INTERNATIONAL LABOUR OFFICE

HOUSING
AND

EMPLOYMENT

GENEVA
1948

STUDIES AND REPORTS
New Series, No. 8

PUBLISHED BY THE INTERNATIONAL LABOUR OFFICE
Geneva, Switzerland

Published in the United Kingdom for the INTERNATIONAL
LABOUR O F F I C E by Staples Press Limited, London

Distributed in t h e United States by the INTERNATIONAL
LABOUR O F F I C E ,

Washington Branch, 1825 Jefferson Place, Washington, 6, D.G.

PRINTED BY 6RANCHAMP, ANNEMASSB (FRANCE)

CONTENTS
Page
PREFACE

CHAPTER I : The Need for a Public Housing Policy
Housing Needs and Housing Standards
Definition of Housing Needs
Housing Standards
Willingness to Spend on Housing
Housing Costs
Distribution of Incomes
Importance of a Public Housing Policy
The Development of Public Housing
Public and Private Enterprise in Housing
The Need for Elasticity in Housing Policy
CHAPTER II : Housing and Employment Policy
Employment and Demand
The Scope for Action by Governments
Private Investment
Exports
Government Expenditure
Alternative Employment Policies
Fluctuations in Housing and Employment
The Need for Stability of Housing Activity
The Construction Industries as Employers of Labour . . .
The Place of Housing in Employment Programmes . . . .
CHAPTER I I I : The Supply of Houses: The Costs of Building
Activity
Costs of a Typical House
Factors Affecting the Level of Costs of Building Activity .
Land
Construction Costs
Height and Rigidity of Building Costs
Cost of Purchasing a House
• . . . .
The '" Pure " Rate of Interest
The Mortgage R a t e of Interest
Other Expenses
Costs of Renting Houses
CHAPTER IV : The Demand for Houses and the Level of Building
Activity
The Total Demand for Houses in Particular Localities . .
Number of Families in a Locality
Expenditure per Family on Housing
Increases in Incomes
Increases in Allocations from Incomes to Housing
. .
Fundamental Forces Affecting Housing Demand
The Determination of the Level of Building Activity . . .

1

4
4
4
9
11
14
14
15
18
22
25
27
29
33
34
35
36
38
40
42
45
46
50
50
51
51
53
61
62
65
68
70
71
73
74
75
77
78
79
80
81

IV

CONTENTS

Page

CHAPTER V : The Irregularity and Inadequacy of Building Activity
Influence of Demand on the Level of Building 'Activity . . . .
The Role of Expectations
Influence of Factors Affecting the Supply of Housing on the
Irregularity of Building Activity . . .
Building Activity and the Trade Cycle
Inadequacy of Housing Activity
CHAPTER VI : Content of Housing Policy: Part I
Stabilisation of Housing Activity
Building as a Counter-Cyclical Agent
Public Authority and Private Enterprise
CHAPTER VII : Content of Housing Policy: Part II
Reduction of Costs
Costs of Construction
Costs of Financing
Planning, Slum Clearance and Building to the Market . . .
Improvement of Real Incomes
Housing Subsidies
Forms in which Subsidies m a y be Paid
The Finance of Subsidies
Subsidies and Housing Policy
INDEX

•.

86
86
95
96
98
102
103
107
Ill
113
115
115
115
121
123
128
129
134
139
140
141

L I S T OF T A B L E S

I.
II.
III.
IV.
V.
VI.
VII.
VIII.
IX.
X.
XI.
CHART

Expenditure on Various Items by Income Level in
42 cities in the United States, 1934-1936 . . .
Proportion of Increments of Expenditure Spent on
Rent, Food and Clothing in 42 cities in the
United States, 1934-1936
Residential Building and Finance in Various Countries,
1919-1936
Residential Non-farm Construction in the United
States, 1919-1940
Fluctuations in Various Economic Series for the United
States
Direct and Indirect Employment Arising from a Unit
of Final Demand for the Outputs of Various
Branches of Production in the United States, 1939
Analysis of Costs of House and Lot Selling for $4,800
in 1939
Sinking Fund of $1,000 at 5 per cent
Annual Payments Necessary to Pay Interest on and to
Repay Principal of $1,000 over Varying Periods
and a t Varying Rates of Interest
Level of Housing Activity Derived from Total Demand
for Houses during a Period of Population Change
Index Numbers of Demand for Housing Activity Compared with Demand for Production of Less Durable
Goods (hypothetical)
: Index Numbers of Demand for Housing Activity Compared with Demand for Production of Less Durable
Goods (based on table X D

12
13
20
41
42
45
50
63
64
90
93
94

PREFACE

Most countries accept rising standards of living and a high
and stable level of employment as their basic economic and social
aims. The purpose of this study is to bring out the important
contribution to be made by housing to the achievement of these
aims. Moreover, for most countries, one of the most important
undecided issues in social and economic policy is the extent
to which private enterprise will need in the future to be supplemented by public planning. This issue emerges sharply in the
case of housing, which has hitherto been left largely to private
enterprise.
Chapter I discusses the present condition of housing in
relation to the community's needs, and brings out the need
for a housing policy. Chapters VI and VII propose certain
general principles which should be embodied in a housing policy.
The content of these last chapters is based on an analysis
of various aspects of housing in Chapters II to V. Chapter II
analyses the relationship of housing policy and employment
policy. Chapter III examines the factors affecting the cost
of housing. Chapter IV shows how the level of activity is
determined, and Chapter V shows that this level of activity is
inherently subject to extremely wide fluctuations.
The greater part of the study is thus concerned with the
analysis of certain economic relationships and their economic
and social consequences and with the conclusions to be drawn
from this analysis, rather than with the description of actual
housing conditions or policies. While illustrative material is
presented, no attempt is made to give a comprehensive survey
either of the housing situation in different countries or of the
measures taken to deal with it. Information on these topics
is to be found in other sources, to which references are given in
the study. Most of the illustrative material cited has been
drawn from a limited number of countries in which the relationships analysed are particularly important and in which, partly
for this reason, the most comprehensive information is available.
Because of the wide variation in housing conditions and practices,

2

HOUSING AND EMPLOYMENT

in income levels, and in economic and social conditions generallyin different countries, both the analysis and the conclusions
drawn from it will, of course, need in each specific case to be
considered in the light of the particular circumstances of the
country concerned.
The central problems of housing policy, the study suggests,
are the achievement of greater stability of employment in the
building industry, so that the industry may contribute to,
rather than hinder, the achievement of a high and stable level
of employment throughout the economy ; the reduction of costs,
so that a wider range of people may be able to afford adequate
housing ; and the payment of housing subsidies, so that the
housing standards of lower income groups may be raised. These
problems of housing policy are complementary. Any aspect of
housing policy can be carried out so as to contribute to the
solution of all the problems. The study therefore emphasises
the need for a well-rounded housing policy which will achieve
its aims as economically as possible. The study has been
prepared in the Economic Section of the International Labour
Office by Mr. R. I. Downing, under the supervision of
Mr. E. J. Riches, Economic Adviser of the Office.

CHAPTER I
THE NEED FOR A PUBLIC HOUSING POLICY
A million and a quarter new houses a year are needed in the
United States, 400,000 in the United Kingdom, 45,000 in
Sweden, 80,000 in Australia, and millions more in other countries
throughout the world — building figures never yet achieved in
any of these countries. But the costs of decent houses are so
high that many people cannot afford them.
If these houses can be built, men who might otherwise be
idle will get jobs building them. In spending their earnings,
they will create jobs for more men. If houses continue to be
built, a vital section of total effective demand will be stabilised
and the problems of full employment correspondingly simplified.
Men with good jobs and a secure future can afford to pay for
more adequate housing. If houses are being built and suppliers
are assured of steady market prospects, workers and producers
will more readily support the development of more efficient
methods, of production which will speed up and cheapen the
production of houses. In a stable economy, the costs of
financing the substantial capital investment involved in a house
can be reduced. The cost of adequate housing will fall and may
be expected to approach nearer to what can be afforded for his
housing by a worker with steady employment prospects and a
reasonable wage.
This is the nature and the significance of the housing
problem. With good management, the building of badly-needed
houses can itself contribute significantly to the solution of many
of the difficulties that have obstructed, and are obstructing,
the building of houses.
Housing Needs and Housing Standards
DEFINITION OF HOUSING NEEDS

Before examining the policy needed to achieve the building
targets in various countries, the validity of these targets must
be considered — how they are arrived at, what official sanction

4

HOUSING AND

EMPLOYMENT

they have, what popular sanction they have. The targets
are determined by fundamentally similar methods for each
country. A housing standard is defined — usually in terms of
numbers of families per dwelling, standard of facilities per
dwelling, and number and size of rooms needed for different
families. These standards are largely arbitrary. They are
based finally on what a particular investigator considers the
needs of a family to be. However carefully he may collect
evidence from people as to what they consider they require,
he must finally make his own decision as to the standard he
will adopt as the basis of his measurement of housing needs. *
Sir Ernest Simon has summarised various estimates of the
number of slum dwellings in England in the early 'thirties.
The estimates vary from 10,000 on the basis of the worst cellar
dwellings, to four million on the basis of houses which " certainly
should be replaced ". 2 Few of these investigations show any
evidence of having been based on a thorough examination of
the true cost to the community of a proposed building programme or of whether the community could or would wish to
afford it. The realisation of the extent to which policy has been
hampered, in the past, by an erroneous and unnecessary emphasis
on the superficial aspects of money costs, has fostered a tendency
to disregard costs in any sense. Yet the true cost of any project,
in the sense of the alternative consumption and investment
forgone in order to achieve it, should remain the all-important
determining factor. Certainly, in economies where there would
otherwise be large-scale unemployment, the only true cost of a
1
The Report on the Overcrowding Survey in England flnd Wales,
1936 (MINISTRY OF HEALTH, 1937) concludes that, of nearly nine million
houses inspected, 321,554 or 3.8 per cent, were overcrowded. However,
the report goes on to state, " a variation of the permitted number per
dwelling by ten per cent, (it is not suggested that a variation of this
precise form is practicable) would increase the number of families which
would be overcrowded by about 380,000 ". In reviewing the Overcrowding Report, the Economist wrote : " Unfortunately, however, this
figure [for overcrowding, etc.] is largely vitiated in the eyes of housing
reformers by the fact that the standard utilised to test overcrowding
was very low, and allowed living rooms to be used for sleeping purposes.
A very different result would have been produced by the adoption of a
standard more in accordance with the needs and habits of the people.
Such a standard might well have raised the total of overcrowded
dwellings to 800,000 or 900,000 or even more. The Minister of Health
has already admitted that the standard of the 1935 Act is 'not to be
taken as an ultimate one '. " (Economist, London, 24 Apr. 1937,
p. 192.)
2
Sir E. D. SIMON : The Anti-Slum Campaign (Longmans, Green
& Co., London, 1933), p. 125. On the question of definition of slum
areas, see James FORD : Slums and Housing (2 vols.) (Cambridge,
Harvard University Press, 1936), Chapter I.

THE NEED FOR A PUBLIC HOUSING POLICY

5

housing programme is the leisure, or enforced idleness, given up
by the men employed to carry it out. But cost becomes a real
consideration in economies tending towards, a condition of full
employment, where employment of men in one type of production means that, to a large extent, they must be taken away
from other lines of production on which they have been or might
be employed. 1
It sounds plausible and attractive to set standards high
and to say that any house should be replaced in 50 years, that
each member of a family should have a separate bedroom and
that the family should have in addition a living room, kitchen,
bathroom and toilet facilities. But these aims will be possible
of achievement only if they are consistent with all the other
things the community wants to do. When all these things are
added up, it may turn out that the community wants to do more
things than can be done with its available resources. It will
then have to re-examine its demands and decide which of them
should be modified — and it may be that, for the time being, it
will decide to reduce its housing standards in order to achieve
other aims which it considers more important. A check of this
sort, on the practicability of housing standards by reference to
other aims of the community, might be provided by what has
come to be known as the " manpower budget ", a measure which
developed rapidly and proved its usefulness under the stress of
war economy. A manpower budget sets out, on the one hand,
the present occupied population and the sources of possible
further recruitment and, on the other, the number of workers
required for various activities. If the supply of manpower
is inadequate, decisions can be taken, on the basis of this
information, either to seek extra workers from possible sources
such as housewives, or to reduce some activities in order that
the demand for workers may be brought down to equality with
the supply.
An over-all check of the total demands of the community is,
however, possible only to the extent that the community's
1
A number of countries, notably the United Kingdom, quickly
discovered in the post-war period t h a t their reconstruction programmes,
including their housing programmes, could not be carried out on the
scale originally conceived. Housing programmes in all countries have
been delayed by the aftermath of the wartime disorganisation of the
building industry. J u s t as important, however, has been the heavy
demand for labour in all sections of the economy, which has prevented
building industries from recruiting sufficient labour to achieve the
housing targets set for them by Governments eager to do too much
at once for their people.

6

HOUSING AND

EMPLOYMENT

demands can be ascertained. In a totalitarian economy, to
which a war economy approximates, an over-all check can be
maintained because to a large extent the community's demands
are dictated by the administrators. But in a free economy such
as exists in most countries in peacetime, the community's
demands are the sum of countless individual decisions as to how
people will spend their incomes, given prevailing market prices.
It is possible to measure approximately how people have spent
their incomes in the past. It is even possible within limits to
make reasonable estimates of how they are likely to spend their
incomes in the future. Far deeper problems are involved,
however, when enquiry is made as to how people would like to
spend their incomes if these incomes were greater, and if people
were given the opportunity to have more and better houses and
more and better goods and services of other types. Yet in
any economy, whether its structure of production is determined
by central planning or by the interplay of individual decisions,
serious consideration must be given ultimately to the desires
of the consumers.
It is necessary, therefore, for the purpose of estimating the
need for houses, to seek to develop a criterion which will be
objective and which, at the same time, will not conflict with all
the other demands of the community. At this stage, it should
be noted, it is a question of the housing needs of a given population, and not of the requirements for housing arising out of
changes in the size, composition and location of that population.
This need for housing will include in the first place the
housing demanded by people who can afford to pay a price
or rent that will cover the cost of that housing, given current
cost conditions and given the level and distribution of incomes.
In most economies, this demand will be accepted as a demand
which need not be questioned. Being backed by willingness
to pay, the demand will eventually be effective in calling forth
an adequate supply. Indeed the real fear is that this market
will be over-supplied as a result of the activities of speculative
builders. Whether this section of demand can or should be
satisfied immediately and, if not, what priority should be
accorded to it, and the extent to which this demand will be
affected by changes in building costs and by changes in income
distribution, are questions which will affect the volume of
resources devoted to meeting this demand at any time ; but they
leave undisturbed the fact that there is and always will be a
substantial demand for houses from people who can afford to
pay enough to meet the costs of their housing.

THE N E E D FOR A PUBLIC HOUSING POLICY

7

There will be some people who will maintain that the need
for housing is confined to this " effective demand ". If this
were so, the housing problem would be essentially a short-term
one, similar to the transition problems of all industries whose
production has been disrupted by war. Such people will insist
that, by and large, families have been able to get the houses
they wanted and could pay for, apart from an exceptional period
such as was experienced after the last war. They will readily
admit that there are serious short-term problems of scarce
labour and of scarce materials, of prices that are high both
absolutely and in relation to what might be expected as their
long-term level ; but they will maintain that these are problems
that can be solved along with other transitional problems. They
will insist also that private enterprise has served well in the past
to meet this demand for houses and will continue to do so in the
future ; that private enterprise is the best available system
for ensuring that the varying types and sizes of houses and
their accompanying services are supplied, in the quantities
required, to those who demand them. The present high costs
of building will fall as supplies and production are reorganised
and as labour becomes available. The forces of competition
will ensure this more potently than could any form of Government interference. They will argue that, while private enterprise can perfectly well fit in with neighbourhood, town and
regional planning, there is no need for Government intervention
to prescribe a programme for the number and type of houses to
be built, or to lay down a system of priorities to determine in
what order various consumers should obtain houses.
This argument is plausible. It might be that the building
of comparatively few houses — far fewer than the numbers
postulated by various investigators — might quickly quiet the
present worldwide public outcry about the housing shortage
and might even establish a housing vacancy rate which could be
pointed to as evidence that no housing shortage existed. The
official and unofficial estimates of shortages, however, cover a
much wider field than housing demanded by people who can
pay for their requirements. These estimates provide also for
houses needed, or conceived by the investigators to be needed,
by people who are not paying prices or rents high enough to call
forth a supply of houses to meet this need.
It is this section of housing needs which, if it is to be
satisfied, will require the development of a State housing policy.
These needs can conveniently be divided into two subsections.
A carefully planned State housing policy, by developing

8

HOUSING AND

EMPLOYMENT

improved organisation of the production and finance of housing
and by taking careful account of the housing needs of families,
may be able to effect a significant reduction of the costs of
purchasing or renting houses and an improvement in the
quality of houses. As a result, some of the families who
previously were unable to meet the costs of the housing they
needed would be enabled to do so. Furthermore, since all
housing costs would be reduced as a result of successful public
action in this direction, people who were in any case able to
meet the costs of housing would also enjoy the benefit of the
effects of public policy.
There will, however, remain a substantial number of families
who will, even with reduced costs, still be unable to meet the
costs of the housing they need. This section of housing needs
will, if it is to be satisfied, require the State to meet a substantial
part of the costs.
The fundamental components of a State housing policy are
therefore the reduction of housing costs and the grant of
assistance to families unable to meet the costs of their housing
needs. The means by which this policy is put into effect —
through co-operation with or control of the private building
industry, through direct building of houses by Governments,
through financial grants to builders, through rent or income
subsidies to individual families or through any other of the
many possible methods —• will vary from country to country
and from time to time. What is essential is that the need for
public action in the field of housing should be accepted.
Before this need can be established, it will be necessary to
dispose of certain objections that may be raised. For instance,
since in normal times everyone does have some sort of housing
accommodation, it may be questioned whether any improvement
of housing standards is really necessary. Secondly, it may be
argued that the real trouble is that lower income groups spend
their money unwisely and are unwilling to allocate a due
proportion of their expenditure to housing. Thirdly, it may be
argued that private enterprise offers the best opportunities
for maximising the efficiency of production and that Governments would be unable to secure any reduction of costs below
the level achieved by private industry. Finally, it may be
argued that incomes are already distributed in accordance with
the community's concepts of social justice and that no further
redistribution is required. If these objections could be sustained, there would be no case for a public housing policy. In
fact, however, none of them is valid.

THE N E E D FOR A PUBLIC HOUSING POLICY

9

HOUSING STANDARDS

There are no absolute and universal standards of housing,
and it is impossible to develop such standards. For one thing,
the specific requirements which need to be met in order to safeguard health and to assure a given standard of comfort vary
greatly in different climates and locations ; and, more important,
what is regarded as an adequate standard of comfort will be
determined according to local customs and local levels of income,
and in response to long-term increases in real income and
changes in taste and social conscience. It is easy to list the
considerations that should be taken into account in determining
housing standards — " . . . adequate light and ventilation,
adequate sleeping accommodation to provide healthy conditions,
adequate living space so as to avoid the frictions which arise
from overcrowding, an allotment of land sufficiently large for
general use by the family, and adequate and well-designed living
space with modern equipment for all functions so as to reduce
work and eliminate household drudgery ". 1 This is but one
of many equally satisfactory statements. To translate such
a list of principles into terms of living space and facilities is a
different matter. In fact, there are nearly as many housing
standards as there are investigations into housing requirements. 2
The one thing that is common to all the standards that have
been set up is that, by them, the housing of virtually every
nation is seriously deficient. Have these standards been set
too high ? No definite answer can be given to this question,
as it is not possible to say how much of its resources a community
should, or would wish to, devote to housing. Evidence can,
however, be produced to show that current housing conditions
are in many cases so bad as to have serious adverse social
effects. This evidence suggests strongly that most countries
would gain by an improvement of their housing conditions.
Any report on or investigation of housing abounds in this
evidence of the existence and evil effects of slums. A few
typical instances are quoted.
The United States Federal Census of Housing, taken in
1

AUSTRALIA,

DEPARTMENT

OF

POST-WAR

RECONSTRUCTION,

Commonwealth Housing Commission : Final Report, 25 August 1944
(Canberra, 1945), par. 618.
2
For a review of some of the housing standards t h a t have been
set up, see INTERNATIONAL LABOUR OFFICE : Housing Policy (Montreal,
1945), pp. 4-8.

10

HOUSING AND EMPLOYMENT

1940, provides one of the most complete records of housing
conditions. The Director of that Census wrote 1 :
The Housing Census obtained reports on 35,025,873 home units
as to the need of major repairs and the presence or absence of plumbing
equipment. Of this number reporting, 17,234,195, or 49.2 per cent.,
either needed major repairs or had no private bath. Specifically,
those needing major repairs numbered 6,413,553, and home units
without private bath totalled 15,855,246.
Houses with major deficiencies were, as would be expected,
concentrated in the low rental group. Of non-farm dwelling
units, 74 per cent, of those needing major repairs, 90 per cent.
of those lacking running water, and 72 per cent, of those lacking
private bath and toilet, were in the rental groups of less than
$20 a month. Ninety-four per cent, of dwellings of rental value
less than $10 a month, and 60 per cent, of dwellings of rental
value between $10 and $20 a month, were deficient. 2
It was estimated that, cf total urban dwellings in the
United States in 1940, nearly one third were in slum areas.
Of these 6,800,000 slum dwellings, 5,000,000 were substandard
by reason of the condition of the dwelling itself, and 1,800,000
dwellings — borderline cases which might otherwise have been
satisfactory — were engulfed in the mass of bad housing.
The slums, moreover, were by no means concentrated in large
cities : 19 per cent, were in cities of 500,000 or more people,
23 per cent, were in cities of between 100,000 and 500,000 people,
and 58 per cent, were in cities of less than 100,000 people. 3
The social effects of these living conditions are striking.
In slum areas in Detroit, Michigan, the death rate from pneumonia was three times as great as in normal residential areas, the
incidence of crime was five times as great, the infantile mortality
rate was six times as great, and the tuberculosis death rate was
ten and a half times as great. In Cleveland, Ohio, a slum area
with a population of only 0.03 per cent, of the city's total had,
of the city's totals, 4 per cent, of larcenies, 5.7 per cent, of
robberies, 7.8 per cent, of juvenile delinquencies, 10.4 per cent.
of illegitimate births and 21.3 per cent, of murders. 4
The costs of these slum areas are high. In Birmingham,
Alabama, in twenty-two blighted areas, the expenditure of the
1
J. C. CAPT : " A Hundred-Billion Dollar Plant ", in Domestic
Commerce,
16 April 1942.
2
NATIONAL HOUSING AGENCY : Housing Facts (Washington, 1946),
pp. 14-15.
3 Ibid., p. 18.
* Ibid., p. 20.

THE NEED FOR A PUBLIC HOUSING POLICY

11

municipality was three times its income from those areas.
In Atlanta, Georgia, slum areas contributed 5.5 per cent, of the
city's real property tax revenues but cost the city 53 per cent.
of its police, health, fire and other service costs. 1
It is, of course, easy to point out that low incomes and
poor education, not bad housing, were the fundamental causes
of these revealing disparities in health and social conscience.
But better housing would itself have a direct effect on health and
morals and, as will be discussed later, would have also, indirectly,
a substantial effect in raising incomes.
There is a comfortable and widely believed myth that it
is the slum-dweller who creates the slums by his slovenly habits,
and not the lack of decent housing at reasonable prices. This
myth, solidly founded on the normal person's desire to escape
from blaming himself for the poor living conditions of so many
people, and carefully fed by the propaganda of slum owners
insisting that their tenants would keep coal in a bath-tub, has
been thoroughly exploded not only by experience in housing
and slum clearance projects, but also by the evidence of efforts
made by slum-dwellers to maintain standards as decent as
possible even in their slum conditions. 2
The extent to which people all over the world have responded to revelations of housing conditions in their own countries with demands for a policy for more sanitary housing is itself
evidence of the fact that the community does really wish to
improve housing standards, and is willing to approve expenditure
of a greater part of national income on improving housing
standards.
WILLINGNESS TO SPEND ON HOUSING

It cannot be doubted that many people tend to be irrational
in the allocation of their spending. In order to spend money
on the cinema, cars, drinks, tobacco and gambling, some
people may restrict unduly their spending on food, clothing
and housing. It is reasonable then to ask whether a community should pay heavy subsidies on houses when this might
1

Ibid., p. 22. Similar figures are recorded in the report on The
Cost of Slums in Newark (Housing Authority of the City of Newark,
1946). For a thorough and careful discussion of the relation between
housing and mortality, disease, health, crime and anti-social behaviour
and of the social costs of inferior housing, see James FORD, op. cit.,
Chapters X I V - X V I I I .
2
See, for instance, Nathan STRAUSS : The Seven Myths of Housing
(New York, Alfred A. Knopf, 1944), Chapter V I I I .

12

HOUSING AND EMPLOYMENT

not be necessary if people spent their money more wisely.
Should the community be expected to subsidise those who
use unwisely their freedom of choice in expenditure ?
This question raises difficult subjective problems of morals
to which it is impossible to give a firm answer. In any case,
irrationality is one of the facts of life which will never be completely eradicated and which, while it may be reducible, will be
so only as the result of a long-term programme of education in
social and personal responsibility.
However, the evidence is clear that, in general, people in
the lower income groups are spending too much rather than too
little on housing. It occupies a special position in family
budgets. The minimum housing that is essential to keep a
family alive already represents a substantial amount of housing.
All investigations of family budgets show that, while families
with higher incomes spend larger amounts on rent, the proportion
of rent to income steadily falls. The figures given in table I are
significant.
TABLE I . E X P E N D I T U R E ON VARIOUS ITEMS BY INCOME LEVEL
IN 4 2 CITIES IN THE U N I T E D STATES, 1 9 3 4 - 1 9 3 6

1

Percentage distribution
Families with average annual expenditure of
Item

Food
. . . .
Housing . . .
Fuel, light, refrigeration .
Clothing . . .
Other items .

All
famUies

$871 $1,116 $1,372 $1,630 $1,872 $2,1E9

$2,415
and
over

33.5 37.1
17.1 21.8

37.1
20.1

35.9
19.4

34.5
17.9

33.2
17.3

31.9
16.0

31.6
15.0

31.3
13.6

7.1 9.8
10.6 6.8
31.7 24.5

8.8
8.5
25.5

8.4
9.1
27.2

7.7
9.9
30.0

7.0
10.6
31.9

6.5
11.2
34.4

6.3
11.9
35.2

5.0
13.7
36.4

7.1

19.8

24.2

21.0

15.7

5.8

5.9

Percentage of
all families . 100.0

$736

0.5

1
U.S. DEPT. OF LABOR : Money Disbursements of Wage-Earners and Clerical Workers,
1934-36, Summary Volume, Bulletin 638 (Washington, Government Printing Office, 1941),
p. 13.

Expenditure on housing, and on the closely related item of
fuel, light and refrigeration, is higher for the five lower income
groups, who make up over 72 per cent, of the whole group, than

THE N E E D FOR A PUBLIC HOUSING POLICY

13

it is for the community average. The proportion by which
their expenditure on these items exceeds the community
average is substantially greater even than in the case of food.
A relatively high expenditure on housing is maintained at the
expense of items like clothing, furniture, automobiles and
motor-cycles, medical care and recreation, in all of which there
is in these income groups a substantial deficit below the community average. The conclusion from these figures and similar
ones for other countries is that low income groups are paying
out excessively large proportions of their incomes for housing.
The priority given to housing expenditure in family budgets
is shown by an examination of the differences in distribution of
expenditure in various income groups (table II).
TABLE I I . PROPORTION OP INCREMENTS OF E X P E N D I T U R E
SPENT ON RENT, FOOD AND CLOTHING
IN 4 2 CITIES IN THE UNITED STATES, 1 9 3 4 - 1 9 3 6

Average total
expenditure

Increment of
expenditure

$
736
871
1,116
1,372
1,630
1,872

$

First
Next
„
„
„
.,

736
135
245
256
258
242

Percentage spent on
Rent

Food

Clothing

21.8
11.1
17.1
11.3
13.6
7.9

37.1
37.1
31.8
28.2
26.4
23.2

6.8
17.8
11.5
13.3
14.3
15.7

In the lowest income group, a high proportion is expended
on rent. Out of the first increment of expenditure, the amount
spent on food is maintained but, minimum housing having been
obtained, extra expenditure on rent is limited in order to obtain
clothing. Out of the next increment, a better standard of
housing is sought, and so on. Eventually the proportion spent
on rent drops substantially. This phenomenon of a high
initial expenditure on rent followed by a sharp drop and later
variations is a feature common to family budgets in all places
that have been investigated. 1 It suggests strongly that no
weight need be given to the charge that people in the low income
1
H. W. SINGER : " Income and Rent ", in Review of Economic
Studies, Vol. IV, p. 145.

9

14

HOUSING AND EMPLOYMENT

group are unwilling to spend a due proportion of their incomes
on housing.
HOUSING COSTS

The problem of housing costs is fully discussed in Chapter III
below. Partly in an attempt to protect themselves against
the great instability that is characteristic of housing activity,
producers of materials and workers in many countries have
organised themselves into strong groups which exert an upward
influence on prices and labour costs throughout the industry.
In this industry particularly, a significant reduction of costs
would result from a greater stability of output and the organisation of co-operation and research among large numbers of
separate producers, to secure which will inevitably require some
degree of public intervention. Furthermore, as a result of
the large amount of money required to finance the ownership
of a house, financial charges play an important role in housing
costs. There is scope for public intervention both to reduce
interest rates and to bring about an improved organisation of
the mortgage market.
DISTRIBUTION OF INCOMES

While costs in the housing industry tend to be high, the
incomes of many families in the community are low and unstable.
Incomes, particularly in the lower wage groups, fluctuate substantially and sometimes practically disappear. This has two
consequences. In the first place, the fact that their incomes
fluctuate and are less than they would be if all potential breadwinners were more fully and more usefully employed, means
that families wanting houses are able to pay less for housing than
they could if the economy in which they work assured to them
full and useful employment. Secondly, the fact that incomes
fluctuate means not only that expenditure, including expenditure
on housing, fluctuates, but also that families are uncertain as
to their future income position. They will tend at times to be
unduly optimistic and at other times to be unduly pessimistic.
This will be reflected in unnecessarily wide fluctuations in the
amounts to which they are willing to commit themselves for
housing expenditure. A Government policy which succeeded
in assuring more regular and productive employment to all
breadwinners would therefore result in higher and much more
stable expenditure on housing.

THE NEED FOR A. PUBLIC HOUSING POLICY

15

Finally, the community may consider that, even with costs
reduced as much as possible and with full and useful employment
assured to all breadwinners, the standard of housing that can be
afforded by certain sections is still so low as to require the
payment of housing subsidies. Similar transfer payments, in
the form of old-age pensions, education, health and other social
services, are familiar and widely accepted as necessary and
justified. Housing subsidies are beginning to be accepted as a
contribution to the continual process of redistribution of
income. The special importance to the community as a whole
of the housing standards enjoyed by the lower-income groups
can be relied on to justify some part of income redistribution
being tied to housing expenditure, rather than being available
for spending on any goods or services chosen by the recipients.
Importance of a Public Housing Policy
Bearing these points in mind, it should be possible to agree
that, in an economy in which the demand for and supply of
housing were in equilibrium, the need for housing would be
satisfied if all members of the community were and expected to
remain fully employed, in the sense that anyone willing to work
for current rewards could expect to find work within a reasonably
short time ; if the distribution of income in all forms corresponded
to the currently accepted standards of social justice ; and if all
prices were a true measure of marginal social costs of production.
If the world's economies were of this nature, it might well
be argued that no special public housing policy would be
required. The ordinary competitive market forces would then
ensure that an adequate supply of houses of the types that
people wanted would be readily forthcoming. In fact, however,
the effects of monopoly and of unemployment are so widespread
that nowhere in the world does an economy approach anywhere
near to this standard. One of the most active current public
controversies throughout the world is concerned with whether
Governments should intervene to promote the realisation of
this sort of economy and, if they do intervene, with how far
and in what directions the intervention should be exercised. 1
1
Typical expressions of various aspects of the debate are t.o be
found in F . H A Y E K : The Road to Serfdom (Chicago, University of
Chicago Press, 1944) ; Barbara WOOTTON : Freedom under
Planning
(George Allen and Unwin, London, 1945) ; A. P . L E R N E R : The Economics
of Control (New York, Macmillan, 1944) ; H. F I N E R : Road to Reaction
(Boston, Little Brown and Co., 1945).

16

HOUSING AND

EMPLOYMENT

It would be unfortunate if a solution to the housing problem
had to wait on the outcome of this controversy. But it need
not and will not. Regardless of the general question of how
far economies should be publicly controlled, public housing
policies are in any case essential and have, in many countries,
already begun to be developed. The bad condition of housing
is one of the outstanding deficiencies of existing economic
systems throughout the world. Specific action to rectify it
cannot be allowed to wait on the gradual development of a
better economic system. Moreover, even if it were finally
agreed that Governments should interfere extensively to
improve economic systems, a specific public housing policy would
still be essential as it would inevitably be one of the main
instruments in a general economic policy.
Specifically, the following reasons may be advanced to
support the argument that a public housing policy is essential :
(1) Housing is a vitally important determinant of the
general level of employment. As a large investment industry,
it can contribute significantly to the absorption of savings in
countries where savings tend to be in excess of investment
opportunities. In the past, housing activity has been subject
to more violent fluctuations than any other significant industry.
There is every reason to suppose, as will be discussed later 1 ,
that in the absence of public intervention this " boom and
bust " cycle will continue. The industry is so large that its
condition substantially affects the level of employment and
income in the whole economy. Action to stabilise housing
activity is vital to any policy directed towards stabilising the
level of employment.
(2) It has already been emphasised that housing standards
are unduly low and that their improvement is essential to an
improvement in standards of living. But there is another
direction in which housing policy can contribute to an improvement in real incomes. The allocation of resources to the
housing industry is too great relatively to its product. A
housing policy which succeeded in reducing the degree of
monopoly and improving efficiency could secure the production
of more houses with the same amount of resources or of the
same houses with a substantially smaller amount of resources.
(3) The size of the investment involved in houses in relation
to the incomes of purchasers, the long-term risks attaching to
1

See Chapter V below.

THE NEED FOR A PUBLIC HOUSING POLICY

17

the investment, and the imperfections of the mortgage market,
all warrant special attention being given to the problems of the
finance of housing.
(4) Better housing produces important indirect benefits.
The community gains greatly in its health, moral welfare,
efficiency and aesthetic appearance. These, however, are
benefits which will not influence the calculations of private
producers who do not profit directly from them. Specific
public action is therefore necessary if these benefits are to be
secured.
(5) The shortage of housing in the immediate post-war
period is so acute and costs of housing are so abnormal, in
relation both to past experience and to what may be expected
in the future, that all the resources of public planning and
organisation should be thrown in with normal private building
activity in the effort to overcome these difficulties.
(6) The product of the housing industry is an almost
completely immobile asset. The individual purchaser will often
be unwilling to invest in the purchase of a house which may
become useless to him if he has to change his job, but which he
may be unable to sell without excessive loss, particularly if
many workers in the area are faced simultaneously with the need
to move. The community needs flexibility of its resources,
including mobility of labour, to maintain efficiency. It should
be prepared to assist in meeting the costs of this flexibility.
(7) There is not only no incentive to slum owners to clear
their slums and improve housing standards but, on the contrary,
as a result of overcrowding, slums are a profitable form of
investment. Health ordinances are incapable of clearing
slums. * In any case, it is impossible and inhuman to clear
slums unless alternative homes are provided at reasonable rents
and prices.
(8) Building codes, ordinances affecting land use and
improvement, and other types of regulation already represent a
substantial policy of public control of housing. Zoning and
public planning of neighbourhood, town and regional development are now being recognised as essential to the efficient use
of national resources and to the avoidance of the development
of blighted areas.
1
" ' Old-law' tenements, which were condemned as ' foul, unsanit a r y and unfit to live in ' by the Tenement House Committee of 1885,
still house about two million people in New York City today. " STRAUSS,
op. cit., p. 79.

18

HOUSING AND

EMPLOYMENT

(9) Finally, as has been pointed out earlier, redistribution
of incomes has already assumed important proportions in
practically all countries. Housing subsidies, which are flexible
and capable of rapid expansion, play an important role in this
process in certain countries.
The Development of Public Housing
Before the first World War, public authorities had nowhere
made any substantial excursions into the field of housing. The
housing problem was already piling up during the nineteenth
century when the tremendous increase of urban populations was
putting great pressure on urban accommodation. Public
authorities for the most part considered themselves fully
occupied in providing water, sanitation, transport and police
services, and a certain amount of control through zoning and
land policy. Housing was expected to be taken care of by
private enterprise. The public conscience was not highly
developed and found little cause for concern in the appalling
living conditions of the bulk of the people. Housing standards
generally were low and since, for instance, even the upper
classes rarely bathed, there could be no public outcry for a
bath in every house. Perhaps the most significant factor
was that it was, by and large, a period of great and expanding
investment opportunities. People would have considered it
wasteful to devote substantial resources, especially under public
direction, to rehousing people who were already, somehow or
other, living in some kind of shelter, when there were so many
opportunities for profitable investment, the advantages of which
in terms of higher productivity were readily apparent. At the
same time, simply because there was no obvious and chronic
problem of idle resources, there was no incentive deliberately
to seek useful forms of investment or consumption on which idle
resources could be used. Moreover, for many countries, the
greater part of the nineteenth century was a period of peace
during which production generally, including building, could go
on year after year uninterrupted by war, so that there was little
destruction of existing houses and the total supply of houses did
steadily expand. However, houses, cities and transport systems
grew at the dictate of various sections of the system of private
enterprise. Improved housing standards and town planning
were not regarded as important.
Towards the end of the century the acuteness of the housing
shortage did lead to some action by public authorities but always

THE N E E D FOR A PUBLIC HOUSING POLICY

19

on a haphazard, piecemeal basis. Such action as was taken was
not inspired by any feeling of civic responsibility for housing
standards and town planning. It aggravated rather t h a n
abated t h e agglomeration of slums t h a t blotted t h e face of the
world.
Vertical slums abroad, horizontal slums in England. Overcrowding both of land and people. In neither case were the dwellings
based on human needs, and the people were cut off from the living
tradition of urban as of rural life. For in all industrialized countries
the growth of factory towns got completely out of control, perhaps
most in England where industrialization was first and most rapid, and
the dwellings built in response to urgent and unremitting industrial
demand became the slum areas which are causing so much trouble
and expense to clear today.
Meanwhile, too, the overcrowded cores of industrialized towns
went rotten. Fine houses built by prosperous citizens were spoilt
by the encroachment of industry and poorer buildings. The owners
moved to more spacious and healthy areas farther out, while their
houses became shelters for a family on each floor, sometimes a family
in each room, sometimes for more even than that, without any
structural alterations being made to meet the changed conditions.
Overcrowding and the indiscriminate siting of new industries combined
to add to the complications of the housing problem.
In addition to difficulties caused by unplanned urban housing,
there was a real sociological problem. A new class of landless men
had been created, dependent on the machine, precariously employed,
isolated from the normal simple enjoyments of life and of healthy
recreation, unable to supplement their livelihood from small holdings,
easily starveable, nervously suggestible, congested in blocks of airless
tenement barracks on the Continent, marooned in smoke-infested cities
in England. 1
By the end of the century the public conscience had been
awakened and increasing interest was taken in housing matters.
The first World War, by suspending building in Europe and
disrupting it elsewhere for four years, and by increasing the
cost of materials, labour, land and money, precipitated a state
of crisis in housing for a solution of which it was inevitable t h a t
communities should turn to their Governments. There was,
however, one factor which promised some relief : the abnormal
rates of nineteenth century population growth had slackened in
most European countries and, to t h a t extent, the need to provide
new houses for additions to population was reduced. A greater
1
Elizabeth DENBY : Europe Re-housed (London, George Allen
and Unwin, 1938), p. 27.

20

HOUSING AND EMPLOYMENT

concentration on improving existing housing standards was
possible.
Public housing policy developed first in Europe, and later
in the United States, Canada, Australia, New Zealand and other
countries. Only in Europe was public housing policy responsible
for a substantial proportion of total housing built in the interwar period. In other countries it was beginning to play a more
important role towards the end of that period — for instance,
in the United States for the two years 1939 and 1940, public
building provided 11 per cent, of total new urban housekeeping
construction x — but it had not been long enough established to
make a substantial contribution tc the total problem. Table III
shows the part played by public housing policy in four of the
European countries in which public housing was developed to
an important extent.
TABLE III. RESIDENTIAL BUILDING AND FINANCE
IN VARIOUS COUNTRIES, 1 9 1 9 - 1 9 3 6 *

Country

Great Britain
Germany
Holland . .
Sweden 3 . .

Percentage built by

Total
dwellings
built

Municipal
enterprise

(thousands)
3,574
3,280
782
282

30.6
15.0
7.2
5.6

Co-operative and
public utility

12.9 a
26.2
17.8
11.4

' Private
enterprise

56.5
58.8
75.0
83.0

1
Elizabeth DENBY, op. cit„ p. 251.
• In the case of Great Britain, this classili cation is not " co-operative and public
utility ", but " subsidised private enterprise ".
* Swedish figures cover only two fifths of population.

Private enterprise clearly remained the most important
source of building in most countries. But, equally clearly,
building by public authorities had become for the first time
an important source of supply. It gained greater significance,
of course, from the fact that it concentrated on the provision
of houses for the lower income groups whose needs had hitherto
been inadequately met by private enterprise.
Public housing policies depended principally on financial
support from public authorities in the form of subsidies and
1

TWENTIETH CENTUHY FUND

1944), p. 367.

: American Housing (New York,

THE N E E D FOR A PUBLIC HOUSING POLICY

21

credit facilities. Subsidies took the form either of lump sum
payments or of annual payments for more or less lengthy
periods. The former represented in effect payment of part
of building costs ; the latter were intended to cover part of the
annual charges of the building.
Of equal importance was support given by authorities in
the form of credit facilities. By assisting builders to raise
capital on more advantageous terms, the authorities lowered
annual interest charges and enabled rents to be correspondingly
reduced. The simplest form was a guarantee that interest and
amortisation charges would be regularly met. This eliminated
the risk factor for the lender, permitting money to be borrowed
more cheaply, and required direct financial assistance from
the authorities only when the borrower was unable to meet his
obligations. A second form of credit facility was for the
Government to undertake regular payment of part of the
interest and possibly of the amortisation charges. A third
form was for the Government to provide funds at less than
market rates, and to bear the loss itself. Finally, in addition
to direct financial assistance, public authorities in some cases
also encouraged housing by exempting dwellings from taxation,
by providing builders with sites on easy terms or by endeavouring
to promote a reduction of building costs.
To ensure that assistance was confined to dwellings for
people in lower income groups, the grant of public support was
naturally made to depend on the observance of specified conditions relating to the standard of dwellings built, the disposal
of houses by sale or by lease, the class of occupants and the
bodies to be responsible for the work. *•
The result of intensive public and private building between
the two World Wars was that the over-all housing shortage was
substantially reduced, but that enormous work still remained
to be done to provide adequate housing for the lowest income
groups, and to improve the housing of the greater part of the
population. Little progress had been made anywhere with the
problem of town planning, and the larger problem of redistribution of population according to regional plans was practically
untouched. The second World War has gravely accentuated
the problem of housing. Building has been interrupted for a
1
No attempt is made here to give more than a broad outline of the
forms of public assistance to housing in various countries. This subject
has already been exhaustively dealt with. See, for instance, INTERNATIONAL LABOUR OFFICE : Housing Policy in Europe, Studies and
Reports, Series G, No. 3 (Geneva, 1930) ; and Elizabeth DENBY, op. cit.

22

HOUSING AND

EMPLOYMENT

longer period, and t o a much wider extent, t h a n in the first
World W a r . Many houses and cities have been destroyed.
Communities throughout the world, however, have now
accepted a much greater degree of responsibility for t h e welfare
of their members and particularly for t h e condition of housing.
In most countries, public appreciation of the significance and
possibility of achieving and maintaining full employment has
risen t o a point where communities will no longer tolerate m e n
and resources being left in idleness, when production of desirable
assets such as houses is urgently needed, even though m a n y
families cannot pay the costs of t h e houses they need. In m a n y
countries, moreover, the urgency of this need for housing is so
strongly felt t h a t public opinion will insist on priority being
given t o house building, even though t h e demand for other
things m a y be backed up b y adequate purchasing power.
Public and Private Enterprise in Housing
All t h e evidence from the pest, and investigation of present
conditions, emphasises t h a t t h e housing problem cannot be
solved by private enterprise alone. While the building industry
has shown itself able to meet the needs of higher income groups,
it has badly failed to meet the needs of the lower income groups.
. . . there is one primary necessity of a good life that $30 a week
will not provide in most urban communities . . . and that is adequate
shelter. And where it will provide adequate shelter it will not provide
housing on a scale even approaching the standards of comfort, convenience and luxury that the $30-a-week man obtains from his other
expenditures. The spending of $30 a week and less very largely
supports U.S. industry, with one important exception. That exception
is the disorganised and warring group of organisms known euphemistically as the building industry. In fact, the building industry
by and large does not look on the mass market as a primary or even
possible market for housing, and whatever technical advances it has
made have been in the field of ornamentation rather than of cost
reduction. Whether the fault lies with the industry itself, or with
uncontrollably high basic building costs, or with government-housing
policy, the fact remains that the situation is bad for the building
industry, bad for society, ana most immediately and painfully bad
for the $30-a-week family and its less prosperous neighbors. 1
Figures appear in nearly every publication on housing
to prove t h e extent t o which private enterprise housing is
1

Cf. T W E N T I E T H CENTURY F U N D , op. cit., p.

130.

THE N E E D FOR A PUBLIC HOUSING POLICY

23

available only to the upper income groups. F o r instance, in
the period 1935 to 1940, two thirds of all United States families,
urban and rural, had incomes of less t h a n $150 a month. Of all
the housing for which the Federal Housing Administration
insured mortgages in these years, only 1.9 per cent, rented for
$30 a month or less and was therefore within the means (assuming
families could afford to allocate 20 per cent, of their incomes to
housing) of families with incomes of less t h a n $150. In 1938,
96 per cent, of all private residential construction in cities was
within the means only of families with incomes of more t h a n
$1,500 a year. B u t only 40 per cent, of the families in those
cities had incomes above t h a t amount. 1
To a great and dangerous extent, the supply of housing to
lower income groups has been left to depend on the vacating of
depreciated houses b y higher income groups. This has led in
the past to a deplorably low standard of housing for lower
income groups, and to a failure to t a p a huge reservoir of demand
for useful production. 2 Unless this policy is changed, there is
every reason to expect that, in the relatively near future, houses
will be produced in excessive numbers for the higher income
groups, which will result in a depression in the building industry
a t a time when the real need for housing would demand a steadyexpansion of the industry. The Housing Committee of the
Twentieth Century F u n d ' s Housing Survey concludes :
The Committee, however, is deeply concerned with the dangers
to the economic system and the social structure that come from
depending so largely for our housing supply upon the variable and
often eccentric demands of the top third of the population and upon
an industry designed to accommodate them. This traditional policy
has been accompanied by : (a) an exaggerated violence in the housebuilding curve with serious repercussions throughout the business
world; (b) a rapid obsolescence of dwellings at the top of the scale
and an undesirable maintenance of values in the worst of the supply
at the bottom ; (c) unnecessarily high costs in the production, distribution and financing of dwellings ; and (d) unnecessary expense,
inconvenience, and even suffering for a large part of the population.
Not only would the bulk of the public benefit from an ampler
production of houses for the middle- and lower-income groups, but an
industry devoted to such production could hope for a more sustained
1

108.

2

These figures are taken from Nathan

STRAUSS,

op, cit., pp. 107-

See R. U. RATCLIFF : " Filtering Down and the Elimination of
Substandard Housing ", in Journal of Land and Public Utility Economics
(Madison, University of Wisconsin), Nov. 1945, p. 322.

24

HOUSING AND EMPLOYMENT

activity than housebuilding has enjoyed and could play a more
substantial and more dependable part in the economy as a whole. 1
The building industry provides, in fact, a perfect example
of both the need and the opportunity for a union of public and
private enterprise : the sort of union that worked so well under
war conditions which demonstrated vividly its productive
possibilities. Here is no proposition whereby Governments
would encroach on a traditional field of private enterprise.
What is at issue is the supply of houses to a section of people
whose needs private enterprise has never been able to meet.
Provided that private enterprise will tender for contracts
with profit margins consistent with the small degree of risk
involved, there is no reason why local authorities should not
take advantage of the potential efficiency of private enterprise
by calling for competitive tenders for the supply of materials
and for the building of houses in accordance with public plans.
In such circumstances, private enterprise will benefit substantially from public housing policy. If Governments employ their
own architects and workers, they will still buy materials from
private industry. If Governments let contracts for building
projects, or provide credit facilities in one form or another, the
building industry will have opened to it an enormous reservoir
of demand. Two British investigators have, come to the
following conclusion :
On the whole . . . the local authority houses are better planned,
better designed and better built than those by private enterprise . . .
It seems to us clear that in connection with housing, private enterprise
should be limited to two things : first of all, building houses for the
well-to-do, who are able to employ their own architects and build their
their own houses ; and secondly, doing the actual construction of
houses for the City Council, who employ architects and other skilled
officials in order to design the best houses for those who cannot afford
to do it for themselves. 2

Investors who have become accustomed to receiving
comparatively high returns on housing speculations may oppose
such policies. But the high returns they have received have
rested essentially on imperfections in the capital market and
there is no reason why Governments should be any more tender
of these returns than they should be of slum owners' returns,
1
a

TWENTIETH CENTURY FUND,

op. cit., pp. 311-312.

E. D. SIMON and J. INMAN : The Rebuilding

(London, Longmans, Green and Co., 1935), pp. 122-123.

of Manchester

THE N E E D FOR A PUBLIC HOUSING POLICY

25

or of the returns t h a t could be earned by vendors of impure
foods.
The Need for Elasticity in Housing Policy
There are possible dangers attaching to a public housing
programme or to any other form of Government enterprise.
The aims of such a programme m a y become too rigid to permit
the flexibility t h a t is essential to economic progress. The
setting of specific housing targets, determined by administrators,
m a y lead to houses being built in numbers and according to
designs which do not conform best to the needs of consumers.
The housing programme m a y set standards so high as to require
a diversion of resources to building such as will prevent the
a t t a i n m e n t of other ends which m a y be more desired b y consumers. Concentrating on the correction of defects in the
housing sphere m a y permit or even encourage the overlooking
of equally or more grave defects in other sections of the economy.
The programme in operation m a y cloak inefficiency on the p a r t
of building workers and managers, or it m a y even become a
vehicle for exploitation of the community by the building
industry in the name of organisation and stability. Opportunities for progress may be lost in order to achieve security. 1
Indeed, if housing standards are sacrificed for objectives such as
full employment or a high level of expenditure on construction, we
may wind up with worse housing than we would have had without a
programme for maintaining activity. Incentives to build poor housing
are fairly easy to create, but incentives to build good housing are
somewhat more difficult. 2
The community can and should develop safeguards against
the risks inherent in any public action. The definition of
housing needs given earlier establishes consumers' needs as the
final criterion. I t is against this t h a t housing policy, like other
public economic policy, m u s t be measured. Careful investigation and full public discussion will be needed to provide a
continuing check on Government policies in action. The
existence of certain dangers must not, however, be regarded as
1
Cf. A. G. B. FISHER : Economic Progress and Social Security
(London,
Macmillan and Co., Ltd., 1944), passim.
2
Ramsay WOOD : " Housing Needs and the Housing Market ",
in Housing, Social Security and Public Works (Washington, Board of
Governors of the Federal Reserve System, 1946), p. 13.

26

HOUSING AND EMPLOYMENT

an excuse for doing nothing at all. In the field of housing in
particular, there is little danger of excessive building as a result
of Government action for many years to come — provided that
standards and designs are kept flexible so that they may be
adjusted to changes in consumers' tastes, and that careful
regard is had for developments and changes in the location
of industries which require the building of new houses to
accommodate increasing populations in particular areas.
Against the possible defects of a public housing policy must
be set the certainty that, without such a policy, the housing
problem cannot be solved. The real danger is that unless
Governments develop housing „policies, in most countries on
a much greater scale than ever before, housing will simply not
be provided. " The important thing for Government is not to
do things which individuals are doing already, and to do them
a little better or a little worse ; but to do those things which at
present are not done at all." 1 Only by energetic action in the
housing sphere can Governments move towards a solution
of the housing problem and, at the same time, provide the basis
for a healthy and permanent expansion of the private building
industry.

1
J. M. K E Y N E S : The End of Laissez-Faire
Press, 1926), pp. 46-47.

(London, Hogarth

CHAPTER II

HOUSING AND EMPLOYMENT POLICY

Housing programmes have figured prominently in discussions of means of achieving full employment, an objective which
has been adopted by most countries as a central plank in their
social and economic programmes. This chapter begins with
an analysis of the action needed to achieve full employment
and goes on to an examination of the contribution that housing
can make to that objective. The ultimate aim of economic
policy is rising living standards for the whole community,
which are to be attained by full employment in association
with rising productivity, restriction of monopolistic practices,
improved allocation of resources and more equitable distribution
of income. But " full employment " is the ideal which strikes
the imagination, its appeal well-founded in the too long
experienced futility of chronic unemployment.
In a centrally planned economy, unemployment would
present itself immediately to administrators as an obvious
waste of resources which could have been used for the production
of goods and services for the use of the community. But in
economies where production, consumption and distribution
were based on individual decisions, where there was no central
economic administration and therefore no body which regarded
itself as directly responsible for the community's economic
condition, it has been possible for depression and unemployment
to appear as in some way a necessary evil, caused by sunspots,
by the need of the economy to recuperate or to adjust itself to
technological changes, by the refusal of workers to accept lower
wages or by some other quite inevitable influence. Once the
incomes of individuals and of Governments began to decline
as the result of the onset of a depression, everyone, including
Governments, would economise in order to achieve financial
stability. This reduction in expenditure, and therefore in the

28

HOUSING AND EMPLOYMENT

demand for goods and services, would lead naturally to a further
increase in unemployment. This deflationary development
would continue until it defeated itself through various offsetting
reactions — further cuts in expenditure would become increasingly difficult, rising amounts would have to be paid in unemployment relief, plant and machinery replacements would become
no longer postponable without permanent damage, and expansion in other countries might stimulate an increase in export
receipts.
The policy of deliberately reducing public and private
spending at a time when unemployment was rising was criticised
with increasing frequency and strength during the depression
of the early 'thirties. The advocates of an expansionist policy
for overcoming depressions, hitherto dismissed as cranks,
received partial confirmation from the advance of economic
understanding after the depression. These new economic
theories in turn received partial confirmation from the experience
of the " pump-priming " policies of the United States, and from
the fact that the economies which made the experiment did not
go bankrupt as they raised the level of their economic activity
under the stimulus of increased Government spending. The
w a r g a v e a final, w o r l d w i d e d e m o n s t r a t i o n of t h e d e c i s i v e effect

on employment of the level of demand, and in particular of the
effectiveness of Government spending, at least under wartime
conditions, in stimulating employment. It demonstrated moreover that, as long as spending was insufficient to maintain full
employment, the expansion of the economy could safely be
financed by expansion of credit ; and that, when full employment was reached, the continuance of credit expansion would
create such a pressure of spending that inflation could be avoided
only by Government controls over the economy.
The waste of potentially productive resources has been most
obvious in countries where unemployment has arisen as a result
of the instability and deficiency of total effective demand ;
it is no less real in countries where resources are not being
used as effectively as possible owing to shortage of capital
equipment and of enterprise. These two types of countries have
been usefully distinguished as " excess-savings " countries and
" capital-scarcity " countries. * The economic factors affecting
1

Cf. INTERNATIONAL LABOUR CONFERENCE, 27th Session, Paris

1945, Report II : The Maintenance of High Levels of Employment
during
the Period of Industrial Rehabilitation and Reconversion (Montreal, 1945),
p. 11. An analysis of t h e economic factors affecting t h e level of employment will be found in this same Report, particularly in Chapter I I .

HOUSING AND EMPLOYMENT POLYCY

29

the level of employment are the same in both types of countries,
but the employment policies appropriate to them are likely to
be different in emphasis.
It is now widely recognised that unemployment represents
an unnecessary waste of potentially productive resources, that
it is not an inevitable evil but can be substantially mitigated by
appropriate Government policies, and that there are so many
useful goods and services which the community urgently needs
that resources of production should never again be permitted
to be wasted in idleness. This new attitude of public opinion
has led to several important public pronouncements on employment policy, in which the various influences on employment are
analysed and various methods are proposed for achieving and
maintaining higher and more stable levels of employment. 1
In order to discuss the contribution that may be made by
housing policy to employment policy, it is necessary to set out
in a convenient form the main features of these discussions.
The definition of full employment given in the first chapter of
the present report — that anyone willing to work for current
rewards should be able to find work within a reasonably short
time — stands as an employment target acceptable to all
countries. It should be noted that this definition assumes
implicitly that a collective decision has been made as to the
desirable balance of work and leisure, that is, concerning hours
of work and holidays.
Employment and Demand
Employment is determined by the level and composition of
total effective demand. In order to understand the various
factors that influence the level of employment, it is necessary
to distinguish the significant subdivisions of total demand.
The most useful classification of demand for this purpose is
along the following lines :
Private consumption: Purchases of home-produced consumer goods and services by private
individuals.
1
See, for example, Employment Policy (London, His Majesty's
Stationery Office, 1944, Cmd. 6527) ; Employment and Income (Ottawa,
Government Printer, 1945) ; Full Employment in Australia (Canberra,
Commonwealth Government Printer, 1945) ; and the United States
Employment Act, 1946.
3

30

HOUSING AND

EMPLOYMENT

Public consumption:

Purchases of home-produced final
current goods and services (particularly the services of public servants)
by public authorities.

Private investment:

Purchases of home-produced capital
goods by private individuals or
firms.

Public investment:

Purchases of home-produced capital
goods by public authorities.

Exports:

Purchases of goods and services by
buyers in other countries.

The significance of this classification emerges from an
examination of the factors which determine the level of demand
in each category. Spending on private consumption is to a
large extent determined by the level of income itself. Normally,
people spend the greater part of their incomes on consumption
goods, and the proportion they so spend bears a fairly close
relationship to the size of their income. This relation has
been acknowledged in the widely accepted concept of " propensity to consume ". If people always spent any extra income on
consumption, there would be no economic problem in maintaining employment. 1 People could live, fully employed, " taking
in each other's washing ". Incomes arising from full employment would be wholly spent in demanding goods and services,
the production of which would require the full employment
of resources and the sale of which would permit the payment
of incomes corresponding to full employment. The employment
problem would be simply one of organisation and enterprise, to
get resources into those industries on whose products the
incomes of the fully-employed community would be spent.
It is this problem of organisation of resources which a competitive system of free enterprise, working through a free price
system, is well adapted to meet.
But not all extra income is always spent by its recipients
on domestically produced goods and services. Some of it is
paid to Governments in taxes, some of it is spent on imported
goods, creating a demand for labour in other countries, and some
1

The influence of firms and of corporate savings is ignored in this
argument.

HOUSING AND EMPLOYMENT

POLICY

31

of it is saved. 1 For convenience, and having in mind only the
country immediately concerned, these parts of income are here
termed " unspent income ".
Unspent income is significantly different from income
spent on private consumption in that it does not, of itself,
create a demand for goods and services whose production and sale
will give rise to employment and income. It is not selfperpetuating in the way that incomes spent on consumption are.
Full employment can be maintained only if the unspent income
is completely offset by the demand for goods and services other
than for private consumption — that is, by public spending
(on consumption and investment), by private investment and
by the demand for exports. Unfortunately, however, there is
in the private-capital economy no force which will ensure that
these avenues of demand will be permanently maintained at
just that level which will absorb all the resources not required
to meet the consumption demand of the fully employed community. The employment problem arises from the fact that,
in the absence of a deliberate plan, the availability of resources
and therefore of finance exerts at best an inadequate pressure
towards ensuring that the resources will be used. The extent
to which these resources will be used depends on other
considerations.
The volume of Government spending is determined by
social policy and costs of administration. These depend in
turn on various influences and pressures such as the popular
demand for health and medical services, for libraries and roads,
the size of the population and its geographical distribution.
Public spending has not, at least in the past, been determined
by the wish to carry expenditure to the limit set by available
resources and by the finance that would be available for taxes
and borrowing if the economy were fully employed.
Private investment is determined by entrepreneurs' expectations of the future returns which could be earned on investment
undertaken now, balanced against the cost to them of the
investment. These decisions are the result of many influences,
such as the expected level of future spending, other business
1
Saved income may be held in various ways — as money, bank
deposits, Government securities, industrial or agricultural investments,
and so on. It should be noted that a decision to " invest " in, for
instance, Government securities or industrial shares, does not represent
a demand for goods and services. Net investment in this sense can take
place only if somebody — a Government or an industrialist — decides
to demand goods and services and to pay for them out of his own savings
or by borrowing money from people willing to lend.

32

HOUSING AND

EMPLOYMENT

men's reactions to the future, technological changes, the rate of
interest, the political colour of Governments. They are not
influenced by a wish to carry investment to the limit set by the
resources and the finance that would be available if the economy
were fully employed.
Finally, exports depend on the demand from abroad for a
country's products. This demand depends on the level of
incomes abroad, on relative price levels, on the propensity of
overseas countries to import, and on the obstacles placed in the
way of international trade. The demand will not be expanded
simply because resources are avails ble in any particular country
to produce and therefore to finance exports.
For all these possible outlets for unspent income the availability of resources and of finance can set an upper limit to
production, but it does not provide an adequate motive to
expansion, and it does not generate any effective tendency to
make full use of the resources. If Governments, business men
and overseas buyers, out of the complex of factors which
determine their expenditures, do not in fact spend enough to
absorb all the resources not required to satisfy the private
consumption demand of a fully employed economy, the economy
cannot reach and maintain a state of full employment. The
actual level of employment, moreover, will fall short of the
desired level not only to the extent of the shortage of demand
available for offsetting unspent income : the lower level of
activity will require a lower level of private investment than
would be required at the desired level of employment ; the lower
level of incomes will support a lower level of private consumption
than at the desired level of incomes ; and public opinion may
insist on a lower level of Government spending than would be
supported at the desired level of tatal spending. Employment
will fall until incomes have fallen so low that the amount which
is unspent is no more than can be offset by actual current
investment, exports and Government spending.
In " excess-savings " countries, rising standards of living
are held back by the fact that resources available are not fully
employed. Investment opportunities are lacking, buyers abroad
do not wish or are not able to incrsase their purchases, Governments do not increase their purchases, so incomes are less than
they could be at full employment and people are unable to
spend as much on consumption goods as they would if fully
employed. In " capital-scarcity " countries, on the other hand,
rising living standards are held bacìi by the shortage of enterprise
and the lack of capital equipment necessary for investment.

HOUSING AND EMPLOYMENT POLICY

33

At the same time, productivity is so low that available resources
are more or less fully taken up simply in producing enough
goods and services to keep people alive. The resources that
would be needed to produce capital equipment and so to raise
productivity cannot be spared, with current methods of production, from production of consumption goods because of the
low level of productivity. In both types of countries, standards
of living are still further held back by the fact that monopoly
and maldistribution of income lead to an allocation of resources
that is not best calculated to meet the desires of the people.
But a tendency towards continuing under employment is
not the only employment trouble that besets " excess-savings "
countries. What has been more serious in the past is the
extreme variability of the various demands for goods and services.
Business men's expectations about the future are highly sensitive
and inherently subject not only to violent but also to simultaneous fluctuations. Government spending has also varied
substantially and has, moreover, tended to be reduced, in
response to popular pressure, at the same time as other types
of demand, and therefore employment and incomes, were
declining. Demand from abroad for exports has also been
extremely variable. Fluctuations in these sections of demand
have caused fluctuations in employment and therefore in
incomes, which have caused further fluctuations in spending
on consumption goods, in private investment and in Government
spending.
The Scope for Action by Governments
If Governments are now to accept responsibility for maintaining full employment, their task can be set out most clearly in
the following way. Out of incomes corresponding to full employment, a proportion, which can incidentally be measured with
some certainty at least over short periods, will be spent on
consumption goods and will therefore itself give rise to the
employment necessary to maintain that proportion of income.
The balance of the income will be either saved, paid in taxes
or spent on imports. The problem of Government policy is
then to ensure that this section of income which is not exerting
a direct demand for home-produced goods and services is fully
offset by the Government's own spending, by private investment
and by exports, which do exert a demand for goods and services
and which must therefore be maintained in order to maintain

34

HOUSING AND EMPLOYMENT

full employment. I t is necessary to examine the possible scope
in various directions for Government full employment policy.

PRIVATE

INVESTMENT

A Government m a y seek to increase private i n v e s t m e n t
— for instance, by taxation designed to provide an incentive
to investment, by promotion of a reduction of interest rates, by
adoption of policies designed to foster the confidence of business
men, or by encouragement of research into new methods and
types of production. Government policy along these lines m a y
contribute significantly to the stabilisation of private investm e n t and so reduce to manageable proportions the problem of
fluctuations
in private investment and consequent multiplied
fluctuations
in total employmen;. Indeed, one of the main
grounds for optimism about the possibilities of success in
maintaining full employment is t h a t a continuing level of high
and stable demand should itself encourage business men's
expectations t h a t this state will continue, and should therefore
itself tend to dampen down the fluctuations in investment
t h a t have been such a prolific source of fluctuations in the past.
The Australian White Paper on P'ull E m p l o y m e n t says :
The Commonwealth Government believes that the greatest single
contribution to the stability of private capital expenditure will be the
assurance that total spending will be maintained at high and stable
levels . . .
A major cause of decreases of private capital expenditure in the
past has been the tendency of many business men, farmers and other
investors simultaneously to contract their capital expenditure because
of the fear of a reduction in spending. This was inevitable in an
economy in which total expenditure was expected.to fluctuate, and
in which business men were extremely sensitive to their rivals' and
associates' estimates of movements in spending in the near future.
Simply because business men tended simultaneously to contract their
capital expenditure, they contributed significantly by their very actions
to the fall in total spending which they feared. x
There is, however, a definite limit beyond which it is n o t
desirable to stimulate investment. Once the rate of investment
is adequate to maximise the productivity of the available labour
force, a n y further investment merely creates over-capacity and
1

Full Employment in Australia, op. cit., p. 7.

HOUSING AND EMPLOYMENT POLICY

35

represents a waste of resources which could have been better
used to produce other more urgently needed goods and services,
or to permit a greater degree of leisure for the community. If a
Government relies heavily on stimulation of private investment
for the success of its employment policy, it is likely to reach
fairly quickly the stage where it is merely encouraging the
creation of excess capacity or, alternatively, where it is encouraging investment now which would otherwise have been undertaken later, thereby aggravating the employment-problem in
the future. Its best policy will be to seek to establish what is
the long-run rate of investment which can most usefully be
maintained, and to concentrate on minimising short-run
fluctuations around that level so as to confine them within a
range which can be conveniently offset by other aspects of its
economic policy.
EXPORTS

A Government may seek to stimulate exports. The most
hopeful method of achieving this is for all Governments to
undertake to maintain high and stable levels of employment
within their own borders, so as to ensure a high level of demand
which will appear in part as a demand for imports. This
policy needs to be supplemented by agreements to reduce trade
barriers, although it should be noted that such agreements are
of limited value by themselves for the purpose of promoting
full employment, as they tend to increase imports as well as
exports. 1 Other devices for promoting exports are also of
limited value. Other countries will buy imports only if they can
get supplies of an acceptable currency. The obvious method of
supplying such a currency is for the country, which wishes to
export, to import more goods itself, but this will of course offset
the employment-stimulating effect of exports. The alternative
is to lend abroad in order that other countries may be able to
buy the products of excess-saving countries. 2 But beyond a
1

See, however, W. F. STOLPER : " The Volume of Foreign Trade
and the Level of Income ", in Quarterly Journal of Economics, Feb. 1947,
p. 299, where it is established that a balanced increase in foreign trade
can lead
to an increase in employment.
2
Foreign loans, it should be noted, while promoting the level of
domestic employment, transfer the products of that employment to
other countries, in exchange for a promise of later repayment with
interest. Foreign lending as a part of employment policy is therefore
justified only to the extent that thé lending community regards this
type of investment as more important or more profitable than an
immediate raising of its own living standards, or than an immediate
reduction of its working hours.

36

HOUSING A N D EMPLOYMENT

certain point, other countries w:lll be unwilling or unable to
undertake the burden of repaying foreign loans. Moreover,
the later repayment of the loans can be effected only if the
original lending country accepts an adequate import surplus.
This will itself aggravate that country's employment problem,
which will have to be solved by further extension of the solutions
suggested here, such as expansion of investment, redistribution
of incomes and reduction of working hours.
GOVERNMENT EXPENDITURE

A Government may increase its own spending. This may
be in any of several directions : (a) improved social services
such as schools, libraries, health and medical services ;
(b) increased pubhc investrnsnt in roads, parks, bridges,
harbours, irrigation projects and so o n 1 ; (c) Government
activity to produce consumer goods and services which the
community needs, and which are not being produced in sufficient
quantities by private enterprise either because of monopolistic
restriction of output, because of external economies not taken
into account in the profit calculations of private business men,
or simply because of lack of enterprise ; or (d) expenditure
designed to redistribute income from where it is not being spent
to where it is more likely to be spent. Transfers from higher
income to lower income groups, by means of old-age pensions,
family allowances, and so on, will have this last-mentioned
effect. Direct spending to redistribute income may be supplemented by other policies designed to alter the distribution of
incomes in such a way as to increase private spending on
consumption — for instance, the Government may encourage
wage increases in the hope that the redistributive effects thereof
will not be wholly offset by rises in prices ; or it may take
action to eliminate or reduce monopolistic profits.
Spending by Governments must be financed, and they
need to choose such methods of financing as will supplement
their economic policy. Taxes are likely to come at least in
part from money that would otherwise have been spent on
consumption goods. Some taxes are more likely than others
to discourage spending ; some have a discouraging effect on
enterprise and the incentive to invest. Borrowing from the
1

On the role of public investment in full employment policy, see
: Public Investment and Full Employment, Studies and Reports, New Series No. 3 (Montreal, 1946).
INTERNATIONAL LABOUR OFFICE

HOUSING AND EMPLOYMENT

POLICY

37

public may also come in part from money that would otherwise
have been spent ; but this will be much less likely than in the
case of taxes. Borrowing carries with it, however, the need to
pay annual interest charges, transfers which may themselves
have upsetting effects on the stability of production and
expenditure. Borrowing from the central bank avoids these
transfer problems, but if carried too far may have inflationary
effects which may again upset the stability of production and
expenditure. Governments are thus faced with the necessity
of determining their financial policies in the light of the
advantages and disadvantages of the various methods of raising
money.
The various avenues of Government spending listed above
may offer greater scope for sustained expansion than do increased
private investment or increased exports, which have been shown
not to be capable of substantial extension. Public works to
improve the capital equipment of a nation, higher standards of
social services, Government enterprises and redistribution of
income, all offer substantial opportunities for increased expenditure that will raise the community's standard of living.
A Government seeking to maintain full employment and
rising living standards has to make in this connection a number
of vital decisions, which fall into four main classes. It will in
the first place have to weigh present against future satisfactions
— it will have to decide whether the community really wants
extra consumption now, or extra capital equipment which will
produce extra consumption goods for it later. Secondly, it
will have to weigh against each other the needs, demands and
merits of various sections of the community — whether mothers,
invalids, widows, rentiers, the aged, wage earners, farmers, or
some other section is most deserving of increased incomes.
Thirdly, it will have to balance the advantages of foreign lending
against the advantages of raising domestic standards of living.
Finally, it will need to weigh the needs of its own and other communities for extra goods and services against the desire of the
members of its community for extra leisure — this is a decision
which many individuals cannot take by themselves but which
must be taken through collective bargaining and social legislation. The Government may decide, for instance, if it considers
that the real wish of the community is for extra leisure rather
than extra goods and services, that it should give its support
to a movement for shorter working hours and longer holidays.
In " capital-scarcity " countries Governments will have to
take these decisions against a different economic background.

. 38

HOUSING AND EMPLOYMENT

Their main aim is likely to be to secure the release of resources
for production of capital equipment, to encourage the enterprise
necessary to guide this capital formation, and to arrange the
finance required to carry producers over their developmental
period. They will tend therefore io put greater weight on future
consumption than present consumption, they will oppose the
introduction of social services which would absorb resources
which they believe could be more advantageously used in
increasing other types of production, they will not encourage
exports beyond what is necessary to finance essential imports
and will seek to canalise available overseas spending power into
the purchase of the most essenti.il imports, and they will not
press for any stricter limitation of working hours than is
essential to human welfare.
ALTERNATIVE EMPLOYMENT POLICIES

The significance of these problems when developing a
policy designed to raise standards of living, including an improvement in the standard of housing, to be secured by full employment and an allocation of resources that conforms better with
the wishes and needs of the community, emerges clearly in any
consideration of the various policies proposed for adoption by
Governments in pursuing these ends.
On the one hand, there is the group which advocates that
Governments should play an essentially passive role in employment policy. They should as much as possible leave the
economy completely alone, intervening only when and only to
the extent that private enterprise ::ails to secure full employment
(and perhaps also when and to the extent that it fails to avoid
monopolistic abuses). The underlying assumption is that the
community's needs will always be best ascertained and best
served by private enterprise operating in a competitive market.
If Governments do have to intervene, they should confine
themselves exclusively to anti-trust action and to public works
which do not encroach on any field of activity in which private
enterprise, now or in the future, might be interested. Any
such encroachment, according to this group, would defeat its
own end as it would immediately discourage private enterprise's
confidence, and therefore render the unemployment problem
worse. Redistribution of income should be confined at the most
to payment of conservative amounts in unemployment relief —
the rates should not be too high or :hey would discourage workers
from seeking or remaining in employment. This group would

HOUSING AND EMPLOYMENT POLICY

39

oppose, as socialistic, inflationary or discouraging to private
incentive, any increase of redistributive social services. It
would be less opposed to overseas lending to stimulate exports
and it would be positively favourable to amendments of tax
schedules to encourage saving and investment. This group
would also disapprove of aiming at full employment in the
sense of maintaining " such a pressure of demand on resources
that for the economy as a whole there will be a tendency towards
a shortage of men, instead of a shortage of jobs " \ on the
grounds that this would disintegrate industrial discipline,
encourage an inflation of wage incomes, and remove the vitally
important element of flexibility from the economy.
This
group is clearly more concerned with the preservation of private
enterprise than with using fully all the available resources of an
economy to produce the goods and services most needed by the
people.
At the other extreme are those who despair of stabilising
private expenditure in general and private investment in
particular. They would insist that the policy of merely offsetting fluctuations in private expenditure and exports by
compensating fluctuations in the opposite direction in public
expenditure was doomed to failure because such a policy could
not be administered successfully. Governments would never
be able to have their plans so fully perfected as to be able to
step in immediately to take up unemployed resources. Even
if they succeeded partially, they could do so only by determining
their expenditure according to what could be quickly produced
rather than what was most needed by the community. Moreover, this group would argue that if Governments are to avoid
expenditure which might directly or indirectly discourage
private enterprise, they will not have a wide enough field left
in which to increase their expenditure sufficiently to achieve full
employment. This group would also argue that the mainspring
of a private enterprise economy must be competition, and that
in modern economies competition has been so regulated and
controlled by agreements between producers that private
enterprise is no longer capable of securing a socially useful
structure of production. In its most extreme form, this group
would advocate complete socialisation of production. In its
less extreme form, it would advocate rather a gradual movement
towards this position, by means of a steadily expanding level
1

Full Employment in Australia, op. cit., p. 6. See also Sir William
: Full Employmenl in a Free Society (London, George Allen
& Unwin Ltd., 1944), p. 18.

BEVERIDGE

40

HOUSING AND EMPLOYMENT

of Government spending of al" types which would reduce, and
therefore make less significant and less troublesome, the
fluctuations in the field of activity whose level is determined by
private investment decisions. This group would insist that
private enterprise has completely and irremediably ceased to
serve the real interests of the community, and should sooner or
later be replaced by Government management.
Most thinkers and writers on these problems are to be found.
somewhere between these two extremes. They set the demands
and wishes of the community as the determining factors of
economic behaviour, and believe that any form of management,
whether public or private, should be judged by its success in
satisfying these demands. They believe that a permanent, or
at any rate a long-term, solution can be based on a combination
of private and public enterprise, in which each would find its
own sphere. This would need to be backed up by the readiness
of .Governments to step in to offset fluctuations in total expenditure, however they may arise. They do not believe, however,
that this would be administratively impossible, as the fluctuations would be less serious, and they would leave Governments
free to intervene in any field in which intervention could be most
effective in promoting higher employment and living standards.
They fear the danger of instability and of monopoly that would
arise if the first group's policies were adopted. They fear a
possible threat to political liberty and to individual freedom and
initiative, and they foresee the danger of an excessively rigid
structure of production, if the second group's policies were
adopted. The aim of this group is perhaps best described as the
socialisation of demand, leaving the question of socialisation of
particular types of production to be decided on the merits of
each individual case. *
There are also to be found similar differences of opinion as
to how far Governments should go, and what methods they
should adopt, in policies designed to restrict monopoly and
correct a maldistribution of incomes in order to secure an
allocation of resources that will better serve the community's
needs.
Fluctuations in Housing and Employment
The foregoing analysis of the determinants of the level of
employment shows the crucial importance of investment in
1
Cf. Sir William BEVERIDGE, op. cit., pp. 190-193 and passim.
See also A. C. PIGOU : Socialism and Capitalism (London, Macmillan
and Co. Ltd., 1937).

HOUSING AND EMPLOYMENT POLICY

41

offsetting " unspent income " and thereby keeping up the level
of employment. In the total level of investment, residential
construction is one of the most important single items. In the
United States, for example, total residential construction
between 1919 and 1940 accounted for over 18 per cent, of gross
capital formation. 1
When allowance is made for the repercussions on employment in the consumption goods industries of the spending of
incomes derived from housing activity, it will be realised that
housing has a large effect in determining the total level of
employment. It is unfortunate, therefore, that the fluctuations
in the level of housing activity have been so great, probably
greater than the fluctuations in any other important industry.
Table IV shows variations in residential construction in the
United States between 1919 and 1940.

TABLE I V .

R E S I D E N T I A L NON-FARM CONSTRUCTION

IN THE UNITED STATES, 1919-1940 2
(In thousand millions of dollars al prices then current)

Year

1919
1920
1921
1922
1923
1924
1925
1926
1927
1928
1929

Residential
non-farm
construction

1.9
1.8
1.9
3.0
3.9
4.5
4.8
4.8
4.5
4.1
3.7

Year

1930
1931
1932
1933
1934
1935
1936
1937
1938
1939
1940

Residential
non-farm
construction

1.9
1.6
0.7
0.5
0.7
. 1.0
1.5
1.8
1.9
2.5
2.8

The value of residential construction was at its peak in
1925 and 1926. It declined fairly slowly to 1929 and then
rapidly until 1933, when it was just over one tenth of its 1925
level. Thereafter it slowly recovered but, in 1940, was still
1
S. KUZNETS : National Product Since 1869 (New York, National
Bureau of Economic Research, 1946), pp. 40 and 50.
2
Ibid., p. 40.

42

HOUSING AND EMPLOYMENT

only 58 per cent, of its 1925 peak. The number of new nonfarm residential units built shows similar fluctuations. From a
peak of 937,000 units in 1925, output declined to 93,000 units in
1933, and, by 1940, had risen again to 603,000 units. 1
Fluctuations as great as this are recorded in no other
industry of significance. Of 99 industrial series studied in the
United States, building activity, as measured by building permits
issued, showed fluctuations at least twice as wide as those of
70 other series, and at least three times as wide as those of
40 other series. 2 Estimates made by Kuznets reveal the
differences in the extent of fluctuations in activity (table V).

TABLE V.

FLUCTUATIONS IN VARIOUS ECONOMIC SERIES
FOR THE UNITED STATES 3
High

Consumers' outlay .
Gross capital formation
Total construction .
Residential construction
1

1929. —

« 1926. —

Low as per
cent, of high

Low

8 thousand million $ thousand million
76.7 1
45.9*

per cent.
60

20.7 1
10.9 a

3.3«
2.4 s

16
22

4.8 a

0.5*

10

• 1932. —

' 1933.

Similar figures are difficult to obtain for other countries,
but what evidence is available confirms this experience of the
United States. It is indeed of the very nature of housing
activity that, left unregulated, it should be subject to extremely
wide fluctuations. *
The Need for Stability of Housing Activity
Important as housing activity is, not only in determining
the level of housing standards that can be achieved but also in
determining the general level of employment, incomes and
welfare, it is clear from these figures that it has failed badly
1

2

TWENTIETH CENTURY FUND, op. cit., p. 364.
INTERNATIONAL LABOUR OFFICE : Housing

1945), p. 20.
3

S. KUZNETS : op. cit., pp. 40 and

4

See Chapter V below.

50.

Policy (Montreal,

HOUSING AND EMPLOYMENT

POLICY

43

in its contribution to both these ends. Housing standards
remain extremely low, resources in the building industry which
could have been used to improve those standards have been left
idle, and wide fluctuations in building employment have contributed greatly to the instability of employment in the economy
generally. If the level of housing activity can be raised and
if fluctuations therein can be substantially reduced, housing
standards will improve more rapidly and a vital section of total
employment, important not only in its own right but also for its
repercussions on other employment, will be made more stable.
The problem of maintaining stability of employment generally
will be correspondingly simplified.
At first sight, increasing the level of housing activity does
not appear difficult. While there are clear limitations on the
extent to which many lines of expenditure can be expanded,
it would appear that housing expenditure can be expanded
almost indefinitely. There is no real prospect of existing
shortages of housing being overtaken for many years to come,
quite apart from the houses needed for newly formed families
and to replace old houses that have been demolished. Moreover, even when eventually enough housing has been provided
for everyone, continual improvements in the standard of
housing will be desired by most consumers.
It is impossible to find any other significant field of investment in which there are such unlimited and such useful
opportunities for expansion. It is, moreover, a field which
offers scope for harmonious collaboration between private and
public enterprise. Each has its own appropriate sphere of
action and, moreover, any action by the Government can
hardly do otherwise than greatly enlarge the opportunities for
private enterprise. After the transition period few Governments would want to interfere in the supply of houses to upper
income groups which have long been well served by private
enterprise. The same will be true of such sections of middle
income groups as can already afford their own housing. Any
action by Governments to raise the effective demand of other
groups for housing is not likely to restrict the operation of
private enterprise and will almost certainly, in most cases,
provide an opportunity for private enterprise to meet a demand
which it has never before effectively fulfilled.
The problem is whether this large potential demand for
houses can be converted into a high and stable annual flow
of effective demand which can be met by a high and stable output of houses. The difficulty is that decisions to produce goods

44

HOUSING AND

EMPLOYMENT

and services which give rise to employment depend not on
the need of the community but on what employers expect
will be the effective demand for their product when its production
has been completed. If employers fear that there will be a
decline in demand and consequently reduce their output, their
very action, by causing unemployment, gives rise to such a
decline. A reduced output of houses will therefore appear, not
as a failure to meet the need of families for houses, but as an
inevitable and wise adjustment to a contraction in the demand
for houses.
There are certain important characteristics of the building
industry which unfortunately render it subject to extremely
wide fluctuations. These are discussed at length in Chapter V
but two, in particular, should be mentioned here. In the first
place, houses are extremely durable, so that annual additions
to the stock of houses are small in relation to the total supply.
Relatively small variations in the total demand for houses can
therefore give rise to extravagantly large variations in the
demand for additional houses. Secondly, owing to the highly
standardised nature of the service provided by houses, the
house-building industry is peculiarly suited to the activity of
the speculative builder. Fluctuations which tend already to
be great because of the first factor will be still more exaggerated
by this second factor.
If, on the other hand, the output of housing can be made
more stable, it will contribute significantly to stability of
employment generally. Stability of the general level of employment and income will go far towards stabilising the level of
demand for housing, which will in turn make easier the maintenance of a stable output of housing.
A further question must be considered. On account, for
instance, of innovations requiring capital investment, or of
fluctuations in purchases of exports by buyers in other countries,
there will continually be a need in employment policy to offset
fluctuations in certain types of expenditure so as to keep total
expenditure stable. Is it possible not only to reduce fluctuations
in the output of houses but also to use the housing industry
as a field for action to offset fluctuations in other fields of
activity ? Again at first sight, this does appear possible.
There will be a continual need for more housing, spread widely
all over the country. The units are relatively small and quickly
completed, and require the use of largely domestic materials
and of a wide variety of labour skills. However, the proposal
contains certain difficulties, which are discussed later.

45

HOUSING AND EMPLOYMENT POLICY

The Construction Industries as Employers of Labour

Despite widely quoted figures of the impressive amount of
on-site and off-site employment arising from the housing and
construction industries, it appears that, at least in the United
States, expenditure on construction gives rise to less direct and
indirect employment than would similar expenditures on the
products of many other industries. The figures in table VI show
direct and indirect employment resulting, in 1939, from the
expenditure of one million dollars on various groups of goods
and services. " Direct employment " describes the employment
arising in the particular industry whose products are purchases.
" Indirect employment " describes the employment arising in
all other industries such as those producing materials and
transport, purchases of which by the original industry would be
increased as a result of the expenditure. Figures are available
only for the construction industry as a whole, of which residential
non-farm construction accounted for about 42 per cent, in 1939.
TABLE

VI.

DIRECT

AND

INDIRECT

EMPLOYMENT

ARISING

FROM A UNIT OF FINAL DEMAND FOR THE OUTPUTS OF VARIOUS
BRANCHES

OF PRODUCTION IN THE UNITED

STATES,

1939

(In terms of number of persons employed per one million dollars' worth
of final demand for the output of the respective industries)1

Nature of Employment

Total

Final demand of one million dollars'worth of
RailTexMetal Fuel
road
ConAgricultiles transfabristructure and Minerand
and
als
portacating
tion
foods
power leather tion

724
415

160
406

246
260

178
340

356
414

243
246

174
274

1,139

566

506

518

770

489

448

1
W. LEONTIEF : " Output, Employment, Consumption and Investment ", in
Quarterly Journal of Economics, Feb. 1944, p. 312. The International Labour Office
is indebted to Mr. Leontief for computing separately the figures for construction industries
used in this table. Mr. Leontief is not, of course, responsible for the conclusions drawn
from the figures.
The chief industries in which employment arose as a result of the expenditure of
one million dollars on construction in the United States in 1939 were : agriculture and
fishing (33 men) ; trade (34) ; lumber, paper, printing and publishing (31) ; metal fabricating
(27) ; stone, clay and glass products (27) ; transportation (18) ; ferrous metals (15) ; fuel and
power (9) ; chemicals (7) ; business and consumer services (7) ; motor vehicles, industrial
and heating equipment (6) ; non-ferrous metals and products (6) ; textiles and leather
(3) ; food processing (1) ; rubber (1) ; all other manufacturing and unallocated (49).
It should perhaps be pointed out that, for the purpose of this table, total final
consumer demand has been assumed to be constant — that is, the possible multiplier
effect on employment through increased consumption by the additionally employed workers
is entirely disregarded.

4

46

HOUSING AND

EMPLOYMENT

One million dollars spent on construction in the United
States in 1939 gave rise, therefore, to employment of 448 men,
in contrast with figures ranging from 1,139 men for the same
amount spent on agricultural products to 489 men for that
amount spent on railroad transportation. Since housing
accounted for nearly half of total construction, figures for
housing alone could not be substantially different. This
relatively small employment resulting from expenditure on
housing is presumably in part a reflection of those characteristics
of the organisation and methods of the housing industry which,
as noted below in Chapter III, have led to a high level of costs.
Although there are again no comparable figures, there is
no reason to assume that the effect on employment of expenditure on construction would be substantially different in other
countries. The figures should not be interpreted to mean that
expenditure on housing offers the least satisfactory means of
expanding employment. They do, however, suggest that it
is a costly means, measured in terms of the resulting numbers
of men employed ; and they suggest also that the housing
activity which is needed to raise housing standards is going to
cost a large amount of money and is going to absorb a large
number of workers. Resolute action will be needed to increase
efficiency and reduce unit costs in the building industry in order
that the best possible return may be got for the money spent.

The Place of Housing in Employment Programmes
In general, it may presumably be expected that housing
will have a relatively greater part to play in employment policy
in highly industrialised economies than in less developed
economies. In the latter, housing development is likely to be
somewhat slower as these communities will probably prefer to
concentrate their scarce resources on capital equipment which
will directly increase productivity, and on consumption goods
necessary to people's health, confining the resources allotted to
housing to the minimum needed to maintain the community's
health and efficiency.
More highly developed economies, on the other hand,
will have a greater accumulation of capital equipment, particularly once the formidable task of restoring war damage has
been completed. These communities will be able to allocate
a substantial proportion of resources to the improvement of
housing and will, in many cases, need to do so as a contribution

HOUSING AND EMPLOYMENT

to the offsetting of " unspent income ".
ment, for instance, says :

POLICY

47

The Canadian Govern-

In the field of housing, expenditures have been deficient over the
past fifteen years, and there is need, as soon as the exigencies of war
permit, for investment in housing on a scale far exceeding the
immediate pre-war levels. War savings and post-war credits, the
greater assurance of steady employment, family allowances and the
facilities of the National Housing Act will enable many thousands to
build their own homes. 1
The Australian Government has made a similar s t a t e m e n t :
Private capital expenditure will continue to be one of the most
significant parts of total expenditure. Its extreme variability, and
the impossibility of completely stabilizing the factors which bring
about that variability, present a most important and difficult
problem...
Special plans will create new opportunities for private capital
expenditure. For example, the Commonwealth and State Governments are agreed on plans for a substantial expansion of house-building
activity as soon as the war permits. Building is an important element
of private capital expenditure and industries associated with it should
be on a firm basis for expansion for many years to come. a
The potential importance of housing to the general level
of activity has been widely discussed in relation to post-war
economic conditions in the United States. For instance, a study
made by three members of the Bureau of Labor Statistics
examines possible full employment patterns for t h e United
States economy in 1950. 3 I t is estimated t h a t , deducting a
probable 1.5 million for the armed forces and allowing 2 million
for " minimum frictional " unemployment, full employment
in 1950 will require about 59 million civilian jobs. Taking into
account sections of the economy such as agriculture and selfemployment, where employment is largely independent of
production, there will be 39.1 million men whose jobs will depend
on the level of production. The study then examines w h a t
employment would be given as a result of purchases by buyers
from abroad and by consumers, investors and Governments
1

Employment and Income, op. cit., p. 12.
Full Employment in Australia, op. cit., p. 7.
J. CORNFIELD, W. D. EVANS and M. HOFFENBERG : " Full
Employment Patterns, 1950 ", in Monthly Labor Review (Bureau of Labor
Statistics), Feb. and Mar. 1947.
2
8

48

HOUSING AND EMPLOYMENT

at home, in the absence of any deliberate policy to achieve the
level of spending necessary to maintain full employment. The
study concludes that employment would be given to only
34.4 million men. This deficiency of 4.7 million in the number
of jobs available, as the result of domestic expenditure and
exports, would involve much greater final unemployment as a
result of the repercussions of the inability of these 4.7 million
men to spend on consumption, and therefore to give rise to
employment.
In order to achieve and maintain full employment in 1950,
it would be necessary to increase spending and exports so as to
provide jobs for these 4.7 million men. The study shows how
various lines of expenditure would have to be increased in order
to achieve this result, on two alternative assumptions — first,
that only consumption was increased, and second, that only
investment and exports were increased.
Tentative figures for housing prospects may be deduced
from this study. It is estimated that, in the absence of
deliberate employment policy, demand for residential non-farm
construction in 1950, as a result of the domestic spending of
incomes resulting from full employment, would be 74 per cent.
higher in volume than in 1939. 1
In 1939, residential non-farm construction in the United
States produced 515,000 residential units. In 1950, according
to this study, there would therefore be a demand for nearly
900,000 housing units 2, a figure little smaller than the 937,000
units actually built in the peak year, 1925. In other words, in
the absence of a full employment policy, demand for housing in
1950, assuming that full employment has been achieved, would
be practically equal to the highest volume of residential
construction ever achieved in the United States, and yet the
economy as a whole would still not be able to maintain full
employment and would, indeed, fall seriously short of that aim.
In its estimates of the action required to maintain full
employment by an expansion of investment alone, the study
allows for an increase in all construction by two thirds. If this
increase were applied to housing, an output of 1,500,000 units
would be required to permit housing to play its full part in the
employment policy. If, on the other hand, full employment
were maintained solely by an increase of consumption, an
1
2

Monthly'Labor Review, Feb. 1947, p. 184.
See also U.S. DEPARTMENT OF LABOR : Probable Volume of
Postwar Construction, Bulletin No. 825 (Washington, Government
Printing Office, 1945), p. 20.

HOUSING AND EMPLOYMENT POLICY

49

output of 900,000 units would still be required. Full employment in 1950 would require, therefore, according to the assumptions of this study, the building of between 900,000 and 1,500,000
residential units. Since any full employment policy actually
adopted would almost certainly place considerable emphasis
on housing, a figure near the upper limit of this range may be
taken as reasonable.
Almost all estimates of annual post-war housing requirements in the United States, whether approached from the point
of view of social welfare or of full employment, produce figures
somewhere between a million and a million and a half. x The
National Housing Agency, for instance, estimated in 1944 that,
on the basis of capacity to pay, of full employment requirements
and of the elimination in ten years of half the substandard
housing then existing, there would be a need for 12,600,000
housing units over a ten-year period. 2
It is important to note, however, that the Bureau of Labor
Statistics study concludes that, given full employment in 1950,
there will be effective demand for only 900,000 housing units.
If more houses are to be built to meet the needs both of
improving social welfare and of maintaining full employment,
Government action will be required certainly to increase the
purchasing power of consumers for houses and, probably, to
stimulate increased production of houses.
In all countries seeking both full employment and an
improvement in social welfare, housing is coming to be regarded
as the most important single field for public action. It is
necessary, therefore, to understand the conditions under which
a high and more stable level of activity can be maintained in the
housing industry, and under which the resultant output of the
industry can be purchased by consumers. The balance of this
report examines these problems at length.

1

" The estimates, whether based on social or economic needs,
arrive at remarkably similar conclusions. " Catherine BAUER :
" Housing in the United States ", in International Labour Review,
July 1945, p. 1.
* U.S. NATIONAL HOUSING AGENCY : Housing Needs (Washington,
U.S. Government Printing Office, 1944), p. 6.

CHAPTER III
THE SUPPLY OF HOUSES :
THE COSTS OF BUILDING ACTIVITY
The supply of houses depends on the number of existing
houses, the conditions under which those houses can be repaired
or altered, and the conditions under which new houses can be
built. The number and state of repair of existing houses is
given. The conditions under which building activity is carried
on must now be examined.
Costs of a Typical House
The " costs of a house " may mean many different things
— the cost of actual construction, the cost of the house and the
land on which it stands, the annual cost to the occupier, and so
on. The analysis given in table VII of various types of costs
arising in connection with a typical house provides a useful
basis for detailed discussion of separate items and the response
of each to changes in the amounts demanded. 1 The example
given is a house the selling price of which is $4,800, the purchase
being financed by a $4,300 mortgage at 5 per cent, with
repayment in 25 years. (This is the basis on which Federal
Housing Administration housing loans are made in the United
States.)
TABLE VII.

ANALYSIS OF COSTS OF HOUSE AND LOT SELLING

FOR $4,800 IN 1939
(In U.S. dollars)
Selling Price
Land:
Cost
Profit

$
350
350
700

1

The data used in this illustration are drawn from Peter STONE :
" Some Economic Aspects of Housing ", in Monograph No. 8 : Toward
More Housing, printed for the use of the Temporary National Economic
Committee (Washington, U.S. Government Printing Office, 1940),
pp. 41 et seq.

SUPPLY OF HOUSES : BUILDING COSTS

House:
Materials and labour
Architect's fee
Advertising expenses
Profit and overhead

51

$
3,525
50
175
350
4,100
4,800

Total price
Cost to Purchaser
Immediate Cost:
Down payment
Conveyancing, etc
Monthly Cost:
Interest and amortisation :
on mortgage
on mortgage insurance
loss of interest on immediate cost .
Taxes and insurance
Heat, maintenance and repairs . . .

500
175
675

25.15
0.88
2.81
4.75
8.40
41.99
Composition of Total Cost to Purchaser

$
Per cent
Construction cost (labour, materials and architect's
fee) . . !
3,575
72
Land cost
350
7
Profit on house and land
700
14
Advertising and purchasing expenses
350 100
7
4,975
Composition of Monthly Cost lo Purchaser
$
Per cent
Interest and amortisation
28:84
69
Taxes and insurance
4.75
11
Heat, maintenance and repairs
8.40
20
41.99 100
Factors Affecting the Level of Costs of Building Activity

1

LAND

Land falls into three categories. I t m a y be raw or virgin
land ; it m a y be " improved " in the sense of having available
roads and pavements, water and fire protection services, public
utility and sewerage connections and so on ; it m a y be " builtu p ", having buildings already on it.
1
An exhaustive discussion of costs in the United States is available
in Miles COLEAN : American Housing, Problems and Prospects (New York,
Twentieth Century Fund, 1944) and in the Temporary National
Economic Committee Monograph cited above.

52

HOUSING AND EMPLOYMENT

The pure value of land is most easily isolated when raw land
is considered. The value of land will be determined by its
most remunerative alternative use. Any purchaser must pay
at least as much as would be offered by anyone else. The price
will vary, therefore, according to the nature of the alternative
uses — that is, according to the amount of competition for
particular pieces of land. The cheapest raw land suitable for
urban house building is likely to be on the outskirts of existing
cities. Any potential purchaser of this land will probably have
to compete with alternative users such as farmers, particularly
market gardeners, and other builders seeking to develop it
for residential purposes. Land values in this class will depend
on the amount of alternative land available and on the quality
of transport connecting it with places where people want to
work, to shop, to amuse themselves and to visit. As transport
connections improve, more and more land becomes available
for residence in relation to any city and a downward pressure
will be exerted on land values. This may be more or less offset
by an increase of population exerting an upward pressure on
values.
Land which is regarded for one reason or another as being
of better location will be of higher value. Thus, for instance,
there will be a tendency for land values to be higher, the nearer
the land is to the centre of the city. More people will compete
for it and will be willing to pay more to get it, because of its
convenience of access to business, to friends and to entertainment. Transport costs will be less and transport facilities will
be better. Moreover, it is likely to be improved land, and its
value will be increased by the capitalised value of these improvements. If it is suitably located for business or commerce, and
if its use for those purposes is not prevented by zoning ordinances, its price will also be affected by competition for it for
those purposes. Finally, if the land is already built on, its
purchase price will have to cover not only the value of the land,
its improvements and its location but also the capitalised value
of returns expected from the building already on the land. In
some centres, for instance, development has been so rapid and
optimistic that relatively new and remunerative buildings have
been bought up and demolished in order to erect bigger and
better buildings on their advantageous sites. The cost of land
for the new buildings then has to cover the full value of the old
buildings. This aspect is important in dealing with the problem
of slums. Poor as the buildings may be, provided the rents and
location are auch that large numbers of people wish to or are

SUPPLY OF HOUSES : BUILDING COSTS

53

forced to live in them, a large total rent-roll will be received from
a relatively small but densely built-up piece of land. The land
value will therefore be high, which will operate strongly against
its purchase for less crowded housing development.
Geographical relationship to the centre of the city is,
however, not by any means the only, or even the most important,
determinant of the locational value of land. In a new city,
with inadequate roads and transport, it is important to live
near the centre. As facilities improve, the advantages of other
centres in health, beauty, convenience and quiet become
rapidly more important. As these new centres develop for
residential purposes, factories and businesses are attracted to
them also. Moreover, as people move out from the centre to
these new areas, demand for central locations diminishes and
" blighted areas " develop. Development of transport facilities
will be, again, the most important factor in developing new and
attractive locations.
Land values seem to be highly sensitive to neighbouring
influences. Thus, for instance, raw land in the centre of a city,
in a slum or blighted area, should theoretically be of very little
value. Yet in fact owners will often refuse to sell at less than
the price of nearby land, which may be high because it is being
used for business or because it has remunerative slum dwellings
on it. Moreover, because of the popularity and prestige of
land as an investment, land values tend to be high and rigid
and therefore to contribute to the inadequacy and instability
of housing. During a building boom, land values rise rapidly.
Every landowner hopes that his land will be essential to building
development and increases the price which he demands for it.
When the boom breaks, he is disappointed but, instead of
reducing the price for which he will sell, he is inclined to hang
on and wait till buyers are willing to pay his price. There are
from time to time spectacular crashes in land values ; but these
are rare. On the whole, land values rise readily, fall slowly
and are in general kept up by the widespread desire to own land.

CONSTRUCTION COSTS

The bulk of construction costs depends on the cost of labour
and the cost of materials, the latter usually being somewhat
greater than the former.
An outstanding feature of the building industry is the small
scale on which production of houses is usually carried

54

HOUSING AND EMPLOYMENT

o u t . 1 Houses as a complete and assembled product are difficult
to transport ; much of the production tends therefore to be
carried out on the site on which the house is finally to be located.
There would still, however, appear to be fair scope for large-scale
productive processes, both in producing in factories parts to be
assembled at particular sites, and in organising building so that
a large number of houses could be erected simultaneously on
adjacent sites by large-scale methods. 2 Partly because of
opposition from consumers, and partly because of the extreme
instability of output which makes very risky the incurring of
heavy overhead commitments, such developments towards
large-scale methods have been slow. The industry has remained
predominantly a preserve of small firms, which have proved
their ability to compete successfully with producers who have
used large-scale methods. In turn, the smallness of most
building enterprises and their wide geographical diffusion have
operated against co-ordination arid co-operation in the industry,
and against discussion and understanding of the need for an
improvement of efficiency, and of the ways in which that
improvement might be achieved. Consumers' prejudices and
whims operate strongly against the development of large-scale
methods and are encouraged and flattered by building operators,
often with disastrous effects on the appearance of a community.
Houses are built singly to individual plans by small groups of
craftsmen, operating primarily with their hands and a few
elementary tools on materials which, although they may have
been produced efficiently by modern factory processes, are still
1
" Private residential construction in the United States is still on
the whole a small-scale enterprise operated on next to no capital. A
survey by the Bureau of Labor Statistics showed t h a t 64 per cent, of
the home builders in 72 cities produced only one house in 1938, while
only 6 per cent, built as many as ten. Seventy per cent, of the houses
were provided by builders of less t h a n 25 homes, and in cities with a
population of under half a million this proportion increased to something like 95 per cent. The typical contractor has -three employees or
less, and undertakings in the building field have the smallest average
assets of all types of undertakings, including those in agriculture."
Catherine BAUER, loc. cit., pp. 10-11.
2
" To build a hundred houses at a time is cheaper t h a n to build
them singly. The savings arise not only from the standardisation of
parts t h a t is possible and the cheapness of bulk supplies, b u t from the
fact t h a t labour can be much more economically used. As soon as a
gang of men have finished an operation on one house they can move on
to the next instead of having to spend time in travelling. Moreover
they become used to performing a series of identical operations and
therefore work more effectively." Homes for the People, by a committee
of the Association of Building Technicians (London, Paul Elek Publishers
Ltd., 1946), p. 157.

SUPPLY OF HOUSES : BUILDING COSTS

55

but raw material to the building industry. The materials
themselves are usually bought in small parcels from local
dealers. Housing is the one product of any significance which
has not been subjected to the extensive technological improvement which has developed in most other production. Methods
of housing production are basically unchanged since ancient
times. 1 On this ground alone, housing costs tend to be high
relatively to other costs and to incomes.
In addition to the relatively low productivity of resources
engaged in the building industry which results from the failure
to industrialise methods of production, the industry is also widely
alleged to be subject, at any rate in certain countries, to an
abnormal incidence of monopolistic influences and restrictive
practices. It is difficult to reach any definite conclusion as to
whether this is so. Certainly the structure of the industry
is favourable to the development of such a situation. In the
first place, it depends on a large number of different types of
materials and of labour, much of it highly skilled. The contribution of each type of material and of each type of labour to
the total cost is therefore small, so that changes in the price of
an individual material or in the wages of a particular type of
labour make a negligible difference to the total cost of the house.
In the second place, the producers of each type of material are
often naturally protected against competition from each other
by the high cost of transporting many types of building materials.
Those operating in the same locality are relatively few in number
and can fairly easily come to formal or informal agreement with
each other concerning price policies. Similarly, the different
types of highly skilled workers are usually organised into
particularly strong craft unions. Finally, the extreme instability of the industry is a continual threat to the security of
employers and workers in the industry and it would be only
natural that they should seek, individually and through their
associations, to protect themselves against the effects of these
fluctuations in the level of activity.

1
In saying that methods of housing production are basically
unchanged since ancient times, it is not overlooked that there have been
significant advances not only in the technique of producing and processing building materials, but also in the production in factories of some
sections of houses, for instance window frames, previously produced
on the site by craftsmen. It remains true, however, that the basic
process of house building still depends on the assembly, at scattered
sites, of an enormous number of small units of different materials by
craftsmen using very little capital equipment.

56

HOUSING AND

EMPLOYMENT

Not only does the level of building activity fluctuate from
year to year ; it is also subject to wide seasonal fluctuations
resulting in the main from the climatic difficulties of winter
construction. Moreover, even in the busy season, work for
particular groups of workers is likely to be intermittent. A
painter, for instance, can do his painting on a house only when
the house has reached a certain stage of construction. Having
finished that job, he then has to find another house which has
reached the stage of requiring painting. Too often, in the
present state of management and organisation of the industry,
he has to wait several days to get another job. Wage rates in
the building industry tend to be high because of the intermittent
and seasonal nature of employment and because of the strong
organisation of workers in the industry. High wage rates
need not in themselves mean high labour costs, but they do in
the case of the building industry because the organisation and
methods of the industry are not correspondingly productive.
Despite relatively high hourly rates, annual earnings tend to be
low because of the high incidence of unemployment.
Similarly, with manufacturers of materials, excess capacity
is inclined to be large on the whole because of increases of
capacity to meet occasional abnormally high demands. When
demand declines, the normal tendency is not for some firms
to close down as happens in more competitive industries, but
for producers of similar materials to get together and share the
reduced demand, charging higher prices in order that all producers may be able to carry on, although using only a proportion
of their total capacity.
Because of the lack of organisation and co-operation between
the many separate groups in the industry, and because of the
small share of total costs which the cost of each group's services
represents, the advantages of increasing output and reducing
costs are not immediately obvious to the individuals concerned.
Prevailing high costs, however, choke off potential demand,
making the level of employment in the building industry low
and unstable. Because of the importance of building employment to the general level of employment and incomes, this in
turn reduces and makes more unstable the level of demand for
building. Employers and workers may thereby be confirmed
in their belief in the need for the restrictive practices which
contribute to this vicious circle. If it can be broken and if
costs can be reduced, the resultant increase of demand would
permit an increase in the incomes of employers and workers,
despite the reduction of cost per unit.

SUPPLY OF HOUSES : BUILDING COSTS

57

Y e t another source of inefficiency in the building industry
is the existence of local government building codes which
differ widely from each other in different places, thus m a k i n g
i t difficult for a large-scale builder seeking to standardise his
materials and methods to satisfy requirements in all the different places in which he would have to operate. Moreover,
t h e building regulations are of varying ages : few of t h e m are u p to-date, and in general they are insufficiently flexible, either in
their provisions or in their administration, to permit the ready
and widespread adoption of new methods and materials. Such
codes are essential to protect the health and safety of residents
b u t it is unfortunate t h a t they should be so drawn up t h a t they
help to prevent the residents getting cheaper houses. For
instance, regulations laying down the minimum strength of walls
are clearly desirable. B u t the regulations tend to be made in
terms of the thickness of the walls and of the nature of materials
to be used. E v e n if provision is made for changing the minimum
requirements for new materials, existing producers are thereby
given t h e opportunity to exert pressure to prevent new
materials being introduced. Tests of new materials are
expensive, especially if they have to be repeated m a n y times,
and builders m a y well find, particularly with small improvements, t h a t it is simpler and less troublesome to go on using
old methods.
The problem of high costs in the building industry m a y be
illustrated by a series of quotations from an authoritative
investigation into the low productivity of the industry in the
United S t a t e s . 1
1
R. Harold DENTON : " The Relation of Productivity to Low-Cost
Housing ", in Toward More Housing (Temporary National Economic
Committee Monograph No. 8, cited above), pp. 130 et seq. Cf. also
Final Report arid Recommendations of the Temporary National Economic
Committee (U.S. Senate Document 35, 77th Congress, 1st Session);
Investigation of Concentration of Economic Power: Hearings before the
Temporary National Economic Committee, Congress of the United Stales,
Part II, Construction Industry (Washington, 1940) ; and Part 3I-A,
Supplemental data submitted to the Temporary National Economic
Committee, pp. 18173-18194. For additional material on this subject,
see American Housing: Problems and Prospects (New York, Twentieth
Century Fund, 1944), pp. 101-111 ; Lee LOEVINGER : " Handicraft and
Handcuffs — The Anatomy of an Industry ", in Law and Contemporary
Problems (Duke University), Vol. XII, No. 1, Winter 1947, pp. 47-75 ;
Corwin D. EDWARDS : " Legal Requirements that Building Contractors
be Licensed ", ibid., pp. 76-94 ; William HABER : Industrial Relations
in the Building Industry (Cambridge, Harvard University Press, 1930),
Chapter VIII and pages 571-572 ; and Anti-Trust Cases in the Construction
Industry, Report to 79th Congress, Second Session (Washington,
12 Sept., 1946).

58

HOUSING AND

EMPLOYMENT

Productivity and Costs.
Low productivity in the building industry may be traced to many
causes, the most important of which are lack of co-ordination and
systematic organization, failure of the industry to keep pace with
other industries in technological improvement, prevalence of restrictive
practices throughout the industry which deliberately limit output
and prevent the introduction of cost-saving materials and methods,
backwardness of design and lack of standardization in measurement
which prevent mass production of larger units of materials, and the
retarding influence of tradition
Wage and price reductions will
not alone solve the housing problem. The building industry is a
customing industry, producing a product to individual measurement by
wasteful handicraft methods. Until system and efficient methods of
production are introduced, housing costs will remain beyond the reach
of most families
It should be observed that productivity has
increased in many industries engaged in the manufacture of building
materials, and in this respect there has been technological progress in
the building industry. Although building materials are produced by
modern mass production methods, however, they are merely the raw
materials from which a finished product is to be made
A house is
assembled from many thousands of small individual pieces. A fourroom brick-veneer house, for example, will require over 18,000 bricks
each of which must be handled many times before it becomes a part of
the house. The roof alone will contain some 9,000 shingles, each of
which requires separate handling... The units of material are so
small, and the methods of assembly so inefficient that increases in
productivity in the manufacture of building materials have had little
effect upon the ultimate cost of the house....
Mechanisation.
The tools used in the building of houses are mainly hand tools.
Very little power machinery has been introduced... The average
investment in equipment per employee [in the United States in 1929]
was considerably lower for building contractors than for those engaged
in any other type of construction work.... Contractors usually operate
upon too small a scale to justify a large investment in equipment.
Entirely satisfactory machinery for all building operations has not
been developed, partly because many of the operations are by their
nature hand operations, such as bricklaying. Furthermore, buildingtrades-unions have vigorously opposed introduction of labor-saving
machinery and devices...
Belief in Limited Amount of Work Available.
Uncertainty and fear arising from the belief that there is only so
much work to be done have resulted in the imposition of a wide
variety of harmful restrictions upon efficiency, particularly on the part

SUPPLY OF HOUSES : BUILDING COSTS

59

of labour. Each worker nurses his job, whether he be a union man
or non-union. In the case of union members, restrictions to spread
the work or to maintain traditional methods take tangible form and
are written into agreements or working rules of the unions. There are
rules which limit the supply of labour by imposing rigid apprenticeship
regulations and entrance requirements ; rules which require that
skilled tradesmen do unskilled work, such as carrying materials from
truck to place of u s e . . . . Other union rules prohibit or restrict the
installation of shop fabricated materials
Rigid jurisdictional
distinctions in the building trades are in general also traceable to
this belief that there is only a limited amount of work to be done.
Each trade regards the right to perform a particular type of work as a
property right, and carefully protects the methods and tools of its
trade. Division of work among the trades in the building industry
is not determined upon the basis of efficiency, as in manufacturing,
but according to superior bargaining position
Management.
Throughout its operations, the building industry has failed to
adopt efficient methods of management. The possibilities for cost
reduction through scientific management are illustrated by results
obtained from its application upon a large housing project in France.
From 1920 to 1937, the Michelin Low-Cost Dwelling Corporation built
houses for more than 3,000 employee-families of the Michelin Tire
Factories at Clermont-Ferrand. In 1920, 11,643 working hours were
required to build a house. In 1937, only 5,548 were required, or less
than half. In 1920, the construction foreman and labour supervisors
were responsible for preparing and organising the work, such as building
up working gangs, providing them with materials, selecting the tools
to be used, choosing the labour methods to be utilised, and determining
the time to be allowed for each job. After 1920, a planning department
was set up, and all the functions of preparation and organisation of
the work were turned over to its engineers.... On the ordinary building
job, it has been estimated that more than 25 per cent, of the average
craftsman's time is spent in making decisions as to his next move.
Each operation offers a new problem to be solved
Both management and labour are responsible for the obsolete management methods
which persist in the building industry.
Standardisation.
A further important reason for excessive building costs is the
fact that houses are built to individual specifications even in the
essential elements. There is little standardisation of materials or
dimensions. Room heights, wall thicknesses, window and door

60

HOUSING AND EMPLOYMENT

openings, room lengths and widths vary sometimes by fractions of an
inch, and almost every item of material used in the production of a
house can be purchased in several sizes. The wide variation in sizes
and use of fractional dimensions does not add to the individuality of
houses, but very seriously limits the possibilities for mass production
of materials, requires the carrying of large inventories, results in
confusion, and seriously interferes with the introduction of mass
production methods in the building industry. One manufacturer
lists as stock, ready for delivery in its regional warehouses, 82 different
kinds and sizes of double-hung windows alone. Even bricks come in
different sizes
It has been clearly demonstrated . . . that any number
of house plans and styles can be designed upon modular dimensions,
using 4 inches as'the smallest unit of measurement, instead of fractions
as at present.

Co-ordination.
The building industry is made up of many separate and independent groups. Each group is organised as a business in itself. Each
performs its special function with little relation to the others. There
is no over-all management, and no effective co-ordination
Every
effort at simplification or improvement of the production process
meets with vigorous opposition on the part of one or more of these
independent groups into which the industry is divided. One of the
more common types of opposition may be illustrated by several cases
which have come before the Federal Trade Commission in recent years
in which retail dealers have organised to force all building materials
through the established retail channels
Building materials are for
the most part purchased in small quantities from the local hardware
store or lumber y a r d . . . . Manufacturers often refuse to sell their
products to groups representing new methods of sale or new price
policies. Sometimes they exercise their patent privileges to control
unpatented products also. Contractors combine to keep all work for
member contractors, and secure agreements whereby labour refuses
to work for contractors who are not members of the association.
Contractors also combine to prevent competition from out-of-town
contractors, and to prevent the use of prefabricated materials.
Legislative bodies, both State and local, assist in many of these
restraints by requiring licenses for contractors, by prohibiting the use
of out-of-State materials, and by inserting rigid and unnecessary
requirements in local building codes.
While less information on these aspects of the building
industry is available for other countries, such information as is
available suggests t h a t m a n y of the factors noted above as

61

SUPPLY OF HOUSES : BUILDING COSTS

limiting efficiency and productivity in the United States operate
also elsewhere. 1
The balance of construction cost over and above the cost
of labour and materials consists of the sum taken by the builder
to cover his overhead and provide his income, and various fees
for architects, surveyors, permits and so on. The builder's
fee for a particular house will vary according to the number of
houses he builds in a year. If he is responsible for building
many houses, his overhead and his own income will be spread
more widely and will fall more lightly on individual houses.
But if, as is more often the case with the small builder, he builds
but few houses and wastes his organising ability by doing some
of the work that could be done by skilled and unskilled workers,
his charge per house will be much higher, even though his total
income may be less. The architect's fee will also vary according
to the number of houses being built to a particular design. The
fee of $50 listed for the example at the beginning of the chapter
is for a basic design for a large group of houses. The fee would
be nearer $300 for an individual house. 2
HEIGHT AND RIGIDITY OF BUILDING COSTS

Because of the extreme irregularity of activity in the building industry, the limited extent to which it has developed modern
industrial methods, and its consequent low productivity, building
costs tend to be high relatively to other costs and to the incomes
of the community. 3 Moreover, because of the tightness of
industrial organisation within small sectional groups of both
workers and manufacturers of materials, costs in the building
industry tend to be more inflexible than other costs. In a
1
I t m a y be recalled, for example, t h a t t h e Mission appointed by
the British Minister of Works in 1943 to study and report on building
methods in the United States noted certain respects in which the building
industry in t h e United States was more efficient than its counterpart in
Great Britain. There was, for instance, closer co-operation among the
various parties concerned in the typical building job ; costing of all job
labour by contractors was fuller, more accurate and more efficiently
summarised than was usual in Great Britain ; construction was more
rapid and interest charges on construction finance therefore lower ;
and the use of small hand power tools was much more widespread among
all trades, especially in t h e carpentry trade. Average output per manhour was greater in t h e United States than in Great Britain. ( U N I T E D

KINGDOM, MINISTRY OP W O R K S : Methods of Building

in the U.S.A. :

The Report of a Mission appointed by the Minister of Works (London,
H.M. Stationery Office, 1944), pp. 12-14.)
2

3

Peter STONE, op. cit., p . 72.

It m a y be noted t h a t t h e figures on page 45 appear to lend support to this conclusion.
5

62

HOUSING AND EMPLOYMENT

period of falling demand, reduction in costs may be hampered
by implicit or tacit agreements among manufacturers to
maintain their prices and among workers to spread available
work as much as possible. 1 The contribution to the total cost
of a house of the wages paid to a particular craft of workers and
of the prices paid to manufacturers of a particular material is
small. No individual organisation can see any advantage in
reducing its prices or increasing its efficiency —- the effect on the
final price of the house, and on demand for houses, would be too
small. 2 There is no co-ordination or co-operation between the
various groups which would enable them to take advantage of
the expansive possibilities of combined reductions in price and
increases in efficiency. Similarly, when demand expands, each
group sees the opportunity to recover sortie of its losses during
the depression of demand.
Cost of Purchasing a House
The first type of cost arising in connection with purchase
of a house and the land on which it stands is the establishment
of title. History and law have combined to make this, in many
places, difficult, uncertain and correspondingly expensive. The
relatively simple and cheap, although initially expensive,
Torrens system of title registration has been adopted in several
places but is by no means universal, its adoption being opposed
by those who gain from the complexities which exist without it.
Other fees also arise in connection with a house — legal fees,
brokerage charges, interest and taxes during construction and
so on. If the house is bought on a mortgage, further substantial
fees are incurred in arranging the finance. The total fees of this
1
See B. H. HIGGINS : " Housing Finance and Operation ", in
Planning of Canadian Towns and Cities (University of Toronto, School
of Architecture, 1944) Lecture X I I I , pp. 11-13.
2
In the United States, for example, it has been noted t h a t " The
electrical supply d e a l e r . . . specialises in selling and installing electrical
wiring and equipment in the house. The manner in which houses
are wired m a y be technically obsolete. Yet electrical work represents
only about 3 per cent, of the final cost of the house. The dealer therefore
has little interest in the house as a completed unit, and any savings which
he alone might effect would only slightly alter the ultimate cost. The
same is true with every other element in the industry, whether it be the
carpenter, plumber, mason, supply dealer, or manufacturer. Each
participant operates independently of every other, except through a
brokerage arrangement, and no one has effective control over or great
interest in the total cost of production ". (R. Harold DENTON, loc. cit.,
p. 129.)

63

SUPPLY OF HOUSES : BUILDING COSTS

nature in the case of the typical house referred to above amount
to $175. The size of this sum gains added significance from the
fact that it has to be found at the same time as the substantial
down-payment of $500.
The great majority of houses are bought on mortgage.
Given the cost of construction, the monthly cost of a house to
the purchaser depends chiefly on the period of amortisation and
the rate of interest charged for the loan. x The period of
amortisation is normally shorter than what may reasonably
be expected as the life of a house. The mortgagee naturally
wishes to have his capital repaid as soon as possible, thus
reducing the duration of his risk of having to undertake an
expensive and possibly unprofitable foreclosure on the house.
The mortgager has, as a result, to pay interest on his loan for
a shorter time but, on the other hand, has to make substantially
higher monthly repayments of capital for the shorter period
and has therefore to forgo alternative avenues of expenditure.
The effect of the period of repayment on the size of instalments is
substantial. Table VIII shows the annual payments necessary
to repay $1,000 over varying terms of years, assuming that these
payments can be invested at 5 per cent. These payments are
exclusively sinking fund payments and make no allowance for
interest payments on the principal, which have to be fully
maintained throughout the period for which the sinking fund is
being accumulated.
TABLE VIII.

SINKING FUND OF $ 1 , 0 0 0 AT 5 PER CENT.

Period ol repayment
years
20
25
40
50

2

Annual payment
required
$
30.2
21.0
8.3
4.8

It will be seen that with repayment in 25 years the annual
payment required to repay $1,000 will be $21. If the period
1
There is no significant difference if the house is bought for cash.
In the case of a mortgage, interest has to be paid and the capital has to
be amortised. In the case of a cash purchase, the interest that could
have been drawn on the amount represented by the original purchase
price has to be forgone (or current consumption has to be forgone) and
the house
depreciates. Only the case of the mortgage is discussed here.
2
These figures are available in any set of actuarial tables, e.g.,
R. E. UNDERWOOD : The Elements of Actuarial Science (Sir Isaac Pitman
and Sons, London, 1922), pp. 39-56 and table IV.

64

HOUSING AND

EMPLOYMENT

is doubled to 50 years, the annual payment required is reduced
by more than three quarters to $4.80.
To this amortisation payment has to be added the annual
interest charge. If the mortgage rate of interest is 5 per cent.,
the annual interest payment on $1,000 will be $50, which will
have to be paid until a sufficiently large sinking fund has been
accumulated to wipe off the debt. If 50 years are taken to
accumulate the sinking fund, $50 a year must be paid for the
whole 50 years. If substantially higher annual payments are
made into the sinking fund to enable it to be paid off in 25 years,
the annual interest payment will have to be made only for that
lesser period. With mortgage repayments, the usual practice
is for the mortgagee, in effect, to accumulate the sinking fund
out of regular instalments paid by the mortgager, determined
at whatever figure will cover interest and sinking fund charges. 1
Table IX shows the annual payments required to to pay interest
on and to repay a loan of $1,000 in varying periods of years and
at varying rates of interest. 2
TABLE I X .
ANNUAL PAYMENTS NECESSARY TO PAY I N T E R E S T
ON AND TO REPAY PRINCIPAL OF $ 1 , 0 0 0 OVER VARYING P E R I O D S
AND AT VARYING RATES OF I N T E R E S T
Rate oí interest
Period of repayment

20
25
40
50

years
years
years
years

3 per cent.

4 per cent.

5 per cent.

67
52
43
39

$
74
64
51
47

80
711
58
55

1
Cf. table VII pp. 50-51. Monthly payments on a 5 per cent. F.H.A. mortgage
of $4.300 are $25.15 per month or 7.02 per cent, per annum compared with 7.1 percent.
in this table. This fractional difference is accounted for by the fact that F.H.A.
instalments are collected monthly whereas the above table is based on annual collection
of instalments.

This table shows clearly the influence of the period of
repayment and of the rate of interest on the size of instalment
required to pay off the cost of any house. With a rate of interest
1

In some cases the mortgager pays interest on principal outstanding, and makes variable repayments of capital at his discretion, probably
with 2a stipulated annual minimum and maximum.
It is assumed that the sinking fund can be reinvested at the same
rate of interest as is charged on the original loan. This is likely to be
the case with a mortgage company which can simply reinvest in new
mortgages.

SUPPLY OF HOUSES : BUILDIN-G COSTS

65

of 5 per cent, and a repayment period of 20 years, the annual
payment required is 8 per cent, of the capital. With a rate of
interest of 5 per cent, and a repayment period of 50 years, the
annual payment is 5.5 per cent. — but the payments have to
be kept up much longer. With a rate of interest of 3 per cent.
and a repayment period of 50 years, the annual payment required
is 3.9 per cent.
THE " PURE " RATE OF INTEREST

The basic element in the rate of interest charged on mortgages is the long-term rate of interest. This is usually thought
of as the return which can be earned on completely risk-free and
undated Government securities, which can be bought and sold
with a minimum of inconvenience. The rate of interest measures
the inducement that has to be offered to people in possession of
assets to hold those assets in the form of a security (that is, a
loan to, say, a producer) rather than in the form of money which
is wanted, on the one hand, by investors as working capital and,
on the other, by savers as a liquid asset. This rate of interest
is a largely psychological phenomenon, much influenced by
convention and expectations about the future. In the short
period, it may fluctuate fairly widely. In a period of great
uncertainty, such as a financial crisis, when people are reluctant
to lose control of their money, preferring to keep it in liquid form,
the rate of interest which has to be paid to obtain the use of
money is likely to rise substantially. But over a long period,
such as the last hundred years in a settled economy like
England's, it has been very stable.
There are some grounds for believing that the rate of
interest is often too high, in any event if full employment is
accepted as a central economic aim. The economic function
of the rate of interest in a fully employed economy would be to
determine the allocation of resources among different types of
investment goods. The resources available to the community
are used to produce goods and services for consumption and for
investment. 1 In order to achieve and maintain full employment, it would be necessary for all current income not spent on
consumption, and therefore not giving rise to employment in
consumption goods industries, to be lent to producers of investment goods at a rate of interest which would make it profitable
1
It does not matter for the purpose of this discussion that some
of the consumption and investment is achieved indirectly, through
spending by Governments or in exchange for imports.

66

HOUSING AND EMPLOYMENT

for them to produce the appropriate amount of investment goods.
But the rate of interest required to fulfil this condition
might be very low — at times, when producers' expectations
were very pessimistic, a substantially negative rate of interest
would be required. In an economy where money is not only a
means of exchange but also a means of holding assets, it is
impossible to have a negative or even a low positive rate of
interest. At a time of depressed expectations, it will be preferable to hold $100 in cash rather than to lend it at a low or
negative rate of interest, which would offer no adequate reward
for sacrificing the liquidity of a cash holding. *
This demand for money to be held as an asset for the sake
of its liquidity will vary from time to time with the state of
expectations about the future. Sometimes there will be a
desire to move out of securities into money, sometimes a desire
to move out of money into securities. The supply of money is,
however, not perfectly elastic but is determined by the institutions — both Government and private — of the monetary
system. It is these changes in the demand for money, in
conjunction with the independently determined supply of
money, which determine the rate of interest. For instance, a
3 per cent. Government bond with a face value of $100 yields a
fixed return of $3 a year. When the market value of the
bond is also $100, the long-term rate of interest is 3 per cent.
Holders of money are prepared to go on holding money rather
than give up its liquidity in return for a 3 per cent, interest
payment. Holders of bonds are prepared to hold bonds rather
than lose 3 per cent, interest by holding money. If there then
develops a general movement towards money, reflecting a
depression of expectations, there is a pressure to obtain money
by selling securities, including Government bonds. Unless
the monetary institutions meet this demand for money by
buying up bonds so as to make money available, the price of
these bonds will fall until demand and supply are again equal.
If the price drops to $75, this is equivalent to a rise in the rate
of interest to 4 per cent. If there is a movement out of money,
there is a pressure to buy securities, including Government
bonds ; if the price has to rise to $120 in order to equate demand
1
The " liquidity " of cash has two closely related aspects — there
can be no risk of its value depreciating in terms of money, and there
can be no delay or inconvenience in converting it into money. Different
types of securities which might be held instead of money, such as shortterm or long-term Government bonds, mortgages, land, industrial
securities, houses and other physical goods, are progressively less
" liquid " in these two respects than money.

SUPPLY OF HOUSES : BUILDING COSTS

67

and supply, this is equivalent to a fall in the rate of interest to
2 % P e r cent.
The rate of interest is therefore determined by the demand
for and supply of money. Far from being determined at the
rate which will ensure the use of all resources available for
investment, it is instead determined independently, and in turn
determines the extent to which these available resources are
used at any time. Only such investment goods will be produced
as are expected to earn a return equal at least to the rate of
interest. If people still have unspent income available when all
such avenues of investment have been exhausted, they may
prefer to hold their resources in the form of money rather
than to lend or to invest it at a lower return. The effect of this
decision would be that resources would be left idle.
The extent of unemployment that will result from this
situation will be determined by the reduction of income that is
necessary to bring " unspent income " to equality with the
investment that can be undertaken at current rates of interest. x
The point of this argument has been to establish that — given the
tastes of the people, their expectations about the future, the
terms of trade, their foreign lending policy and their social
philosophy (which together determine their private consumption,
their balance of overseas trade, the level and composition of
Government revenue and expenditure and the nature of redistribution of incomes effected by Government action) — the
existence of idle resources suggests that the rate of interest may
be too high, at least if full employment is accepted as a fundamental economic goal. The existence of unemployment at
any particular time does not necessarily mean, however, that the
rate of interest is too high. There are too many uncertainties in
the assumptions on which the argument is based. Full employment is, after all, a relatively new economic goal. It may be
that when people come to understand its implications, they will
prefer to use up idle resources by increasing their consumption,
by reducing their hours of work, by increasing their foreign
loans or by increasing Government expenditure on social services,
rather than by reducing the rate of interest so as to increase the
1

Unspent income which is not offset by investment or other forms
of spending discussed in Chapter II will result in unemployment. This
reduces total employment and incomes ; but it also reduces consumption
and investment. There will therefore still be some income unspent so
that there will be a further fall in employment and incomes, continuing
until unspent income is reduced to equality with whatever level of
offsetting expenditure will be undertaken at that level of employment.

68

HOUSING AND EMPLOYMENT

range of investments that may be undertaken. However, even
with these qualifications, it does seem reasonable to conclude
that, at least during the inter-war period, the long-term rate of
interest was somewhat higher than was economically desirable.
It may well be thai, owing to institutional factors such as
the cost of bringing borrowers and lenders together, and the
lenders' concept of what the rate of interest should be, it will be
impossible, at least for some tima, to bring the rate of interest
down to a figure which will permit sufficient investment to
maintain full employment. If this is so, there are strong
grounds for advocating Government investment, for instance
in housing, since Governments do not need to pay strict regard
to the rate of interest in determining their investment policies.
The extent to which Governments fail to meet the interest costs
on their investments m£y be regarded as a measure of the cost
to the community of the institutional factors which prevent a
reduction of the rate of interest.
THE MORTGAGE RATE OF

INTEREST

The rate of interest charged on mortgages is higher than
the " pure " rate of interest for two main reasons. In the first
place there is a greater inconvenience and risk of loss involved
in lending to an individual borrower than to a well-established,
enduring and respected Government. A house is often difficult
to sell and a heavy loss may have to be accepted, particularly
if money is needed urgently. Government bonds, on the other
hand, have a ready market. Moreover, although a mortgage
is secured by a property of greater initial value than the size
of the mortgage, there is always a risk that, apart from the
question of urgency, the long-term value of the property may
fall below the principal outstanding at that date on the mortgage.
In any case, foreclosure on a mortgaged property involves costs
and unpleasantness.
In the second place, there are certain costs arising in
connection with mortgage business — on the one hand, in the
case of an institution making loans on mortgages, funds for
lending have to be borrowed from various small lenders, and
in the case of an individual a borrower has to be contacted and
a protracted legal procedure has to be gone through ; on the
other hand, the regular instalments from the borrower have to
be collected and reinvested, accounts have to be kept and various
inspections and investigations have to be carried out. The
margin that has to be charged on these accounts will vary

SUPPLY OF HOUSES : BUILDING COSTS

69

widely. It will be at a minimum — probably as low as 1 per
cent. — in the case of a large mortgage institution doing business
with borrowers of first-class credit standing. It will be at a
maximum — 8 per cent, or even more — with individual lenders
lending to individual borrowers whose credit standing is dubious,
where the risk factor is high, and where the overhead costs of
making the loan cannot be spread over a large number of
mortgages.
Mortgage rates tend to be relatively inflexible. The
mortgage rate is not determined in terms of " return on Government bonds plus 2 per cent. " but as an independent rate of, say,
5 per cent. Any change in the rate will involve extensive
refinancing of existing mortgages, and the establishment of
new bases of accounting ; moreover, if changes were made frequently in an operation requiring such long-term commitments,
each change would produce conflicting expectations about future
changes. Mortgage institutions therefore avoid change for as
long as possible — they seek to avoid altogether being influenced
by short-term fluctuations and to adjust their rates only to
long-term changes. However, the long-term changes are of
course difficult to recognise at the time when they are taking
place. Changes in mortgage rates are therefore likely to lag
behind changes in long-term rates of interest. Changes will,
however, eventually take place — if mortgage rates are persistently above their due relation to the long-term rate, mortgages will be arranged outside, thus forcing the institutions to
reduce their rates in order to retain their business ; if mortgage
rates are persistently below their due figure, funds will move
out of mortgages into alternative avenues of investment. x
Mortgage rates tend, therefore, to be less flexible than the general
rate of interest, but the relative inflexibility is at least in part
inevitable where private mortgage institutions, incompletely
apprised of the future of the long-term rate of interest, are
chiefly responsible for lending. The mortgage market is by no
means purely competitive, so that, in particular, downward
movements of mortgage rates are likely to be unnecessarily
delayed. Entry of lenders into the market is restricted by the
amount of capital needed by large lending institutions, and by
the difficulty for small lenders of contacting borrowers and the
inconvenience of carrying out the protracted business of a
1
An
rates and
Monetary
Economics,

illuminating discussion of the determination of mortgage
of changes therein is available in W. F. STOLPER : " British
Policy and the Housing Boom ", in Quarterly Journal of
Nov. 1941, P a r t II, pp. 42-60.

70

HOUSING AND EMPLOYMENT

mortgage lasting over many years. Imperfection of competition
in the mortgage market means that, on the whole, the margin
between the long-term rate of interest and the mortgage rate is
likely to be unnecessarily high.
Moreover, a " first " mortgage normally covers only a
proportion of the total cost of the house. The F.H.A. mortgage
instanced in this chapter gives a fairly high cover — $4,200 out
of the total cost of $4,975. Private mortgages usually cover a
smaller proportion of total cost. Many buyers, particularly in
view of the expenditure on furniture and equipment which often
accompanies the purchase of a new house, are forced to seek a
" second " mortgage to cover the balance. Since the security
for this mortgage is much less, the first mortgage having first
claim, the rate of interest charged is much higher.
The period of repayment on mortgages is usually fairly
short. A borrower who wishes to spread his amortisation over a
period of 50 years will have difficulty in finding a lender on those
terms, and will possibly have to pay an abnormally high rate of
interest. Another important difficulty making for unnecessarily
high mortgage rates, particularly for lower-income groups, is
that which an individual experiences in establishing his creditstanding. It is relatively easy for a salaried official with a
banking account and high job-security to arrange a mortgage on
favourable terms. A wage earner, whose job may in fact prove
equally secure, is likely to have much greater difficulty in
arranging a mortgage. The incidence of unemployment is, from
time to time, widespread and extensive, and mortgage rates
make full allowance for that risk, the realisation of which would
greatly affect the ability of a worker subject to it to repay his
debt.
OTHER

EXPENSES

Insurance and heating expenses are inescapable parts of the
monthly cost of house-ownership. Regular expenditure on
maintenance, repairs, alterations and so on will depend on the
owner's choice as to how rapidly he is willing to let his house
depreciate and the extent to which he wishes to incorporate
improvements in it. The cost of this type of building activity
is likely to be high and unduly inflexible, as in building activity
generally.
Property taxes are an important element in the monthly
cost of a house. Local governments in particular traditionally
draw the bulk of their revenue from taxation of real estate

SUPPLY OF HOUSES : BUILDING COSTS

71

property. This was appropriate in times when the ownership
of property was the best index of a taxpayer's ability to pay
taxes. Now, however, the main body of total public revenue is
raised by taxation based chiefly on taxpayers' incomes. Property taxes are fundamentally a survival from a different sort
of economy and act as a hindrance in the development of
better housing standards. The burden of such taxes is severe.
For the United States as a whole, the average monthly tax
instalment represents about 33 per cent, of the average monthly loan
payment. However, in four States real estate taxes are equivalent
to 50 per cent, or more
If the tax bill is related to interest alone,
the average tax is equal to about 80 per cent, of the interest portion
of the regular loan payment, and there are ten States where it actually
exceeds the total interest charges to the borrower.1
Assessments are inevitably inexact and are usually expensive, out-of-date, uncertain, inflexible and subject to pressure
from interested parties. Since they fall on real estate rather
than on other forms of property, they discriminate against
investment in real estate. Since property is often assessed on
estimated long-term value rather than on actual current earnings,
they often form an additional hazard to investors who run the
risk of having to pay constant taxes in the face of actual
earnings which may at times fall even below the taxes. Tax
rates vary substantially between different localities. Houses
cannot however be moved from place to place according to
variations in tax rates. On the other hand, the incidence of
these taxes can greatly influence the location of factories and
therefore the decision where people will live.
In some countries the nuisance of property taxes has been
reduced, on the one hand, by basing assessments more on
current income from the property and, on the other, by making
up a larger proportion of local government revenues from grants
from central Governments which collect their revenue on a less
discriminatory basis. The property tax remains a force
discriminating against the development of investment in real
property, and highly inflexible in its incidence.
Costs of Renting Houses
The rent paid by a tenant must in the long run cover the
costs to the owner of owning the house — that is, interest and
depreciation or interest and amortisation on the capital cost, plus
1

Federal Home Loan Bank Review, July 1941, p. 335.

72

HOUSING AND

EMPLOYMENT

taxes, insurance, repairs, maintenance and so on. Repairs and
maintenance on rented houses are naturally likely to be smaller
than on an owner-occupied house where the owner seeks to
maximise his own satisfaction rather than his net income.
The rent must also cover the risk of vacancies and the costs of
management, and it must in general provide sufficient return to
persuade the owner to continue with the business of letting.
The cost of renting a house contains therefore all the high and
inflexible elements of costs that have been discussed above.
Rents, however, have an additional element of inflexibility.
They are usually embodied in a contract — the lease —• which
may be for one year and is often for a longer period. Moreover,
rents are regarded by both parties as fairly inflexible commitments. In the absence of changes in tenancy, they are likely
to be adjusted upwards or downwards only at long intervals.
When changes in tenancy occur, landlords are able more
conveniently to increase the rent if circumstances permit ; they
are much more reluctant to reduce the rent. However, persistent vacancy and the danger of their empty houses being
broken into will force them to a reduction eventually if circumstances require it. Rents, like costs of land, of construction,
of mortgages and of property taxes, are thus likely to be
relatively inflexible, and changes in them to lag behind and be
dependent on changes in the general level of activity ; moreover,
all these costs are likely to be more flexible in respect of changes
upwards than of changes downwards.

CHAPTER IV
THE DEMAND FOR HOUSES AND THE LEVEL
OF BUILDING ACTIVITY

The subject of this study is housing activity which, in
providing new houses and in repairing, altering and demolishing
existing houses, can give rise to employment and to an improvement of living standards. However, a large number of new
houses, of good quality, standing empty because they are in
the wrong places, of the wrong sizes, or at the wrong prices,
will represent merely a waste of resources which could have been
put to better use. Housing activity should result in the new
and improved houses being bought or rented by consumers,
because they actually want those houses and not just because
they cannot get anything better.
In order to establish the amount of building activity that
should be undertaken each year, it is necessary to analyse the
factors which determine the demand for and supply of houses and
which therefore lay down the conditions under which houses
can be built and used. In this chapter, the nature of the demand
for houses is first examined, no allowance being made for the
influence of changes in the supply price of houses. The market
for housing is then analysed to show how the price of houses and
the level of building activity are determined. x
1
Extensive use has been made of the work of a number of investigators of demand and supply for housing. Particular mention should
be made of C. D. LONG : Building Cycles and the Theory of Investment
(Princeton, Princeton University Press, 1940) ; H. W. ROBINSON :
The Economics of Building (London, P. S. King and Staples Ltd., 1939) ;
W. H. NEWMAN : The Building Industry and Business Cycles (unpublished
manuscript, University of Chicago Library, 1934) ; W. F. STOLPER :
" British Monetary Policy and the Housing Boom ", in Quarterly Journal
of Economics, Nov. 1941, P a r t II ; W. ISARD : " A Neglected Cycle :
The Transport-Building Cycle ", in Review of Economic
Statistics,
Nov. 1942. An extremely useful study of the demand for housing,
including an analysis of most of the important current literature on
building cycles, has been made by J. W. CHAPMAN : The Long Building
Cycle (unpublished manuscript, Swarthmore College Library, 1943).

74

HOUSING AND

EMPLOYMENT

It is necessary at the outset to note an important difference
between the effects of consumption of the service of shelter
provided by housing and the effects of consumption of what
are called " consumer goods ". Consumption by a community
of one million pounds of flour a year will require the production
of one million pounds of flour a year. But the use by this
community of 1,000 houses a year will not require the production
of 1,000 nouses a year. Houses are outstandingly "durable
goods ". Once built, they can be used over a long period of
time, often for two generations or more. A constant demand
for the use of 1,000 houses a year will require only such current
activity, in repairs, alterations and replacements, as is necessary
to keep the supply of houses constant. The demand for
additions tó the stock of houses will depend on increases in the
total demand for houses. The demand for building activity is
therefore something quite different from the demand for houses
for occupation. However, the demand for building activity is
clearly derived from the demand for houses for occupation.
The latter must therefore be the first subject of study.
The immobility of houses is a second important characteristic. If a family moves from one locality to another, the move
need make no difference to its demand for goods like flour — its
supplies will simply be sent by distributors to a different place.
But the family will need a different house in the locality to which
it moves, and it will vacate a house in the locality which it has
left. These internal migrations are so important that the
problem of demand for houses cannot usefully be approached
from the point of view of a whole country. The demand for
additions to the stock of houses for the country as a whole
depends not on the increase in the number of families in that
country, but on the sum of the positive increases in the number
of families in each locality in the country. Houses left vacant
as the result of a net migration of families out of one locality
cannot meet the demand for additional houses in localities
where the number of families has increased. It is necessary,
therefore, to examine the total demand for houses on the basis
of the demand for houses in particular localities.
The Total Demand for Houses in Particular Localities
The total demand for houses in a particular locality depends
on the number of families who want to live in that locality and
the amount each is prepared to spend on housing. Since

DEMAND FOR HOUSES : LEVEL OF BUILDING ACTIVITY

75

demand for building activity depends in particular on increases
in total demand for houses, it is necessary to analyse the factors
which will cause total demand to change.

NUMBER OF FAMILIES IN A LOCALITY

The number of families who wish to live in any particular
locality will depend mainly on the economic opportunities
available to people living in that locality in comparison with
opportunities available to people living in other localities. In
general, an expansion of economic opportunity is likely to
promote an increase in the number of families living in that
location. The increase will arise in the first instance from more
migration from other countries and from other localities in thé
same country. The increased population will at first crowd
into existing houses and a minimum number of new houses.
But, if the expanded economic opportunities persist, the demand
for houses will grow — people will marry ; they will want to
stop being lodgers and sharing houses ; they will have children.
The extent to which the number of families will change in
response to changed economic opportunities will vary greatly
as between different groups of people and different periods
of time, according to their attitude towards standards of living,
towards childbearing and towards immigration. 1 For any
one group of people, however, at any one time, the response
should be predictable with fair certainty.
1

The existing population may decide, for instance, to take

advantage of increased economic opportunities to expand their numbers
up to the point where average standards of living remain unchanged ;
or they may decide to limit the increase of population so as to achieve
increased standards of living — which they could do if there had
previously been actual or disguised unemployment, or if there were
" labour-saving " innovations in production methods ; or they may
decide to limit the population increase still further to such an extent as
to fail to take full advantage, in the way of increases either in population
or in standards of living, of the expanding economic opportunities, either
because they do not wish to have as many more children, or because
they do not wish to allow as much migration, as the expanding opportunities would permit. Moreover, the supply of migrants may not be great
enough to take full advantage of available opportunities, either because
of the tendency of people to immobility, or because of the existence of
more attractive opportunities elsewhere. The reaction on population
increases of changed economic opportunity will depend on a wide
complex of factors, such as the size and location of the existing population, their education, their philosophy of life, their history and so on.
The most important factors which will determine changes in the reaction
will be the changes in standards of living, in education and in philosophy
which occur as the result of changes in economic opportunity.

76

HOUSING AND

EMPLOYMENT

In general, in a period of expansion, existing centres of
production and population may be expected not only to retain
their existing populations but also to grow in size. An existing
centre offers important internal and external economies of
production in the form of labour, market, transport and commercial facilities and so on, which will encourage existing firms
to remain and which will attract new firms. However, different
centres will grow at different rates and, from time to time, new
factors will emerge strongly enough to establish new centres of
production and population. These abnormally rapidly growing
centres may draw their breadwinners from their own and other
centres' natural increase of population — in that case, all centres
may grow simultaneously, though at different rates. Relative
economic opportunities may, however, be such that some centres
suffer a decrease in population.
New economic opportunities attracting people to a particular locality may arise from the discovery of new resources
and the discovery of new or wider uses for existing resources ;
the development of new transport facilities permitting the
immigration of greater numbers of people and/or the development of new markets and/or access to new supplies of raw
materials ; the provision of other new facilities which may either
attract industries directly or, by attracting people as residents,
may attract industries to make use of the available labour and
to exploit the expanded market.
These were the factors primarily responsible for determining
the location of the enormous population increases in the last
century. The development of transport, depending on innovations and on the availability of resources for investment in
transport, was the great determining factor in the development
of new regions. New discoveries and transport development
are still powerful factors, of which perhaps the opening up of
new mineral deposits is the most obvious illustration.
New economic opportunities in a particular locality may
also arise from the development of new demands which can be
supplied from that locality, and from changes in the relative
productivity of industries producing in different areas. The
types of goods and services that are demanded by consumers
and investors are continually changing in response both to
changes in tastes and to innovations. Closely connected with
these changes, and arising independently also as a result of the
development of new techniques, are changes in the relative
productivity of industries in different areas. An important
illustration of this is the almost universal tendency towards

DEMAND FOR HOUSES I LEVEL OF BUILDING ACTIVITY

77

urbanisation. As productivity and real incomes increase, there
is a relative increase in the demand for goods and services
produced by secondary and tertiary industries which are mostly
located in cities.
An outstanding example of a different type of change in the
location of industries is the " shift to the south " that occurred
in the location of industry in England between the last two
wars. As heavy, largely export, industries situated mainly in
the north became relatively less productive, and as demand
shifted to the products of lighter industries situated mainly in
the south, there was a substantial shift of employment from the
north to the south, accompanied by a corresponding shift of
population and a substantial change in the demand for houses,
despite the small change in total population. x The significance
of such shifts is not likely to be overlooked in a country with as
rapidly changing an economy as that of, for instance, the United
States. It is striking, however, that a significant change in
location of population, and therefore in the demand for housing,
can occur in an economy as apparently settled and stable as
that of England.
Finally, important changes in the demand for housing in
any particular locality may arise independently of changes in
economic opportunity in the area, if people wish to change their
place of residence in relation to their place of work. This will
appear as a change in taste, arising from people's desire to escape
from overcrowded city areas. The movement which has been
called " suburbanisation " has reached enormous proportions in
recent years, and has had a profound effect in creating a demand
for houses. The fundamental force determining the extent and
speed of this movement is the extension and cheapening of
transport facilities — suburban train, tram and bus services, the
private motor car and express highways. Possible future
development of air transport offers some prospects of extending
the limits of residence in relation to place of work even further
than at present.
EXPENDITURE PER FAMILY ON HOUSING

The amounts which individual families are prepared to
spend on housing will depend on their incomes, their tastes, the
size of the family and the cost of various items of their budget.
Increases in the amounts families are prepared to spend on
1
Cf. W. F. STOLPER : " British Monetary Policy and the Housing
Boom ", loc. cit., pp. 97-107.
6

78

HOUSING AND 3MPL0YMENT

housing will result in a demand for better standards of housing.
These increases may arise both as a result of higher incomes, out
of which people will spend more for housing, and as a result of
decisions to spend larger proportions of existing incomes on
housing.
Increases in Incomes
Increased real incomes for families in general will arise
from the long-term upward movement in productivity, due to
the development of new resources and new methods of production
and transport, the expansion of investment in production and
transport and the rising skill of workers. Expenditure on
housing will not, however, rise spectacularly as a result of such
general and gradual increases in income. x
Changes in the income of particular families can result
also from changes in their own productivity and from changes
in their bargaining power. A breadwinner may acquire a new
proficiency or change to a better-paid job, or his trade union
may secure higher wages for him. Such sectional increases
of income can have a substantial effect on housing demand as
they tend to raise the family from one social group to another,
and so to induce it to acquire a house more in keeping with its
new position.
Redistribution of incomes in favour of lower income groups,
which is going on steadily under all progressive Governments,
can also have a significant effect on housing demand, as income
is taken from groups whose marginal expenditure on housing
is small and transferred to groups whose marginal expenditure
is much higher. 2
Changes in the location of families may also have a
significant effect on their demand for housing. While living in a
particular house, a family may have been enjoying small and
1
For instance, Ian BOWEN in an article entitled " The F u t u r e Output of the Construction Industries in the United States " (Economic
Journal, London, J u n e 1946) analyses housing demand in the United
States during the 'thirties. He concludes t h a t the income-elasticity of
total private demand for housing is 0.33 — t h a t is, a 10 per cent, increase
in total expenditure would, other things being equal, result in a 3.3 per
cent, increase in total housing demand. However, this relatively small
change in total demand, while it m a y not represent much improvement
in housing standards, could represent a substantial change in demand
for housing activity.
2
Note, however, the figures quoted earlier in Chapter I, p. 13,
showing marginal expenditures on rent, which suggest t h a t the housing
of the lowest income groups, which is most in need of improvement,
will benefit less from increases in income t h a n will the housing of
slightly higher income groups.

DEMAND FOR HOUSES : LEVEL OF BUILDING ACTIVITY

79

gradual increases of its income without bothering to seek an
improvement in its standard of housing. If it changes its
location, even without a change in income, it may decide to
increase its expenditure on housing in order to get a better home.
Similarly, if a family changing its location receives a higher
income, it is more likely to seek a better standard of housing
t h a n if it were not changing its location. In addition, of course,
the mere fact of an increase in income m a y induce a family
to change its location.
Increases in Allocations from Incomes to Housing
The demand for housing activity m a y also increase if
families decide to increase the proportion of their incomes
t h a t they will spend on housing. The chief factors which will
make t h e m decide to do this will be a change in the size of the
family 1, a change in their housing tastes or a change in the
cost of the various items in their budget. An increase in
family size will obviously create a strong pressure to increase
expenditure on housing in order to get a larger house. If this
increase is general, the move cannot be accomplished by
exchanging with other families diminishing in size, so there will
be a demand for larger houses. Similarly, a general increase in
the cost and scarcity of domestic service can, b y creating a
demand for better planned, labour-saving houses, create a
demand for housing activity to produce such houses, even if
1

Changes in the size of families can have important effects on the
demand for housing activity, given suitable income conditions. The
average size of families, and changes therein, are closely related to the
question discussed in the previous section of the relation between
changes in population and changes in economic opportunities. If an
expansion of economic opportunities offers itself to people who have high
birth rates and high mortality rates, the first effect of the higher standards
of living will be a reduction of mortality rates, particularly for young
people, and therefore an increase in the size of families. The demand
for housing will be, therefore, not only for more houses for the larger
number of families, but also for bigger houses for the larger size of
families. Then — to judge by past experience — either because the
expansion of economic opportunity is not large enough to provide for
the increase in both number and size of families, or because people are
no longer willing to rear such large families, birth rates and the size of
families are likely to decline. The number of families may still be
growing, but their size will be smaller, so the demand will be for more
houses and for smaller houses. Finally, the state of economic opportunity may become such that the number of families actually declines.
If the size of families is also declining, the community will still demand
more smaller houses if existing houses are unsuitable for families of
smaller size. These changes are essentially long-run changes. For
any particular location, at any particular time, the size of families is
likely to be fairly certainly predictable and to change but slowly.

80

HOUSING AND EMPLOYMENT

that involves older houses being left vacant. The expenditure
of families on housing may also rise if there is a fall in the prices
they have to pay for other commodities. This is, however,
equivalent rather to an increase in real income.
FUNDAMENTAL FORCES AFFECTING HOUSING DEMAND

Summing up this analysis of demand for houses for occupation, it can be concluded that the size, composition and location
of population, which determine the number of families demanding houses, depend finally on innovations, the rate of investment
and the response of population changes thereto ; on the location
of industries which are expanding as a result of innovations and
new investment ; and on where people want to live in relation
to their place of work. The quality of housing which families
will demand depends on their real income and the proportion
of that income which they are prepared to allocate to housing
expenditure. Real income depends finally, again, on innovations, the rate of investment and the response of population
changes thereto, and on the distribution of total income. The
proportion of income which families are prepared to spend on
housing depends on their tastes, and on the price of various
items in their budgets.
Increases in the number, size and location of families, and
increases in the amounts they were prepared to spend on housing,
all contributed to create an enormous demand for housing
during the last century and a half. During most of that time,
the increase in the number o_~ families was dominant, with
changes in the size and location of families and improvement of
housing standards more or less incidental — broadly, the
demand for houses of different sizes, in new localities and of
better quality was met incidentally to providing houses for the
growing number of families. Now that the rate of population
increase in so many parts of the world has become so much
smaller, and in some places threatens to turn fairly soon into
an actual decrease, changes in the location of families and
changes in the amounts they are prepared to spend on housing
are certain to become dominane in determining changes in the
demand for houses. It will not be useful, therefore, just to
go ahead and build any number of houses, of any quality, in
any place. If houses are to be occupied, they must be of the
right sizes, of the right qualities, at the right prices and in the
right places. Housing activity must be carefully planned to
meet the demand for houses.

DEMAND FOR HOUSES : LEVEL OF BUILDING ACTIVITY

81

The development of transport has been and will continue
to be of overwhelming importance in determining the demand
for houses. One writer goes so far as to say : " Building
represents more or less the culmination of the process of
industrial, commercial and population adaptation to the
changing character of transport. Thus, transport and building
construction, both vital economic activities, represent in a
rough manner the beginning and end of the causal relation,
respectively." 1
Since innovations and the rate of investment can obviously
arise independently of developments in transport and can, in
fact, themselves inspire new deve'opments in transport, this
statement probably overrates the importance of transport.
However, it cannot be denied that transport is of fundamental
significance to the building industry. In the first place, it is
a large and significant field for the development of innovations
and for the absorption of funds and resources available for
investment.

I t therefore has important effects on the level of

employment, on the level of productivity, on the level of incomes
and, finally, on the rate of growth of population. All these
factors are vital in determining the demand for houses.
Secondly, transport is of overwhelming importance in determining the location of industries and therefore of population, since
industries depend on transport for bringing to them their raw
materials and workers and for taking their products to market.
The whole modern process of production, which is based on
specialisation and division of labour, depends on transport
for its co-ordination. Finally, transport is equally of overwhelming importance in determining where people decide to
live in relation to the place where they work.
The Determination of the Level of Building Activity
In any particular locality, at any time, there will be a certain
number of houses in existence. These houses will be of varying
qualities according to their age, their design and the standard
of their original construction-. Some will be on the market for
sale, some will be on the market for rent, some will not be on
the market at all. The supply of houses to the market will alter
in response to the state of the market. In the first place, owners
whose houses were not on the market may decide that prices
are such that they will put their houses on the market for sale
1

W.

ISARD, loe. cit.,

p.

149.

82

HOUSING AND

EMPLOYMENT

or for rent ; or owners whose houses were on the market may
decide that prices are such that they will transfer them from the
selling to the letting market, or vice versa, or that they will
withdraw them altogether. In the second place, with the passing of time, the quality of existing houses deteriorates through
physical decay, wear and tear, and obsolescence. Eventually,
a house will become uninhabitable. Thirdly, within limits, the
deterioration of houses can be checked by repairs and maintenance, and the quality of houses can be changed through
alterations. Finally, new houses can be built either to replace
old houses that are no longer fit to be put on the market or to
add to the stock of existing houses. The last two types of
changes in the supply of houses require building activity ;
the first two do not.
Demand for houses in particular localities will also vary.
Given the price of houses, demand will depend on the number of
families wanting to live in the particular locality and the
amount each is prepared to spend on housing, as analysed
earlier in this chapter. This demand will be made up of a
demand, on the one hand, for houses to purchase and for houses
to rent ; and, on the other, for the rent or purchase of houses of
varying qualities. Again, however, demand will vary with
changes in the state of the market. If house rents and prices
in the locality rise, demand will change as some families decide to
live elsewhere and as some families decide to seek houses of lower
quality. A change in the relative levels of rents and prices will
persuade some families to rent rather than to buy, or vice versa.
The interaction of these variable demands and supplies
in the housing market will eventually tend to produce a condition
of equilibrium with the total demand for houses equal to the
total supply 1 ; with the prices and rents of houses at such a
1
In the total demand for houses there should be included a demand
for a certain number of vacant houses. For various reasons families
want from time to time to change their residence from one house to
another. As it can rarely happen that, one family will be able to find
a house that suits its needs and whose occupants not only wish themselves to move but also to move into the house vacated by the original
family, a certain proportion of vacant houses is required to provide the
degree of flexibility in occupancy which is desired by the community.
The number of changes of residence that takes place makes it profitable
in the long run to produce rather more houses than there are families
seeking houses. It is difficult to set a normal figure for the degree of
vacancy required but a figure often used is 2 per cent., that is, out
of every 50 houses, there will tend eventually to be one vacant to give
flexibility of occupation to the 49 families. If the vacancy rate rises
above this figure, owners will seek to reduce their vacancies by lowering
rents and prices.

DEMAND FOR HOUSES : LEVEL OF BUILDING ACTIVITY

83

level that an addition to the supply of houses by new building
activity under current cost conditions would not be profitable ;
and with prices and rents of houses at such a level that the
returns obtainable from the repair, alteration or replacement
of existing houses would not make such building activity worth
while. x
In order to understand the nature of the forces that
determine the level of building activity, it is convenient to
start from this theoretical condition of equilibrium. It is
simplest to define first the conditions under which there will
be no building activity. Assuming that building costs remained
constant, there would be no building activity only if the number
of families and the amount they were prepared to spend on
housing declined in keeping with the deterioration in quality
of the existing supply of houses, and with the rate at which
existing houses became uninhabitable. It would then not be
profitable to repair, alter or replace the existing and deteriorating
stock of houses.
Building activity will be required if the number of families
and the amount each is prepared to spend on housing is any
higher than the level assumed in the last paragraph. For
instance, suppose demand remained constant at its original level.
As houses gradually deteriorated, present occupants would find
them less and less satisfactory, and would move out into better
houses unless their present ones were repaired or altered to their
satisfaction. Owners of existing houses would then have to
decide whether to repair or alter them so as to keep up the
returns obtainable for them, or to allow them to deteriorate
and accept lower rents and prices, or to replace existing houses
by new ones. Repairs, alterations and replacements can to a
large extent be substituted for each other. Up to a certain
stage it will clearly be desirable to keep a house in good repair,
and possibly to alter it to conform with current tastes. Then
comes a stage when repairs are less and less worth while and
the house is allowed gradually to decline in quality and to
move down through successive price and rent groups. Eventually, it will become uninhabitable except by undertaking unremunerative repairs and alterations, and it will either be
1
The condition of equilibrium would also require that relative
levels of rents and prices should be such as to equate demand and
supply, on the one hand, for houses for rent and for sale and, on the
other, for varying qualities of houses. It should also be noted that the
equation of total demand and supply means that, at existing prices
and rents, existing owners will not decide either to put more houses
on the market or to withdraw houses from the market.

84

HOUSING AND

EMPLOYMENT

abandoned or, if the site is suitable, it will be demolished and
replaced.
So long as building costs and the effective demand for
houses remain constant, building activity will be required to
whatever extent is necessary to keep the amount and quality
of housing constant. The amount of building activity required
from year to year under these conditions could, however,
fluctuate, since the distribution of houses, over various ages,
various states of repair, and various rates of deterioration is
likely to be such that maintenance requirements would differ
from year to year.
Thirdly, the number of families may remain constant but
they may decide to increase the amounts they are prepared to
spend on housing in order to obtain better standards of housing.
In this case, clearly, there will be an upward pressure on the
rents and prices of better standard houses and a downward
pressure on the rents and prices of poorer standard houses.
It will pay owners to spend more on repairs and alterations and
to demolish old houses rather earlier than they would otherwise
have done, in order to replace them with newer and better
houses which can command relatively more profitable rents and
prices.

Building activity will be required to whatever extent

is required to bring about equilibrium under the new conditions
of demand.
Finally, existing families may continue to spend constant
amounts on housing, but new families may want to move into
the locality. Vacancies of the types of houses they desire will
be reduced and there will again be an upward pressure on rents
and prices of these types of houses until sufficient additional
houses have been built to restore equilibrium to the market.
So far, costs of building activity have been assumed
constant. Two types of changes may occur in these costs.
In the first place, the amount of building activity required in
the various circumstances described above may itself, by
increasing the pressure on building resources, provoke increased
costs. If this occurs, then the new position of equilibrium at
which building activity will cease will be reached the more
quickly, so that the amount of building activity required will
be smaller. In the second place, building costs and the costs
of financing the purchase of homes may change independently
of the rate of building activity — for instance, as a result of a
change in wage rates or interest rates, or in methods of production. If costs fall, new houses will become relatively more
attractive in comparison with existing houses, and repairs and

DEMAND FOR HOUSES : LEVEL OF BUILDING ACTIVITY

85

alterations will become cheaper. The prices and rents of
existing houses will tend to fall and building activity will be
required to repair, alter and replace those houses until a new
equilibrium is attained. Conversely, if costs rise, existing
houses will become relatively more attractive in comparison
with new houses, and repairs and alterations will become dearer.
The prices and rents of existing houses will tend to rise and
repairs, alterations and replacements will tend to fall. Again,
the change in the level of building activity will depend on the
extent of the change in costs.
To sum up, the level of building activity in any locality
will depend, on the one hand, on the number of families wanting
to live in that locality and the amount each is prepared to
spend on housing, and on changes therein in response to the
supply price of houses ; and, on the other, on the number and
quality of existing houses that would be put on the market
in that locality at various prices and rents, and on the costs
in that locality, at various levels of activity, of building required
to repair, to alter, to replace and to add to the existing stock
of houses. These two sets of factors will determine the rents
and prices of different qualities of houses, the actual level
of building costs and the amount of building activity carried
on in the locality. 1

1
Readers interested in formal analysis of the determination of
equilibrium in the various housing markets should consult H. W. ROBINSON, op. cit., especially pp. 84 et seq.

CHAPTER V

THE IRREGULARITY AND INADEQUACY
OF BUILDING ACTIVITY

Why is building activity so extremely unstable, and why
has it not been more successful both in providing employment
and in improving the standard of housing available to the
people ?
Influence of Demand on the Level of Building Activity
The foregoing chapter concluded that the demand for
building activity is composed basically of a demand for repairs,
alterations and replacements to maintain the existing stock of
houses, and of a demand for additional housing arising from
increases in the number and size of families and from increases
in the amount each family is prepared to spend on housing. It
was noted that, even with building costs and the total demand
for housing remaining constant, the demand for repairs,
alterations and replacements could vary from year to year since
existing houses would be of varying ages and in varying states
of repair. In one year an exceptionally large number of houses
might require repair and, in the following year, repairs might
drop to an unusually low figure. Moreover, the timing of these
repairs, alterations and replacements is not dictated by narrow
physical limits — they can generally be advanced or postponed
by several years without serious detriment to the physical
condition of the house. When economic conditions are favourable for a boom in the building of additional houses, they
are likely also to be favourable for a boom in repairs,
alterations and replacements, and vice versa. This " maintenance " demand for building activity is therefore likely to
reinforce fluctuations in the " additional " demand for building
activity, rather than to provide a stable basis for sustained
building activity.

BUILDING ACTIVITY : IRREGULARITY AND INADEQUACY

87

This aspect of the maintenance demand for building activity
is in sharp contrast to the demand for consumer goods. If a
country uses 100 million lbs. of flour in a year and if total
demand for flour remains unchanged, there will be a demand
for the production of the same amount of flour in following years
also. Replacement demand from each family for the production
of flour is fairly constant from year to year. But if at any one
time the country has a million houses, not only are the houses
themselves available in following years, so that they do not
need to be replaced by new production ; but the small amount
of repairs, alterations and replacements required to maintain
the houses can fluctuate substantially from year to year. Houses
are extremely durable assets — perhaps the most durable, on
the average, of all assets. This removes from the demand for
building activity the basic element of stability which underlies
the demand for consumer goods. " The fundamental guilt
need not be with consumption, which can hardly avoid some
mild deviation from the straight and narrow, but can be traced
to the durability of most investment assets." 1
The balance of housing activity depends on the demand for
additions to the total stock of houses. This additional demand
for building activity depends on increases in the number of
families living in particular localities and on increases in the
amounts families are prepared to spend on housing. If these
increases were substantial in relation to total demand — if,
for instance, there was an average annual increase of 20 per cent.
in total demand — it would be reasonable to expect a fair stability in the demand for building activity. The increase in one
year might drop from the average 20 per cent, to, say, 17 per
cent, and in another year might rise to, say, 25 per cent. These
would not, however, represent unmanageable fluctuations in the
amount of building activity required.
In fact, however, the average annual increase in total
demand for houses is extremely small in relation to total
demand — perhaps as low as 1.5 per cent., representing in a
country with a million houses a demand for an average annual
production of an additional 15,000 houses. If in one year total
demand rises by the only slightly different amount of 0.5 per
cent., the demand for additional houses falls by two thirds to
5,000. In the following year, however, demand may increase by
the still only slightly different amount of 3 per cent, and
the demand for additional houses will soar to 30,000. These are
1

C. D. LONG, op. cit., p p . 57-58.

88

HOUSING AND EMPLOYMENT

exactly the sort of fluctuations that do take place in the total
demand for houses and they go far towards explaining the
extreme fluctuations in demand for building activity. Changes
in the total demand for houses are small, but fluctuations in
these changes, and therefore in the demand for additional
houses, are likely to be large.
The number of families, and especially the number of
families in particular localities, can change abruptly. The
opening up of new opportunities in a particular area will attract
a sudden increase in the number of families, who will migrate
there from other localities and from other countries. A severe
depression can develop quite suddenly and will reduce not only
the amounts families can spend on houses but also the number
of families seeking houses : families who would otherwise have
wanted separate houses are forced to share with other families ;
people postpone marriage so that the normal demand for new
houses from newly married couples is reduced ; people postpone
having babies and carry on in smaller houses than they would
otherwise have needed. In a period of boom, all these factors
are reversed and there is a sudden increase in the number of
families seeking houses and in the expenditure each is prepared
to make.
Wars also have a disturbing effect on the demand for houses
— birth, marriage and death rates, the demographic factors so
important to the demand for houses, are distorted from their
normal progress and there are often large shifts in the location
of population. (The much more important effect of wars on the
supply of building activity is discussed later.) Moreover, the
effects of wars, booms and depressions on the demographic
factors appear not only immediately, but also in subsequent
generations whose age distribution is affected by these factors.
For instance, during the first World War, birth rates fell
heavily in many countries. Immediately after the war, the
number of births rose rapidly. These movements had an
immediate effect on the demand for houses ; they also affected,
fifteen to twenty-five years later, the number of new recruits
to industry, the number of marriages, and therefore the demand
for houses.
The effect of these fluctuations in total demand on the
demand for building activity is vital to the analysis of the
building industry. No statistics are available of the number
of families wanting houses in particular localities or of the
amounts they are prepared to spend on housing. This is not
important since it is a mathematical relation rather than a

BUILDING ACTIVITY : IRREGULARITY AND INADEQUACY

89

specific set of figures that is being demonstrated. Some reality
can be given to the figures, however, by using the number of
people in work in the United States in the years between 1921 and
1937. 1 These figures, shown in column I of table X, are not
unrelated to the number of families seeking houses; The fact
that changes are negative as well as positive can be thought of
as reflecting the changes which do in fact occur in the number
of families seeking houses in particular localities, and also the
tendency of families at times to " double up " and at other times
to move out into separate housing units. In the table, attention
is concentrated exclusively on the effect on the level of building
activity of changes from year to year in the number of families
seeking houses. For this reason, changes in the amounts
families are prepared to spend on housing are assumed to be
exactly offset by changes in the supply price of housing.

1

Figures taken from Colin CLARK : Conditions of Economic
(London, Macmillan and Co., Ltd., 1940), p. 79.

Progress

TABLE X .

LEVEL OF HOUSING ACTIVITY DERIVED FROM TOTAL DEM
PERIOD OF POPULATION CHANGE x
i

Year

Total d e m a n d for
houses = No.
of families wanting houses
(millions)

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17

35.4
37.5
41.4
40.8
42.5
43.7
44.4
45.3
47.0
44.9
41.5
38.0
38.2
40.3
41.1
43.6
44.6

II
No. of houses
a t t h e beginning of
period ( = No. of
houses at beginning
of previous period
plus new houses
built (IV) minus
demolition (III) in
t h a t period)
(millions)

35.4
35.4
37.5
41.4
40.8
42.5
43.7
44.4
45.3
47.0
46.0
45.0
44.0
43.0
42.0
41.1
43.6

III

Demolitions
(millions)

IV
New houses built
for replacements
and for a d d i t i o n s
to stock
(I-II + I I I )
(millions)

1.0
3.1
4.9
0.4
2.7
2.2
1.7
1.9
2.7

—
—
—
—
—

0.1
3.5
2.0

V
Repairs a
alterations
t e r m s of
equivalent i
houses
(million

0.3
0.3
0.3
0.3
0.3
0.3
0.3
0.3
0.3
0.3
0.3
0.3
0.3
0.3
0.3
0.3
0.3

1
Assuming that changes in the willingness of families to spend on housing are exactly offset
that the capacity of the building industry is perfectly elastic in response to changes in the amount of

BUILDING ACTIVITY : IRREGULARITY AND INADEQUACY

91

Column I shows the number of families in work each year.
Assuming that the supply price of houses is constant from year
to year, and that each family in work spends the same amount
on houses in each year, this is equal to the total demand for
houses. It should be noted that in the case of consumption
goods which are replaced at least every year, like flour, this
column shows the actual amount of current production required
to meet demand.
The activity required to produce new houses each year
depends on the number of existing houses that are demolished
and on the amount by which the number of families wanting
houses each year exceeds the number available for occupation.
Demolitions are assumed to take place at a constant rate of
1 million a year (column III). This implies for houses a
relatively short life of about 40 years.
Column IV shows the number of new houses that have to be
built each year. Demand and supply are assumed to be equal
at 35.4 million houses at the beginning of the first year. During
that year, 1 million houses are demolished and these are fully
replaced, so that the supply at the beginning of the second year
is still 35.4 million. In that year, 37.5 million houses are
demanded so that there is a demand for building activity to
produce 2.1 million to meet the needs of new families and
1 million to replace demolitions. In the third year, families
increase by 3.9 million and altogether 4.9 million new houses
have to be built. In the fourth year, total demand falls slightly,
by 600,000. This brings an enormous drop in building activity
since no new houses are needed to house new families, and only
400,000 of the demolished houses need to be replaced. Building
activity recovers but continues to fluctuate through the next
five years. In year 10, total demand for houses drops by
2.1 million. No new houses are needed at all as demolitions
reduce the supply by only 1 million. This condition, of the
supply of existing houses being in excess of demand, continues
for five years. Only then do demolitions finally bring the supply
of houses down to meet slowly rising demand.
For total building activity required each year, allowance
must be made for repairs and replacements. These are assumed
to be constant each year, and to require activity equivalent to
the production of 300,000 houses a year (column V). Column VI
shows total building activity required each year. It is important
to note the great fluctuations in this column. These result from
the relatively small fluctuations in column I, which are themselves modified by the stability of columns III and V. Thus,

92

HOUSING AND

EMPLOYMENT

between years 2 and 3, total demand increases by only 10.4 per
cent., but this leads to an increase in building activity by 53 per
cent. Between years 3 and 4 total demand drops by only 1.4
per cent., yet building activity is cut to less than one seventh of
its previous level. Between years 8 and 9, total demand
increases by 3.1 per cent, and building activity rises by 36 per
cent. Between years 9 and 10, total demand decreases by only
4.5 per cent., yet building activity is cut to one tenth of its
previous level.
Column VII brings out, by contrast, the influence of the
extreme durability of housing in causing these exaggerated
fluctuations in the level of current production. Here demand
for a less durable asset, such as a car, is examined. Again
each of the original families is assumed to demand the use of a
car each year. A shorter life of about eight years is assumed,
however, and also a higher rate of repair, requiring altogether
the equivalent of 6.5 million new cars a year. Demand for
current production of cars shows roughly the same absolute
fluctuations as in the case of houses but, because a higher basic
level of activity is maintained to meet higher replacements and
repairs, relative fluctuations are much smaller.
Suppose for instance that each year each family allocates
from its income $500 to flour, $500 to housing and $500 to car
purchase ; that flour is replaced each year ; that replacements and
repairs for houses and cars proceed as assumed above ; that
annual expenditure by a consumer of $500 on housing calls for
the erection and maintenance of a house originally costing
$6,000 ; and that similar expenditure on cars calls for the
production and maintenance of E car costing $1,200. Then it
can be seen from column I that the demand for activity to
produce flour ranges during the period from $17,700 million in
year 1 (35.4 million times $500) to $23,500 million in year 9. In
the case of cars, as can be seen from column VII, the same
aggregate annual expenditure gives rise to a demand for activity
to produce cars which ranges from $3,600 million in year 12
(3 million times $1,200) to $12.,600 million in year 3. But in
the case of housing, as can be seen from column VI, the same
aggregate annual expenditure gives rise to a demand for activity
to produce houses which ranges from $1,800 million in years 10
to 14 (300,000 times $6,000) to $31,200 million in year 3.
Columns I, VI, and VII represent the demand during a
period of population change for, respectively, flour, houses and
cars, assuming that each family spends each year a constant
amount on food, on houses and on cars and that the supply

BUILDING ACTIVITY : IRREGULARITY AND INADEQUACY

93

price of each is unchanged. The differences in the degree of
fluctuation in each column are caused solely by the different rates
of replacement for each product. The differences in the
fluctuations are brought out clearly in table XL where each
column is converted into a series of index numbers, the base in
each case being the average demand over the whole period for
the relevant commodity.
TABLE X I .
I N D E X NUMBERS OF DEMAND FOR HOUSING ACTIVITY
COMPARED WITH DEMAND FOR PRODUCTION OF LESS DURABLE
GOODS (HYPOTHETICAL)

(Base: in each case average demand for entire period = 100)

Year

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17

:

I

II

m

Demand for
production of
flour

Demand for
production of
cars

Demand for
production of
houses

85
90
99
98
102
105
106
109
113
108
99
91
92
97
99
105
107

92
121
149
84
116
109
102
105
116
63
44
43
92
122
104
128
107

71
185
283
38
163
136
109
119
163
16
16
16

16
16
22
206
125

It should be emphasised that the only variables in this
table are the number of families assumed to be demanding the
various goods in each year and the rates of replacement for the
various goods. Each family is assumed to require, each year,
the same quantity of the three different types of goods. The
table shows the combined effects on the three different types of
production allowing for an annually changing number of
families and differential rates of replacement for the three
different types of goods. The chart demonstrates graphically
the resultant differences in fluctuations in demand, with demand
for housing activity fluctuating much more extremely than
either of the other two demands.
7

94

HOUSING AND

EMPLOYMENT

I N D E X NUMBERS OF DEMAND FOR HOUSING ACTIVITY COMPARED
WITH DEMAND FOR PRODUCTION OF LESS DURABLE GOODS

(Based on table XI)
(Base: in each case average demand for commodity in question over
whole period = 100)

300

1

280

280

1

260

240

260

240

220

220

g HOUS I M G
200

A C 1f i v n

rv
200

1

180

180

160

•

/

140

t
/ 1
t

120

\

\
\

M
J;

vl

r
100

f ..• , - •

140

/
^

I'

\

V,

߻1

/

PLC UR

h

<
••••" i"

100

40

I

80

/

CA RS

i S

20

120

\

il

p

60

/ \

•-.. .... / • "

1K

1

;|

80

/
/

i

\ I

160

•

60

\

;
»—. f

40

«

s

20

0
1

2

3

4

5

6

7

8

9

10

11

13

13

14

15

16

17

YEAR5
"-O 37

BUILDING ACTIVITY : IRREGULARITY AND INADEQUACY

95

T H E ROLE OF EXPECTATIONS

The demand for housing activity implicit in the total
demand for houses is therefore by its nature likely to be
extremely irregular. But the way in which decisions to demand
houses are made is likely still further to magnify this irregularity.
The house which is the product of building activity lasts for
many years. Its purchase represents a substantial capital
expenditure involving either the forgoing of annual interest
(if the expenditure is made out of accumulated capital) or the
making of instalment payments over many years. The owneroccupier will want, before he purchases, to be assured that he
can afford to forgo interest or to make these payments over the
length of time involved. The investor who proposes to rent his
house to a series of tenants will want, before he purchases, to
be assured that he will recover from the tenants, during the
letting life of the house, enough to compensate him (allowing for
periods of vacancy) for the price he has to pay for the house and
the trouble involved in engaging in the business of house-letting.
Decisions to buy houses in any one year will be made, therefore,
with reference not to the current ascertainable expenditure which
families are prepared to make on housing but to the expenditure
which families may be expected to be able and willing to make
during the life of the house. Owners will also want to make
estimates of the price they could receive by selling the house
at any time during its life, in case they are forced or wish to
realise the capital value of their asset.
Decisions as to whether or not to demand houses at a
particular time and what price to pay for them will depend
therefore on hazardous expectations as to what is likely to
happen over the succeeding forty years or so. In fact, of course,
decisions will be made primarily with reference to what is
happening at the time, in the expectation that the current state
of affairs will last indefinitely, subject to such modifications
as can be fairly certainly foreseen in the near and more distant
future. As a result, current trends are likely to be exaggerated.
A rising trend of demand for houses at a particular time is
likely to be interpreted optimistically, a falling trend pessimistically. This swing from optimism to pessimism in expectation is likely to be even greater in the housing industry because
of the extremely long life of the asset than it is in most investment industries.
This tendency is still further exaggerated by the fact that
a great part of building activity is done at the order not of

96

HOUSING AND

EMPLOYMENT

owner-occupiers and investors but of speculative builders who
have houses built, not for their own use or investment, but to
sell, at a profit, to owner-occupiers and investors. Just as the
homogeneity of the service provided by houses makes them
suitable objects for letting, so it makes them suitable objects
for speculative building. In a rising market, the speculative
builder sees his chance for expanding sales and orders the
erection of large numbers of houses. As a result, the expanding
demand is quickly met and then over-supplied. A break comes
in the market ; over-optimistic expectations turn to overpessimistic expectations. The speculative builder, unwilling
to hold houses except for quick sale, gets out of the market as fast
as he can and stays out until it is clear that the original overproduction has been absorbed and a new expansion is on the way.
The extreme irregularities inherent in the demand for
building activity are therefore still further aggravated. Once an
expansion is under way, owners and speculative builders tend
to anticipate and bring it quickly to its own exhaustion, whereafter building activity collapses earlier than it would have done
without this excessive optimism. It then languishes until an
expansion of demand has proceeded far enough to justify a
reversal of pessimism. Recently there has been a tendency for
more and more houses to be supplied by speculative builders.
This is likely to accentuate the irregularity of the housing
industry. As long as owners order houses direct from building
contractors, there will always be some activity in the building of new houses, even in serious depressions. But as the
speculative builder becomes more important, building is likely
to be concentrated more and more into boom periods and less
and less in depression periods.
Influence of Factors Affecting the Supply of Housing
on the Irregularity of Building Activity
In the first place, the supply of houses is elastic in depression
and inelastic in boom. The substance of this point has already
been made in considering the factors affecting demand. In a
depression there is a decline in the number of families and in the
amount each is prepared to spend on housing. The fact that
a house can hold a widely varying number of people and that
its repair, alteration and demolition can be postponed over a
fairly long period means that the reduced demand can be met
by a supply which in effect expands substantially without any
building activity. When a family decides to get some extra

BUILDING ACTIVITY : IRREGULARITY AND INADEQUACY

97

income by letting rooms to another family, what was previously
one house becomes in effect two houses. Similarly, when
employment and income rise, families decide they want separate
houses, so that supply is immediately reduced to the extent that
people decide to give up sharing their houses, while demand
is as suddenly increased.
The war and post-war periods provide dramatic illustrations
of this movement. Over many years, the number of families
has steadily grown, followed by a rapid increase with the
return of service personnel. Over and above this, many people
have wanted to move to different localities, with the development
of new industries and new trends in industrial and residential
location. During the war building activity was heavily reduced
because of the need to use building resources elsewhere. In
addition, in many countries there was an extensive destruction
of houses by enemy action. Most people have managed to
get some sort of accommodation, though with much overcrowding and inconvenience. But with the cessation of hostilities and the resumption of building activity, a tremendous
pressure for new houses and for long-delayed repairs, alterations
and demolitions has developed. It will obviously take many years
and greatly expanded building resources to meet this demand.
When it has been met, the prospect — unless appropriate
remedial action is taken — is one of a severe slump in demand
with heavy unemployment in the building industry, whose skilled
resources may find it difficult to get employment elsewhere.
In the second place, the factors determining the cost of
new houses have important effects on the irregularity of activity
in the building industry. This has already been fully discussed
in Chapter III and it is here necessary only to recall that land
costs, building costs and mortgage rates of interest easily move
upwards in a boom period when each small and well-organised
section of the industry sees the opportunity to increase its
returns. 1 On the other hand, when depression strikes the
industry, each small section sees no advantage in reducing its
prices and, moreover, each resorts to various devices for spreading the available work and demand for materials, thus substantially offsetting any reduction in prices that may be made.
Costs therefore rise easily in a boom and fairly soon choke off
expanding demand ; they fall slowly in a depression and make
less effective whatever demand may be available. As a rule,
building costs fall substantially only well after the depression
1

This point, is discussed at some length in Ramsay WOOD, loc. cit.

98

HOUSING AND EMPLOYMENT

has struck, and when demand has fallen so low that reduced
costs can have but little effect.
Another severe limiting factor on the building industry is
the nature of the productive resources it needs. These are
usually of a fairly specialised nature and of little use to other
industries. In a boom, the industry can expand its resources
but slowly. When depression comes, it is left with large
resources of workers and productive capacity which cannot easily
find alternative uses. However, by the time the depression in
the building industry is ending, many of the workers will
have finally moved out into other industries (it has been noted
earlier that the building industry is likely to recover later than
other industries because of the slowness with which optimism
revives in long-term expectations). The industry therefore
finds that its labour resources have been largely dissipated,
so that its expansion is hampered. On the other hand,
there is likely to be substantial surplus capacity available
in building materials industries, which can expand fairly readily
in response to increased demand.
Factors on the supply side thus have somewhat conflicting
effects on the irregularity of building activity. The elasticity
upwards of costs tends to cut off the peaks of booms. The
inelasticity upwards of production resources tends to prolong
the boom by restricting the amount that can be supplied in any
period. On the other hand, the inelasticity downwards of costs
tends to magnify depression in the building industry.
The incursion of commercial banks into housing finance,
which appears to be developing in some countries, may also
have the effect of adding to the irregularity of building activity.
At a time of threatened financial difficulty, these banks must
increase their liquidity as much as possible and are therefore apt
to withdraw temporarily as much as possible from the finance
of housing, so reducing still further the possibility of carrying on
house building in the depression.
Building Activity and the Trade Cycle
There is therefore ample explanation for the extremely
wide fluctuations that occur in housing activity. The demand
for houses is in any case unstable ; the way in which this demand
is translated into a demand for building activity results in an
enormous magnification of that instability ; and the factors
determining the costs of building tend, particularly in depression,
to increase the instability still further.

BUILDING ACTIVITY : IRREGULARITY AND INADEQUACY

99

There has been extensive discussion of the nature of the
relationship between fluctuations in building activity and
fluctuations in general activity, with investigators unable to
arrive at any finality in their conclusions. On the one hand, a
depression in general activity is clearly likely to have a depressing effect on the demand for houses by reducing the number of
families who demand separate accommodation and the amount
each is prepared to spend on housing. Further, a general
depression is likely to affect expectations about the future,
and these are of great importance in determining building
activity. Similarly, a general revival is likely to have a
stimulating effect on building activity.
On the other hand, there are special determinants of
building activity which operate independently of the general
level of activity. Demographic factors may bring about an
increase in the demand for houses through an increase in the
number of families, despite the offsetting effects of a depression.
A serious shortage of houses, entailing an underlying pressure for
building activity, may persist through a general depression, as
is likely in at least some countries in the present post-war period
even after the boom resulting from other accumulated demands
has exhausted itself. Shifts in location of industry and new
developments in transport may occur in a depression and require
building activity. Moreover, the building that is necessary as
a consequence of a general industrial development takes a long
time to be completed and may still be going on despite a
depression in other activities. Similarly, there might well be
a severe depression in building activity in face of a substantial
boom in other activity. This is particularly likely to occur
where a shift in location of industries has occurred during a
depression, requiring substantial building activity. When
industry in general recovers, most of the extra housing will
already have been supplied and the building industry will not
share in the boom and may even suffer a depression.
Certainly the building industry is of such great importance
in total investment activity, which is itself of vital significance
in determining the level of general activity, that movements in
building activity will have very substantial effects on the level
of activity generally. Some investigators even go so far as to
claim a counter-cyclical influence for building activity. They
base this on the fact that rents particularly are comparatively
" sticky ", both upwards and downwards, so that the upward
movement of costs in a boom damps down a building boom and
the downward movement of costs in a depression encourages

100

HOUSING AND EMPLOYMENT

building. Moreover, investment in housing may become more
attractive in a depression than industrial investment. Income
from housing investment depends not on the vagaries of a
particular industry but on the ability of tenants to pay rent.
Moreover, the value of house-property, depending as it does
more on the size of the population and its habits than on the
tastes and immediate income of its consumers, is less likely
to be subject to extreme fluctuations.1
Extensive investigations have been made into the building
cycle in the United States and it is well established that the
major cycle there is a comparatively long one of 15-20 years,
embracing two business cycles ; that is, every second business
depression tends to coincide with a building depression and
therefore to be particularly severe. 2 This phenomenon does not
appear to have been established for other countries, but investigations elsewhere have been much less extensive.
The truth would appear to be simply that building and
business cycles have some independent causes, and can also
act at times to moderate and at other times to intensify each
other according to which independent causes are at work.
There are features peculiar to the building industry which make
it subject to extreme fluctuations. These may be intensified
or offset by the level of activity generally. The level of activity
in the building industry will be of great significance in determining the level of activity generally ; but there are other important
factors contributing to the determination of the general level
of activity and these may supplement or offset the influence of
the building industry.
Perhaps the most interesting illustration of this interrelationship is the building boom which developed in the United
Kingdom during the 'thirties, and which is claimed to have been
a main factor responsible for leading that economy out of
depression. 3 In the first place, although the depression was
severe, it was largely confined in its effect on employment to the
lower income groups. The employment, and to that extent the
incomes, of the higher income groups, from which demand
for owner-occupied houses end for new rental-houses mainly
1
Cf. Marian BOWLEY : " Fluctuations in House Building and the
Trade Cycle ", in Review of Economic Studies, Vol. IV, 1936-1937,
pp. 170171.
2
See, for exampie, the references cited at the beginning of
Chapter IV.
8
Cf. W. F . STOLPER : " British Monetary Policy and the Housing
Boom ", loc. cil. ; and Marian BOWLEY, loc. cit., pp. 167 et seq.

BUILDING ACTIVITY : IRREGULARITY AND INADEQUACY

101

arises, were much less seriously affected. Moreover, there was
a substantial movement in the terms of foreign trade in favour
of the United Kingdom, which was importing foods and raw
materials highly elastic in price and exporting manufactured
goods which were much less so. This helped to bolster up the
real income of the economy. Secondly, the housing shortage
precipitated by the first World War was still acute, so that there
was an underlying pressure for continued building activity and
an upward pressure on prices and rents. Thirdly, there was a
substantial change in the location of population owing to the
severe depression of heavy industries mainly in the north and
west and the development of new industries in the south. The
people who moved had to have housing, which was a first charge
on their incomes, however depressed. Underlying long-term
factors made for a sustained measure of building activity —
notably the declining availability of domestic servants, an
important factor where so many higher income group houses
were designed on the assumption of plentiful domestic assistance ;
the substantial change in the average size of families ; the
development of many attractive innovations in new housing ;
and the strong public pressure for slum clearance, reduction of
overcrowding and improvement of housing standards generally.
Finally, new houses built to rent were not subject to rent control
and were therefore more attractive to investors than existing
houses, the rents of which were mostly controlled.
On the supply side, there were also substantial contributing
factors. In the first place, costs did fall, although the fall took
place rather late and would appear to have helped to intensify
and prolong an established boom rather than to have initiated
an expansion. Secondly, there had been, under the stimulus
of Government policy in the 'twenties, a substantial expansion of
the labour force, so that there were plentiful resources available
and more could fairly easily be recruited on account of the
depressed condition of other industries. Thirdly, the general
structure of interest rates fell substantially and this eventually
resulted in a fall in mortgage rates of interest, of great significance in determining the cost of buying and renting a home.
Finally, thanks in part to the low rate of interest available for
other investments, and probably most important of the factors
on the supply side, there were ample funds available, particularly
through building societies, to finance the purchase of homes.
Building societies accept short-term deposits and lend at longterm. The liquidity they offered to the investor was particularly
attractive in that period of uncertainty. Moreover, other

102

HOUSING AND

EMPLOYMENT

industries were seriously depressed and housing offered more
attractive prospects as an investment. Investment of capital
abroad was closely restricted, and the imposition of tariffs and
the abandonment of the gold standard permitted a moderately
inflationary policy, particularly in the reduction of interest
rates, to be pursued at home without fear of possible adverse
reactions on the balance of trade.
This experience of the United Kingdom demonstrates
vividly how a peculiar combination of conditions can lead to a
building boom first arising :n the midst of a depression and
finally helping to lead the whole economy out of the depression.
It contrasts sharply with the course of events in the United
States, which followed a much more familiar pattern. A building
boom developed rapidly after the war and reached a high peak as
early as 1925, when total residential construction reached $4,800
million compared with $1,900 million in 1919. It then fell steadily
and with increasing rapidity to only $500 million in 1933 and
recovered slowly to $2,800 million in 1940. Building activity in
the United States clearly led the economy into depression and
then lagged badly behind while the rest of the economy recovered.
Inadequacy oí Housing Activity
Most of what has been said concerning the irregularity of
housing activity also contributes to the inadequacy of housing
activity. Wide fluctuations in an industry so important to
welfare make it impossible for housing to play adequately its
proper role in society. The industry is fraught with uncertainty
and risk and its costs are correspondingly high. The housing
market is by no means perfect. It is difficult for the consumer
to find out what is offering. The supply of houses for rent tends
in many countries to be chronically inadequate to meet the
needs of the many people who for various reasons do not want or
cannot afford to buy a house. Prices of houses and of land rise
easily and fall slowly, sustained largely by the widespread conventional belief in the value of houses as an investment. As in
the case of the rate of interest, people have an " idea " of what
the long-term value of real property should be and they will
revise this idea downwards only with great reluctance. This
adds a further obstacle to the reduction of the cost of housing
to levels within the reach of the mass of consumers.

C H A P T E R VI

CONTENT OF HOUSING POLICY : PART I

The central aim of housing policy should be the provision
of better housing for all whose welfare would be improved more
by better housing t h a n by an improvement in other aspects of
their standard of l i v i n g . 1 Public policy in the field of housing
should be directed consciously towards the achievement of this
aim ; and t h e results of private business decisions m a y also be
judged by the extent to which they contribute to this achievement. The amount and quality of housing required by this
criterion will expand continuously as a community grows
wealthier and raises its general standard of living. It should
be the aim of housing policy to ensure t h a t the improvement in
the amount and quality of housing appropriate to each successive
level of economic development is in fact achieved. If more or
less t h a n the appropriate level is reached, a better allocation
of resources would increase the community's welfare.
The most obvious case of misallocation of resources occurs
where some resources are left unemployed. Production of all
goods and services, including housing, should be carried on up
to the limit set by the full employment of all resources seeking
employment, a t the intensity of employment desired by the
1
This basic statement should be amplified in two ways. In the
first place, it is not a question of some improvement in housing or no
improvement in housing, but rather of a little more improvement in
housing or a little less. Improvement of other aspects of living
standards will always be going on simultaneously with improvement of
housing standards. Finally, however, a decision will have to be made
as to whether total welfare would be increased more by the use of
available resources to achieve a further small improvement in housing
standards or a further small improvement in other aspects of living
standards. This brings up the second point, which is that this decision
must be made with reference to the nature of available resources. Would
the resources that are available add more to total welfare by being
used to increase the supply of houses or of other goods and services ?
This second point is important when allowance is made for the varying
mobility of different resources.

104

HOUSING AND

EMPLOYMENT

working population. 1 However, even if full employment is
being maintained, there can still be a serious waste of resources
if too many houses are being produced at the expense of other
goods and services more urgently wanted by the community, or
vice versa.
Owing to the specialised nature of resources required under
the conditions of modern production, there is a real danger
that the need for high and stable employment in general will
come to be interpreted as a need for stable employment in
particular industries. Even if the economy in general offers
more jobs than there are workers available, the specialised
craftsman, who is of such importance in the building industry
and who is not likely to be skilled at many alternative occupations, may object strongly to submitting himself to the trouble
and expense of acquiring proficiency in another occupation and
may in any case resent having to change to another occupation.
His resistance will be strengthened if it appears to him probable
that the decline in demand for his product, which would make it
desirable for him to change to another occupation, is likely
to be temporary ; and usually any decline in demand will in the
first place be regarded as temporary, and will have to persist
for a long time before it is accepted as permanent.
Yet maximisation of real income requires not only that
employment should be maintained at a high and stable level, but
also that resources should move freely from industry to industry
in response to changes in public demand. If full employment
is interpreted as meaning stable employment in each industry,
a costly and undesirable element of rigidity will be introduced
into the economy. On the oiher hand, flexibility cannot continue to be achieved, as it has been in the past, at the cost of
chronic fluctuations in the general level of employment.
A compromise between these two aims of stable employment and flexible production is particularly necessary in the case
of building, where fluctuations in the level of activity have been
so great. Certainly the extreme fluctuations to which the
industry has been subject have been caused primarily by the
defects of an economic system in which, in particular, variations
in employment have caused variations in the demand for
1
It should be noted that resources may be over-employed as well
as under-employed. Beyond a certain intensity of employment, the
community will derive more enjoyment îrom extra leisure than from the
extra goods and services they might instead produce. At this stage
it would be preferable to reduce working hours rather than, say, to seek
to improve housing standards.

CONTENT OF HOUSING POLICY : PART I

105

houses, and in which speculation has accentuated the resultant
fluctuations in housing activity. The fluctuations in the level
of activity that would still be required in an economy which
maintained both full employment and an ideal allocation of
resources would be much smaller. However, the fact cannot
be denied that, even with the best planning and management
of both the housing industry and of the economy in general, some
fluctuations in the demand for housing activity are likely to
remain. Fluctuations in an industry using such specialised
resources are difficult to offset by variations in other sections
of the economy. Yet if they occur and are not offset, they will
have multiplied effects on the demand for and production of all
other goods and services. It will be desirable, therefore, even at
some sacrifice on the short-run view of the ideal allocation of
resources, to maintain a sufficient degree of stability in the level
of housing activity to prevent such fluctuations as remain from
being a threat to the maintenance of stable employment
generally.

If this industry is subject, in an abnormal degree, to
irreducible fluctuations in its demand, then it is only reasonable
that the man engaged in it should receive some special
protection. If such protection is not given, its workers will,
from time to time, be faced with unemployment, a need to
accept retraining in other skills and, in some cases, the later
sacrifice of these newly acquired skills in order to return to
building trades ; employers will be faced with repeated fluctuations in the extent to which their productive capacity is used.
If this situation continues, it will be impossible to increase the
efficiency of the building industry and to prevent the maintenance of socially undesirable restrictive practices designed to
spread the available output and to limit the entry of new
employers and workers into the industry. These restrictive
practices and inefficient methods of production in any case
probably present a greater threat to the maximisation of real
incomes and the ideal allocation of resources than would the
maintenance of a degree of stability in the building industry
sufficient to remove the need for these restrictive practices and
to permit the adoption of more efficient methods.
Even if the maintenance of this degree of stability in the
level of housing activity led to the building of houses that were
not immediately wanted, it would have less serious effects
than in other industries. The product of the industry is
extremely durable and the service it provides is highly standardised. If for a time there was. too much building in relation to

106

HOUSING AND EMPLOYMENT

demand, the excess output could eventually be used and might
in any case be offset immediately by an increased rate of
demolition of substandard houses. Similarly, if for a time there
were too little building in relation to demand, the rate of
demolitions could be held back and there would be, at worst,
a temporary increase in " doubling up " and overcrowding.
The twin aims of housing policy should be, then, the
improvement of the standard of housing and the maintenance
of a greater degree of stability in the levei of housing activity.
What should be the main features of a policy designed to
achieve these aims ?
Reduction in costs. The costs both of building and of buying
or renting a house are subject to influences which tend to make
them higher than they need b e . 1 The incidence of imperfect
competition and of low productivity in the production and
financing of houses is abnormal. There is room for reduction
in the cost of labour and materials, and for improvement in
methods of production. Efforts should be made in appropriate circumstances to reduce mortgage rates of interest, to
improve methods of financing and to revise the structure of
taxation in such a way as to make it weigh less heavily on the
houses of low income groups.
Building to the market. The supply of houses coming on
the market should be in conformity with the nature of the
demand for houses. In most countries, annual additions to the
supply of houses have tended to be mainly for upper income
groups, the needs of lower-income groups being met by the
" filtering-down " of houses previously occupied by higher
income groups and by the retention on the market for too long
of depreciated dwellings which should have been demolished.
Within proper limits, the process of filtering down is no doubt
inevitable and desirable, but the supply of houses to lower
income groups should come much more than it has in the past
from new houses designed for their needs.
Elimination of slums and overcrowding. As fast as supplies
of alternative accommodation become available, substandard
housing should be eliminated by mandatory public regulation,
which is the only way of achieving this elimination. Slums
offer a profitable return to owners and, however unsatisfactory,
are usually the only cheap housing available to most low income
groups. The definition of slums and of overcrowding should be
1

See Chapter III.

CONTENT OF HOUSING POLICY : PART I

107

progressively raised as the community becomes richer and can
afford better quality housing.
Planning for housing. Such housing activity as does take
place can be most effective if carried out in conformity with
over-all plans drawn up for the future development of neighbourhoods, towns and regions within a country. Plans for the
acquisition of land and the control of land use and land values
should also be made, in conformity with these developmental
plans. The plans would have to be based on careful enquiry
into and anticipation of future economic and social developments. Another aspect of planning should be covered by the
establishment of machinery to ascertain the amount of building
activity going on at any time and likely to be undertaken in the
near future, the supply of labour and materials, the movement
of costs, and so on. Under this heading might also be included
measures to increase the mobility of workers in the building
industry.
Improvement of real incomes available for spending on
housing. This will have two aspects. In the first place, the
achievement of full employment and progressively greater
productivity, and the process of redistribution of incomes,
will steadily raise the community's real income, permitting
more to be spent on housing. Secondly, the incomes of those
who are still unable to meet the costs of adequate housing may be
supplemented by special housing subsidies of one sort or another.
Stabilisation of Housmg Activity
Stabilisation of the output of the building industry is
really the key to the whole housing policy. It is essential to the
achievement of the central aim of housing policy : the provision
of more and better housing. Moreover, the achievement of
greater stability will in itself help to maintain stability in
the building industry. Thus, for instance, it has been demonstrated in Chapter III that one of the basic causes of low
productivity in the building industry is the instability of the
level of output and employment in the industry. A reduction
in building costs is therefore largely dependent on the stabilisation of building and, in turn, the reduction of costs will permit
an enlargement and greater stabilisation of the building industry.
Similarly, it has been shown in Chapter II that the building
industry is of vital significance to the general level of employment. The level of employment and income in general can

108

HOUSING AND EMPLOYMENT

hardly be stabilised without a substantial degree of stability
in the building industry. In turn, the stabilisation of incomes
generally will contribute greatly to the stabilisation of demand
for building activity.
Other aspects of housing policy should therefore be directed
especially to stabilising the building industry at as high a level
of activity as can be afforded by the community in the light of
the other things it wishes to achieve. A high level of activity
will ensure, on the one hand, that the aim of more and better
housing is being achieved as fast as possible and, on the other,
that what inevitable fluctuations do remain will be small in
relation to the normal level of activity. The clearance of
slums, the elimination of overcrowding and the progressive
raising of the standard of what is considered adequate housing,
combined with the putting of adequate purchasing power into the
hands of the people who have hitherto been forced to live in
substandard housing, can bring a new and vast volume of
demand into the market for housing. Even more significant is
the fact that these instruments can all be varied fairly easily.
If a slump threatens in the building industry, the standard by
which substandard housing is determined can be raised. More
houses will then be needed, and this need can be made into

effective demand provided costs are kept down, incomes are kept
up, and subsidies are granted and liberal credit is made available
on the scale necessary. The avoidance of a slump in the
building industry will itself contribute to keeping down building
costs as compared with incomes and to maintaining high and
stable employment and incomes throughout the economy. It
will thereby reduce the expenditure necessary for subsidies.
A continuing threat to stability in the building industry is
the likelihood of substantial shifts of industrial production
from one location to another, leading to a housing boom to
rehouse the shifted population, followed later by a slump when
this new demand has been satisfied. Even this potentially
difficult situation can be met within an effective housing policy.
In the first place, the Government and the building industry
can be kept informed, through planning and investigating
agencies, of impending shifts. It should in each case be decided
whether the shift is desirable from the community's point of
view, or whether the advantages to private industries from the
shift are outweighed by the disadvantages to the community
in scrapping substantial capital equipment in the form of houses,
schools, roads and other public utilities. If the shift is found to
be undesirable, it should be made economically attractive for

CONTENT OF HOUSING POLICY : PART I

109

the industries concerned to stay in their existing locations, or
for industries by which they are being replaced in the market to
establish themselves in existing centres of population. The
threatened boom and slump in housing can then be avoided.
If, on the other hand, the shift appears on balance desirable, as
it will often be in a flexible and progressive economy, the Government should take appropriate steps to minimise the disturbing
effects of the shift. This should not present insuperable
difficulties. In the first place, the more efficiently the shift is
anticipated, the more can it be spread out over a period of time
and provided for in advance and the less will be the impact at
any one time on building and other construction industries
affected. Secondly, the physical strain on resources can be
eased by a slackening of building and other construction throughout the rest of the economy, to permit a concentration of
resources thus released in the centre where accelerated construction, including housing, is required. The new development will
in effect be receiving priority over construction in other centres.
The slackening in those other centres can be made possible by,
for instance, the slowing down of slum clearance and the
postponement of less urgent construction projects. It should
be noted that the farther slum clearance and raising of housing
standards have already progressed throughout the economy,
the easier and the less undesirable will be temporary halts in
their continued progress. Thirdly, this immediately suggests
the need for action by Governments, trade unions and employers,
in co-operation, to increase the mobility within the country
of building resources, particularly labour. Finally, where it
is a question of a substantial shift of population, difficult
financial problems may arise. Householders leaving one centre
may find it impossible to sell except at heavily depreciated
values and will be obliged to buy in the new centre at prices
which will be subject to inflationary pressure. The inflationary
pressure at the new centre can probably be controlled, and will
be the more easily controlled, the more efficient is the planning
and timing of the shift, the concentration of resources for
production of houses at the new centre, and the public policy
for controlling land values. The depreciation of values in the
old centre is, however, something that cannot be avoided if it
is no longer a suitable centre for production. Sir ce the shift
would have been decided, according to this proposal, by a public
authority, the individual families affected should not themselves
have to bear the loss involved. Flexibility of production is an
important asset to the community and the community should be
8

110

HOUSING AND EMPLOYMENT

prepared to meet the consequent costs. One of the important
factors contributing to immobility of labour is the natural
unwillingness of workers to accept a loss on a house bought at
great sacrifice. If the community decides that efficiency
demands a shift in a centre of production, it should itself be
prepared to meet a substantial part of the costs of that shift.
The housing policy which has been outlined is essentially
one which must be carried out as a whole. The liberalisation
of credit and the payment of subsidies, to which Governments
have mainly confined their activity in the past, are not enough.
They may even do harm since, with the existing structure of
the building industry, they are likely to be largely dissipated in
driving up costs and prices, particularly when, as at present,
purchasing power for houses is excessive in relation to the supply
of houses at reasonable prices. Public financial assistance will
merely add to this excess purchasing power and will not help to
solve the fundamental problem of getting more houses built at
reasonable prices. Slum clearance, in particular, cannot be
achieved without an over-all housing policy — it would be
inhuman to demolish existing houses, however bad, unless
alternative accommodation at comparable cost were available
for slum-dwellers to move into. Subsidies, slum clearance and
cost reductions should accompany a vigorous expansion of
building activity, under the auspices of whatever combination
of public and private building is likely to produce the best
result.
The need for such a housing policy is particularly acute at
the present time. In any country which fails to take appropriate
action the strong pressure of purchasing power will at best
produce a typical housing boom, with costs and prices rising so
rapidly that demand will in any case be choked off fairly soon.
Houses will be built only for the higher income groups who can
afford the inflated prices. The only supply to lower income
groups will be the depreciated houses that filter down from the
higher income groups. This will not make any significant
impression on the housing standards of the community as a
whole. The numerous small groups of employers and workers
throughout the industry, who will seek to raise their prices to
take advantage of the boom, will take a long time to reduce
them again. Building activity will languish despite a great
unsatisfied need for housing.
In contrast with this is the situation in which a Government
arranges liberal credit for lower income groups and, when
necessary, grants subsidies on good houses built cheaply by

CONTENT OF HOUSING POLICY : PART I

111

itself and by any private builder who can build houses cheaply
for these groups ; it controls the allocation of building resources
to ensure a proper proportion of houses being built for the
lower-income groups ; by guaranteeing continued stability of
employment, it encourages the trade unions to prevent the
development of restrictive practices, to reduce labour costs
without cutting workers' incomes, and to admit substantial
numbers of new entrants to the building trades ; it encourages
producers of building materials and building contractors to
prevent the development of restrictive practices and improve
their methods of production ; by experimental building stations
and revision of building codes ; it develops and promotes the
use of new materials and methods ; by forcing the demolition
of substandard housing as fast as such housing can be replaced
by a high and stable level of building output, it guarantees
a large and stable market for houses ; and it ensures, through
appropriate planning, that houses are built where they are
needed and will continue to be needed, and provides for any

necessary shifts in existing population centres being achieved
without disruptive effects on the building industry. With such
measures, there will be real hope of stabilising the building
industry and of raising it to the position where it can be of
greater use and service to the community.
Building as a Counter-Cyclical Agent
Stability of output in the building industry has been
proposed not as an end in itself but as being necessary in order
to maintain the stability of employment in the economy generally, and to permit a reduction of costs in the building industry.
On the other hand, Governments which have accepted responsibility for maintaining full employment are seeking avenues of
expenditure which can be varied, under Government control,
to offset fluctuations arising in other sections of the economy.
These Governments will want to know whether housing activity
is capable of being used as a " counter-cyclical " instrument.
Some aspects of this problem have already been discussed,
particularly in this chapter, from the point of view of the
need for a greater level of stability in the building industry.
There is, however, a question not only of whether fluctuations
in the industry can be reduced so as to cause less disturbance
to the industry itself and to the whole economy, but also of
whether such fluctuations as remain can be made to occur at the
times, at the places and in the directions which will best help
to stabilise the economy generally.

112

HOUSING AND

EMPLOYMENT

At first sight, houses would appear to offer an ideal form
of public investment for counter-cyclical purposes. The units
are small ; their construction can be started quickly, especially
if over-all planning o: housing development is maintained ; the
units can be completed quickly so that the investment can be
easily tapered off if need be. 1 A demand for houses can be fairly
easily created through slum clearance and subsidy policy and
the demand can, moreover, be concentrated or spread out over as
few or as many different places as may require a stimulation of
employment. As has been pointed out earlier 2 , in a slightly
different context, even if more or less homes were built than were
demanded, as a result of counter-cyclical policy, the effects
would be less serious than in other industries whose products were
less durable and less standardised in the service they provide.
From the point of view of resources used by the industry,
it will be noted as a further advantage that, in most countries,
materials for building are produced largely at home, so that
only a small proportion of a Government's counter-cyclical
expenditure would " leak " abroad ; and that building offers
employment to a wide variety of skilled and unskilled workers,
giving it a distinct advantage over many other types of public
works which employ, directly, mainly unskilled labour.

Here,

however, arises the main difficulty in developing housing as a
counter-cyclical agent. As has been discussed earlier, housing
activity relies heavily on highly specialised craftsmen. It
will therefore be difficult to recruit new workers to permit a
counter-cyclical expansion of housing, or to transfer workers
into other industries when a contraction of housing would be
called for. Some degree of mobility would exist, particularly
in relation to other construction industries. This should be
exploited to the full and if, thereby, the construction industry
as a whole could be stabilised through Government policy,
a great contribution would be made to the stability of employment generally. It is, however, doubtful if a significant countercyclical pressure could be exerted by housing policy alone, as
long as production continues to require highly specialised craftsmen. However, the more the production of houses can be made
1

See " Elapsed Time and Cost in Residential Construction ",
a report prepared by J. TOURIN for the Construction and Public
Employment Division oí the U.S. Bureau of Labor Statistics, published
in Monthly Labor Review, Sept. 1946. In 1929 and 1931, the average
time taken to complete a house from the beginning of construction was
3 y2 to 4 y2 months. In March 1946 contractors estimated that 25 per
cent, of " starts " would be completed in 3 months, 62.5 per cent.
within 5 months, and 75 per cent, within 6 months.
2
Page 105, above.

CONTENT OF HOUSING POLICY : PART I

113

to depend on mechanisation and factory processes, as is discussed
in the following chapter, the less specialised will be the labour
required. If there is substantial progress made in this field,
the suitability of housing for executing counter-cyclical policy
will make it a promising field for action of this kind.
Public Authority and Private Enterprise
Under a housing policy of this nature, what will be the
relative roles of public authority and private enterprise ?
No country is prepared to leave the housing problem entirely
in the hands of private enterprise. A few countries will rely
solely on public authority. Most will rely on varying combinations of the two. It is impossible to lay down general rules
as to the exact division of responsibility that should be made.
Various countries are at quite different stages of economic
and social development, or have different political ideas. A
different solution will be appropriate for each.
Many of the factors affecting housing are exclusively within
the control of public authorities. Only Governments can
determine, for instance, what is to be the nature of property
taxation, particularly the rates imposed on houses and urban
land. Governments or municipal authorities determine the
content of building codes. They alone can enforce legislation
designed to eliminate slums and overcrowding and can pay
housing subsidies. Most Governments were already doing most
of these things before the war. During two world wars, most have
also extended their control over the rents and prices of houses.
These actions by Governments have not in the past been
taken primarily to contribute to an effective housing policy.
Rates have been determined solely from the point of view of
raising revenue, building codes have been designed, at best, to
protect public safety, slum clearance has been carried out only
on a limited scale. Only a few countries have carried through
for any length of time a consistent policy of subsidisation and,
even there, the subsidies have at times been more effective in
driving up prices and costs than in getting more and better
houses built than would otherwise have been built. Finally,
the wartime control of prices and rents of houses was necessarily
designed to prevent an inflation of those values and not to raise
the standard of housing, resources for which could not be afforded
under wartime pressures.
The part which private enterprise is to play in housing
activity in future should be determined by its ability, in co-

114

HOUSING AND EMPLOYMENT

operation with any measure of public planning that is found
necessary, to produce the types and quantities of houses needed
at the lowest possible cost. Fluctuations in the demand for
housing, arising from fluctuations in income and from changes
in the number of families seeking houses in particular localities,
are largely beyond the control of the building industry itself.
But there is much that the industry can do towards increasing
the efficiency of production methods in order to build for a much
wider market.
If private enterprise can do this, Governments can confine
themselves to over-all planning and to measures designed to
stabilise total housing production, to reduce building costs which
are beyond the control of private employers and to supplement
the purchasing power of income groups which could not otherwise
afford adequate housing. Actual building operations could be
left to be carried on by private enterprise. Measures such as
the reduction of interest rates, the payment of housing subsidies,
the control of rents, the planning of local and regional development, and the enforcement of legislation designed to eliminate
slums and prevent overcrowding, offer no threat in themselves
to private enterprise in the building industry. On the contrary,
they actually open up a market of a size and stability never
before available to private enterprise.
However, the very fact that Governments will inevitably
be so deeply involved in housing, both in devising suitable
policies and in undertaking expenditures on subsidies, will
make it all the more necessary for private enterprise to operate
with maximum efficiency. The provision of good and cheap
houses has become a real political issue, one of the things by
which Governments are judged. Moreover, the degree of
stability of employment in the building industry, more than in
any other single industry, will determine the degree of stability
of employment in general, probably the most vital political
issue of all. Governments seeking to carry out a programme of
public investment to stabilise employment could not leave
housing out of that programme, unless the housing industry
was already producing at a high and reasonably stable level.
Governments spending a substantial proportion of their budgets
on housing subsidies could not avoid taking over more and more
responsibility for the actual building of houses, unless the
industry was producing houses at the lowest possible cost and of
the types wanted by the various consumers.

CHAPTER VII

CONTENT OF HOUSING POLICY : PART II

It would be profitless to attempt to suggest the detailed
content of housing policy, which will inevitably differ greatly
from country to country. There are, however, important
economic aspects which should be considered by each country
in deciding what form its housing policy should take and how
it should be administered.

Reduction of Costs
COSTS OF CONSTRUCTION

If a consumer buys a hand-made carpet or radio, a tailoredto-measure suit or costume, he knows he is buying a product
which will be of unusual quality or design. He does not expect
it to be cheap. Most consumers can afford to spend little of
their income on such products. They know that to make the
best use of their income they must rely chiefly on efFiciently
mass-produced goods and services. Yet in spending on housing,
which absorbs a substantial part of their income and which is
usually the biggest single item of expenditure after food, they
are buying the product of a largely handicraft industry. Unless
they can afford a price which is too high for most incomes, they
must therefore buy or rent housing which, if it is new and
designed for purchasers of their income groups, has been produced with poor quality materials and construction, and in
which the size and conveniences have been cut to reduce the
price ; if it is second-hand, they will be buying products designed
for somebody else and probably not at all suited to their needs,
houses which have depreciated to values which are within their
reach only because they are old, badly located or unrepaired.
From the passage quoted on page 22 it will be seen that modern

116

HOUSING AND

EMPLOYMENT

industry provides at least efficiently, if not extensively, for all
the important needs of the $30-a-week man except in the field
of housing.
What are the obstacles to the application of mass production
techniques to housing production ? Do lower income groups
insist on individuality of design in their houses ? The answer
to this is to be found in any typical city, with its great blocks of
housing, identical in design. In any case, with a finished
product as large as £ house and enjoying so large and widespread a market, there is ample room both for standardisation
of parts on a scale sufficient to permit the optimum scale of
production for any one part, and for a wide variety in the
finally assembled product. There can be no objection to the
mass production of houses on the grounds that the product
must be unattractively standardised. If the difficulties and
expense of transporting a completed mass-produced house from.
a factory to its site prove excessive, mass-produced parts can
be assembled at the site. Moreover, if a large site can be
subdivided and built up as one project, which is possible either
in the case of an area that is being newly developed or in the case
of a blighted or slum area that is being cleared and rebuilt, the
assembly job should be sufficiently large to permit the adoption,
at any rate in some degree, of efficient assembly-line techniques.
The obstacles to this sort of procedure are many but none
of them appears insuperable. Perhaps one of the most important is that, for production of this type, heavy investment and
a large administrative staff, involving heavy overhead expenses,
are required and that the extreme instability of demand for
housing makes such investment risky and unattractive. Here
again the assurance of a much greater degree of stability in the
housing market is an essential condition of success in housing
policy. Given this condition, the fact that the industry is at
present composed of a large number of small firms and speculative builders should present no fundamental difficulty. Most
industries were originally in the same position and the small
producers were gradually forced either to amalgamate and to
enlarge their scale of operations or to go out of business, defeated
by the greater efficiency of the large firm. Difficulties may also
be created by producers of materials and parts refusing to sell
to business men manufacturing under the new methods. This
could be overcome partly by Governments preventing actions
in restraint of trade, and partly by the new manufacturers
producing their own materials and parts, many of which would
in any case require to be manufactured under conditions dif-

CONTENT OF HOUSING POLICY : PART II

117

ferent from those prevailing in the past. Similarly, in a
modernised industry, there would be more reliance on factory
operatives and less on skilled handicraftsmen. This is again a
development which has characterised most modern industries,
to the ultimate advantage both of consumers and of workers.
Further difficulties may be created by out-of-date building codes
which need to be amended in order to permit the use of raw
materials adaptable to mass production techniques.
In any case, mass production will presumably be a comparatively slow-growing factor in the housing market. In the
first instance, it might be introduced to speed up the building
of homes for lower income groups, the replacement of slum
dwellings which would otherwise have continued in existence,
and the reduction of the abnormal shortage of housing which
has developed as a result of the suspension of building during the
war. 1 The main normal demand for the product of the
building trades — the building of new houses for the higherincome groups, and the repair, maintenance and conversion of
existing houses — would not be much affected by these developments. For some years, there would be ample room in the
housing market for the products both of mass production
and of traditional methods of homè-building. Eventually if
mass production succeeds in building good, attractive and
economical homes, it may be expected to encroach more and
more on the higher-income market. Only then will the position
of the building industry as it exists today be threatened. In
any case, some quite substantial market for houses built by
traditional methods should always remain.
In the interval, there is time to make suitable arrangements
for meeting the difficulties involved in this transition from one
form of production to another. Many building tradesmen may
respond readily to the opportunity to receive retraining at
Government expense in the techniques needed for the new type of
production. The recruitment of new entrants to the building
trades could be so organised as to adjust the labour force to the
expected future demand for each type of labour. Moreover,
the fact that the transition would be achieved in economies
in which Governments have assumed responsibility for the
maintenance of full employment would remove most of the
difficulties and social injustices which have characterised
1

For an interesting account of the experience of two firms which
have adopted mass-production methods in the United States see " The
Industry Capitalism Forgot ", in Fortune
pp. 61 el seq.

(New York), Aug. 1947,

9

118

HOUSING AND EMPLOYMENT

industrialisation and the decline of handicraft industries in the
past. It should be noted that the rapid and substantial
expansion that is being sought in most countries in the building
industry labour force aow and over the next few years, makes it
desirable that new industrial methods should be developed
rapidly so that as many as possible of the new recruits may be
trained to the new skills rather than to the traditional ones.
There is no reason why this development of new methods of .
production should not take place, as it has in most industries,
under the auspices of private enterprise. Clearly Governments
will have an important part to play in assuring to producers a
large and steady market and in contributing to a solution of
the transitional difficulties that may be experienced by building
contractors, by trade unions or by producers of building
materials. Granted chis background of planning, it would,
however, be reasonable to assume in the first instance that
competing producers would be more efficient at building the
actual houses than would Government departments which have
to operate under different conditions. However, this is only
an assumption and should constantly be tested against performance. Publicly operated experimental building stations 1
can maintain continuous research into new materials and
methods of production, making their results known to the building trades. If there is any reason for dissatisfaction with the
performance of private industry, Governments can also undertake direct building operations to establish minimum costs for
efficient building of good, cheap houses.
The possible scoue for such action is indicated by the
experience of the United States Housing Authority, where
cost of construction per dwelling was substantially less than the
average cost of similar housing produced by private enterprises.
Cosls of Housing

Net construction costs
Over-all cost of new housing

. .

2

United States Housing
Authority

Private

$2,720
$4,307

$3,601
$5,332

1
The Australian Commonwealth Government, for instance, has
established an experimental building station.
a
N. STRAUSS, op. cit., pp. 99-100. The figures quoted for public
housing are the average cost per dwelling unit of all the dwelling units
comprised in the first 399 projects (well over 100,000 dwelling units)
erected by local authorities under the U.S.H.A. programme. The
figures for private housing are the average costs per dwelling unit of
all new houses erected with the aid of F.H.A. insurance in the period

CONTENT OF HOUSING POLICY : PART II

119

Individual ownership of land and of existing buildings may
stand in t h e way of the development of large-scale housing
projects. Only Government action can in these circumstances
force present owners to permit their land to be used, at reasonable
prices, for the efficient building of houses in the places where
they are needed ; and to demolish buildings which, however
profitable, provide substandard housing.
Similarly, where building codes prevent or hamper the
introduction of new methods of production and of new materials,
t h e y should be revised by the Governments or municipal
authorities concerned. It is clearly desirable t h a t there should
be public provision for ensuring a minimum standard of performance from buildings and their components ; it is inevitable
also t h a t these standards should vary to some extent according
to the different circumstances of different localities. But there
is no need for a detailed list of permissible and prohibited
materials, or for the extravagant variety in detail which a t
present characterises local building codes. Various materials
and methods of production could be tested in the factories where
they are made, or a t some central testing station ; their performance could be certified and individual builders could then
easily satisfy themselves as to whether particular materials and
methods conformed with the requirements of their local
codes.
So far, reduction of building costs has been discussed in
terms of a drastic revolution in methods of production. This
will almost certainly take much time to bring about and, in the
end, it m a y even t u r n out t h a t the extent to which any such
revolution can be effected is limited, even if the experiment is
carried out with energy, enthusiasm and serious i n t e n t i o n . x
1938 through 1940. Strauss writes (p. 100) : " This analysis of the
cost of public housing and private housing has been criticised on the
ground that the figures for private enterprise include also houses built
for families in higher-income brackets. However, the degree to which
the average cost of private housing is increased by this factor is more
than offset by two factors which tend to raise the average cost of public
housing. The first is that public housing has been built by labor which,
according to the provisions of law, is paid the prevailing scale of wages
as certified by the United States Department of Labor, whereas much of
the private housing is built by labor paid at a lower rate. The second
is that all housing erected under the U.S.H.A. program has been designed
for a life of at least sixty years and the specifications provide for durable
materials throughout, while housing built by private enterprise, with
or without F.H.A. insurance, is rarely constructed with a view to so long
a useful life."
1
For comment on this aspect, see M. L. COLEAN : " Housing —
An Industrial Opportunity ", in International Labour Review, Feb. 1944,
p. 160.

120

HOUSING AND EMPLOYMENT

In the meantime, however, there is ample room for improvement
even with the existing methods of production and organisation
of labour and industry. Standardisation of parts has already
made substantial progress in achieving economies both in production and in distribution, b u t it can be carried much further.
Its development does not necessarily require amalgamation of existing producers, b u t it does require co-ordination
and agreement between producers and consultation by t h e m
with builders and architects. Here again, so m a n y different
individuals are involved t h a t almost certainly Government
action, and possibly competition from Government enterprises,
will be required to persuade the parties concerned to come
together, to reach agreement, and to m a k e the relatively minor
modifications in their methods necessary to a t t a i n a greater
degree of standardisation of parts.
As an indication of the savings which might be achieved through
standardisation of dimensions and sizes, steel stairs bought in quantities
for the Clairton Colonial Village project near Pittsburgh cost $22 per
flight in contrast with the estimate made by the manufacturer of
$75 for one individual flight. This type of standardisation has no
effect whatsoever upon appearance or utility. It has been clearly
demonstrated by the Modular Service Association and by the Homasote
Co. that any number of house plans and styles can be designed upon
modular dimensions, using 4 inches as the smallest unit of measurement instead of fractions (of inches) as at present. From actual
experience in directing the construction of a large number of houses, the
Homasote Co. estimates that modular design has resulted in a net
saving of approximately 10 per cent. The ultimate savings through
standardisation would undoubtedly be considerably greater upon its
application throughout the building industry to both materials and
architectural dimensions. Room heights, for example, could be
standardised, permitting mass production of stairways and wall
panels. Room lengths and widths could be in multiples of a standaid
unit, permitting the use of larger units of material than bricks. *
The other main cause of abnormally high cost in the building
industries is the prevalence of restrictive practices. I t has
already been emphasised t h a t Government action to ensure
much greater stability in the future is essential to modification
of these practices.
Another factor t h a t has contributed t o high costs in
construction has been the extent to which steady o u t p u t has
been hampered by seasonal conditions. This has resulted, for
1

R. Harold

DENTON,

loc. cit., pp. 138-139.

CONTENT OF HOUSING POLICY : PART II

121

instance, in high wage rates, needed to produce annual
incomes that are not abnormally high. The more houses are
mass-produced in factories, the less important will this factor
be. Moreover, even with traditional methods of production,
various methods are being developed for permitting a better
maintenance of building activity than has been possible in the
past. 1 Instability of employment in the building industry
has led to the movement for a guaranteed weekly wage, and,
where possible, a guaranteed annual wage. It is claimed that
this would contribute greatly to the workers' sense of security
and, provided a nearer approach to stability of operations was
achieved, would permit a significant reduction of labour costs
at the same time as ensuring to building workers a reasonable
and steady income.
COSTS OF FINANCING

Government intervention in the field of housing finance is
more familiar and will provoke less opposition. During the war,
particularly, most Governments used their power to control
the money market to effect a substantial reduction in the longterm rate of interest on Government securities, and they clearly
intend at least at present to keep this rate low. There is no
positive evidence as yet that it is so low as to be causing an
undesirable diversion of resources from production for current
consumption to production of durable goods. These low interest
rates will permit low mortgage rates of interest. Encouragement
of building societies and co-operative credit institutions, and the
establishment and extension of Government mortgage institutions, can bring cheap finance for the purchase of homes to a
much wider group of consumers. Various types of public
guarantees, partial or complete, of mortgage interest payments
can permit a narrowing of the margin between the rate at
which Governments can borrow and that at which homepurchasers can borrow, in fact, can reduce the margin very
nearly to the minimum required to cover costs of collection.
It is important, moreover, to ensure, where Governments do
guarantee interest payments, that the rates charged on mortgages are reduced in accordance with the reduced risk factor.
Otherwise, lenders will be lending on security as good as Government bonds, but at higher rates of interest. Collection costs
1

See, for instance, H. FELDMAN : Stabilising Jobs and
(New York, Harper and Bros., 1940), pp. 277-284 and passim.

Wages

122

HOUSING AND

EMPLOYMENT

themselves should also be capable of reduction. The maintenance of full employment and a high level of incomes should
contribute significantly to a reduction of the risk factor involved
in lending for purchase of homes by members of low income
groups, and should therefore permit a reduction of mortgage
interest rates and of the cost of guaranteeing these payments.
Longer amortisation periods might be adopted if it is considered
that the advantages of lower annual payments outweigh the
need to maintain the lower payments for a longer period. 1
There is also a need for thorough investigation into the
whole question of owning as against renting houses. It is
often assumed that home-ownership is a desirable social aim.
For a large number of people this may not be the case. Partly
because of their wish to retain maximum freedom of movement,
partly because of their expectation of either increases or
decreases in their incomes in the future, partly because of unwillingness to hold their assets in this particular form, many
people may prefer to rent houses rather than to own them.
These preferences should be investigated, as they can be by
suitable public survey, and Governments should ensure, either
through private enterprise or their own activity, that houses to
let and for sale are made available in appropriate proportions.
Finally, Governments should examine carefully the question .
of the incidence of local rates and other property taxation on
costs of housing. So far as local rates represent proportionate
taxation rather than the progressive taxation which is imposed
in other fields, they appear to run counter to current ideas of
social justice. It may be that they offer a convenient method
of raising revenue and a convenient basis for allocating revenues
to local governments and that, for these reasons, they should be
retained ; but it is doubtful whether even in this case, they
should be retained without modification. In any case, a
thorough investigation is required and, if they are to be retained,
full allowance should be made for their incidence in drawing up
schedules for income taxation and in determining rates for
various indirect taxes on goods and services. In the field of
taxation, Governments might also, as part of their general policy
for full employment and rising productivity, examine the
effects of taxation on incentives to efficiency, and might consider
the possibility of adopting certain types of taxation in such a way
as to stimulate enterprise and efficiency.
1
The effects of varying interest rates and amortisation periods
are set out in Chapter III, pp. 63-65.

CONTENT OF HOUSING POLICY ! PART II

123

Planning, Slum Clearance and Building to the Market
These aspects of housing policy are most conveniently
considered together. It is in these fields that there is most hope
of new developments in Government policy which might be
effective as nothing else has been in ensuring the realisation of
society's aims in the field of housing. Basic to action in this
field is that the public authorities should have a thorough
knowledge of the existing condition of housing. Sample or
complete surveys can be made to establish the number, size,
condition and location of all houses, and these surveys should
be kept continuously up to date. The second essential is a
continuous survey of the existing level of housing activity, of
the level of wages, of costs of materials and of prices of houses,
and of the possibility and desirability of expanding or contracting
the building industry in the light of the level of demand for the
products of other industries. Thirdly, a knowledge is required
of immediate and prospective changes in the number and size
of families, in the willingness of those families to spend on
housing, and in the localities where they will want to live.
Fourthly, the development of existing and of new centres of
population should conform to over-all plans for the development
of neighbourhoods, towns and regions. These over-all plans
should be drawn up with due respect to the need for balancing
the economic advantages of particular types and directions of
development against the social, cultural and aesthetic advantages
of different types and directions of development.
This information will provide an ample background for
the planning of more and better housing with whatever degree
of stability of output is desired. The most important aspect of
housing policy is the need to convince all members of the
building industry that the level of activity in the industry
will be kept stabilised, except for such fluctuations as Governments decide can be absorbed by the industry without undesirable
consequences. Full conviction on this issue will come only
when stability of output has been experienced for some years —
the time lag can be shortened the more quickly stability of
output is achieved and maintained, and the more effectively
Governments describe the basis of their planning. This
requires, of course, that a satisfactory basis for planning should
be established as soon as possible. In the first place, Governments should decide how many men are likely to seek employment in the building industry and what level of output of houses

124

HOUSING AND EMPLOYMENT

could be achieved over the next few years by those men, assuming whatever increase in efficiency may be reasonable in the
circumstances of the country concerned. They should then
decide whether the community would wish to have a greater or
lesser number of houses built, and whether and to what extent
measures can be introduced either to encourage or to discourage
recruitment of labour to the industry. On the basis of these
judgments, they can decide what is the practical and desirable
level of employment and output in the industry immediately
and for some years ahead. The next step is to ensure, and to
convince the building industry tliat the policy adopted will
ensure, that there is a demand for these houses.
The total demand for housing activity will be made up of
the net demands in different localities from newly established
families, from families " doubling-up " with other families who
wish to separate, from families living in overcrowded or slum.
conditions, and from families living in any existing houses, all
of whom wish to improve the standard of their housing. There
is thus an enormous potential demand for houses. What is
more important is that, apart from newly established families,
the demand is obviously highly elastic. This has been one of
the major causes of trouble in the housing industry in the past,
but this same elasticity may, with an appropriate housing policy,
be turned to advantage. Instead of causing instability in the
housing industry as it has in the past, it may now be turned into
a cushion for the housing industry. The essential step is that
Governments should use freely and flexibly their powers to
condemn and to force the demolition of slums and substandard
housing. They must convince the industry that if, at any time,
the demand for houses for new families threatens to decline, the
forced demolition of dwellings will be correspondingly increased
and that the purchasing power necessary to permit displaced
families to afford improved housing will be supplied. This
policy implies that costs must be kept to a minimum so that
subsidies will not be used to inflate costs and prices and that, if
an undesirable boom threatens to develop in building activity,
appropriate measures will be introduced to prevent it. Controlling a boom in building may, in view of the suitability
of the industry as a field for speculation, be substantially more
difficult than preventing a depression. Merely reducing demolitions will not be enough to prevent contractors who expect large
markets for houses from expanding their activity. Such an
expansion is likely to lead to an excessive recruitment of labour
to the industry and an increase in costs, wages and prices

CONTENT OF HOUSING POLICY : PART II

125

as a result of the competition to get scarce labour and
materials.
Special machinery will need to be developed to cut short
this typical prelude to a " boom and bust " movement, which
will probably be a chronic threat to stability if a policy on the
lines suggested is energetically pursued. To put a quota on
each producer's output would tend to prevent the elimination
by competition of less efficient producers. To put a quota on
recruitment of building workers or on production of building
materials would not prevent competitive bidding among
producers for such resources as were available. To cut subsidies
would defeat one of the main purposes of the housing policy.
More effective measures will have to be devised.
In countries where a substantial part of building is done
directly by public authorities, this problem will be less serious.
In the first place, provided building by public authorities is kept
stable, only a section of total activity will be subject to these
fluctuations.
In the second, provided the location, quality
and cost of houses whose production is being expanded by
private enterprise are satisfactory, activity by public authorities
could perhaps be tapered off where this would not conflict with
the social objectives of the community.
The more determined Governments are to maintain a high
and stable level of building activity and the larger the subsidies
which they grant, the greater will be the danger of an undesirable
boom in housing activity carried out by private enterprise.
If in these circumstances a boom does threaten to develop,
Governments may try to do what they can by persuasion and
publicity to control the situation. They may be able to control
the level of building by controlling the allocation of building
materials. They may use what power they have, or can assume,
to control the lending policy of banks, insurance companies and
building societies. Since working capital is of vital importance
in building, particularly for the speculative builder, this may be
a sufficiently effective control to prevent the boom developing.
Finally, it may be necessary for Governments to license private
builders, restricting them thereby to the building of a certain
number of houses. If a system of licences is adopted, it will be
most important to ensure that the restriction is not used either
to cloak inefficiency or to permit an inflation of the prices of
houses. Perhaps the most satisfactory method of achieving
this would be for Governments, each year, to invite from all
interested contractors tenders for the number, location, quality
and prices of houses they are willing to build during the coming

126

HOUSING AND

EMPLOYMENT

year. The Governments could then grant licences to the
builders whose proposals conformed best to the public housing
programme. The licences would need to contain penalty
clauses for any breaches of ¿he contractors' undertakings, the
penalties varying according to the cause of the breach, which
would have to be determined, if necessary, by arbitration.
The penalty would be heavy where the breach was caused by,
say, the contractor's inefficiency, and be waived altogether where
caused by, say, a Government decision to raise the wages of
building operatives or to increase the minimum standard of
housing. The reopening of tenders each year would encourage
the maintenance of maximum efficiency and would permit the
entry of new enterprise where it promised to be more efficient.
This system would have the great added advantage of
giving Governments accurate advance information as to trends
in the level and costs of building activity. On the basis of this
information, they could frame their housing policies for the year,
including in particular the amount of building which should be
undertaken by public authorities.
Even where all or most building is carried on by public
authorities, an inflationary trend can still develop unless the
policy is properly administered. Such a trend will he particularly
likely where building is planned and carried out by large numbers
of semi-autonomous local authorities, competing with each other
for scarce labour and materials and drawing extensively on the
central Government for housing subsidies. Where the activities
of local authorities threaten the stability of the building
industry, they will nesd to be controlled just as much as private
enterprise. Where the central Government has not the power
to control directly the activities of local authorities, its financial
power should be enough to give it, indirectly, the control it
needs. It should be noted that the central Government will
wish to exercise control in the field not only of the amount and
cost of building activity by local authorities, but also of local
rates, building codes, town and neighbourhood planning, location
of industry, and so on. Local authorities must play a most
important part in housing policy. While it is desirable that
they should be given as free a hand as possible in planning local
development, it is essential that the central Government should
in the end be able, where necessary, to force a modification of
local plans to conform to national, housing policy. Conflicts
will inevitably arise from time to time between the plans of
different local authorities and, in these cases, only the central
Government can make a decision in the national interest.

CONTENT OF HOUSING POLICY : PART I I

127

The question of what authorities are to be in charge of
housing policy raises difficult problems, largely of a political
nature. The main problem is how to secure the best compromise
between, on the one hand, keeping housing policy flexible and
open to public discussion and, on the other, freeing it from
unnecessary and disturbing changes arising from short-run
political considerations. Moreover, freedom to establish whatever administration is regarded as desirable will be hampered by
the existence of more or less well-established public agencies
already in the field. A possible solution might be to have the
general aims and framework of housing policy determined after
public debate at the political level, and then to assign its
execution on as independent a basis as possible to some sort of
commission or statutory corporation, whose directors would be
appointed for a term of years by the Government and who
would thereafter be free from political interference. 1
Provision will also need to be made within the housing
policy for co-operative or mutual housing, which is becoming a
popular means of obtaining houses for low-income groups in a
number of countries. These co-operative ventures take many
forms, their essential feature being the elimination of the
profit factor from production costs. While this feature encourages a reduction of costs, co-operative housing does not in itself
make any special contribution either to the stability of housing
output or, unless carried out on a large scale and with good
management, to the improvement of efficiency in methods of
production. It is, however, worthy of encouragement as a form
of individual and community effort in overcoming the problems
of housing. 2
Serious problems will arise in the development of housing
policy in the field of controlling the use, the value and the
acquisition of land, and in determining procedures to be followed
and compensation to be paid when clearing slums and other
substandard housing. The principles adopted will differ widely
from country to country according to differences in political and
social philosophies. Should the owner of a slum area be com1

This housing commission, could, ior example, be composed of

eight members, two representing employers, two representing workers
and four appointed b y t h e Government, including an architect and a
representative of consumers.
For a discussion of the problem of the form of public administration
in relation to t h e maintenance of free choice b y consumers, see, for
instance, B a r b a r a WOOTTON, op. cil.
2
See INTERNATIONAL LABOUR O F F I C E : The

Co-operative

Move-

ment and Presenl-Day Problems, Studies and Reports, Series H, No. 5
(Montreal, 1945), p p . 67-77.

128

HOUSING AND EMPLOYMENT

pensated on the basis of the income he loses when the slums are
pulled down or on the basis of the value of the land when it is
developed at the new, socially approved density ? Should the
owner of agricultural land which, as the result of, say, a townplanning decision, is to become the site of a new town, be
compensated on the basis cf the value of land for agriculture,
or on the basis of its new urban value ? For problems of this
sort, the solutions appropriate to each country will be best
established by thorough and impartial investigation followed by
full public debate. x
Improvement of Real Incomes
The basic necessity in policy designed to increase the power
of the community to purchase houses is the raising and stabilisation of the incomes people earn from their employments. The
nature of the problems involved in securing full employment,
rising productivity and more equitable distribution of incomes
has been discussed in Chapter II. Policy designed to secure
these ends will have many facets, but it must bee mphasised that
housing policy can, if desired, itself be one of the most important
elements of such a general economic policy. The housing
1

these

See, for instance, the well-known United Kingdom reports on
problems

:

ROYAL

INDUSTRIAL POPULATION

COMMISSION

: Report

ON THE DISTRIBUTION

(1940) (the " B a r l o w

OF

Report");

MINISTRY O F W O R K S AND PLANNING : Report of the Committee on Land

Utilisation in Rural Areas (1942) (the " Scott Report ") ; MINISTRY
OF WORKS AND PLANNING : Final Report of the Expert Committee on
Compensation and Betterment (1942) (the " U t h w a t t Report "). All
the reports are published by Kis Majesty's Stationery Office. For
discussion of various aspects of planning and housing policy, see Donald
TYERMAN (ed.) : Ways and Means of Rebuilding, a Report of t h e London
Conference of t h e Town and Country Planning Association, 1943
(London, Faber and Faber Ltd.).
Note in particular the provisions of the United Kingdom Town
and Country Planning Act, 1947. This Act, designed to secure the best
social use of land in accordance with co-ordinated planning on a nationwide scale, provides in effect for the nationalisation of most of t h e
profits from the development or improvement of any land. Since
1 July 1948, when certain parts of the Act came into effect, permission
has had to be obtained from the Minister or local planning authority
before any development of land (with certain exceptions) m a y be
proceeded with ; and a development charge must be paid. Where
land is compulsorily acquired by a Government department or local or
public authority, the compensation payable will normally be t h e
" existing use " value of the land — t h a t is, the current market value
less the development value. Owners of land which suffers a depreciation
in value because of the Act m a y receive compensation out of a fund, t h e
payments from which in Great Britain are limited to £300 million.

CONTENT OF HOUSING POLICY : PART II

129

industry is important in its own right as a direct and indirect
employer of labour. Its market is capable of substantial and
prolonged expansion. Its fluctuations, which have been so
great in the past, have multiplied effects throughout the
economy. If it can be stabilised at a high level or, even better,
if it can be made to fluctuate counter-cyclically, it will not only
itself offer a high and more stable level of employment but will
also have a highly significant effect in stabilising the general
level of employment. In other words, a high and more stable
level of output in the housing industry can probably make a
greater contribution to the achievement of stability throughout
the economy than in the case of any other single industry.
Similarly, a reduction of the degree of monopoly in certain
sectors of the building industry and an increase in efficiency
could make a major contribution to raising productivity and to
improving the distribution of incomes. Finally, any redistribution of incomes is likely to increase total expenditure on housing
since the marginal expenditure on housing is greater for the
lower income groups than for the higher income groups. For
instance, family allowances in particular will help large families
to afford the large houses they need. The increased expenditure
on housing will be greatest when the redistribution of incomes
takes the form of housing subsidies, all of which are spent on
housing.
Housing policy has, therefore, a self-reinforcing character.
To achieve and maintain a level of effective demand for houses,
sufficiently high and stable to permit the improvement in
housing to make its full and due contribution to the central
economic problem of raising living standards to the maximum,
one of the most effective instruments would be to maintain a
high and stable level of efficient housing output. This thesis
has the simple appeal of the obvious. It is, of course, true in
some degree of any industry, but the large proportion of total
expenditure that is allocated to housing and the suitability of
the industry for public control and planning make this thesis
particularly significant for the housing market.
Housing Subsidies
Although housing subsidies are an essential feature of
housing policy, they should be, essentially, a residual feature.
They are a measure of the failure of the economy to achieve, on
the one hand, a sufficient reduction of housing costs and, on the
other, through full employment, rising productivity and elimina-

130

HOUSING AND

EMPLOYMENT

tion of monopoly, a sufficient increase of incomes of its lowerincome groups, to permit its people to meet their housing needs
out of the incomes they can earn. No doubt, even with the most
successful Government policy in these other fields, some families
would still require financial assistance to permit them to enjoy
adequate housing. Too often, however, there is a tendency to
introduce systems of housing subsidies without paying adequate
attention to the possibilities of action in other directions.
Governments may be unable or unwilling to tackle the formidable
administrative and political obstacles that stand in the way
of an effective housing policy. They take the easy way
out by granting subsidies which, as they have been used in the
past, cover up rather than contribute to the correction of the
defects of the housing industry and of the economy in general.
Public criticism concentrates on the adequacy of the subsidy
rather than on the efficiency of the economy, while unnecessarily
large numbers of consumers are forced to become recipients of
public charity instead of being able to enjoy adequate standards
of living out of the income they earn from their work.
The housing subsidy has an important part to play but it
is a specialised part. In the first place, a subsidy can be of
great use at a time like the present when, on the one hand, costs
are abnormally high as a result of the scarcity of materials and
labour and of the general disorganisation of the industry as a
result of its wartime suspension ; and, on the other, an abnormally large number of families are in urgent need of homes. In the
absence of a subsidy, families who are forced to buy or take long
leases on new homes now will be at a distinct disadvantage in
relation both to families who have had homes from before the war
or who can get homes at nearly pre-war rents, and to families who
will buy or lease homes in the future when costs and prices may
be expected to fall as supply becomes more equal to demand.
Secondly, a subsidy is also desirable to offset housing costs
arising specifically from public policy. For instance, if the
building of houses of acceptable standard in a certain location
involves the purchase and clearance of a slum area, substantial
compensation may have to be paid to the owners of the area
to cover their loss of income. If the new development is built
at a substantially lower density, as will almost certainly be
desirable, it will place an intolerably heavy burden on the
prices or rents of the new dwellings if the sum paid for the land
has to be recovered. The charge on the development for land
should be determined by the value of the land when built up
at the current density rather than at the previous anti-social

CONTENT OF HOUSING POLICY : PART II

131

density. It would, of course, be simple if the compensation
given to previous owners did not exceed this figure. If, however,
the attitude of the society is that previous owners must be
compensated to a greater extent than this, it is reasonable that
the extra cost should be carried by the community as a whole,
rather than by the individuals who happen in the future to live
in the particular area. Similarly, if families have to dispose of
their existing houses at depreciated values, because of a shift
in population centres which will result in higher productivity
for the economy, it is reasonable that part of this cost to families
involved in the move should be borne by the community at
large which benefits by the move. 1
Thirdly, since housing of minimum adequate standards
involves a relatively large expenditure, there will always be
some families whose earning power is not high or stable enough
to permit them to meet the costs of their housing. If the community decides that all families should have a certain minimum
housing standard, it can make this decision effective only if it is
willing to contribute to the cost of this standard. The cost of
subsidisation will vary according to the standard of housing
desired and, most important, according to the success of the
policy designed to reduce costs to the minimum and to raise
incomes, particularly of the lower income groups, to the
maximum. The decision to pay subsidies is in effect a decision
in favour of a certain measure of redistribution of incomes such
as is already going on through social services financed by
progressive taxation. It is as well to keep this fact in mind
because it helps towards solving the problem of the manner in
which the subsidy should be paid. Some of the redistribution
already taking place is done by a direct subsidy to income
as in the case of old-age pensions and family allowances. Some
is done by subsidisation of particular services as in the case
of education and health services, free lunches for school children
and so on. The housing subsidy is in this latter class and
represents a decision partly that a subsidy to housing is an
administratively and politically convenient way of redistributing
incomes, and partly that housing is a branch of expenditure
particularly in need of subsidisation.
This statement of the various purposes of the housing
subsidy offers a basis for approaching the problem of the way
in which and the conditions under which subsidies should be
paid. Two important questions arise : what should be the
1
This refers to the sort of shift of population which is described on
p p . 123-124 of this chapter.

132

HOUSING AND

EMPLOYMENT

amount of the subsidy ; and how can Governments ensure that
the subsidy fulfils the purpose for which it is granted and that
it is not dissipated instead in inflating costs and prices ? For
the first class of subsidy, where payment is made to offset the
abnormally high costs of a period like the present, the subsidy
should clearly be related to the cost of the house and the
degree of abnormality of housing costs. If the pre-war level of
costs is taken as a norm, the extent to which housing costs have
increased since the war began should be compared with the
extent to which all costs and incomes have increased ; or better
still, with the level at which costs and incomes are expected to
settle as a post-war norm. Suppose it is established that building costs have increased daring the war by 75 per cent., while
costs and incomes generally have increased only 50 per cent.
Then it might be decided that a house the cost of which had
risen from $5,000 to $8,750 should be subsidised to bring its
price down to $7,500. This type of subsidy could, if desired,
easily be restricted to any particular group of houses, according
to size, to cost or to whether they are built by public or private
enterprise. Any such restriction would, of course, introduce
the different principle of redistribution of incomes on social
rather than on strictly economic grounds.
At a time of great scarcities and heavy pressure of excess
purchasing power, it will be difficult to ensure that the beneficial
effects of the subsidy are not dissipated in driving up costs and
prices. If the subsidy is restricted to homes of types suitable
only for certain income groups, and if, as is likely, those groups
are not the ones in possession of excess purchasing power, the
problem of inflation should not be serious. The only problem
then will be, through control of materials and, if necessary,
through direct building by public authorities, to ensure that
homes are built for these groups and that the entire resources of
the building industry are not instead devoted to meeting the
needs of members of higher income groups who can pay fancy
prices. It would be an added protection against inflation if
Governments made it clear in advance that they would follow
closely movements in building costs and would promptly reduce
the subsidy as fast as any inflationary tendencies developed.
It would also seem desirable that an announcement should be
made in advance that the subsidy would be reduced from
period to period in accordance with the rate at which currently
abnormal costs are expected to return to normal. In this case,
the amount of the subsidy to be paid on a particular house
should be determined by the time at which the house is built,

CONTENT OF HOUSING POLICY : PART II

133

not by the time at which the contract for its construction is
made. In the section dealing with reductions in costs, it has
already been suggested that Governments themselves can
contribute significantly, by research and by example, to speeding up cost reduction.
In the second type of subsidy, where the community
is to bear the excess costs of acquiring land for housing development, it has already been suggested that the amount of the
subsidy should be sufficient to reduce the cost of land to the
level appropriate to the density at which it is to be developed.
Serious problems will arise as to the possibility of inflation of the
value of sites affected, or expected to be affected, by Government housing policy. Control of this type of inflation will
require control of land use and land values such as was mentioned in the last section.
The third class of subsidy, where lower income groups are
unable to meet the normal costs of house construction, is by
far the most important class. It is impossible to generalise
on the extent to which subsidisation should be carried, as that
will be determined in each country by the minimum housing
standards regarded by the community as acceptable for various
groups. This standard can be expected to rise progressively
with the development of social conscience and with the increasing
real income of the community. As housing costs fall, the
realisation of any given standard of housing will cost less in
subsidy. This will itself probably encourage a more rapid rise
in the minimum housing standards that will be sought by the
community. The concept of a socially acceptable minimum
standard is not, of course, measurable and will find expression
only indirectly through the various political pressures which
play on Governments and determine their policies. The debate
will be a three-cornered one between taxpayers seeking reductions of expenditure, housing reformers pleading that better
housing will contribute more than anything else to an increase
in welfare and a reduction of crime and disease, and the champions of all other avenues of expenditure pleading that increases
in their own particular fields would make a greater contribution
to welfare. This debate should be as free, as sustained and as
well-informed as possible, for only so will the pace of housing
reform be kept at the maximum acceptable to the community.
It must always be remembered that housing subsidies represent
essentially arbitrary decisions by Governments to allocate to
house building for lower income groups a greater proportion of
total resources than would be chosen by the community either
10

134

HOUSING AND EMPLOYMENT

in the absence of this degree of redistribution of incomes or,
presumably, if the same degree and direction of redistribution
of incomes were effected in any other way, for instance by family
allowances. Governments will, therefore, do well continually
to assure themselves, through public discussion, that their policy
is not diverting to housing either more or fewer resources than are
really wanted in the housing industry by the community.
Preventing these subsidies from exerting an inflationary pressure on costs and prices should be an important feature
of long-term housing policy. It has been repeatedly emphasised
that the maintenance of a high and stable level of activity in
the building industry is an essential condition of reduction of
costs. But it has also been pointed out, in the previous section,
that this very policy may, unless carefully administered and
controlled, lead to an inflation of costs and prices, as builders
seek to expand their output and as producers of materials and
workers seek to take advantage of the high level of demand to
raise their prices and wages. The subsidy is a vital element
of policy designed to raise and stabilise the level of building
activity and, wherever convenient and practicable, it should
have attached to it conditions which will assist Governments
in their efforts to keep down prices.

The most drastic action

would be to confine the subsidy exclusively to houses built by
public authorities whose output, efficiency and price policy
could be controlled in accordance with general housing policy.
But it may be possible to do better than this by paying subsidies
in respect of houses built by private builders, attaching such
conditions as will encourage these private builders to contribute
effectively to the realisation of housing policy. Thus, payment
of subsidy might be confined to houses built by contractors who,
by mass production or by the expanded use of standardised parts
and prefabricated units, produce houses of prescribed standard at
prices within prescribed ranges. It should also be remembered
that such conditional subsidies might be used with advantage
by central housing authorities to stimulate the efficiency and
efforts of local authorities who must, to a large extent, be left
to carry out actual building and planning operations.
FORMS IN WHICH SUBSIDIES MAY BE PAID

Subsidies may be paid in many different forms. For
instance, a decision must be made as to whether to pay subsidies
in the form of capital lump-sum payments or annual payments
over a term of years. This distinction is largely a matter of

CONTENT OF HOUSING POLICY : PART II

135

book-keeping as both types involve some redistribution of income
and result in lower annual cost to the occupier. However, the
distinction is of some significance. It is clearly desirable in
housing policy to determine what might be called the economic
cost of a house and what its economic rent should be. For this
purpose it would be desirable, for instance, to exclude costs
incurred in acquiring a slum area for clearance, or in shifting
industries and population centres from one location to another.
Similarly, since houses built at current abnormally high costs
will eventually have to compete on the open market with houses
built earlier or later at more normal costs, it would be desirable
that any subsidy that is paid on them should be paid as a lump
sum, immediately reducing the price that can be accepted for
them to something approaching the normal figure. The payment of lump sums in these cases helps, moreover, to simplify
administration. In the case of shifts of population and slum
clearance, different subsidies will be required for different transactions and it would be inconvenient to have to work out and
to pay different sets of annual subsidies for each. A lump
sum payment will permit each transaction to be written off
immediately. Similarly, in the case of subsidies to meet abnormally high costs, the amounts to be paid will differ
substantially from time to time, and again it will be more
convenient to make a lump sum payment than to pay a large
number of different annual subsidies.
The third and most important class of subsidy has, however,
as its main aim a redistribution of incomes which is considered
necessary because certain families are unable to meet the
economic cost or the economic rent of the houses they need.
It would seem desirable, therefore, that the annual economic
cost of these houses should be calculated and that subsidies
should be paid to whatever extent is required by particular
families or groups of families.
Subsidies may be paid at a flat rate for all houses or at differential rates for different houses or for different tenants. The
criteria by which subsidies may be judged in this respect are
their simplicity of administration, their economy of total
expenditure and the extent to which they encourage the efficient
output of houses in the numbers, locations and types needed
to carry out housing policy.
The flat-rate subsidy. The simplest form of flat-rate subsidy
is where a fixed amount, either a lump sum or an annual payment
for a fixed term of years, is paid in respect of any house built,

136

HOUSING AND EMPLOYMENT

without any further conditions. This type of payment certainly
reduces the administrative problem to a minimum and may
encourage an increase in the output of houses. However, since
it offers no incentive to efficiency, it is not likely to be economical
in its total cost, much of its effect is likely to be offset by
inflationary developments an¿, in itself, it will do nothing to
encourage the building of houses of the types and in the locations
needed to carry out housing policy.
The restriction of this type of subsidy to houses built by
public authorities, to houses which, whether built by public
or private enterprise, are leased within stated ranges of rent,
or to houses of a certain size, removes some of the disadvantages
and inflexibility of this type of subsidy while still retaining a
high degree of administrative simplicity. The United Kingdom,
for instance, has usually relied on a flat-rate annual subsidy
restricted at different times to one or other of these conditions. 1
British experience after the first World War shows the tendency
for this type of subsidy to inflate costs and prices, and its
inability to stimulate the efficient production of houses of the
types and at the locations needed. 2
The

differential

subsidy.

Differential

subsidies m i g h t

be

paid, varying with one or more of the relevant factors such as the
income of the family, the size of the family or the cost, the size
or the location of the house. While these differentials will
immediately complicate the problem of administration, they
offer opportunities for economy and for stimulating the better
use of available resources in carrying out housing policy.
1
The current subsidy in the United Kingdom consists of a flat-rate
annual payment, payable only in respect of houses of certain minimum
standards, built by public authorities. There are some differentials
introduced, notably for blocks of flats, rural houses and houses built
on expensive sites, but these make no fundamental infringement of the
flat-rate principle. The subsidy is composed of a contribution of one
quarter from the R a t e Fund ' and three quarters from the Central
Exchequer. It must be noted, however, t h a t there is, as well as this
subsidy scheme, a substantial amount of control of building by the
Government, directed in particular to the limitation of the number of
houses built b y private builders and for higher income groups, to the
provision of a large number of houses to let rather than for sale, to the
recruitment of new workers to the industry and to the development of
new towns in conformity with plans for location of industry and for the
better distribution of population.
2
On British housing experience in the inter-war period see Marian
BOWLEY : Housing and the Siale, 1919-1944 (London, George Allen
& Unwin, 1945), P a r t I, particularly Chapter IV, which deals with the
location of houses built by local authorities ; and W. F. STOLPER :
" British Monetary Policy and the Housing Boom " (cited earlier),
particularly Chapter II, which deals with the cost of building.

CONTENT OF HOUSING POLICY : PART II

137

One important type of differential subsidy is that which
relates the rent subsidy to the income of the recipient.
Minimum and maximum standards would need to be laid down
for houses on which subsidies would be paid and, if these
standards were varied according to family size, the subsidy
could be made to vary with the size of families. A limitation
on the size of income eligible for subsidy could also be established.
The objections to this type of subsidy are, on the one hand,
the administrative inconvenience and, on the other, its reliance
on the much disliked means test.
The Australian Government has recently introduced a
rental rebate scheme along these lines. The basis of this scheme
is that the ordinary unskilled worker, receiving the " basic
wage ", is paid whatever rent rebate is required to bring his net
payment of rent down to one fifth of his income. If his income
is less than the " basic wage " the rent rebate is progressively
greater ; if his income is more, the rent rebate is progressively
smaller. The subsidy is payable only on houses for rent. It
provides comparatively generously for the lower income groups
whose need is greatest, and rapidly diminishes as incomes rise. *
1

In this Australian scheme, provision is made for the prescription
of minimum and maximum standards. Houses are to be constructed
according to these standards by State Governments or by authorities
created by those Governments. The " basic wage ", which is the basis
of the scheme, is the wage determined by industrial courts as a reasonable
living wage for the unskilled worker. The unskilled worker is in fact
usually paid at this rate, relatively small margins being added for
semi-skilled and skilled workers. The " basic wage " is therefore much
nearer to the actual average wage than is the minimum wage in other
countries. This fact gives greater significance to the rental rebate
policy introduced in Australia.
The basis for determining the " economic " (or gross) rent is
prescribed in the Act (the Commonwealth and State Housing Agreement Act, No. 44 of 1945). The interest rate charged is that payable
on Commonwealth Government loans and the amortisation period is
long, 53 years. Economic rent also includes maintenance, rates and
taxes, insurance, allowance for vacancies and defaults, and administration. If the economic rent due from a " basic wage " family exceeds
one fifth of its income, the entire excess is paid as a rent rebate. If
family income is less than the basic wage, the rebate is increased by
one quarter of the amount by which the .family income falls short of the
basic wage. If family income exceeds the basic wage, the rebate
is decreased by one third of the amount by which the family income
exceeds the basic wage. The rebate is granted on application by
tenants ; family income and eligibility for rental rebate are reviewed
every six months. Losses incurred on housing projects by State Governments are allocated as to three fifths to the Commonwealth and as to
two fifths to the State.
To illustrate the effects of the formula, " basic wage " may be taken
as 100 shillings per week and economic rent for a typical worker's house
as 25 shillings per week. A family receiving just the basic wage would

138

HOUSING AND EMPLOYMENT

There are many possible variants of this type of subsidy
related to income, family size and so on. A number of countries
have introduced systems of differential rents for public housing
projects, although usually only on a fairly limited scale. A
common defect, however, has been that too often the determination of rent has been left to local authorities, each following
different principles. Moreover, in most cases the rents received
from a project or group of projects as a whole have been expected
to meet all or a prescribed proportion of total cost. It has not
been possible, therefore, to introduce rent differentials sufficiently
large to meet fully the disabilities of individual families. Too
great a burden would be thrown on other tenants of the project.
It seems preferable to have the principles by which the proportion of family income to be paid in rent is determined laid
down on a nation-wide basis with suitable provision for local
variations, the costs being carried out of general revenue
rather than by other tenants affected by the scheme.
This type of subsidy is based directly on the aspect most
vital to housing policy — the income of the tenant. In effect
it puts directly into his hands an income which he can use only
for housing, the amount of the subsidy being determined by the
difference between the rent he has to pay to get housing of the
standard prescribed by the State, and the part of his income
which the State considers he should be expected to pay for
housing.
This system has significant advantages over other types of
differential subsidies such as tax exemptions and reductions,
specially low interest rates and so on. In these other types,
the subsidy is related to the cost of the house and, even if
the subsidy is substantial, there is no guarantee that net prices
will be sufficiently reduced to enable all families to afford
reasonable housing. Indeed the most likely result is that the
benefits will be largely confined to the middle income groups and
to the upper brackets of the lower income groups. The remaining lower income groups will still be able to pay only for substandard slums. There is an upper limit to the total amount
that any community will pay at any given time for an improvereceive a rent rebate of 5 shillings and would pay a net rent of 20 shillings.
A family receiving 80 shillings a week would receive rent rebate of
5 shillings plus a sum of 5 shillings, one quarter of the amount by which
its income is less than the basic wage. The net rent payment would
be 15 shillings. A family receiving 40 shillings a week would pay net
rent of only 5 shillings. A family receiving 115 shillings a week would
receive no rent rebate as its income exceeds the basic wage by just
three times the basic rent rebate.

CONTENT OF HOUSING POLICY : PART II

139

ment of housing conditions. The more the distribution of that
amount is concentrated on the lowest income groups, the
greater and more satisfactory will be the results. Even if some
upper limit is set to the cost or type of house eligible for subsidy,
the amount of subsidy granted under, say, a system of reduced
interest rates actually increases with the cost of the house and
therefore, presumably, with the income of the occupier. The
flat-rate subsidy gives the same amount of subsidy regardless of
the cost of the house. Only a subsidy that varies inversely
with income can concentrate the subsidy where it is most
needed. 1
THE FINANCE OF SUBSIDIES

The problem of how to raise revenue to pay housing
subsidies is best considered not by itself but as part of the
general financial policy. The central aim of economic policy
is to promote full and stable employment and maximum living
standards. The money required to finance this policy should
be raised by whatever combination of the various forms of
taxation and of borrowing will contribute most to, or interfere
least with, these social aims. 2 Housing policy is part of the
general economic policy and it should be financed according
to the same general principles.
Within these general principles, one special aspect of the
finance of housing subsidies should be noted. The nature of
housing policy is such that its execution must be left largely
to local authorities, subject to only limited control by central
Governments. Since these local authorities will be spending
large amounts of public money, it is desirable that they should
do so with a full sense of their responsibility. It may be that
one way of inducing in them this sense of responsibility would
be to require them to raise a substantial proportion of the money
they have to spend. If this is done, central Governments, while
giving local authorities access to adequate fields of revenue to
permit them to raise the money they need, will need to take
steps to ensure that they use their revenue-raising powers
in ways which will not conflict with national economic and
financial policy. It will, however, probably be preferable that
1

On the experience of various countries with different types of

subsidies, see INTERNATIONAL LABOUR O F F I C E : Housing

Policy, op. cit.,

pp. 12-19 ; Marian B O W L E Y : Housing and the Siale, op. cit. ; Elizabeth
D E N B Y , op. cit. ; and Charles ABRAMS : The Future of Housing (New York,
Harper ¿c Brothers, 1946), particularly parts I I I and IV.
a
See Chapter II above.

140

HOUSING AND EMPLOYMENT

the main part of local authorities' revenues should take the
form of central Government grants, to which conditions can be
attached which will ensure that local housing policy is consistent
with national policy. Central Government grants are the more
desirable for the reason that local authorities in districts where
housing conditions are worst will be least able themselves to
raise revenue to improve those conditions.
SUBSIDIES AND HOUSING POLICY

In conclusion, it must again be repeated that subsidies alone
do not make up an adequate housing policy. They are a vital
and essential part of such a policy but they cannot by themselves solve the housing problem. Money spent on subsidies
will yield a satisfactory return in improvement of housing
conditions only if it is backed up with vigorous action by both
Governments and private enterprise to reduce costs and improve
methods of production, to get houses built in the numbers, types
and locations needed, to plan the development of housing, to
eliminate slums and to raise the incomes and productivity of the
whole community.

INDEX

Abrams, Charles, 139 n.
Amortisation rates, 63
Assessments, property tax, 71
Australia :
employment policy, 29 n., 34,
39 n., 47 n.
experimental building station,
118 n.
housing needs, 3
housing policy, 9 n., 20, 47
housing subsidies, 137
Automobiles, demand for production
as compared with housing, 93
Banks, control of lending policy, 125
Barlow Report (U.K.), compensation for land appropriation, 128 n.
Bauer, Catherine, 49 n., 54 n.
Beveridge, Sir William, 39 n., 40 n.
Birth rate, effect of wars, 88
Blighted areas, 17, 53
Bowen, Ian, 78 n.
Bowley, Marian, 100 n., 136 n.,
139 n.
Budgets, family : housing expenses,
12
Building activity :
business cycle and, 95, 98
counter-cyclical potential of, 99,
111-113
effect of depression on, 98
fluctuations-in,
42
seasonal, 120
level of, factors affecting, 73-102
national expenditure on, 46
need for stability, 42-44, 104, 105,
107, 123
secular stagnation, 48
United States, 41, 42
Building costs, 50, 97

changes in, 84
cyclical behaviour, 97
factors affecting, 51-62
construction costs, 53-62
land, 51-53
public and private housing, 118
reduction of, 54 n., 106, 115
rigidity of, 61, 98
Building cycle, 42
United Kingdom, 100
United States, 100, 102
Building industry :
community planning, 114
control of, 125
co-ordination, need for, 60, 62 n.
efficiency, 54 n., 55 n., 105
expenditure-employment
coefficients, 45
guaranteed wage, 121
handicraft methods, 55 n,, 58
instability, 42, 44, 86
labour mobility, 109
material supply, 98
mechanisation, 58, 112-113
monopolistic influences, 13-14, 5556, 110, 129
productivity, 54, 55 n., 58, 107,
114
rationalisation of, scope for, 58,
115-118, 119
restrictive practices, 55, 105
Building output [see also "Building
activity ", " Housing, demand
for ", " Output ")
stabilisation of, 123
Building societies, 125
Building Technicians, Association of,
54«.
Business cycles (see also " Countercyclical agent ") :
causes, 29-33
effect on house building, 95, 98-99
effect on housing costs, 97
effect on supply of housing, 96

142

HOUSING AND

Canada :
employment policy, 29 n., 47 n.
housing policy, 47
public housing, 20
Capt, J. C , 10 n.
Chapman, J. W., 73 n.
Clark, Colin, 89 n.
Codes, building, 17, 57, 113, 117, 119
Colean, Miles, 51 n., 119 n.
Community planning :
building industry, 114
housing policy, 123
social benefits from improved
housing, 17
Compensation (see " Slum clearrance ")
Construction industry (see " Building costs " and " Building indust r y »)
Construction, residential (see also
" Building activity ", " Building
costs ", and " Building indust r y ") :
as avenue of public investment,
112
demand for, 74
national expenditure on, 46
secular stagnation, 48
United States, 41, 42
Co-operative housing, 127
Co-ordination of building industry,
need for, 60, 62 n.
Cornfield, J., 47 n.
Cost, economic : evaluation of, 135
Cost of purchasing a house, 62
Costs of building (see "Building
costs ")
Costs, construction (see " Building
costs ")
Costs, housing (see also " Building
costs ") : '
effect of risk and uncertainty on,
102
of financing, 63, 121
of renting, 71
recurring, 70
reduction of, 106
subsidisation of 8, 129
to the community, 4
Counter-cyclical agent, building as £,
100, 111-113
Credit, Government control of, 125
Cycle, business (see " Business cycle ")

EMPLOYMENT

Deflationary gap, 67 n.
Demand for housing (see " Housing,
demand for ")
Demographic factors and demand
for housing, 74-76, 87-94, 99, 101
Demolition of substandard houses,
106, 111, 119, 124
(see also " Slum clearance ")
Denby, Elizabeth, 19 n., 20 n.,
21 n., 139 n.
Denton, R. Harold, 57 n., 62 n.,
120 n.
Depression, effect on building activity, 99
Design, modular, 120
Durability of houses, effect on
demand, 92, 95
Edwards, Corwin D., 57 n.
Efficiency of the building industry,
54 n., 55 n., 105
(see also " Co-ordination " and
" Rationalisation ")
Employment :
general level of —
determinants of, 29-33, 114
equilibrium without full, 32
exports and, 30, 35-36
fiscal policy and, 27-40
housing and, 25, 27-49, 104-105,
107, 114
in building, instability of : effects
on productivity, 58-59, 105,
107, 111
patterns of (U.S.A.), 45, 47
policies, 15, 25, 29 n., 38
Enterprise, private and public, in
housing, 22-25, 113-114
Equilibrium :
housing market, 83
without full employment, 32
Europe, housing policy in, 19, 21 n.
Evans, W. D., 47 n.
Excess capacity, building materials,
tendency to, 56
Expansion, urban, 76-77
Expenditure:
family, on housing, 12, 77-80, 129
on construction, effect on employm e n t , 45-46
public, and employment, 30, 3638, 114
Experimental building stations, 118
Exports, and employment, 30, 35-36

INDEX
Factory production of houses, 116117
Family expenditure on housing, 12,
77-80, 129
factors affecting, 77-80
marginal, 12, 129
Family size, effect of changes in, on
housing demand, 79 n.
Feldman, H., 121 n.
Finance, housing, 17, 63, 98,121, 139
(see also " Housing subsidies ")
Finer, H., 15 n.
Fiscal policy, and employment, 2740
Fisher, A. G. B., 25 n.
Flour, demand for production as
compared with housing, 93
Fluctuations, industrial, 42
(see also " Business cycles ")
Ford, James, 4 n.
Foreign loans, 35 n.
France, Michelin Low-Cost Dwelling
Corporation, 59
Full employment (see also " Employment ", " Fiscal policy " and
" Housing policy ") :
and housing policy, 15, 25, 31-49,
104-105, 107, 114
Germany, public and private housing in, 20
Government expenditures, financing
of (see " Fiscal policy " and
" Subsidies ")
Great Britain, public and private
housing in, 20
Guaranteed wage, construction industry, 121
Haber, William, 57 n.
Handicraft methods in building
industry, 55 n., 58
Hayek, F., 15 n.
Higgins, B. H., 62 n.
Hoffenberg, M., 47 n.
Home ownership, social benefits, 122
Housing :
co-operative, 127
demand for, composition of, 82,
124
demand for, effective, 110, 129
demand for, elasticity of, 78 /».,
93, 96

143

demand for, factors affecting, 3,
73-102
demographic factors, 74-76, 8796, 99, 100
durability of houses, 92, 95
family-size changes, 79 n.
immobility of houses, 74
income changes, 3, 13, 14, 110
in particular localities, 74, 75
population movements, 74, 88,
91
transport, 81
wars, 88
demand for, income-elasticity of,
78 n.
demand for, inflationary, 110
demand for, non-effective, 7
demand for, total, 124
family expenditure on, 12, 77
investment in, 41
large-scale projects, 59, 119
standards, 3, 9
Housing activity (see also " Building
activity ") :
inadequacy of, 102
stabilisation of, 42-44, 105, 107111, 123
Housing authority, public, forms of,
127
Housing consumption (see " Housing, demand for ")
Housing costs, 8, 12-14, 50-72
(see also " Building costs ") :
excessive in relation to income,
12, 22, 23
flnancing of, 17, 121
recurring, 70
subsidisation needs, 8, 129-134
Housing industry (see "Building
industry ")
Housing market :
building to the, 106
equilibrium in, 83
Housing needs, 3-10
(see also " Housing, demand for ") :
Australia, 3
Sweden, 3
United Kingdom, 3
United States, 3, 9-10, 49
Housing policy :
aims, 2, 103, 106, 111
and allocation of national resources, 16, 25, 37
and employment, 25, 27-49, 104105, 107, 114
Australia, 47
authorities responsible for, 127

144

HOUSING AND

Canada, 47
" capital-scarcity " countries, 46
content of, 2, 103-140
" excess-savings " countries, 46
housing needs, 3, 7, 49, 123
importance of, 15-18
integration with general economic
policy, 103 n.
local authorities, 139
need for, 3-26
need for elasticity in, 25
political considerations, 127
requirements forplanning, 223,127
slum clearance, 11, 101, 106,
111, 114, 119, 123-128
stabilisation of output the key
to, 107-111
Housing standards, 3-4, 9-11, 106108
Housing subsidies, 8, 15, 107, 129140
control of, 111, 132
effect on private enterprise, 114
financing of, 139
inflationary pressure of, 134
methods of payment, 114, 134-139
Australia, 137
United Kingdom, 136 n.
relation to incomes, 132, 138
Housing supply, 50-72
lower income groups, 23, 106
short-run, 81
Imperfect competition, in building
industry, 14, 55, 106, 129
Improved housing, benefits to community of, 17
Income :
national, components of, 29
redistribution of, 107, 129
relation to demand for housing,
3, 12, 14, 107-108
relation to housing subsidies, 132,
138
Industrial location (see " Location of
industry ")
Inflation and demand for houses, 110
Inman, J., 24 n.
Innovations, 80, 81
Insurance companies, finance of
houses, 125
Interest, rate of :
and allocation of resources, 65-66
determinants, 66-67
effect on employment, 67
mortgage rate, 68
" pure " rate, 65, 66
reduction of, 114, 121

EMPLOYMENT

International Labour Office, 9 n.,
21 n., 28 n., 36 n., 42 n., 119 n.,
127 n., 139 n.
Investment :
determinants of, 31, 33, 36, 99
housing as an avenue of, 40-42,102,
112
relation to employment, 30-33
Isard, W., 73 n., 81 n.
Keynes, J. M., 26 n.
Kuznets, S., 41 n., 42 n.
Labour (see also " Trade unions ") :
mobility, 17, 104, 109, 112
retraining of skilled, 118
supply, 98
wages, 56, 121
Land :
costs, 97
effect on building costs, 51-53
individual ownership, 119
use, control of, 107, 127, 133
value of, 51-53, 109
Legislation, slum clearance, 106, 114
Leontieff, W., 45 n.
Lerner, A. P., 15 n.
Licensing of builders, 125
Liquidity preference, 66
Living, standards of, 37, 103
Local authorities :
control of, 126
housing policy, 24, 114, 126, 139
Localities, particular : demand for
houses in, 74
Location of industry :
control of, 108, 129
shifts in, 77, 99
Loevinger, Lee, 57 n.
Long, C. D., 73 n., 87 n.
Low income groups :
housing expenditure of, 12, 13
housing needs, 22
housing subsidies for, 110-111, 133
housing supply for, 23
" Make-work " policies, trade union,
58-59
Management and building costs, 59
Manpower budget, and housing standards, 5

INDEX

145

Mass production, scope for, 117, 119
Materials, building :
allocation of, 125, 132
excess capacity, 56
monopolies in, 56
new, 119
standardisation, 59, 116, 120
supply, 98
Mechanisation in building industry,
58
degree of, 58
scope for, 115-118
Michelin Low-Cost Dwelling Corporation, 59
Modular design, 120
Monopolistic practices in building
industry, 14, 55-56, 110, 129
Mortgages :
annual costs, 63
fees, 62
Government institutions, 121
interest rates, 68, 97, 121
market, imperfections of, 69
reduction of risk, 122
Mutual housing, 127
National income, components of,
29
Needs, housing (see " Housing, demand for " and " Housing needs ")
Netherlands, public and private
housing in, 20
Newman, W. H., 73 n.
New Zealand, public housing in, 20

Priorities in construction, 109
Private enterprise in housing, 22-25
public authority and, 113
role of, 22, 113
Production of housing (see also
" Building industry ")
efficiency of, 54-55, 58, 107, 114
flexibility of, 109
new methods, 117, 119
seasonality, 120
Productivity, effect of employment
instability on, 58-59, 105, 107, 111
Propensity to consume housing, 13,
30
Property taxation, 113
assessments, 71
impact on low income groups, 106
incidence of, 122
Public authority :
forms of, 127
private enterprise and, in housing,
22-25, 113-114
Public housing, 18-22, 25, 118
costs, compared with private housing, 118
Public investment :
and employment, 30, 36-38
housing as avenue of, 117
Public works, 37
Purchasing a house, cost of, 62
(see also " Building costs " and
" Housing costs ")

Overcrowding :
elimination of, 106
United Kingdom, 4 n.

Ratcliff, R. U., 23 n.
Rationalisation of building industry,
scope for, 58, 115-118, 119
Real income, mobility of resources
and, 104
Regional development, 114
Repairs to housing, fluctuations, 86
Rent :
changes in, 82
costs of, 71-72
economic, 135
inflexibility of, 72
public control of, 113, 114
Residential construction (see also
" Building activity ", " Building
costs " and " Building industry ") :
demand for, 74
national expenditure on, 46
secular stagnation, 48
United States, 41

Planning :
housing policy, 107, 111, 123
local and regional development,
114, 123, 126
Pigou, A. C , 40 n.
Policy, housing (see " Housing policy ")
Population movements :
and demand for housing, 74, 75,
77, 80, 88, 108, 131
and values of houses, 131
determinants, 76
United Kingdom, 77, 100
Post-war problems, 110
housing shortage, 117

146

HOUSING AN» EMPLOYMENT

Resources, allocation of :
interest rates and, 66
public policy decisions re, 25, 37,
132
to housing industry, 16
unemployment and, 28
Restrictive practices, in builcing
industry, 59, 105, 111, 120
Risk and uncertainty, effect on
housing costs, 102
Robinson, H. W., 73 n., 85 n.
Savings :
effect if not offset, 67 n.
offsets to, 31
Scott Report (U.K.), 128 n.
Seasonal variation in building, 120121
Simon, Sir E. D., 4 n., 24 n.
Singer, H. W., 13 n.
Skilled labour, retraining of, 118
Slum clearance, 123-128
community attitudes, 11
compensation, 127
control of rate of, 111, 124
legislation re, 106, 114, 119
United Kingdom, 100, 128 n.
Speculative building :
and instability, 95-96
control of, 124
Standardisation of materials :
modular design, 120
reduction of costs, 59, 116
Standards, housing, 3-4, 9-11
raising of, 106-108
Standards of living, 32, 103
Stolper, W. F., 35 n., 69 n., 73 n.,
77 n., 100 n., 136 n.
Stone, Peter, 50 n., 61 n.
Strauss, Nathan, 11 n., 17 n., 23 n.,
118 n.
Subsidies (see " Housing subsidies ")
Substandard housing (see " Slum
clearance ")
Suburbanisation and demand for
houses, 76-77
Sweden :
housing needs, 3
public and private housing in, 20
Taxation, real estate, 70, 106, 113,
122
assessments, 71

Tenements, " old-law ", 17 n.
Testing :
of materials, 119
of methods, 119
Title registration, Torrens system, 62
Torrens system of title registration,
62
Tourin, J., 112 n.
Trade unions :
and mobility of labour, 109
craft unions, 55
restrictive practices, 58-59, 105,
111
Transfer payments :
Government expenditures, 36
housing expenditures, 129
Transport, and demand for houses,
81, 99
Twentieth Century Fund, 20 n.,
22 n., 24 n., 51 n.
Tyerman, Donald (ed.), 128 n.
Underwood, R. E., 63 n.
Unemployment (see also " Employment ", " Fiscal policy " and Housing policy ") :
cyclical pattern of, 27
waste of resources involved in, 27,
103
Unions, construction industry (see
" Trade unions ")
Unions, craft, 55
(see also " Trade unions ")
United Kingdom :
building cycle, 100
Compensation and Betterment,
Committee on, 128 n.
housing needs, 3
land utilisation in rural areas,
128 n.
Ministry of Health, 4 n.
Ministry of Works and Planning,
128 n.
overcrowding, 4 n.
population, distribution of industrial, 128 n.
population movements, 100-102
public and private housing in, 20
slum dwellings, 4
subsidies, 136 n.
United States :
building cycle, 100
Bureau of Labor Statistics, 112 n.
Department of Labor, 12 n., 48 n.

INDEX

employment patterns, 47
Federal Census of Housing, 9
Federal Housing Administration,
23
Federal Reserve System, 25
fluctuations in various economic
series, 42
housing activity, 41
Housing Authority, 118
housing conditions, 10, 17
housing deficiencies, 10
housing needs, 3, 48-49
methods of building, 61 n.
National Bureau of Economic
Research, 41 n.
National Housing Agency, 10 n.,
49 n.
public housing, 20, 118
slums, social costs of, 10
Temporary National Economic
Committee, 50 n., 51 n., 57 n.

147

Urban areas, tendency to expand,
76-77
Uthwatt Report (U.K.), 128 n.
Vacant houses, need for surplus,
82 n.
Values, land, 51-53, 109
Wages, building industry :
guaranteed, demand for, 121
rates, 56
Wars :
effect on demand for houses, 88, 97
effect on supply of houses, 97, 117
post-war problems, 110, 117
Wood, Ramsay, 25 n., 97 n.
Wootton, Barbara, 15 n., 127 n.
Yardstick projects, 111, 118 n.

PUBLICATIONS OF THE INTERNATIONAL LABOUR OFFICE
STUDIES AND REPORTS
NEW SERIES
No. 1. The War and Women's Employment
An account of the impact of the war of 1939-1945 on the employment of women
in the United Kingdom and the United States, describing in detail the expansion
which took place in the use of women's services in both countries, particularly in
industry.
287 pages
Price: $1.50; 6s.

No. 2. Wartime Labour Conditions and Reconstruction Planning
in India
A brief presentation of information on wartime conditions and on plans for
social and economic improvement after the war, published in connection with the
Preparatory Asian Regional Conference which met in New Delhi, October-November
1947.
113 pages
Price : 50 cents ; 2s.

No. 3. Public Investment and Full Employment
Deals with public investment in the post-war world, financial aspects of timing
public investment, technical problems in timing public investment, the lessons of the
'thirties and the task ahead.
348 pages
Price : paper $1.75 ; 7s. 6d. ; boards $2.24 ; 10s.

No. 4. Nutrition in Industry
Contains essays on methods used during the war to improve the nutrition of
industrial workers in Canada, the United States and Great Britain.
177 pages
Price: paper $1.00; 4s.; boards 81.50; 6s.

No. 5. The Chilean Development Corporation
By Herman FINER .
Examines the economic and social problems of Chile which made it necessary
to establish the Corporation and describes the working, administration, scale of
operation and finances.
84 pages
Price : 50 cents ; 2s.

No. 6.

Labour-Management Co-operation in United States
War Production

An account of the development of labour-management participation first in
the national defence agencies and then in the emergency structure established on
the entry of the United States into the war.
408 pages
Price: paper $2.25 ; l i s . 3d. ; boards $3.00 ; 15s.

No. 7. Part 1. Employment, Unemployment and Labour Force
Statistics
Part 2. Cost-of-Living Statistics
Part 3. Methods of Statistics of Industrial Injuries
Part 4. The Sixth International Conference of Labour Statisticians
Reports prepared for the Sixth International Conference of Labour Statisticians
(Montreal, 1947) ; Part 4 contains the proceedings of the Conference and the
resolutions adopted.
Part 1 : 130 pages
Price : Part 1 : 75 cents ; 3s. 9d.
Part 2 : 58 pages
Part 2 : 35 cents ; Is. 6d.
Part 3 : 34 pages
Part 3 : 25 cents ; Is. Od.
Part 4 : 78 pages
Part 4 : 50 cents ; 2s. 6d.