Some Special Reasons for High Prices
We have outlined some features of the progress made in the house-building industry in recent years-improvements in materials, better and quicker ways of building, and more efficient building organization. All these things added together suggest that after the war millions of Americans may be able to get the kinds of houses they want at prices they can afford.
Will this come to pass?
Will the demand for better houses by the majority of low-income and middle-income groups be fully met? In the past this has not been done. Most of the new and better houses were built for the upper-income groups, and large numbers of American families continued to be housed unsatisfactorily.
There are various situations in the building industry that sometimes help to keep prices high and sometimes help to prevent or delay greater improvements from being made in materials and building methods.
In the automobile industry it was not until a few large firms appeared that prices fell sharply and quality improved. As yet, no such companies have arisen to build large numbers of low-price dwellings. After the war, they may appear. Some of the older, established industrial corporations or some of the large-scale war industries that have grown up to meet military needs may perhaps give their attention to the problem of building better and cheaper homes. The rise of large-scale house builders does not mean that the small builders will not go on building houses. Those who are studying the problems of housing suggest that there will always be room for contractors who undertake to build one or two, or at most a very few, custom-made houses a year. At the same time they suggest that custom-made houses, like custom-made shoes, are likely to be more expensive than factory-made products.
Some of the problems of lower-cost housing, according to students of the problem, have to do with agreements between groups in the industry to control the prices of materials. These, they say, tend to keep building costs high. Such agreements are in existence between dealers in building materials and subcontractors, between manufacturers and dealers, and between contractors and labor unions. The purpose of these agreements is not only to prevent one group from cutting prices, but to do away with competition, to protect the interests of those already in business, and often to keep new products off the market.
For example, the Department of Justice says that manufacturers who make 80 percent of the plumbing supplies in the United States refuse to sell directly to builders or home owners. If this is in fact the situation, it means that builders or home owners who want to buy their products must go to a plumbing contractor. He in turn can only buy from a recognized jobber.
This, it is pointed out by housing authorities, raises prices because the article must pass through several hands, and each one who handles it must cover his costs of doing business and attempt to make a profit as well.
Manufacturers of building materials often force their dealers to agree not to sell below certain prices. Since, under this arrangement, the price is usually high enough to bring the manufacturer a good profit, he may have little desire to try to find ways of making a better and cheaper article.
When there is an agreement between manufacturers and dealers, it is practically impossible for a builder to buy his materials direct from the manufacturer. Sometimes labor unions make agreements to work only with materials bought from certain jobbers or dealers. Housing authorities believe that all this makes for more costly houses because it checks competition and maintains a roundabout and more expensive system of routing materials from factory to building site. Even large government orders for camps, bases, airfields, and the like often have to go through complicated systems like these. Prices are kept high in various other ways. Manufacturers, for example, sometimes agree not to compete with each other. That means that they quote the same prices for similar articles.
Sometimes builders in the same area agree not to underbid each other. Thus when a contractor calls for bids for a particular job he may find that all bids are the same.
Housing authorities point out that the idea of self-defense is important in understanding many practices in the building industry. That is, the house-building industry is loosely organized
and it has great ups and downs. Activity may be good one week or month or year, but nobody knows what the next will bring. Labor unions to a large extent have stabilized employment in the building trades, protected workers against unfair employers, and raised the pay scales and annual incomes of the members. But the rules and regulations worked out for self-defense tend to add to the cost of construction, according to housing authorities.
They assert that such rules and regulations are designed to keep wages at a high level, to spread work—sometimes even to make work or to bring about the employment of skilled workmen for jobs that might be done by workers having less training. In some instances, it is said, bonuses for doing a job faster are not permitted, or the use of labor-saving machinery and power tools may be ruled out. A union may inform the builder how many men to employ for a given operation even if the number is not actually needed, or it may call for work to be done at the site which might be done more cheaply in the shop. Some unions may refuse to allow their members to work with nonunion materials or with articles made by members of a rival union.
Running through such practices, as has been suggested, is the idea of self-defense. A recent impartial study of the problems and prospects of American housing emphasizes this point. “Restraints in housebuilding,” it declares, “can be partially explained as efforts . . . to acquire stability and security. . . . Manufacturers of building materials strengthen themselves by mergers or mutual agreements. These, in turn, endanger the position of local distributors, who consequently combine in self-protection. Subcontractors generally cannot individually resist the price pressures of distributors of materials on the one hand and of general contractors on the other. Hence they make intra-trade agreements. Finally, labor unions, faced with seasonal and sporadic employment, have often consented to act as the enforcing agents for restrictive agreements of subcontractors or suppliers in the hope of protecting their jobs and earnings.”
Local governments, by setting up numerous building rules and regulations in the interest of public safety and health, may add to the problems involved in building cheaper homes. About half of all towns and cities with populations of over 2,500 had some form of building code in 1938. There were also state codes in Indiana, Ohio, and Wisconsin. Many cities have electrical codes, elevator codes, tenement-house laws, fire-prevention codes, and yet others.
Codes describe, sometimes in great detail, the methods and materials that are permitted in building a house-for example, the thickness of brick walls, the size of pipe, the height of the ceiling, and the floor area.
It should not be forgotten that the codes are designed to promote public safety and health. At the same time, however, housing experts point out that frequently city laws, as written into the codes, do not permit officials to approve newer and cheaper materials or more economical building methods. Some codes, according to these experts, are said to be designed to protect local manufacturers. Others, it is said, may require builders to use more materials than they need or forbid them to work with labor-saving machinery or to employ fewer skilled workmen. In some cases it is alleged that manufacturers try to get authorities to favor their products or that builders attempt to find ways of using cheaper materials despite the codes.
The codes, where enforced properly, make it illegal to put up houses, whether one or many units, that do not abide by the established requirements of public health and safety. In many cities codes require builders to install indoor plumbing, fire escapes, brick sidewalks, and to take other measures to make the dwelling and its surroundings livable and comfortable.
Everyone would concede the purposes of these measures to be good. But some of those interested in better housing take the position that often the harm done by trade restraints and outworn or rigid building codes has outweighed the good. That is, they say that the rules and practices have tended to make houses more expensive and to discourage the use of newer construction methods and cheaper materials. This pamphlet obviously cannot settle such a question, but it can set forth the differences in point of view that are involved and suggest that a realistic application of the idea of free enterprise will have its effect upon building materials, building trades, and building codes.