Savings associations and individuals.-In presenting a complete review of construction finance, data should be included showing interest rates, new loans, and related data for construction purposes by a number of agencies in addition to those already mentioned, such as savings banks, savings and loan associations not affiliated with the Home Loan Bank System, commercial banks (for loans not insured by the Federal Housing Administration), as well as by individual lenders. Individual lenders alone, according to the Financial Survey of Urban Housing sponsored by the Bureau of Foreign and Domestic Commerce in January 1934, were disclosed to play an im 11919 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 DD-0663 Like Figure 29.-Private New Capital, Bond Yields, and Private Nonresidential Construction, 1919-35. NOTE-Private new capital flotations are based upon new domestic corporate issues reported by the Commercial and Financial Chronicle; all investment trust issues, however, are excluded. Bond yields, private issues, are the arithmetic mean of 15 industrials and 15 public utilities as reported by the Standard Statistics Company, Inc. vate nonresidential construction is based essentially upon the data used in fig. 29, residential building in this case being excluded. Pri portant part in housing finance, and for that year may have held possibly as much as 20 percent of the home mortgage loans of the country as a whole. Although data for real-property loan assets of some of the agencies mentioned above are available, no satisfactory data appear to be compiled giving the volume of current new mortgage loans and the interest rates of such loans. It should be observed, however, that a great deal of improvement in the quality of such statistics has been made during 1935 by governmental and private agencies. CONSTRUCTION COSTS, RENTS, AND VACANCIES In addition to construction financing, there are a number of other important considerations which determine the volume of construction activity. For residential building, the demand in terms of rents and vacancies is most important. Vacancies. Such data as are available for a few cities in the United States indicate a level of vacancy for 1932 of 10 to 12 percent of the total number of dwelling units. This ratio has been steadily declining, and during the latter part of 1935 reached the unusually low figures of 1.8 to 3.9 percent in such cities as Denver, Cleveland, and St. Louis, for which accurate data are available. Many other cities reported a similar trend in vacancies in dwelling units. Vacancy data relating to offices, stores, and other commercial buildings are not sufficiently extensive or reliable to warrant any precise observation regarding the condition of the demand for such space. It appears, however, on the basis of the available information, that improvement in the occupancy of such structures has been very slight, and that the vacancy ratio is still high in most cities. Rents. Rent data are available only for workers' dwelling units and are not altogether satisfactory for analyzing returns on properties. The rent index of the National Industrial Conference Board shown in figure 30, based upon month-to-month rent changes in 173 1920 1921 1922 1923 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 DD-8657 LIKE Figure 30.-New Residential Building, Rents, Building Costs, and Foreclosures, 1920-35. (New Residential Building, United States Department of Labor; Rents, National Industrial Conference Board; Building Costs, American Appraisal Co.; and Foreclosures, Home Loan Bank Board.) cities, indicates a slight decline from a peak in the summer of 1924, followed by a somewhat sharper decrease beginning in 1931 and ending in a low point in January 1934. Since that time, through 1934 and 1935, the index has risen slowly but continuously. Since available rent indexes make no allowance for rebates, remission of rents, noncollectible items, and certain other factors, it is quite likely that their fluctuations are somewhat moderated, and that the actual net return to property owners fell to lower levels in 1933 and is experiencing a sharper revival in 1934 and 1935 than that disclosed by the indexes of rental rates. Nevertheless, the index of the National In dustrial Conference Board, which is based upon current new rental rates, is probably the nearest approach to the trend at present available. Construction costs.-Three representative construction-cost indexes are shown in figure 31. The index of the American Appraisal Co. relates to building costs of all types. The index compiled by the United States Bureau of Public Roads is a measure of the changes in actual highway construction costs (in which technical progress has 1915 1916 1917 1918 1919 1920 1921 1922 1923 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 DO-87012 Figure 31.-Construction Cost Indexes, 1915-35. (Building Construction Costs, American Appraisal Co.; Highway Construction Costs, United States Bureau of Public Roads; Construction Costs, Labor and Materials, Engineering News-Record.) been conspicuous over the period from 1920 to 1933). The third index is a composite of labor and material costs, compiled by the Engineering News-Record and weighted especially to show the trends of costs for heavy construction. In general, construction-cost indexes appear to have reached their lowest point in 1932 or early 1933 and to have increased substantially for about a year. During the past 2 years they have displayed only minor changes. It may be observed that the rise occurred some time in advance of the revival in construction activity. TRANSPORTATION AND COMMUNICATION RAILROADS The year 1935 was divided into two fairly well defined periods insofar as railway operating results are concerned. During the first half of the year the number of freight cars loaded was less than in the corresponding period of 1934, passenger traffic was only slightly higher, net railway operating income was considerably smaller, and the deficit incurred was much larger. With the expansion in freight traffic after July, the situation was much improved, and for the year as a whole the class I railroads reported a deficit of only $288,000. Thus, the past year was the first since 1931 in which the railroads did not operate at a substantial loss. 1920 1921 1922 1923 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 DO-8702 2 Figure 32.-Freight Cars and Locomotives Installed on Class I Railways, 1920-35 (Interstate Commerce Commission). Notwithstanding the improvement in operating results during the latter half of the year, 1935 was another difficult period for the railroads. A cumulative deficit of $194,000,000 incurred by Class I roads (after elimination of some intrasystem payments) during the preceding 3 years and continued deficits throughout most of 1935 seriously impaired the financial standing of the carriers and made difficult or impossible the financing of capital requirements through ordinary private lending channels. While further financial aid was extended by governmental agencies, the mortality rate continued high, with 16 companies operating 29,018 miles of line being forced into bankruptcy or trusteeship. This raised the total number of com 61875-36——6 73 panies under the jurisdiction of the courts to 89, and the mileage to 71,658. The latter figure represents the largest mileage ever in receivership or trusteeship at one time. With the industry struggling to meet operating expenses and heavy fixed charges, the volume of expenditures for equipment and rails in 1935 was restricted to a minimum. In the preceding year, substantial advances by the Government made possible the purchase of a somewhat enlarged volume of needed rolling stock and rails, but with direct loans for this purpose lacking in 1935, buying was again curtailed, with consequent adverse effects on the equipment-building and steel industries. At the end of the year equipment orders were again being placed in increasing volume, but such purchases were small compared with any but those of the lowest years of the depression (fig. 32). FACTORS RETARDING RECOVERY Insufficient revenues.-Failure of the railroads to share more prominently in the recovery experienced since 1932 is due to a variety of causes, but the basic difficulty lies in the relatively slow expansion of revenues from freight traffic. Although increasing sharply during the first half of 1933, such revenues subsequently followed a horizontal trend (after allowance for seasonal variations) until the latter half of 1935, when they expanded substantially. Passenger revenues improved only slightly from 1933 to 1935. As freight revenues constitute 80 percent of all railway operating revenues, it is apparent that the prospects of improvement for the railroads are largely tied up with the movement of goods. A larger volume of passenger traffic can be handled, however, without a corresponding increase in operating expenses. Increased operating costs. Another factor in the relatively unsatisfactory operating results has been the steady rise in operating expenses during the past 3 years. The railroads have only a limited control over their expenditures, not only because of heavy fixed charges but also because of shifts in the cost of materials which constitute an important percentage of total costs, and various Government actions affecting costs, such as the pension enactments of the past 2 years. However important these considerations may be, and despite possibilities that further complications may arise if certain pending legislation is adopted, the problems of the carriers will assuredly be less difficult of solution if the present uptrend of traffic continues. The tendency for the improvement in the durable goods industries (including the construction industry) to assume more substantial proportions is of considerable importance to the railroads, since such types of activity contribute largely to profitable tonnage. Competition from motor-truck carriers.-Increasing competition. from motor-truck carriers has undoubtedly also had some adverse effects on railroad earnings during recent years. The first major step in the direction of the regulation of the motor-trucking industry was taken with the passage of the Motor Carrier Act of 1935 (see p. 122). |