What Will Be Spent on Housing?

These estimates give us at least a rough idea of the number of houses which will be needed after the war. But can this need become an effective demand?

Here we are dealing with so many unknown factors that our guess must be of the roughest kind. Basically there are four factors that influence the total amount of house building in this country.

First, materials. Sufficient materials for a real housing boom may not be available until some time after the war.

BuildSecond, the size of the population and its distribution. We know the rate of population growth in the past, but we do not have any exact idea how the population will be distributed after the war. For example, how many of the cities and towns which mushroomed during the war will stay at their present size, or anywhere near it?

Third, the national income. This is perhaps the most important factor. At the end of the war our national income is likely to be at a high level. While it may not stay at the 1943 level of 148 billion dollars, it is safe to say that both private business and government will try to prevent any drastic drop in employment and national income.

To make a guess at how much money will be available for housing, let us assume that the annual national income will be around 100 billion dollars (at 1940 prices) in the years just after the war. This would be fairly close to the level of 1929, the peak of the last business boom.

The national income may actually be a good deal higher. But, assuming this figure, what part of the 100 billion dollars will be spent for housing? Here we have only the past to go by—certainly not a perfect guide, but it may offer some good clues.

In general, many houses are built when times are good, and few when they are bad. In the last 20 years the value of residential building, including new houses of all sorts as well as repairs and alterations, ranged from 7.2 percent of the national income in 1925 to 1.4 percent in 1933.

Judged by the past, a high level of income, such as we may expect at the war’s end, would bring a high level of house building. We might assume, therefore, that 6 percent of the national income would be spent for this purpose. If that income reaches 100 billion dollars a year after the war, there would be 6 billion dollars for house building.

How much housing would 6 billion dollars buy? Again we must refer to the past. In 1925, nearly 4.5 billion dollars were spent on new nonfarm dwellings, costing about $4,800 each, not including land. The country spent almost another billion dollars for repairs, alterations, new farmhouses, and so on. In other words, 83 percent of the money spent on housing that year went for new nonfarm homes and 17 percent for other house building and repairs. In 1940, about 600,000 new nonfarm units were built at a cost of around $3,800 apiece, not including land.

Looking backward, we find that building costs in 1925, at $4,800 a unit, were high, and also that not enough was spent on repairs to keep old houses in even a fair condition. The same was true in 1940, when too few houses were being built to take the place of those that had worn out, and a lot of existing houses, as the census figures show, were in a badly run-down state.

In view of these facts, and because recent technical progress has opened the way to further reduction in costs, we may expect houses to be built after the war at less cost than in the past. At the same time, a larger share of the money spent for housing probably will go into repairs.

Suppose we assume for the sake of getting some idea of the housing picture after the war that (1) it will cost $3,400 to build the average nonfarm home (excluding land) and (2) of the 6 billion dollars that will be spent for house building, 70 percent will go for new nonfarm dwellings and 30 percent for other types of houses and repairs. On this basis, nearly a million and a quarter new units could be built, costing altogether 4.2 billion dollars. In addition, 1.8 billion dollars would be spent for alterations and repairs, new farmhouses, and so on.

If this forecast should turn out to be at all correct, the house-building industry would enjoy the biggest boom in our history. There would be more jobs than ever before for carpenters, bricklayers, masons, plumbers, steam fitters, painters, paper hangers, plasterers, electricians, and all others engaged in house building.

Of course, these guesses may be off, one way or another. If the national income should happen to drop below 100 billion dollars after the war, these figures would be too high. If housing costs fall even more than we expect, the figures would be too low.

Should the population not increase as rapidly as it has in the past, or should people who have the money generally prefer to spend it on automobiles, refrigerators, radios, and washing machines, or on travel and other things, then there would be less demand for housing and these figures would again be too high.

The figures given above, however, are regarded by many authorities as within reason. They are convinced that house builders will have a huge market to satisfy when the war ends—a bigger market than they ever had before.