly
accepted by their backers. Proponents claim
that these controls prevent owners from “ goug
ing" tenants with large rent increases. This
dovetails with the idea that controls would
4
FEDERAL RESERVE BANK OF PHILADELPHIA
what they pay. Owners desire to know about
potential renters to insure that rent payments
will be made and the rented units won't be
dam aged. G athering inform ation is timeconsuming. If needed quickly, obtaining it is
probably expensive. Giving tenants plenty of
advance notice for rent hikes allows more
time to collect the necessary facts. This lowers
the cost of securing the additional information.
So over longer periods, owners and renters can
make less costly adjustments to the pressures
and incentives of market forces.
Meeting the housing demands of the market
is not easy. Forecasting what renters will want
in the future, and making rapid adjustments
to changes in demand are difficult. Building
new units or converting existing ones to new
uses takes time and money. If demand in
creases, this slow adjustment of supply over
short periods will cause rents to rise more than
they would if units could be created instan
taneously.
If to the extent the immediate effects of
market changes are not understood, rent in
creases from this source are likely to seem
“ exorbitant" and “ unreasonable." Rent controls
offer no real solution to these short-run problems
(see Box 1). Rather, they just keep the market
from allocating the existing rental housing units
to demanders on the basis of the price they are
willing to pay. This effect, along with others,
can be seen by applying some basic economic
principles.
W HAT'S LIKELY UNDER RENT CONTROLS
Shifts in the supply and demand for housing
occur with and without rent controls. Landlords
will see their property taxes, construction costs,
and operating costs change. Demands for par
ticular apartments and units in specific loca
tions shift whenever industry relocates or rent
ers' preferences change. When this happens,
prices change until a new market-clearing price
is reached. At any price other than the market-
PROPOSALS TO INCREASE COMPETITION
Rent controls govern the stated rental price. But is that the problem on which their
proponents wish to zero in? The effective price— stated price plus other costs necessary to
secure the rental unit— would be the better target. No matter the level of the effective price,
it will decline as the rental housing market becomes more competitive. Proposals which attack
the problems of relocation and information costs will, if enacted and effective, provoke more
competition among the owners and tend to lower the resulting rental price. For example,
specific subsidies to renters to cover part of their normal relocation costs would allow
renters to be more responsive to market changes. Programs to collect and disseminate
information on the rental housing services available in a locality would lower renters'
information costs, whether the programs are backed by tenant associations or government
resources. The same applies to surveys of employers and renters to assist owners in projecting
the demand for current and potential units.
Some proponents of rent controls have taken a longer-range view, hoping that these controls
could assist in providing decent rental housing for everyone who wants it at a reasonable
price. On the surface this rental housing goal can be realized either by raising personal income
or by lowering the rental price. However, lowering the rental price through rent controls will
have feedback effects thereby reducing the supply of housing. A less disruptive approach
suggests raising personal income rather than circumventing the market allocation scheme
by controlling rents.
5
JANUARY 1974
BUSINESS REVIEW
occurs, rent can no longer perform two impor
tant functions. It cannot allocate the present
supply of rental units among renters so that
everyone who is willing to pay the new rent
can get rental housing. Nor can it provide in
centive for owners to increase the supply of
housing to satisfy demand at the new price.
Without the freedom to up the rent, the owner
can maximize his profit (or at least minimize
his losses) only by cutting costs, which usually
means lowering the quality or quantity of his
rental units. This is the expected response as
the owner tries to protect his investment over
the short run in the face of a binding rent
ceiling. The resulting supply of rental housing
services would be less than if rents were free
to rise to market-clearing levels. Although
current rent control proposals prohibit lowering
quality for a given level of rent, the difficulty
of policing such actions would increase the
administrative and enforcement costs of rent
control with questionable results on quality.
Controls inject an additional degree of un
certainty into investment in rental housing.
This occurs even if an owner could charge as
high a rent as the market would bear for a
unit when leasing it for the first time. An im
portant factor when considering a particular
investment is the ability to alter it when market
conditions change. Rent controls hinder the
owner's ability to respond to changing market
conditions. And, consequently, such controls—
or even the possibility of their being enacted—
could make construction of rental housing less
attractive as an investment than it would be
without them.
Over the long haul rent controls will tend to
make would-be owners reluctant to invest in
rental housing. Current owners would adjust
prices until thecontrols ceiling impinges on their
planned rent hikes. Then they'll adjust by trying
to cut operating costs. On the heels of decreased
operating costs comes less and lower-quality
housing services.
clearing one, owners and renters would not
agree to an exchange of rent money for housing.
At a higher price owners would be willing to
build more units or activate vacant ones, but
renters would not desire more.3 At a lower
price renters would want more apartments, but
owners would be unwilling to provide them.
In the rental housing market, the price is the
monthly rent. Under recent and proposed rent
control measures, however, rents would not be
completely free to move, and they could rise
only if approved under the selected cost pass
through arrangements (see Box 2). But what
if these pass-through measures result in rental
housing prices that do not satisfy both renters
and owners?
How W ill Owners Respond? In the face of
cost increases, profit-maximizing owners will
attempt to increase rents if they are to supply
the same amount of rental housing. Although
this is at best a trial-and-error process, rent
controls make matters more uncertain for the
owner. Rent controls generally have some pass
through provision for rising costs. However, the
owner cannot up the rent in excess of the pass
through allowances without convincing the rent
control authority he needs the extra amount be
cause of financial hardship.
The pass-through formula could allow all in
creases in supplier's costs to be passed on to the
renters. But then what has the legislation contrib
uted, other than creating w ork for those
involved? Even if the pass-through allows rents
to reach their market-clearing levels, such con
trols still have costs. Owners, renters, and the
rent control board will respond to the new laws
by using resources to understand and cope with
the regulations. Without controls, this extra time,
effort, and money could be put to other uses.
The costs of controls are compounded if the
pass-through allowance prevents rents from
rising to their market-clearing levels. When this
businessm en hold inventories
expected changes in demand. In
owners hold vacant rental units.
of adjusting to changes in present
as a buffer against un
many cases, apartment
This lowers their costs
and future demand.
How W ill Renters Respond? Suppose a new
plant opens in a community. As the plant hires
more nonresidents, demand for housing in the
6
FEDERAL RESERVE BANK OF PHILADELPHIA
SAMPLE PROPOSALS FOR RENT CONTROLS
If the demands for rent controls are successful, the program set in motion will have certain
major characteristics. Two model rent control bills and two rent control amendments to the
1973 extension of the Economic Stabilization Act can be considered representative of
recent rent control proposals. One model rent control bill was prepared by the South Jersey
Tenants Association and the other was prepared by the Apartment House Council— an affiliate
of the New Jersey Builders Association. The proposed Congressional amendments (introduced
March 20, 1973) are one by Senator Clifford Case of New Jersey and one by Senator
Lawton Chiles of Florida. Four major provisions are found in each of these proposals. One
is a set of rules established to pass through cost increases incurred by the owner.
A second is that rents are controlled on all multi-family units except those being rented for
the first time. A third characteristic is the establishment of a rent control authority to
adjudicate disputes arising under the controls. A fourth is the mechanism which activates
the powers of the rent control legislation.
A central issue in every legislative consideration of rent control is the pass-through of
cost increases. If the landlord's costs increase and he's prohibited from raising his rents,
eventually he'll go out of business. So generally all rent-control legislation enables the
landlord to pass some of his increased costs on to the tenant. Each of the proposals
allows complete pass-through of tax changes. Two of the bills afford similar treatment to
capital improvements. Other cost increases are considered under the umbrella of specific
formulas which range from allowing rent increases of 2.5 percent a year to one allowing a rate
of change commensurate with movements in the Consumer Price Index.
Exempting new units from initial controls shows a concern for the effects of such controls
on the construction of new rental units. If rents are set below the level which generates a
satisfactory rate of return on the owner's investment, new sources of supply would be cut off.
Yet proponents of rent controls fail to realize that controlling the rents after the first
renewal causes uncertainty and lowers the likely stream of rental income. The increased
uncertainty and lower expected revenue will deter the construction of new rental housing
despite the original exclusion of units rented for the first time.
Another common characteristic is the appointment of a person or board, whose job it is to
evaluate rent increases and enforce the controls against illegal hikes. Such a board might
function by examining costs and rent changes or, depending on how it's structured, render
judgments on rental complaints before it. The administrative expense of this board is
a tangible cost of rent control, but this cost is probably small compared to the misallocation
costs that can occur when the market is not allowed to operate.
The suggested mechanism that activates rent controls ranges from some measure of the
relative housing supply to formal Congressional action. Local controls are activated when a
survey estimate of the vacancy rate for rental housing goes below a specified level. Thus,
they could come and go depending on the variance of local vacancy rates. The Federal
controls would end with expiration of the Economic Stabilization Act.
7
JANUARY 1974
BUSINESS REVIEW
Market-search costs form a lion's share of the
total transaction costs. And it's difficult to see
how rent controls would lower such costs for
renters. Under conditions in which rent has been
controlled at a level below the market-clearing
price, potential renters would need to ascertain
the types of allocating schemes employed. Then
they must develop a m odus o p e ra n d i for
enhancing their chances of getting the desired
housing services. All of this is more likely to
raise rather than lower renters' market-search
costs.
Tenants who somehow obtain controlled units
will spend less on rent than they would if rents
could rise to market-clearing levels. This may
sound like a good deal for those fortunate
renters, but actually such fortune has indirect
costs. In addition to the possibility of deterio
rating quality of housing services, there's the
problem of mobility. In terms of the freedom to
change residence, rent controls can be expected
to make renters less mobile. Rents that are held
at artificially low levels would not force particu
lar renters to economize on housing as they
would if rents were free to rise. Renters now
living in controlled units would have little
chance of duplicating their current housing and
its cost at a new location. This would create a
premium on obtaining and retaining controlled
units.
community increases. Presumably, part of this
increased demand will be for rental housing. In
an unfettered market, rent increases would
induce tenants who do not value this location so
highly to surrender their apartments and move to
rental housing elsewhere. To some, this may be
viewed as driving current residents out of their
living quarters. But the market is simply allo
cating a scarce resource among competing demanders, so that those who most desire a
particular type of housing can bid for it. The
resulting rent increases also spur owners to
provide more and better housing. But under a
binding rent ceiling these adjustments cannot
occur. Price can no longer provide the needed
supply incentive nor be used as a rationing de
vice.
Under rent controls, apartments might be
handed out on a first-come, first-serve basis.
However, opportunities for discrimination based
on looks, race, religion, and a host of other
nonmonetary characteristics would result.
If renters can compete for housing services, using
both monetary and nonmonetary methods, an
owner who discriminates on nonprice grounds
risks losing rental revenue. W hen monetary
methods of competing are severely limited, as
they are under rent controls, the potential loss of
revenues from nonprice discrimination is less.
This would lower the cost of these forms of dis
crimination, thereby encouraging their use.
Tenants unable to obtain controlled units
could be forced to pay relatively high rents for
uncontrolled units or share living quarters
with other families. When tenants desire more
rental housing than landlords are willing or
able to provide, controls may allow some seg
ments of the population to avoid economizing
on rental housing while others might be forced
to live penuriously. As a result, black markets
and "under-the-table" deals become common
place. The "have-nots," who value a particular
unit more than the "haves" occupying it, might
offer some payment in exchange for that unit.
In this way the market would still operate, but
the costs of arranging mutually agreeable ex
changes would be raised.
Wealth Transfers Can Result. To the extent
that renters spend less on housing at the ex
pense of rental housing owners, there is a net
transfer of wealth from owners to renters. Ade
quate housing is a desirable goal, but there's no
economic or sociological rationale for imposing
the costs of such subsidies on owners of rental
housing alone. Furthermore, there's no assur
ance that all renters are economically disadvan
taged or that all owners are economically advan
taged. The only empirical study found in the
literature on this issue concluded that no evi
dence existed to indicate that tenants were
poorer than landlords.4 So if rent controls are
4D. C . Johnson, “ Rent Control and the Distribution of
Incom e," American Economic Review 41 (1951): 569-82.
8
FEDERAL RESERVE BANK OF PHILADELPHIA
renters' demands will be met over the long
haul. In the meantime, controls can be a
placebo— that is, they delude society into think
ing government intervention is beneficial. In
fact, they start down the path of problem
creation. With the usual demand increases, con
trols will initially aid renters living in controlled
units— holding down their monthly payments—
at the expense of the owners of controlled
rental housing. This short-circuits the role of
rent to provide incentive for tenants to econo
mize on housing usage and for owners to meet
the demand for housing services. All of this is
done without coming to grips with the road
blocks to competition, such as relocation costs,
inadequate information about alternatives, and
time-lags in building new units.
In the longer run, rent controls beget a
problem child. They deter suppliers from pro
viding the quality and quantity of rental housing
services tenants want and are willing to pay
for. Rent controls do this by lowering the income
stream of owners relative to what they would
have received in an unfettered market. Thus,
they provide an incentive for present owners to
"disinvest" in housing by allowing their prop
erties to deteriorate as well as encourage new
investors to steer clear of the rental housing
market.
Summing up, it seems the rent-control band
wagon “ on its w ay to the happy housing
grounds" could get stuck at a rundown tenement
shack. And, that's reason enough for considering
its destination before hopping aboard.
intended to redistribute income from the rich to
the poor, they're probably an ineffective vehicle
for doing it.
Spillover to Owner-Occupied Housing. The
prices of owner-occupied housing are not regu
lated under rent control proposals. But this
doesn't mean that this portion of the housing
market will be unaffected by rent control. Since
owner-occupied housing is a close substitute for
rental housing, any imbalances in the latter
market may alter the demand or supply for
owner-occupied housing. As potential renters
find they are unable to obtain rental units,
they w ill turn to the ownership market to
obtain housing. Some developers will cater to
this demand and shift from supplying units for
rent to units for sale. The ultimate effect on the
price of these housing units depends upon the
strengths of these shifts.
The spillover effects of rent controls do not
have to be confined to the price and quantity
of owner-occupied housing. Another spillover
channel is possible through the property tax
system. If the quality of controlled rental housing
deteriorates so that its assessed value drops, then
a heavier tax burden could fall on residential
homeowners or other tax revenue sources. (See
Box 3 on pages 10 and 11 for details of the major
U.S. experience with rent controls.)
PANACEA, PLACEBO, OR PROBLEM CHILD?
Rent controls are not a panacea for the rental
housing market. They neither improve its opera
tion nor provide the incentives to insure that
9
JANUARY 1974
BUSINESS REVIEW
Box 3
THE NEW YORK CITY EXPERIENCE
New York City has had rent controls since 1943 and they remained basically unchanged
until 1969. The characteristics of these pre-1969 controls are not identical with the
proposals described in Box 2. Housing built after 1946 was not subject to rent controls.1
The Office of Rent Control under the Housing and Development Administration administered
the controls, and owners were permitted to hike rents when there was a change of
renters. The rent hike was limited to 15 percent, but it could be less if the building in
question was not violation-free. In some cases, rent reductions could be ordered. In addition,
various cost pass-through allowances were permitted— major capital improvements,
economic hardship of the owner, increased service, and rising labor costs. The triggering
mechanism was a vacancy rate below 5 percent in the controlled sector. Surveys were
conducted every two years to determine this rate, but it never climbed higher than 3.2 percent
in the post-World W ar II period.
There is little evidence of any major problems in the rental housing market before
1960. In the early 1960s storm warnings appeared, and around 1965 Gotham's rental
housing market plunged into a crisis. The pervasiveness of the crisis is evident in a 1970
study by the Rand Institute in New York City.
Vacancies are acutely scarce, construction is at its lowest level in many years;
rents in the previously uncontrolled sector rose so rapidly in 1969 that a new form of
control was imposed, and large numbers of recently habitable buildings have been
reduced to shambles or withdrawn entirely from the market. Tenants are deeply
dissatisfied either with the quantity of service provided by their landlords or with the
rents demanded, or both. Landlords are equally dissatisfied with the yields of their
property, the behavior of their tenants, the burdens of public regulation, and the
illiquidity of their investments.2
Rent controls alone did not cause the crisis, but they contributed heavily because they
prevented rents from rising in tandem with costs. This protected many tenants from major
rent increases. Rand found that since 1945 the costs of supplying well-maintained rental
housing rose about 6 percent per year, while rents moved upward only 2 percent per year.
When the costs of operating and maintaining rental housing began accelerating in 1965,
the gap between costs of supplying rental housing and controlled rental revenues widened
’ In 1969 the N ew York City Council passed a law which widened the coverage of rent controls to include housing
built after 1946.
2lra S. Lowry, ed., Rental Housing in New York City. Volume 1, Confronting the Crisis (N e w York: The N ew York City
Rand Institute, 1970), p. 1.
10
FEDERAL RESERVE BANK OF PHILADELPHIA
appreciably. The same Rand study discovered that in the first half of the '60s the
stock of rental housing grew at an average annual rate of 22,000 units. But in the second half
the available supply declined by an average of 7,000 units per year. Quality suffered
too, according to the Rand Institute. From 1960 to 1967 the inventory of rental housing
classified as “ sound" increased 2.4 percent, while that rated “ deteriorating" rose by 37 per
cent, and “ dilapidated" by 44 percent. Moreover, about 80 percent bf the housing
inventory losses (for reasons other than merger or demolition) during 1966 to 1968 involved
units in buildings classified as either “ sound" or “ deteriorating" but not “ dilapidated"
in 1965. It's not surprising that proposals to alleviate the city's rental housing shortages
included drastic changes in rent controls ostensibly to reflect supply and demand forces
better and revive incentives to supply rental housing.
Some persons did benefit from rent controls, however. Renters who obtained and retained
controlled units spent less on housing than they would have in the absence of such controls.
Some of the monetary costs and benefits were examined in a study using 1968 data. It's
estimated that the net benefit to families living in controlled housing was $270 million (an
average of $213 per family). However, the cost to landlords totaled $514 million, and the cost
of administering rent controls hit $7 million. So the estimated excess of costs over benefits to
the market participants was $251 million.3 Both “ poor and nonpoor" alike received these
benefits. It was estimated that in 1967 a family of four could manage a “ low-to-moderate"
standard of living in New York City on a gross income of $6,800 to $7,400. In that year
about 45 percent of all renters living in controlled units had incomes above $7,000.4
It is easy to see how a premium can be attached to controlled units. Families who
lived in rent-controlled housing in Manhattan in 1968 paid an estimated average of $1,200
less per year than they would have paid for the same housing in an uncontrolled market.5
W h ile rent control in New York City was not the only cause of the housing crisis,
several independent studies, including some commissioned by the City, concluded that the
rent increase limitations were a major contributor. In response to this, the City adopted a
major reform of its rent control law in mid-1970, and a New York State law, passed in the
spring of 1971, decontrolled all controlled units vacated after June 30, 1971.6
3Edgar O. Olsen, “ An Econometric Analysis of Rent Control," journal of Political Economy 80 (1972): 1094.
4lra S. Lowry, et a/., Rental Housing in New York City. Volume 2, The Demand for Shelter (N e w York: The New
York City Rand Institute, 1971), p. 81.
5lbid., p. xv.
6For details of the reformed rent controls, see Alan S. Oser, “ City Details Rent Formulas for '72 and '73,"
N e w York Times, October 3, 1971, sec. 8, p. 1.
s
Pace of Housing Starts Slows as Deposit Growth at S&Ls Declin
CHART 1
RECENTLY, YIELDS ON MARKETABLE GOVERNMENT SECU RITIES
HAVE CLIMBED ABOVE DEPOSIT RATES AT SAVIN G S AND LOAN
A SSO CIA TIO N S . . .
Percent
R a te on Six-M onth
T re a s u ry B ills (N e w Issu es)
8
6
4
R a te on P a ssb o o k T y p e D ep osits
at S a v in g s and Lo a n A s so c ia to n s
1970
1971
1972
1973
So u rce: Federal R e serve Bulletin
CHART 2
RESULTING IN A MARKED SLOWING IN THE
DEPOSITS AT THESE INSTITUTIONS . . .
GROWTH
Billions of Dollars (Se a so n a lly Adjusted Annual Rates)
Source: Federal Hom e Loan Bank Board, Septem ber 1973 Preliminary.
OF
CHART 3
SO THAT S&Ls HAVE HAD TO CUT BACK ON COM M ITM ENTS FOR
NEW MORTGAGE LENDING . . .
Billions of Dollars (Seaso nally Adjusted)
M o rtg ag e C om m itm ent O utstanding at S a v in g s and Lo a n A sso c ia tio n
1970
1972
1971
1973
Source: Federal Hom e Loan Bank Board
CHART
4
THUS CONTRIBUTING TO A DECLINE IN THE PACE OF ECONO M IC
ACTIVITY IN THE HOUSING SECTOR.
Thousands of Units (Seaso n ally Adjusted Annual Rates)
P riv a te H ousing S ta rts
1970
1971
1972
1973
Source: Census Bureau Data, Season al Adjustments by the Federal R e serve System .
Helping Americans
Get Mortgages
By lack Clark Francis
up agencies of the Federal Government to facili
tate mortgage financing.
Down through the years the agencies have
expanded, and today they help home buyers,
home builders, and others. The most direct form
of assistance the three mortgage agencies pro
vide is the provision of secondary mortgage mar
kets. It is also sometimes argued that these
agencies help the mortgage market by obtaining
savings from sources which heretofore did not
invest in mortgages and by channeling these
dollars into mortgage loans. Increasing the sup
ply of mortgage credit tends to reduce the cost of
a mortgage. The agencies also provide mortgage
funds during “ credit crunches," when other
sources of mortgage credit reduce their lending.
And, the agencies sometimes buy high-risk
mortgages on subsidized homes that are not 100
percent covered by insurance. Thus, through
these techniques government agencies attempt
Millions of Americans have received help get
ting their home mortgages from “ Ginnie M ae,"
“ Fannie M ae," and “ Freddie M ac." Yet most of
them probably can't recall hearing the names.
This “ awareness gap" is a little surprising. “ Fan
nie M ae," for example, is a corporation that
owns more assets than General Motors and
whose stock is traded on the New York Stock
Exchange. Probably the main reason so few peo
ple appreciate Fannie Mae, Ginnie Mae, and
Freddie Mac is because they operate behind the
scenes in their efforts to strengthen mortgage
markets.
These home-financing institutions began as
U.S. Government agencies with the assignment
of bolstering the mortgage markets to help the
everyday home buyer. The Federal Government
undertook these programs because it wanted
more money channeled into housing than pri
vate institutions were providing. So Congress set
14
FEDERAL RESERVE BANK OF PHILADELPHIA
Fannie's Goals. FNM A's purpose, as stated in
the Congressional charter which created her, is
to help the housing business in several ways.1
First, by pouring the money she scooped up by
selling FN M A bonds (bonds which are backed
by the U. S. Government) into the purchase of
mortgages, Fannie was supposed to make more
mortgage loans to home buyers. Second, by in
creasing the supply of mortgage money avail
able, Fannie Mae should put downward pressure
on mortgage interest rates. Third, Fannie was
charged with helping to smooth out any tempo
rary restrictions in the availability of mortgage
credit. Thus, families that must move during a
period of “ tight mortgage money" are more
likely to be able to get a mortgage to buy another
house. And, little construction companies won't
be so likely to go bankrupt if tight credit makes it
hard for home buyers to get mortgages. After all,
since virtually no one can afford to pay cash for a
home, most new home sales depend on the po
tential owner's ability to get a mortgage loan.
Like a person who must learn to crawl before
walking, Fannie moved slowly at first. But, in
1968 FN M A had her “ coming out party,'' and
has been stepping smartly ever since.
to even out and increase the flow of funds for
home financing.
IN THE BEG IN N IN G
Uncle Sam started making home buying easier
for Americans decades ago. The Federal Housing
Authority (FHA) was started in 1934 and the
Veterans Administration (VA) was started in
1944 to provide default insurance on home
mortgages. The two insurance programs are
similar. Essentially, they indemnify the lender
against all or part of the losses realized on a
guaranteed loan ifthe home buyer can't meet the
mortgage payments.
The FHA and VA charge one-half of 1 percent
of the value of the mortgage per year for their
insurance service. As a result of FHA and VA
insurance, savings and loans associations (S&Ls),
banks, life insurance companies, and other
groups that loan mortgage money are more w ill
ing to make loans to some risky home buyers
who show promise of honoring their debts. But,
perhaps the most interesting thing about these
insurance programs is that the charges add up to
more than the FHA's total costs and losses on
repossessions.
The FHA and VA are large, old, well-known
institutions that have helped millions of Ameri
cans get their homes financed over the years. So,
although they perform a valuable insurance serv
ice, there is really nothing new about the FHA
or VA. It's names like Fannie Mae that are mak
ing headlines now.
Fannie Mae's Debut. Congress passed the
1968 Housing Act which transformed Fannie
Mae from a government agency into a private
corporation. She entered private corporate life
with a flourish. During '69 and '70 there was a
period of tight credit called a credit crunch. As a
result, many families that would ordinarily have
no problem getting mortgages suddenly encoun
tered difficulties in securing them. But, Fannie
Mae quietly aided many distressed home buyers,
as her Congressional charter stipulated. Fannie
sold her own bonds and bought FHA- and VAinsured mortgages from mortgage bankers and
others who had been making mortgage loans.
This replenished the mortgage lenders' supply
of funds and helped people get mortgages who
might not have gotten them otherwise.
MEET FANNIE MAE
The Federal National Mortgage Association
(FNMA) was born in 1938 and was affectionately
nicknamed Fannie Mae. Originally, her job was
to take the proceeds from selling U. S. Govern
ment agency bonds, her own FNM A bonds, and
buy FHA- or VA-insured mortgages. Fannie did
not interfere with the VA'sand FHA's insurance
programs in any way. She snared mortgage capi
tal by selling the bonds of a U. S. Government
agency to investors who were unwilling to take
the risk of investing in private business. Then,
this money was channeled into the mortgage
markets.
'W illia m Atteberry, Modern Real Estate Finance (Colum
bus, Ohio: G R ID , Inc., 1972), p. 306.
15
JANUARY 1974
BUSINESS REVIEW
Some of Fannie Mae's critics suggest that part
of the money invested in FNMA's bonds may be
savings deposits withdrawn from banks and S &
Ls.2 This problem tends to be the worst during
periods when FNMA's bonds yield higher rates
of interest than savings deposits. It's not possible
to trace the flows of funds closely enough to
measure this substitution of FNM A bonds for
savings deposits. But, to the extent this substitu
tion occurs, Fannie isn't increasing the total sup
ply of mortgage credit as much as her total bor
rowings would indicate.
for most families to get home mortgages, but also
bankrupts some construction companies that
can't sell their inventory of new houses because
home buyers can't get mortgages.
Fannie's efforts to smooth the ups and downs
of the construction business during tight-money
periods have made an important contribution to
the industry. For example, in 1970 when credit
was tight Fannie financed almost one-fourth of
the home purchases in the U.S. Fannie's assis
tance to the housing industry so impressed Con
gress that it gave her new power to do even more.
Smooth Out the Construction Business.
Conventional Mortgages Too. In 1970 Con
gress passed the Emergency Home Finance Act
which, among other things, allowed FN M A to
buy uninsured mortgages— or conventional
mortgages, as they are usually called. Since
about two-thirds of all mortgages on single
family homes are conventional mortgages, this
new pow er w idened Fannie's scope of
operations.3
As a result of her powers to raise large quan
tities of cash at market interest rates by selling
Government-guaranteed FN M A bonds, and,
also because of her Congressional instructions to
steady the housing business by buying mort
gages, Fannie's holdings of mortgages grew from
slightly over $1 billion in 1952 to over $18 bil
lion by 1972. But, this growth doesn't mean that
FNM A never sells mortgages.
Traditionally the construction industry has been
a feast-or-famine business largely because of
tight periods in the availability of credit, such as
the credit crunches of 1966 and 1969-70. A
crunch usually lasts for less than a year. But
during the crunch banks and other institutions
that normally take in customers' savings and
then loan them out to investors temporarily ex
perienced decreased deposit inflows. Deposits
slow down because savers prefer to invest di
rectly in market assets w hich offer higher
interest rates than the legal ceilings allow savings
accounts to pay. As a result, banks, S & Ls, and
other institutions that usually make mortgage
loans have less deposit inflows available from
which to make loans. So, they ration their limited
supply of loanable funds to those investments
which they think will earn the highest rate of
return at each level of risk. Mortgage credit is
usually reduced by loan officers during tempo
rary periods of tight monev because mortgage
rate ceilings keep mortgage rates from rising high
enough to be competitive with other investments
of equal risk in which the lending institutions
might invest. The resulting restriction in mort
gage credit causes a big reduction in home buy
ing. Thus, tight credit not only makes it difficult
Making a Secondary Market. To interest more
investors in buying mortgages, Congress told
Fannie Mae to try maintaining a secondary mort
gage market.4 Accordingly Fannie buys mort
gages during periods of tight credit and sells a
few mortgages when credit is plentiful. Such
countercyclical buying and selling not only
tends to smooth the ups and downs in the mort
gage and housing business, it provides a secon
dary market which encourages more investors to
invest in home mortgages. These secondary
mortgages increase the liquidity and flexibility of
banks and other mortgage investors.
2Leo Grebler, "Broadening the Sources of Funds for Resi
dential Mortgages/' W ays to Moderate Fluctuations in
Housing Construction (Washington: Board of Governors of
the Federal Reserve System, 1972), pp. 177-253. See also
pp. 7-18.
federal Reserve Bulletin 59 (February 1973), p. A51.
4A secondary market is a market which deals in used items.
The N ew York Stock Exchange is an example of a secondary
16
FEDERAL RESERVE BANK OF PHILADELPHIA
ENTER G IN N IE MAE
In 1970 when Congress allowed FN M A to buy
conventional mortgages it also created a new
Government home-financing agency to replace
its departed daughter, FNMA. The new agency is
officially named the Governm ent National
Mortgage Association (G N M A), but like Fannie,
it has a nickname— Ginnie Mae.
Ginnie and Fannie are sister-like creations of
the Federal Government. Both perform similar
home-financing functions and both are account
able to the Secretary of Housing and Urban De
velopment. However, they differ in two impor
tant aspects. First, Ginnie Mae is still a Federal
agency, while Fannie is a private corporation.
And second, whereas Fannie sells her own
bonds to raise money, Ginnie borrows temporarilv from the U. S. Treasury to buy mortgages and
then sells them.
G N M A finances mortgages by first buying
FHA- or VA-insured mortgages from mortgage
bankers or other people who may have originally
made mortgage loans to the home buyers. G in
nie. buys mortgages with money she borrowed
from the Treasury and sometimes “ pools" them.
These pools have a minimum value of $2 million
and contain mortgages on similar types of hous
ing at similar interest rates which are all VA- or
FHA-insured. Ginnie then either sells individual
mortgages or sells “ shares" in pools of mort
gages she has formed to obtain funds to repay the
Treasury.
Proceeds from selling “ shares" in a pool of
mortgages entitle each “ shareholder" to a piece
of every mortgage in the pool. But, these
“ shares" are riskless because all mortgages in
the pool must be insured by the FHA or VA or
Ginnie won't put them in the pool. Since the
assets behind the “ shares" in the pool are mort
gages, the “ shares" are often called mortgage-
securities market. Security owners want a place to sell their
securities if they need cash. People are more willing to invest
in securities which have secondary markets than in securities
that have no secondary markets in order to keep their hold
ings liquid.
backed securities. These securities are also fre
quently referred to as G N M A pass-throughs
because all the monthly mortgage payments by
home buyers to the pool are passed through it to
the investors who bought “ shares." Thus, the
investors who bought pass-through securities
backed by mortgages get guaranteed monthly
payments until their investment is repaid with
interest. G N M A also offers special bond-type
pools in which the principal is reinvested as the
mortgages are paid off. Then, when the mort
gages all mature, the principal is repaid in one
lump sum. Ginnie's pass-throughs are such good
investments that S & Ls themselves have invested
billions in them rather than directly in
mortgages.5
FREDDIE MAC HELPS THE S & Ls, TOO
Savings and loans associations take in millions
of dollars every year and invest most of them in
mortgages. In fact, S & Ls make more mortgage
loans than any other group of investors in the
U.S.
The S & Ls wanted an organization like Fannie
Mae to provide them with the liquidity offered by
a secondary mortgage market. But they wanted
an agency which specialized in dealing with S &
Ls. So, in 1970 Congress empowered the Home
Loan Bank Board, the Governm ent agency
which oversees S & Ls, to start the Federal Home
Loan Mortgage Corporation (FH LM C ), nick
named Freddie Mac.
Freddie Mac, a Government agency, sells its
own Government-insured bonds and uses the
proceeds to buy either insured or conventional
mortgages from Federally insured savings institu
tions. Freddie can't issue pass-through securities
like his sister Ginnie. And, he isn't a private
corporation like Fannie Mae. But, they are all
Federally chartered organizations which have
5Federal Hom e Loan Bank Board News, Washington,
D.C., September 28-October 1, 1973 news release, table 3,
footnote 3. Unfortunately, S & Ls investing in G N M A 's
securities circumvents one objective of G N M A — that is,
raising new money for the mortgage markets.
BUSINESS REVIEW
JANUARY 1974
similar basic purposes— the financing of homes.
And, they have certainly changed mortgage
markets in the U.S.
HOME BUYERS BENEFIT
Fannie Mae, Ginnie Mae, and Freddie
have all made it safer and easier to invest
rectly in mortgages (see Box). Their efforts
brought some investors into the mortgage
Mac
indi
have
mar
kets because the bonds they sell to raise mort
gage money are backed by the Federal Govern
ment, are actively traded and therefore liquid,
and the interest yields on agency bonds are
slightly above the rates paid on similar savings
instruments. Consequently, savings are invested
in these bonds and in turn reinvested in mort
gages. Raising this (hopefully new) capital is the
first thing that these three home-financing or
ganizations may do for the home buyer.
CRITICISMS OF FANNIE, GINNIE, AND FREDDIE
Just about everybody who has been out in the "real world" for very long agrees on one
thing— you can't expect to get something for nothing. Extending this hard-learned logic to
FNMA, G N M A , and FHLM C leads one to ask if these agencies don't cost somebody some
thing. The answer is yes, they have costs— just like everything else. These costs are indirect and
hard to see because they aren't usually paid by the mortgage recipient who obtains the benefits.
Some of the more troublesome questions about these costs which could be asked of Fannie,
Ginnie, and Freddie are below.
1. Do we really need three similar agencies likeFNMA, G NM A,and FHLMC? Couldn't one
big one do it all?
One big mortgage agency could probably do all the work of Fannie, Ginnie, and Freddie.
But, mortgage banks and S & Ls prefer to have their own agencies to deal with.
2. Wouldn't most of the people who get their mortgages purchased by FNMA, G N M A , and
FHLMC get the mortgage without these agencies' participation in the market?
They probably would over time. The agencies' main benefits are to people who want
mortgages during a credit crunch and probably couldn't have gotten them with
out the agencies' help, and, to illiquid financial intermediaries that need to liquidate
a mortgage.
3. Doesn't some group of people or organization lose the savings inflows that now go into
the U. S. agency bonds that FNMA, G N M A , and FHLMC sell?
Yes, to some extent savings and loan associations' deposits, bank deposits, and even the
sale of U. S. Treasury bonds are hurt by the sales of housing agency bonds.*
4. Doesn't the money invested in Federal Home Loan Bank, FNMA, G N M A , and FHLM C
bonds come out of some other useful investment or savings?
*Jene K. Kwon and Richard M. Thornton, "A n Evaluation of the Competitive Effect of FH LB Open Market
Operations on Savings Inflows at Savings and Loan Associations," Journal of Finance 26 (1971): 669-712.
18
FEDERAL RESERVE BANK OF PHILADELPHIA
Yes. Some of the money invested in Government agency bonds comes out of savings
accounts.** Thus, the money G N M A uses to buy a mortgage from a S & L may have been
withdrawn from that S & L to buy a G N M A pass-through. Thus, the agencies may not
increase mortgage credit totals. Unfortunately, it is not easy to measure the relevant flows
of funds and thus determine the extent of this substitution of savings.
5. Aren't some people helped more than others by FNMA, G N M A , and FHLMC?
Yes. Middle-class Americans who own mortgaged homes benefit from the Government
mortgage agencies more than people who rent or people who can't afford a home.
Essentially, the mortgage borrowers receive an interest rate subsidy.***
6. Could a more efficient private firm provide services for the mortgage market cheaper than
FHA, VA, FNMA, G N M A , and FHLMC?
M G IC Investment Corporation, a private concern, insures mortgages for half the fee
charged by the FHA. And, Maggie Mae, a private mortgage firm, beats FN M A and G N M A
out of some mortgages because Maggie has a minimum of red tape and can move faster.
Some technical financing intricacies make it difficult to compare the costs of these
various agencies.
**See footnote 5 in the text.
***Dan Larkins, $300 Billion in Loans: An Introduction to Federal Credit Programs (Washington: American Enterprise
Institute for Public Policy Research, 1972).
loan, not just those whose mortgages they fi
nance.
Lower Mortgage Interest Rates. The funds that
FNMA, G N M A , and FHLM C pull in are obtained
at Government agency bond rates which are
low. As a result of these low-risk, and therefore
low-return, sources of capital and other factors,
financial analysts estimate that mortgage interest
rates are at least half of 1 percent less than they
used to be at any given level of interest rates.6
This second benefit from Fannie, Ginnie, and
Freddie helps everyone who gets a mortgage
Tight Credit Periods Eased. FNMA, G N M A,
and FHLMC also help home buyers and con
struction companies by smoothing the big hills
and valleys in mortgage credit which can occur.
Thus, Fannie, Ginnie, and Freddie tend to con
centrate their mortgage purchases in periods
when credit is tight and it is impossible for some
credit-worthy families to get mortgages. This
helps new home sales during those temporary
credit crunches and reduces the risks faced by
the homebuilding industry.
Housing starts dropped considerably during
the crunches of 1966 and 1969-70 because po
tential home buyers couldn't get mortgages (see
Chart). New housing construction might have
6 B. Cohen and E. Zinbarg, Investments Analysis and
J.
Portfolio Management (Hom ew ood, III.: Richard D. Irwin,
1967), pp. 469-71 and 702-3; Atteberry, op. cit., p. 287;
J. L. Kochan, “ Federal Agency Issues: Newcomers in the
Capital Market,” Economic Review of the Federal Reserve
Bank of Cleveland, February 1972.
19
JANUARY 1974
BUSINESS REVIEW
less risky and encourages more investors to buy
mortgages. Thus FNMA, G N M A , and FHLMC
not only make the mortgage markets stronger,
they also decrease the possibility that some
savings institutions could become insolvent be
cause no buyers exist for their mortgages.
Mortgage Money Geographically Mobile.
When Fannie buys mortgages on West Coast
homes, she may pay for them with money from
FN M A bonds sold on the East Coast. And, when
Ginnie buys mortgages in the North, she may
pay for them with G N M A pass-throughs sold in
the South. Also, Freddie Mac may buy mortgages
from S & Ls that need cash in one part of the
country and sell FH LM C bonds to finance
purchases in some other place where cash is
plentiful. As a result of transactions like these,
mortgage credit flows freely from state to state.
The funds are raised where they are plentiful and
invested where they are scarce. This means the
money is spent where it is needed most, no mat
ter where it comes from.
Subsidize the Needy. Finally, Fannie invests in
insured mortgages on subsidized housing
facilities for families with incomes so low that
they tend to have difficulty getting a mortgage.
Subsidized mortgages make up about a fourth of
Fannie Mae's portfolio; these may have unusu
ally high default rates and the insurance may not
cover all the losses. Fannie took many of those
questionable mortgages because the Secretary of
Housing and Urban Development urged her to
do so. But, Fannie goes on helping people in
spite of these headaches. As a matter of fact,
helping people get homes isn't a completely un
profitable business. FNMA's annual profits are
usually in the millions. So, it doesn't cost a dime
of the Government's tax revenue.
dropped even more if the mortgage agencies
hadn't been on hand to pour out mortgage
money.
Secondary Mortgage Markets. In addition to
Fannie Mae, Ginnie Mae, and Freddie Mac con
centrating their purchases in periods of tight
credit, they also try to sell some of their mort
gages when money is plentiful. This buying and
selling is not only coun tercyclical, it also
develops secondary mortgage markets. The
increased mortgage liquidity provided by these
secondary markets makes mortgage investing
NOT A BAD PROGRAM, BUT. . .
Uncle Sam's home-financing agencies have
achieved some worthwhile successes. By creat
ing a viable secondary market for home mort
gages, Fannie, G in n ie , and Freddie have
strengthened the lending institutions that make
mortgage loans and have increased the attrac
20
FEDERAL RESERVE BANK OF PHILADELPHIA
successes of the private imitators may reflect
adversely on the efficiency with which the
Government-sponsored programs are run.
The institutional structure of the home
financing industry is far from settled. It may be
that social priorities will require continuing gov
ernmental intervention in these markets to keep
the cost of mortgage funds down. Yet, the way
has clearly been shown for private business to do
this job. As functional distinctions between key
institutions in the mortgage market erode, lend
ers may find they have less need for a govern
ment mortgage agency specifically tied to their
industry. This would reduce the importance of
these agencies and create more opportunities for
private firms.
In the meantime, however, Maggie, Ginnie,
and Freddie are doing their jobs, and a great
many Americans who will never realize it have
benefited from their existence.
tiveness of mortgages as investments. During
credit crunches they have actively supported
mortgage lending by pumping additional funds
into the residential financing markets. They have
also probably been able to attract some addi
tional money to the mortgage markets through
the sale of their agency bonds.
However, any good idea will have its im
itators, and these organizations are no excep
tion. A private firm called M G IC Mortgage Com
pany (Maggie Mae) which finances mortgages is
now in operation. Maggie can move quickly and
effectively; she has been quite profitable. Her
parent company, M G IC Investment Corporation,
is one of several firms that have been successful
in competing with the Government's mortgage
insurance programs.
It's a tribute to the Government programs that
they have been able to show private enterprise
the viability of these services. Nonetheless, the
21
BUSINESS REVIEW
NOW AVAILABLE
BROCHURE AND FILM STRIP ON
TRUTH IN LENDING
Truth in Lending became the law of the land in 1969. Since
then the law, requiring uniform and meaningful disclosure of the
cost of consumer credit, has been hailed as a major breakthrough
in consumer protection. But despite considerable publicity, the
general public is not very familiar with the law.
A brochure, "W h a t Truth in Lending Means to Y ou ," cogently
spells out the essentials of the law. Copies in both English and
Spanish are available upon request from the Department of Bank
and Public Relations, Federal Reserve Bank of Philadelphia, Phila
delphia, Pennsylvania 19101.
Available in English is a film strip on Regulation Z, Truth in
Lending, for showing to consumer groups. This 20-minute presen
tation, developed by the Board of Governors of the Federal
Reserve System, is designed for use with a Dukane project that
uses 35mm film and plays a 33 RPM record synchronized with
the film. Copies of the film strip can be purchased from the
Board of Governors of the Federal Reserve System, Washington,
D. C. 20551, for $10. It is available to groups in the Third Federal
Reserve District without charge except for return postage.
Persons in the Third District may direct requests for loan of
the film to Truth in Lending, Federal Reserve Bank of Philadelphia,
Philadelphia, Pennsylvania 19101. Such requests should provide
for several alternate presentation dates.
22
/or tin* record...
Third Federal
Reserve District
Percent change
SU M M A RY
United States
Percent change
10
October 1973 mos.
1973
from
from
mo.
ago
MANUFACTURING
Production .........................
Electric power consumed.
Man-hours, total* ...........
Employment, total .............
Wage income* ...................
CONSTRUCTION** ..................
COAL PRODUCTION ................
year
ago
10
October 1973 mos.
1973
from
from
year
ago
mo.
ago
year
ago
year
ago
Investments .......................
U.S. Govt, sec u ritie s ___
Other ..............................
Check payments***............
LOCAL
C H A N G ES
Standard
Metropolitan
Statistical Areas*
Wilmington
+ 1 + 7 + 11
+ 2
0
0
— 1
N/A
N/A
+ 8
+ 2
+ 2
+ 8
N/A
N/A
+ 8
+ 2
+ 2
+ 10
N/A
N/A
-
1 + 4
0 + 4 + 5
— 1 + 11
N/A N/A N/A
0
— 1 4- 3
+ 3
+ 1
+ 1
- 4
+
+
-
7
14
1
7
-1
+
+
+
3
1
2
3
+ 13 + 12
+21 +22
+ 2 + 2
-10 — 6
+ 2 * f- 8 + 7
+ 2 + 2 + 2
4- 5t +50+ +37 + + 3 +32 +26
+ 1
- 2
-16
PRICES
Wholesale ...........................
...........................
Percent
change
Oct. 1973
from
Percent
change
Oct. 1973
from
Percent
change
Oct. 1973
from
month year
ago
ago
............
-
2 + 2
-
1 + 6 — 1 +12
Bridgeton ................
-
2
Trenton
+ 1 + 1 + 1 + 6
..................
Altoona ...................
— 3
— 1 + 16
+ It
‘ Production workers only
‘ Value of contracts
‘ Adjusted for seasonal variation
+ 8t
+ 6t
+ 13
+ 1
+ 6
+8
115 SMSAs
{Philadelphia
-
N/A
N/A
N/A
N/A
+ 2 + 12
2 + 26 * * 5 +10
+
-
+ 16
+ 7 + 18 -
6
+ 11
+11
+ 1 + 5
0
+11
+ 5 +138 -
+ 1 + 3
- 2
+ 15
+31
0
..............
Lehigh Valley .........
...........
0
Reading
..................
+ 1
Scranton
................
0
-
-
+ 1 + 1 + 8
0
0
1
_
4 + 3
+ 17 + 1 + 15
1 +12
+ 21 + 2 + 7
+ 7 + 44 -
1 + 6
+ 14 + 17 4- 2 +12
0 + 3
1 — 3
+ 1 + 3
+ 9
1 + 9
+ 7 +206 + 8 +15
+ 4
..............
-
+ 3 + 16 + 3 + 10
1 + 8
— 3 +
9
0 + 3
3 — 1 + 4 + 9 + 36 + 2 + 14
Williamsport ..........
-
York
+ 4 + 3 + 4 +12
.......................
+10
+ 8 + 11 -
0
0 + 4
.........
nonth year
ago
ago
6 + 9 — 5 + 37
0 + 2
+ 1
Harrisburg ..............
Philadelphia
Total
Deposits**1
Percent
change
Oct. 1973
from
nonth year month year
ago
ago
ago
ago
Atlantic City ..........
Wilkes-Barre
Consumer
Check
Payments**
Lancaster
0
Banking
Payrolls
Johnstown
BANKING
(All member banks)
Deposits..............................
Loans ..................................
Manufacturing
Employ
ment
+ 2 -
44
0 + 11
‘ Not restricted to corporate limits of cities but covers areas of one or
more counties.
“ All commercial banks. Adjusted for seasonal variation.
“ ‘ Member banks only. Last Wednesday of the month.
miEHAI. RESERVEHANK
FEDERAL RESERVE H
ANK
F E D E R A L R E S E R V E H A N K o f P H IL A D E L P H IA
P H IL A D E L P H IA , P E N N S Y L V A N IA 19101
business review
FED ERA L R E S E R V E BA N K
OF PH ILAD ELPH IA
PHILADELPHIA, PA. 19101
@FedFRASER