So you'd like to Build -
Building a home of your own is one way to escape the housing problem. How do you go about it?—Maclean's architectural editor explains the advantages — and difficulties — in the first of two articles
JOHN CAULFIELD SMITH
THERE ARE 150,000 Canadian families living in congested quarters. To house them we’d have to huild another city as big as Toronto. Or, if you think one. Toronto is enough, we could build instead another Ottawa, another Winnipeg, another Hamilton and Windsor. Either way the total dwellings provided would be the same.
How did we ever get so far behind?
Till 1929 new construction kept pace with current needs. But the hungry thirties affected the building industry like the sun does ice cream. By 1934 the gross value of construction had melted to one third the 1929 figure.
Housing was one of the sickest members of the building family. To promote its recovery the Dominion Government, as doctor of economics, prescribed legislation. First came the Dominion Housing Act 1935, then the National Housing Act 1938.
While the patient responded immediately, the supply of new houses never caught up with the need. By 1941 one million people were living in overcrowded conditions in our 27 major cities. To Three Rivers went the honor of being the most congested place in Canada. Hull, Quebec, Sudbury, Halifax and Sherbrooke came next. Montreal was seventh, with
Sydney, Moncton, Edmonton and Prince Rupert not far behind.
What has been done about it?
Wartime Housing Limited was organized in 1941 to provide low-rental dwellings for warworkers. Additional measures were the Home Extension Plan 1942 and the Housing Conversion Plan 1943. Last year a new National Housing Act was announced.
You, the reader, may be affected by this housing shortage. No doubt you occupy quarters of some sort, but beyond protecting you and your family from the weather the accommodation’s most inadequate. You urgently need a better place in which to live and are open-minded on the subject of whether to rent, build or buy.
Bill Green is in the same fix. He’s a top-notch technician who came to Hamilton in 1941. it took time but he eventually located a landlord who let him have two rooms over a store. The arrangement was to be temporary; Bill’s wife expected a baby. However, he never did find anywhere else to live. The baby’s now four years old and has a little brother and sister.
The Government urges all persons not engaged in war or essential civilian activities to leave “emergency shelter areas’’ like Hamilton as soon as possible. Bill Green might still have the luck to find a nice apart-
ment or house for rent. But now he would have to obtain authorization from the local Emergency Shelter Registry before signing the lease. If he should be moved to another area under similar controls, he would have to get a permit from the Emergency Shelter Administrator before beginning to look for somewhere to put his family.
Sweeping as the new regulations are, they cannot produce housing where none exists. Nothing is more certain than that rental accommodation will remain scarce.
As a matter of fact Canadians prefer home ownership. Almost three out of five families at present own the dwellings they occupy. And if you plan to build or buy you won’t be alone. According to a nationwide survey completed by the Postwar Research Department of The MacLean Publishing Company Limited, 250,000 Canadians desire to build and 135,000 wish to buy homes of their own.
Are You the Owner Type?
IS IT better to have your house tailored-to-measure or to buy one ready-made? No general answer can be given to this question. It is a matter of personal inclination coupled with the necessity of getting, in a district you like, a dwelling which will satisfy your requirements at a price you can afford.
Though this article is concerned with building it must be remembered that, build or buy, ownership of a house carries with it certain responsibilities. Are you willing and able to assume them? If you’re elderly, or prefer to have things done for you rather than do them yourself, you may find ownership irksome. If your trade or profession requires you to be free to avail yourself of employment opportunities in other cities or towns, home ownership may restrict your movements. If you are unable, or can only with difficulty accumulate sufficient savings to make a down payment on a house, or if your employment or income fluctuates widely, home ownership may be too great a risk for you to run. Dispossession or foreclosure, in the event of inability to keep up mortgage payments, means loss.
Economists agree that, roughly speaking, two to two-and-one-half times the annual income of the head of the family is the maximum amount which can be safely spent in building or buying a house. If this sum is exceeded it has been found that there will not be enough money left to provide for the necessities, let alone the minor luxuries, of life. It is ironic that a man with no family can afford to buy a larger house than his fellow worker of equal salary who has children and needs more space.
In the MacLean Postwar Research survey, one half of the 250,000 families who indicated their intention of building said they expect to do so at a cost less than $4,000 for house and lot. Only one of every six persons interviewed planned to spend more than $6,000. Over one half plan to finance erection of their homes entirely from savings. Of the remainder almost twice as many expect to apply for a National Housing Act loan as plan some other mortgage or deferredpaymentscheme.
Under the Act one quarter of each loan is made up by the Dominion Government and the rest by the lending institution, which may be an insurance, mortgage, trust or loan company. A joint mortgage is taken as security and, in addition, the Government gives the lending institution a limited guarantee
against loss on its share of the loan. The guarantees are largest on low-cost houses and those built in rural areas and remote communities.
How to Apply for a Loan
APPLICATIONS for mortgage loans are handled through the lending institutions. A list of these and their addresses may be obtained from the Director, National Housing Administration, Department of Finance, Ottawa, or from any of the regional offices of the administration. Raymond Card, Toronto regional director, says there are eight things to do in order to obtain a loan under the Act:
1. Select a lot which will meet with the approval of the lending institution.
Your choice of site will determine the value of your whole investment. Pick a restricted district of good residential character, where the cost of land will not represent more than 10% to 15% of your total expenditure on house and lot. Don’t complete purchase arrangements until you have the mortgage manager of the lending institution advise you as to the acceptability of your site. Take an option in the meantime, if necessary.
2. Have a set of plans prepared to scale, or select a National Housing Act plan.
An architect’s services are invaluable, not only in designing your house, but in preparing specifications and supervising construction. As an alternative to employing an architect, you may obtain stock plans from the National Housing Administration, four sets for $10. Pamphlets illustrating the various house designs offered can be had for the asking.
3. Fill in the memorandum specification booklet supplied by the National Housing Administration.
Your plans must comply with the minimum standards of construction established by the Act. These are given in the front of the memorandum specification booklets supplied by the Administration, four for 40c. The various clauses of the specification must be filled in by your architect or builder. Do not attempt to do it yourself unless you understand construction.
4. Get a contractor to give you a price for building the house.
You must know the cost of your house before you start to build. This can be estimated by a contractor basing his calculations on your plans and specifications. Choose a reliable man, one whose honesty and ability are vouched for by people who have employed him in the past. If you have an architect he will look after the details in connection with calling for tenders, selection of a builder, and signing the contract.
5. Have in cash or land, or both, an amount equal to your share of the cost of land and building.
A down payment of 10% on the first $4,000 of lending value and 30% on all lending value over $4,000 is required. The lending value of a house and lot is defined as either the total cost or the appraised value, whichever is smaller. Formerly the two closely approximated one another, but today due to the National Housing Administration’s unwillingness to recognize current building costs—the officially appraised value is 10% to 20% less than the contractor s estimated price. The owner must make up this difference in addition to his down payment.
The down payment may be in the form of land or cash, or both. The lower the lending value the smaller
the down payment necessary. The interest rate is 4M% yearly, and a number of repayment plans are offered. Payments covering both interest and principal are made each month, like rent. The monthly payment on a 20-year mortgage comas to $6.30 on each $1,000 of loan. The popular “5/15” year plan permits higher repayments during the first five years, when maintenance costs are low, then smaller payments for the remaining 15 years.
This table shows how much the homeowner pays (a) monthly and (b) over the entire term of the mortgage for each $1,000 he borrows:
Term of Monthly payment on mortgage each $1,000 of loan 20 years $6.30
5/15 ” $7.63 (first 5 years)
$5.63 (last 15 years) 15 ” $7.63
10 ” $10.34
Total payment over entire term $1,512.00 $1,471.20
To the monthly payment must be added one twelfth of the annual municipal taxes.
If an owner should wish to repay his loan in a shorter period than originally arranged, he may make additional payments each year up to 5% of the amount of the mortgage. If he desires to repay the loan in full at the end of the third or any subsequent year, he may do so with the payment of three months’ interest as bonus.
A temporary maximum limit has been placed on the lending value of house and lot in order that available labor and materials may be most effectively employed. The Minister of Finance states, “For a single dwelling with one or two bedroomsthelimitis$6,000,increasing to $7,000 for three bedrooms and $8,000 for four or more bedrooms. The intention is to raise these maximum limits when and as materials and labor become more abundant.”
6. Make arrangements to have the house built and supervised in your own interest.
While, if an application for a loan is granted, inspections are made by the lending institution and the National Housing Administration as construction progresses, these merely check compliance with standards established by the Act. If the contractor is able and experienced it may not be necessary to oversee his work. If he’s not, and you are a building amateur, it is wise not to attempt to supervise it yourself. An architect will make sure your money’s well spent.
7. Be prepared to show that the cost of the house you propose to erect is in proper proportion to your income.
It will be necessary for you to provide details regarding your income, the amount of life insurance you carry, and your possession of cash, securities and real estate.
8. Fill in an application form and submit it to one of the lending institutions.
Applications for mortgage loans must be submitted, together with plans and specifications, to the lending institution chosen. They are then checked, first by the institution itself, then by the National Housing Administration.
Don’t begin building until the Government has approved your plans and specifications. When approval has been given and construction commences,
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you pay your share of the cost directly to the contractor. Then, as successive stages in the work are reached, the lending institution makes advances to you by cheque. There are certain charges to cover legal, survey and financing costs which must be paid; these usually amount to about 2% of the loan. Together with interest on advances they are deducted fromthe last cheque you receive from the lending agency.
Jim Brown, young engineer on the Vancouver sales staff of an electrical firm, wants to build a house this spring. He heard about the lending facilities provided by the Government and obtained application forms for a National Housing Act mortgage from his insurance company. As he paid $500 for his lot, and a reliable builder estimated tjie cost of his house at $5,500, Jim felt justified in entering the total cost as $6,000. From an official copy of the act he then calculated the size of down
10% of first $4,000 ........ $ 400
30% of amount over $4,000,
or $2,000 ............... $ 600
Down payment........... $1,000
Jim overlooked, however, the Government’s definition of “lending value.” It can either be the total cost or the appraised value, whichever is the smaller sum. And today appraisals by the National Housing Administration run 10% to 20% below current building costs. The lending value of Jim’s property was taken as $5,000, not $6,000, and his initial cash outlay, if he decides to proceed, will accordingly be much more than the $1,000 he expected. Though his down payment will be smaller, he must add to it an extra $1,000—the difference between $5,000 and the $6,000 he needs to build his house.
Here’s how it works out now:
10% of first $4,000........ $ 400
30% of amount over $4,000
or $1,000.............. $ 300
Downpayment........... $ 700
Additional outlay required $1,000
Total outlay............. $1,700
The amount of money Jim could
borrow under the act would be $5,000 (the lending value) minus $700 (his down payment): $4,300. On the 20year plan at $6.30 for each $1,000 of loan his monthly mortgage payment would be $4,300 -*■ $1,000 x $6.30: $27.10. To this sum he must add one twelfth of the annual municipal taxes. These constitute the greatest variable in the regular costs of home ownership, but Jim’s total monthly payment will likely not exceed $37.50. Had the total cost been taken, instead of the appraised value of his property, he would have had to pay around $42.50 monthly.
The difference of $5 in the monthly payment doesn’t worry Jim. What does concern him is how to provide for an initial outlay almost twice as big as he originally planned. On an income basis he can well afford to own a $6,000 property. His job is secure. But he needs a house now and, being young, hasn’t had time to acquire an impressive bank account.
On the other hand, officials of the National Housing Administration point out that, while their appraisal policy requires additional saving before starting to build, the resulting reduction in the amount of loan means lower monthly payments. To them the size of monthly payment is more important than the size of the down payment. The term of the mortgage is from 10 to 20 years and monthly payments must be maintained through alternate periods of prosperity and depression.
At least one Canadian employer assists people like Jim Brown to finance the erection of homes of their own and, in so doing, helps compensate for low appraisals. This firm, located in London, Ont., will lend dollar for dollar with the employee up to a maximum of $500. No interest is charged, and repayment is made through salary deductions over as long a time as five years.
The Co-operative Method
A way in which savings might be realized in building a house is suggested by F. W. Nicolls, director of the National Housing Administration. “Cooperative housing in Canada has barely been touched,” he says, “and its possibilities are almost unknown to the public, but if properly organized and managed it has a splendid chance to assist in solving some of our postwar housing problems. To the single family dweller it offers complete and protected neighborhoods, with a reduction in first cost and maintenance.”
In Montreal the residential community being erected by Les CitésJardins du Québec has attracted wide attention. This co-operative building society, founded by /’ Union économique d’habitations, has as one of its main objectives the reduction of construction cost through the pooling of mass purchasing power and large-scale operations. By 1942 the first 16 of an ultimate development of 600 houses were completed. In 1943 18 more dwellings were finished; in 1944 nearly 100 more. This year’s program has been announced as 200 houses.
Father Jean d’Auteuil Richard, social adviser to the union, computes the savings to individual homeowners at 10% to 15%. Eventually it is hoped that 25% will be realized. Financing is arranged under the National Housing Act and a number of house designs and plans are offered. The homeowner pays an annual membership fee of $2 and, while he gets his house at cost, must purchase a share in Les CitésJardins du Quebec. In the case of a typical six-room house this amounts to $100. fie must also pay an initial levy of 10% of the value of his dwelling for
administrative and general purposes. The cost of site development is apportioned on an equitable basis, and municipal taxation is handled in the usual way.
Ontario’s Institute of Modern Residential Planning was recently incorporated to carry on research regarding housing and neighborhood layout. Its immediate concern is the planning of residential communities for groups of its members. The first project of about 200 dwellings is to be located in the Toronto area, and preliminary plans are now being prepared. Thoroughly democratic in its organization, the Instituteseeksto induce people of moderate income to act collectively to obtain homes to suit their requirements, in a planned environment, at prices they can afford to pay.
In Nova Scotia, Canadian birthplace of the nonprofit housing movement, provincial legislation provides for its further growth. In Alberta, where like Saskatchewan the National Housing Act is not operative, laws also encourage co-operative developments.
Will Costs Come Down?
Are costs likely to be reduced during the postwar period? Will they drop to a level approximating the appraisals now made under the National Housing Act 1944?
Dr. O. J. Firestone, senior Research assistant, Advisory Committee on Reconstruction, lias ascertained that of every dollar spent on building under the Dominion Housing Act 1935 and the National Housing Act 1938, 10c. went to the contractor,55c. for materials, and 35c. to labor. But construction expenditures produce secondary economic effects. The president of the Canadian Construction Association, H. C. Nicholls, flatly states that of every dollar spent on building, 80c. goes directly or indirectly to labor.
Are labor rates apt to come down after the war? So far no one has predicted they will. Three quarters of the total remuneration paid to labor on the job goes to construction craftsmen. They are pathetically few in number and most of them are said to be between 60 and 65 years of age. There are relatively no newcomers to take their places. Mr. Nicholls believes Canada is 25 years behind in its supply of skilled building mechanics.
Will materials cost less after the war? An official of the Wartime Prices and Trade Board states that to prevent inflation Government controls will be necessary until the supply of building materials exceeds the demand. Once controls are removed there might be reduction in some prices. But of every dollar spent for materials in house construction 45c. goes for lumber. If in the postwar era export trade in this commodity Ls carried on in volume, as has been indicated by Alan H. Williamson, Dominion Timber Controller, it is hardly likely that the supply for domestic consumption will cost less. Wage increases granted during wartime to workers engaged in manufacturing and transporting building materials will certainly not be relinquished without protest. There is the possibility, of course, that the Government will again remove the sales tax on materials.
Can labor and materials be organized for more efficient, less expensive house production? For years past the building industry has been charged with perpetuating medieval practices and refusing to adopt modern scientific techniques. In particular, préfabrication— the manufacture of the house in a factory for assembly on the site—has been heralded as a great advance. The vice-president of the National House Builders Association, Norman Long, admits the importance of standardiza-
tion and simplification in construction. Experience, though, has forced him to conclude that the cost of handling and storing a prefabricated house outweighs any savings realized over conventional methods.
While Mr. Long thinks there will be more efficiency in the future manner in which labor is employed he does not foresee any revolutionary developments which will reduce building costs. Neither, in his estimation, will there be any decrease in the price of land. “It now sells for less than it did 30 years ago.” he says, “and an increase is clearly indicated.”
Can financing costs be reduced after the war? Much has already been accomplished in this direction. The Dominion Housing Act 1935, as Dr. W. C. Clark, Deputy Minister of Finance, has pointed out, while primarily intended to stimulate construction and hasten economicreco very, also provided material assistance in the financing of home ownership. Not only were onerous costs and carrying charges reduced to the owner, but he could achieve outright ownership within 10 to 20 years. Being a single mortgage system, with equal payments made each month to cover interest, principal and taxes, the financial burden was evenly spread over the term of the mortgage.
The National Housing Act 1944 incorporates these features and, as well, provides for a repayment period of 30 years in the case of dwellings built in a community having adequate planning and zoning restrictions. This means lower monthly payments, as does the reduction of the interest rate from 5 to 4j^%. Further concessions cannot reasonably be anticipated.
Municipal taxation is another aspect to be considered when calculating the cost of home ownership. It has long been argued that property bears a disproportionate share of the tax load, especially in the fields of education and social service. Recognition of this fact was recently made in Ontario, where the Provincial Government has assumed half of the cost of education. Whether this move will materially benefit the homeowner remains to be seen. In Toronto the Board of Education immediately increased salaries, already highest in the Dominion, thereby denying him full measure of relief.
To the question, do you know if it’s more advantageous to build in the immediate future or to wait till after the war? here’s the answer in a nutshell. It represents the consensus of opinions expressed by practical, experienced realtors, architects, contractors, and manufacturers. Lower building costs cannot be expected within the next five years!
(Next Article: If You Buy a House)