WHAT PRICE SHELTER?
Labor and material shortages are not the only obstacles to buying a new house. Four families out of five can’t afford the favorite NHA home
John Caulfield Smith
BY THE first anniversary of V-E Day, 50,000 Canadian families may be looking back on their 1945 housing worries, from the comfort of new Government-sponsored homes, with a sigh and a relieved, “Thank goodness that’s over!”
If present Federal plans are translated into fact, the number of new small dwellings will then continue to rise at the rate of 100,000 a year until Canada’s number one current need is satisfied.
But that isn’t to say anybody can purchase a home, even if it’s up and waiting to be occupied. Under the National Housing Act, as it stands today and even as pending legislation will alter it, the odds are four to one that Canadians can’t afford a $5,400 house—the price of the type most favored.
There’s a woeful shortage of materials. . Skilled labor to expand the building trades hasn’t yet been found. Ottawa’s optimism as to its revamped construction program has still to be put to the test. There is also the daunting fact presented above—that four out of five Canadians lack the annual net income of $2,150, required before a new five-room house can be financed under NHA.
Lump all these factors and you have the ingredients that produce Canada’s housing headache. Forthright attempts are being made to cure it, not least of which is the proposed reduction in cost of the most desired NHA home—the five-roomer—from $6,000 to $5,400. But the patient may still be moaning for aspirin and ice packs for quite some time to come.
Don’t construe that warning as a discounting of the work being done by housing agencies, which have pulled up their socks and are tackling the problem in grim earnest. It’s simply a reminder, before we consider housing futures, that breezy optimism alone won’t put a new roof over your head.
About those 50,000 dwelling units, completion of which is aimed at within a year:
Thirty-five thousand are scheduled to be built before Jan. 1, 1946. Of this number Veterans’ Land Administration is erecting 3,000 and Wartime Housing Limited 10,000—a total of 13,000 for which Government agencies are responsible. The remaining 22,000 must be supplied by builders of integrated housing developments and individual houses. All the former and most of the latter will be financed under the National Housing Act. ^
Steeps have been taken to ensure that, as far as possible, labor and materials will be available. Provision is being made for temporary shelter while new accommodation is prepared, and across Canada evictions have been halted.
By Dec. 31 of this year Veterans’ Land Administration hopes to have completed 3,000 houses on small holdings on the outskirts of cities and towns. These are for sale. At the same time Wartime Housing Limited, operating within municipal boundaries, expects to have 10,000 dwellings ready for occupancy. These are for rent. In each case current activities are part of a large program extending over several years.
In so far as housing for the public is concerned, the Dominion feels that national interest is best served if accommodation for sale or rent is provided, not by a state agency, but by private enterprise working in co-operation with a state agency. The Government
instrument in this field is, of course, the National Housing Act. It enables the Dominion to assist in financing all types of residential construction, from houses built for their owners’ own occupancy to largescale projects involving hundreds of dwellings for sale or rent.
If you prefer buying to building, the large-scale projects known as integrated housing developments will interest you. They comprise dwellings offered for sale amid properly planned surroundings, constructed to National Housing Act standards by individual builders or building companies. The Dominion shares part of the selling risk and assists in obtaining materials and labor. In return the builder agrees to limit his profit per house to a fee based on the number of bedrooms it contains. The price of each dwelling is established as the sum of its lending value plus the builder’s fee. Veterans are given first option to purchase. If any houses remain unsold a year after completion the Dominion adds accumulated costs to their lending value and pays the builder this amount.
May Sell for Less
BECAUSE of their size it’s expected that the construction operations visualized will realize appreciable savings. Indeed this is essential as present costs are generally more than lending values. Ultimately it is hoped costs will drop below lending values, thus permitting lower selling prices for houses.
In some respects provision of rental projects is even more important than that of ownership developments. Anxious to promote formation of limited dividend housing corporations under the National Housing Act, the Dominion has induced life insurance companies to undertake construction of dwellings for rent. To achieve low costs it is likely that the buildings will be of the apartment or terrace type. Veterans will be preferred as tenants.
Information on the exact form organization will take is not yet available, but one plan proposes a holding company be formed in which all or most life insurance companies in Canada would be represented in proportion to their assets. The Continued on page 41
What Price Shelter?
Continued from page 7
holding company would then create separate companies to perform the functions of building and property management in various localities where rental housing is needed.
Under the suggested arrangement the limited dividend corporation raises 10% of the cost of the project itself.
The Dominion advances the remaining 90% at 3% interest for a term as long as 50 years, and guarantees a net return of at least 2)^% . It has been estimated that the return to the life insurance companies will be around 3%, compared with the 4% earned last year on all their investments.
Some amendments to present legislation are required, chief of which involves granting permission to life insurance companies to establish
limited dividend corporations. Other delays are inevitable as matters relating to provincial and municipal jurisdiction arise. Ottawa states that plans now being prepared cannot be executed until next spring, scotching hopes that construction of rental housing projects would get under way immediately.
While wait ing for completion of new accommodation the best use must be made of available shelter. Offices, barracks, warehouses and other buildings under Dominion control considered suitable as temporary living quarters, will be turned over to municipalities needing them. A former RCAF establishment on the Toronto water front has been taken over by the city and will bouse between 200 and 300 families. A move is on foot in B. G. to use the old Hotel Vancouver for a similar purpose. Houses erected by Wartime Housing Limited and no longer occupied are being sought. Montreal people have been living in such dwellings at Brownsburg, Que., since last May. If worst comes to worst compulsory billeting may be decreed.
Of course some time may elapse before even temporary shelter can be made ready. To prevent hardship the Dominion has issued an order to prevent families being evicted from their homes. These will not be forced to vacate till other premises are available.
Need Labor, Materials
Labor and materials are the principal ingredients of construction. In a sense the shortage of materials has resulted from the shortage of labor. Pooling their efforts through a special Interdepartmental Housing Committee, Government departments have been entrusted with the responsibility of increasing the suppjy of these two essentials.
Labor for house construction and building product industries has been given “A” priority. Certain companies manufacturing materials whose supply is especially critical, such as soil pipe, and construction firms building houses for veterans, have been given an “AE” priority, which is an emergency rating. Steps are being taken to secure early release of key personnel from the armed forces. Application for their discharge can be made by trade unions or by employers of skilled building mechanics and factory workers.
A return of onetime construction craftsmen now engaged in other trades is also sought. “All classes are needed,” declares Hon. Humphrey Mitchell, Minister of Labor, “but the men whose services are most in demand are carpenters, plasterers, bricklayers, plumbers and electricians. Any men who have had experience at these trades on home building will be given their release upon application.”
Apprenticeship training is being actively promoted. In this connection Saskatchewan, first province to allow the indenture of girls, has announced accelerated courses in the building trades.
These measures affecting labor will greatly aid in increasing the production of materials. Present attention is focused on shortages of items liko brick, soil pipe, lumber, bathtubs and furnaces. Hon. J. L. Ilsley, Minister of Finance, states:
“Already encouraging results are beginning to appear. Direct action in this field has been facilitated by recent tax changes affecting building materials. For example, 75 brickyards are in operation now compared with fewer than 50 a year ago. We are going ahead with further vigorous action to make sure that supplies and equipment are ready for new homes as soon as humanly possible.”
The Interdepartmental Housing Committee is sponsoring a series of meetings with various industrial groups at which the urgency of the housing situation is outlined and discussion of production problems is invited. Meetings have already been held with the industries making roofing, wallboard, insulating materials, builders’ hardware and plumbing and heating supplies. The object is to discover possible bottlenecks and expedite manufacture and delivery of materials.
To make sure available labor and materials are used to maximum advantage, the work of Construction Control will be continued. A permit is required for all buildings costing over $500. The policy is to issue permits, for those other than residential types, only when delay in their construction might adversely affect postwar employment. In projects which are authorized, a severe screening of critical materials is imposed. Needless to say, erection of luxury or semiluxury housing is prohibited.
Success of the Dominion’s all-out program depends to a considerable extent on the co-operation received from the provinces and municipalities. Municipal affairs come under provincial jurisdiction and certain sections of the National Housing Act require provincial legislation for their implementation. Ontario has already taken all necessary steps.
If new dwellings are to be provided quickly some municipalities may have to revise their building codes. Many of these, prepared years ago, are antiquated. Others were framed when labor and materials, now scarce, were plentiful. The location of large-scale projects for sale or rent also affects cities and towns. Very few have any sort of community plan, yet a chart of future development is essential if investments in housing properties are to be safeguarded. Municipalities will be called upon to supply public facilities and services at lowest possible cost.
To enable the Government to know how its program is progressing, the Dominion Department of Labor will conduct a continuous survey. It has been begun in the Ottawa-Hull area and will be extended in the near future to other urban centres. Information will be obtained each month as to the number of dwelling units started, under construction and completed, the type of construction, approximate cost and—most important of all—the reasons for delay, if any. Armed with this ammunition, fire can be accurately directed in expediting house building.
Five-roomer Is Favorite
The house preferred by persons now building under the Act, and presumably the type which would be most liked by purchasers of dwellings in integrated bousing developments, has five rooms. The National Housing Administration sells blueprints and specifications for a very popular design answering this description. The style is colonial, and any approved exterior finish may be employed. Room sizes are generous, there is ample closet space, but its main feature is the ease with which the dining room can become, if desired, a bedroom. The kitchen is large enough to provide dining area, and there are two bedrooms upstairs, the house is suitable for parents having children either the same or opposite sexes.
The average cost of the five-room house, land included but no garage, is estimated by applicants for National Housing Act loans at $6,000. But the cost exceeds by 10% the lending value set by the Administration. This policy is justified on the grounds that present costs are inflated and do not represent
true values. The lending value for this particular house is therefore $5,400.
It is doubtful if costs can be materially reduced by an owner constructing a house for his own occupancy on an individual lot. After all, his dwelling is custom-built. But sponsors of integrated housing developments can likely effect savings, through organization and mass production, to the point where the cost of a single unit is identical with its lending value. The Dominion offer to share selling risks and facilitate the supply of labor and materials is conditional upon this being accomplished.
Up till now the lending value of a house erected for sale by a builder has included his profit. The new scheme is diiferent. The builder receives a fixed fee and the lending value represents the actual cost of land and building. But regardless of this change the cost of a five-room dwelling to a purchaser is not apt to drop more than 10%. If the house now tagged $6,000 can be marketed at $5,400, that in itself will be a remarkable achievement.
Assuming it is possible, will Mr. and Mrs. Jack Canuck be able to qualify as buyers? Two considerations affect Jack’s eligibility as a would-be owner of a residence in an integrated housing development. First, the amount of the mortgage must not be more than twice his annual net income. Second, the monthly payment must not be more than one fifth of his monthly net income. Only personal earnings count —family income isn’t considered.
The down payment, including builder’s fee, in the case of the house chosen as an example, would be about $1,100, leaving $4,300 as the amount of the mortgage. The monthly payment, on a 20-year basis, would likely run around $35, covering payment of interest, principal and municipal taxes. In order to qualify as a purchaser Jack Canuck would therefore have to have an annual net income of $2,150. Assuming he is a married man with children he will pay approximately $150 income tax and have a taxable—which means a minimum—income of $2,300 a year.
Jack fully complies with the Government requirements of a purchaser. He can buy a five-room $5,400 house that is well designed and constructed. But how many of his friends and neighbors can? How many earn his kind of money?
In 1944 a total of 2,450,000 persons paid income tax. Of this total 1,964,000 or 80%, had a taxable income of $2,300 a year or less. If the national income remains qt its present level and no further reduction in housing costs is made, it would appear that only one out of every five income tax payers can afford a new five-room $5,400 house built to NHA standards.
Economy for Ownership
If ownership is to be achieved by the four out of five persons who at present cannot be considered eligible, economies must be effected. Let it be understood that two factors are involved: the initial cost and the annual cost. To some extent the second is dependent on the first. It is the more important of the two.
Of what does the initial cost consist? Continuing to accept as our average a five-room $5,400 house in an integrated development, we first look at the cost of land. No reduction in the cost of raw land on the fringes of our urban centres is likely, because it is so badly needed for building purposes. Many cities and towns are entirely built up and have no vacant land within their boundaries. In addition to the cost of raw land there are the expenses incurred in its development. The site
must be cleared and levelled, as well as being properly landscaped after construction operations have been completed. In a big project areas must be set aside for parks and open spaces, but the cost of using land for public purposes can be offset by sale of property to business interests anxious to erect stores and other commercial buildings.
Over and above the cost of land there are certain normal charges to be levied against the development. In addition to architectural, engineering and legal fees, expenses exist in connection with the mortgage and financial arrangements made during construction. Appraisal and inspection fees must also be considered.
Lower Cost Means Less Waste
As far as the cost of construction is concerned, past experience shows that under NHA financing 35% goes to labor, 55% for materials and 10% to the builder. The builder’s portion— substantially reduced by the Government’s share-the-risk plan—is not clear profit. Out of it he must pay his overhead. Of the 55% for materials, nearly half goes for lumber, and of the 35% which labor received, over three quarters went to skilled craftsmen.
The situation regarding lumber, most important of materials, is not bright. Though cutting continues at a high rate, only 43% of our production remains in Canada. Of this amount dry lumber of suitable quality will not be easy to find. It takes about a year and a half to properly season lumber. The industry already has orders for its output for the next three years, and, in view of the urgency of the housing situation at home and abroad, it is doubtful if time can be spared.
It is not expected that Government price ceilings will he lifted from building materials until their supply exceeds demand. Removal of the 8% tax has not benefited builders to any appreciable extent. Later some adjustments may be made in price, but for the present the majority of manufacturers are charging full ceiling prices. No reduction is in sight. The 8% leeway has generally been applied against production costs, swollen because of increases in labor rates.
Canada, as regards manpower, is now scraping the bottom of the barrel.
■ The over-all shortage of construction workers has been estimated at 50,000. In Ontario alone, on July 1, there were vacancies for over 6,000 workers in the building industry. In so far as skilled craftsmen are concerned, it has been only recently that necessity for training our own mechanics through the apprenticeship system has been recognized. It will be several years before the benefits become apparent. As for unskilled workers, few will accept jobs which, though frequently essential, are unattractive or have a low wage ceiling.
Agitation on the part of labor for more money is persistent, possibly because the énd of the European war brought uncertainty regarding the future. Workers should be rewarded for their skill, but here’s the rub— really capable mechanics are few and far between. As far back as 1940 National Registration revealed that two out of every five were then over 50 years old. The proportion was much higher for such occupational groups as bricklayers. As a result of the “upgrading” of labor during war years, it has been claimed many unskilled workers are getting wages to which they are not entitled. If this is true their low efficiency, their taking of a longer time to perform a given operation, means higher building costs.
The insistent cry for lower costs will
necessitate far more efficient employment of materials and labor than before. Using traditional procedure, 10 to 20%, of the materials delivered to the site are wasted. Wasted materials are costly—look at the expense of manufacturing and transporting them!
The need, if not for complete factory production of houses, is for some form of dimensional co-ordination. Waste must be reduced by utilizing masonry units without the necessity of breaking odd sizes, lumber in standard lengths requiring neither overlapping nor cutting, and by avoiding site fabrication as much as possible. Savings can also be realized by using stock millwork, such as door and window units, mantels, stairs and cupboards.
With the building industry organized to provide dwellings in integrated housing developments through largescale operations, standardization of practice and elimination of waste, the initial cost of buying a house should, as we have seen, be reduced from $6,000 to $5,400. What of the more important annual cost?
This is made up of four main items:
1. Debt Service: interest and repayment of mortgage principal.
2. Operation and Upkeep: repairs, painting and decorating, insurance.
3. Municipal Taxes: property and local improvements.
4. Utilities: water, light, cooking and heating fuel.
Until the mortgage is paid off debt ! service is largest of the four and I accounts for about half the total. The same items make up the annual cost of housing whether the occupant is tenant or owner. In the tenant’s case his rent payments cover debt service, operation and upkeep and municipal taxes. The landlord does not forget that woodwork has to be painted, that plumbing and heating systems must be kept in repair, that roof's do not last forever. The other sometimes overlooks these matters, but his neglect makes their cost no less real.
Only one item, debt service, is
affected by lower construction cost. The other three remain fairly constant. Operation and upkeep are kept to a minimum when NHA standards are observed. Municipal taxes and utility charges maintain an even keel in most localities.
If the cost of our average five-room house can be reduced to $5,400 the amount of the mortgage will be $4,300. At $6.30 per $1,000 of mortgage per month, the annual debt service will be $325. Extension of the mortgage term from 20 to 30 years, as provided for by NHA in areas having community plans of suitable character, would result in a lower figure. The rate per $1,000 of mortgage per month drops to $5.05 and the annual debt service becomes $260. On this basis the number of income tax payers who could afford the house taken as example would be increased from one to two out of five.
This achievement will be possible only if present earnings are maintained, the cost of building is out 10%, and municipalities develop master plans which meet with the approval of the National Housing Administration.
We must not be satisfied with anything else. Residential construction on a volume basis is essential if the building industry is to play its full part in our future economy, and if adequate housing for all Canadians is to become anything more than a pleasant but unrealized dream.
A warning also to those who yearn to own or rent one of these new Government-sponsored dwellings: in your
impatience for better accommodation don’t overlook the difficulties facing the Federal agencies. Ottawa is sticking its neck a long way out when it hopes for 100,000 new units a year, and even the recommendation of the Advisory Committee on Reconstruction that 600,000 dwelling units be built in the first postwar decade is a mighty tall order. The road to realization may have other stumbling blocks than the labor-material shortages, daunting enough in themselves.