Replacement rates

In addition to these requirements for new population and new families, the Nation must replace the 10.2 million substandard units requiring replacement shown in table 2. If these units were to be replaced in the period 1955-65 we would have to build nearly 2.5 million homes in each of these years. This could not be accomplished in the immediate future without inflationary pressures, unless other construction drops seriously and unless there is a substantial drop in armament production. From a purely housing standpoint, it would be undersirable to attempt any such volume of replacement until new homes are available to accommodate those displaced from substandard homes.

TABLE 3.-United States population and average household size, 1930-70

For these reasons it would appear to be both economically and socially desirable to spread the replacement task over a 20-year period. If this were done, the volume of current construction would have to be increased steadily and rapidly, but within magnitudes which could be readily achieved by the building industry. Such a program would permit relocation to proceed in a more orderly and humane fashion, and would be more nearly in keeping with the capacity of our cities to plan for slum clearance and redevelopment.

Finally, if the replacement job is scheduled over a 20-year period, the annual volume of new building for replacement will be stabilized over a 30-year period. For by 1975, when the job of replacing our 1950 substandard homes is completed, we will have to continue replacement construction at the rate of 500,000 units per year merely to replace dwellings then becoming 70 years old. Indeed a step-up of replacement construction to a level of over 600,000 units per year would be necessary to cover the 1950-70 backlog of deteriorated dwellings during the succeeding 20 years.

Construction program

Requirements for additional residential construction for new household formation, and for replacement of units substandard in 1950, are set forth in table 5. Additional housing needs are those shown in table 4, ranging from 1.43 million in 1955-60 to 1.74 million in 1965-70. Replacement of the 10 million 1950 substandard units is spread over 20 years at 500,000 per year. To these must be added replacement of current losses here scheduled at 100,000 to 160,000 per year or somewhat below the estimates shown in table 1. The resulting new construction requirements are 2.03 million per year for the period 1955-60, 2.28 million for the period 1960-65, and 2.40 million for 1965-70. In periods after 1970 the new construction rate should be above 2.60 millions.

Some part of these requirements could be met, of course, by the conversion of existing larger homes and apartments into smaller apartment units. When such conversions are made without structural and plumbing changes, they usually produce substandard or nearly substandard units. When accompanied by structural changes and the installation of needed plumbing facilities, satisfactory housing can be provided. The total number of such potential conversions is substantial, but is proportionately small. There were only 3.3 million units in the United States in 1950 with 8 rooms or more. Most units which were suitable for conversion must have been converted during the acute housing shortages of the war and postwar years. Many others are poorly located for rental use or are in areas zoned for single-family use only, or are dilapidated. If 25 percent of these 2.7 million units are still not converted and are legally, economically, and structuraly convertible, and if half of them are converted during the next 10 years, this would reduce new construction requirements by only 70,000 units per year. The smaller size of houses built since 1920 makes improbable any large volume of conversions in the future.

In addition to new construction requirements, we have an estimated 4.6 million units which were substandard in 1950 and were presumed suitable for rehabilitation. If 400,000 of these units were rehabilitated each year for the next 5 years and 600,000 per year were rehabilitated thereafter, the 1950 backlog of substandard rehabilitation units could be eliminated by 1965. By that time the large volume of obsolete dwellings becoming 60 years of age should provide opportunities for sustaining this level of rehabilitation activity.

TABLE 4.-Estimated changes in population, household size, number of households and housing units required, 1955–70

3 A lower rate of reduction in average household size would be as follows:

4 See text for explanation of relationship between family and household size. These estimates include needs arising from new family formation, undoubling, required vacancies, changes in family size, and increases in number of persons or families using separate housing accommodations.

TABLE 5a.—Annual requirements for rehabilitation of existing dwelling units1

Data from the 1950 census indicate that only 500,000 of the nonfarm units which were substandard for lack of plumbing facilities are occupied by families with incomes of more than $4,000. These should provide a ready market for modernization. An additional 500,000 units occupied by families with incomes of $3,000 to $4,000 may also be rehabilitated if sufficiently liberal credit is available for these purposes. The remaining 2.2 million nonfarm units, occupied by low-income families, of which 1.6 million have incomes of less than $2,000 per year, may present greater difficulties as will the modernization of 1.4 million farm homes. Only an aggressive campaign is likely to achieve the schedule set forth above. Schedules for slum clearance or perpetuation

The construction program outlined above requires that new housing construction be increased by 80 percent over the 1951-53 levels and by 40 percent over the 1950 level. Any lesser volume of construction however means that our slums and substandard housing will continue to accumulate and will never be reduced or eliminated. The consequences of different levels of construction and rehabilitation are summarized in table 6. If new construction continues at slightly above the 1951-53 average, and if in addition we can rehabilitate 400,000 to 600,000 units per year, the number of substandard units in use will increase by 2 million in the next 15 years. This means that substantially all of the 15 million units which were substandard in 1950 would still be occupied by American families in 1970. At construction levels of 1.4 to 1.6 million units per year, approximately the 1950 rate, slight progress is made in reducing the number of substandard units capable of rehabilitation. No elimination of the 10 million units classified for replacement appears possible. At 1.6 to 1.8 million new units per year, all of these 10 million units must be continued in use until 1965 and 1 million of these can be replaced by 1970. Only if new construction is raised to 2 million units a year is real progress possible toward the elimination of units substandard in 1950. At the construction and rehabilitation rates shown in table 5 some 5 million of the present substandard units can be eliminated by 1960, but in 1970 some 5 million will still be required in use. Table 6 suggests that 2 million new units per year are essential for even slow progress toward the goal of a decent home for every family. Any lesser level perpetuates the slums.

COMPARISON OF NEED ESTIMATES

The estimates of housing need prepared by six national organizations or agencies in recent years range from 1.4 million units per year to 2.4 million units per year. The standards, methods of estimation and programs of these studies vary widely. Some include farm housing, others deal only with nonfarm housing, some cover only the period to 1960, others project needs through 1975. Table 7 presents these estimates on a comparable basis, utilizing the standards adopted by each organization. The table shows a remarkable degree of agreement as to the inadequacy of present construction levels. Current needs for new construction are 1.4 million nonfarm units per year or 27 percent above present levels in all estimates. Most of the estimates place current total requirements at or above 2 million units per year. A similar degree of agreement appears in the three estimates with respect to long-range requirements for new family formation. Here the range is from 1.8 to 2 million units per year.

16

15 Table 6 is based upon detailed schedules contained in the appendix.

16 The Fortune estimate includes maximum demands (not needs) as shown in the table. Its estimated minimum demand of 1.1, 1.6, and 1.8 million units in successive 5-year periods relates to market demand rather than replacement and new need.

TABLE 6.-Projections of substandard units remaining in use at various levels of housing construction and rehabilitation, 1955-70

TABLE 7.-Comparative estimates of housing need (converted to comparable

basis), 1955-70

1 Statement of the A. F. of L. executive council, Chicago, Aug. 12, 1953, p. 3. 2200,000 units per year added for farm housing. This is the low estimate of farm-housing needs prepared by the Housing and Home Finance Agency, compare note 4.

Fortune, vol. XLIX No. 2, February 1954, pp. 103-4. This estimate is for market demand. A lower estimate of demand is also presented. See text note.

How Big is the Housing Job, Washington, 1951, p. 13. The adjustment for farm housing is based upon p. 14.

National Association of Home Builders Correlator, vol. VIII, No. 2, February 1954, pp. 4-6. The statement does not explicitly refer to farm and nonfarm housing, but is based upon nonfarm data. This estimate excludes 750,000 units for rehabilitation in lieu of replacement units which are included in other estin ates. Thus comparative figures might better be 2, 2.5 for nonfarm construction. The report calls for 2 million new or "new condition" units per year.

After 1970, estimate is for 2 million per year for additional new dwellings. No estimate of rehabilitation or replacement after 1965.

7 Speech of Charles B. Shattuck, president, National Association of Real Estate Boards, New York Times, Nov. 11, 1953, p. 48. The text indicates that the reference is to housing demand, not need. It is estimated that there is demand for 1.1 to 1.4 million units. The figure quoted above is therefore, the high demand.

Farm housing included. Rehabilitation of .4 to .8 units excluded since these do not add to supply. Manuscript of forthcoming edition of "America's Needs and Resources"; J. Frederick Dewhirst and Associates, Twentieth Century Fund, to be published in the fall of 1954.

10 Resources for Freedom, Washington, 1952 vol. 1 and vol. 11. This estimate is the volume required for the entire period 1950-75. The estimate is presumably lower in the early years and higher in the later years.

ECONOMIC FEASIBILITY

The levels of residential construction proposed by this report are well within the limits of economic feasibility as measured by past output. In 1925 the Nation applied 6.5 percent of its gross national product to nonfarm residential construc

tion, and in 1950, 4.4 percent of our national product was devoted to housing. These were boom years. Housing investiments in other years are shown in table 8 as a percentage of national product. Over an entire building cycle, 1919-35, the average was 3.9 percent. This may be assumed to be a reasonable normal ratio of housing investment, one which can be increased substantially in favorable years.

Under the conditions assumed in this report, namely sustained economic growth, national income should increase steadily. If this increase is continued at substantially less than the rates of recent years, our gross national product should reach the levels shown in table 8. The annual rate of growth here used declines from 3.6 percent per year to 2.1 percent per year over the period in the low estimate and is stable at 3.5 percent per year in the moderate estimate. This latter rate of growth corresponds to that used by the President's Materials Policy Commission in its projection of future economic growth."

It is assumed that prices will be stable over this period, and that the average dwelling unit cost can be held to $8,000 or less. This assumes that building volume will include a relatively high proportion of low- and moderate-cost units. These assumptions are substantially below current average house prices. Building costs used in production analysis are well below home prices used in consumer cost analysis. Farm construction is excluded from table 7 but is included in table 8. Modernization expenditures are therefore excluded from the latter table.

Even at relatively slow rates of growth, housing goals can be achieved at the 1919-35 ratio of residential investment and at substantially below the 1950 rate. At the rates of economic growth of the last two decades, the expenditures for housing would be reduced to 3.2 percent. In short, if we continue to spend no more of our income than we have in the past, and if our economy continues to grow at a steady rate we can afford to build from 2 million to 2.4 million homes per year in the next 15 years. Under favorable circumstances, lower ratios of expenditure will produce even more housing than these estimates require.

TABLE 8.-Gross national production and new residential construction, selected

1 American Housing, 20th Century Fund, appendix C, table 13.

* Economic Report of the President, 1954, table G-2. Prices are in 1953 dollars.

TABLE 9.-Projections of gross national product and new residential construction,

1 Gross national product increased from $390 billion in 1955 by a constant amount of $12 billion, or at a rate declining from 3.6 to 2.1 percent per year.

Rate assumed by the Paley Commission. Gross national product increased by 3.5 percent per year (the 1925-50 rate).

* Assumed cost per unit is $8,000.

17 U. S. President's Materials Policy Commission, Resources for Freedom, Washington, 1952, vol. 1, pp. 1-10; vol. 2, pp. 96-113.