The Way to More and Cheaper Houses
Reader’s Digest – October 1947 (From Fortune, August 1947)
The incredible news of 1947 is that,
in spite of the worst housing shortage
since the James River landing,
home construction in this country
is in the doldrums.
In 1946
every conceivable obstacle
stood between
the home seeker
and a house.
Now materials are comparatively plentiful,
Government regulations are only a vestige –
and the industry is perilously close
to falling on its face.
The housing industry has been behaving like this for the last 30 years.
When it was returned to private management after World War I,
with the inspiring task of providing “Homes for Heroes,”
it met the challenge by inflating the cost
of an ordinary five-room house
40 percent in less than 12 months.
Thereupon the volume of new construction fell off by two thirds.
Costs fell, and from 1921 to 1925 there was a marked recovery:
4,000,000 houses were built.
But costs rose again, and after 1925 the volume of residential building went into a ten-year decline.
In 1936 and 1937, after the depression had dropped costs by perhaps one quarter, a promising recovery promptly brought another big cost increase.
The most recent challenge has been met in the normal manner.
Since the removal of war-imposed restrictions last fall, the cost of a finished house is estimated to have increased from 15 to 50 percent.
From January through May of this year,
300,000 new houses were completed and only 280,000 begun.
Any reasonable schedule for filling the nation’s housing needs
would call for at least twice as many new houses,
at prices a whole lot lower than now.
An industry that functions as badly
as the house building business
must have some really distinguished ailment.
The truth is
that house building
is the one great sector
of modern society
that has remained
largely unaffected
by the industrial revolution.
Its production methods
consist of a succession
of uncon¬nected handicraft operations
by masons, carpenters,
electricians, plumbers,
plasterers and painters.
While labor productivity in all American industry
has about doubled in the last 40 years,
responsible authorities
are prepared to argue
that in residential construction
it has actually declined.
The building-trades unions
outlaw technological progress
and keep labor productivity low;
subject to many local exceptions,
the unions prohibit
the use of spray guns for painting,
outlaw the wheelbarrow,
insist on plastered walls,
limit the amount of plaster to be applied in a day,
keep the energetic man
from laying too many bricks,
and engage in costly bickering
among themselves.
Many (perhaps most) build¬ers string along; they have combined with the unions to write restrictive rules into municipal law.
Given uniform wage rates,
regulated labor productivity,
and restricted techniques of construction,
only a genius
could build
a better house
and sell it for less.
There might be a loophole that would permit competitive cost cutting if a large builder were able to buy supplies in volume at discounts.
But this loophole has been plugged by a firm code of ethics that requires all sup¬pliers of building materials to quote uniform prices to all customers; even to such big builders as the U. S. Government itself.
No individual builder, large or small,
is permitted to buy at wholesale prices.
Building houses is a manufacturing operation,
yet the manufacturers must buy their materials at retail.
Retailers in turn are supplied by jobbers, who in turn are supplied by the manufacturers of bathtubs, plywood, wallboard, and building paper.
Before the manufacturing of a house begins, there is already a markup of 75 to 100 percent on the cost of materials.
Thus every participant in the industry –
builder, supplier and worker –
has endeavored to make himself secure, against competition.
The result has been security for no one.
Residential building in the United States is a feast-and-famine industry, because only in times of general feasting will customers pay the prices on which – come feast, come famine – it rigidly insists.
The most striking evidence
of housebuilding’s resistance
to capitalism
is its small scale.
Of the 200,000 odd prewar builders,
86 percent built only four houses or less a year.
The man who builds one house a year, or ten or 20,
simply cannot produce efficiently,
for he is not big enough to assume full managerial responsibility
instead of dividing it with subcontractors,
to oppose strength to strength in dealing with labor,
to counter the rapacity of materials suppliers,
and to take the responsibility for making a fair price to the customer.
The search for reform in the house building business therefore becomes primarily a search for large¬ scale operations.
There are several large-scale builders scattered over the country,
and in certain areas they are producing houses in promising volume.
Let’s examine two such builders:
one a well-established builder
of conventional houses
on Long Island
and the other
an imaginative newcomer
who is building
cheap houses near Baltimore.
The firm of Levitt & Sons,. Inc.,
of Manhasset, on Long Island’s north shore,
is the biggest private housebuilder
in the eastern United States.
Last year it produced 1000 houses
for a gross turnover of about $12,000,000;
this year 3000 houses are projected or in production
for an expected $24,000,000.
The basic Levitt product is a four-room bungalow
which no one would call beautiful- or spacious, or elegant.
A number of tricks are performed with the eaves and roof line,
and the houses are painted in different colors.
But they are basically as alike as Fords.
The house stands on a concrete slab and is radiant heated – copper coils carrying hot water are buried in the concrete floor.
Its price, with a well-equipped kitchen –
steel cabinets, sink, stove, refrigerator and washing machine¬
ranges from $6990 to $7850, depending on location.
Two thousand of the $6990 houses that will be built this year
will be rented to veterans for $60 a month,
and for these there is now a waiting list of 10,000.
The $6990 house represents a great deal of money for a very small house.
However, it is perhaps $2000 cheaper than any other house avail¬able in volume in the neighborhood – and, compared with most, it has an edge of a thousand or two in value when size and equipment are considered.
Also, there is at least $1000 profit in every house.
Levitt has performed this considerable feat
by breaking through the restrictions
that bind the ordinary builder.
In the first place Levitt has capital.
The firm was started in 1929 developed a number of subdivisions in the ‘30′s, and made money.
Dur¬ing the war it got experience with low-cost housing
when it built rental units for the Navy at Norfolk.
The distinctive feature of the Levitt method
is the precutting of all materials.
Rafters, studding and roof sheathing
are all cut to length at a Levitt shop,
and the proper number of pieces are dumped off
in front of each bungalow,
along with wallboard, paint, shingles and nails.
The assembly is principally a matter of fitting and nailing;
a Levitt carpenter rarely uses a saw.
The economy with which precut materials
can be trucked to the site
is as great as any savings
that might come from extensive prefabrication.
Only staircases, plumbing assemblies, window frames
and other easily transported subassemblies are prefabricated.
The price of this orderly, factory-like flow of materials is an enormous inventory of materials on hand, in process, or in neat piles by the bungalows awaiting assembly.
Currently that inventory runs to more than $4,000,000.
Investment on a similar scale runs through the entire operation.
The trench for the foundation is excavated
by a trenching machine which costs $7000,
and the foundation of each house
occupies the machine for only 27 minutes.
Obviously it takes a good many houses to make this gadget worth while.
Similarly, back of the concrete slab,
which is installed with a labor cost of about $55,
is a $200,000 fleet of Transit-Mix trucks.
Levitt uses subcontractors for every operation on the site
except the sale of the house.
Levitt’s subcontractors, however, do not work for anyone else.
Their fee is set not by bidding but by negotiation,
and they are subject to the close supervision
of the firm’s own project engineers and superintendents.
Thus, while preserving one of the most sacred forms of the guild,
Levitt has eliminated its substance.
The subcontracting system has been turned into a device for putting foremen on an incentive plan.
Levitt’s approach
to the building trades unions
is to ignore them.
Neither the firm nor any of its semi¬subcontractors has any union contracts.
Mechanics get prevailing wages and work a five-day week.
For about seven months of 1945 and 1946 the unions picketed the firm’s projects, but this did not interfere greatly with production; sundry boycotts were equally ineffective.
Levitt buys everything at prevailing prices from a local building ¬materials dealer called the North Shore Supply Company.
All conventions against direct dealing with the manufacturers are thus respected.
But Levitt & Sons is the sole owner of North Shore Supply.
This means that at least one of the markups,
that go to pyramid building costs has been eliminated.
Last June, Levitt opened its own lumber mill at Blue Lake, Calif.
The Blue Lake mill not only eliminates the manufacturer’s markup on about 30 percent, by value of the materials going into the Levitt houses, but makes it possible to precut the lumber at the mill and ship it direct to the building site.
President Bill Levitt has his critics
and the local builders’ association
has expelled him,
but he is a hero
to local GIs
who want houses.
When the Hempstead Town Board
showed some reluctance about revising its building code
to permit Levitt’s cellarless construction,
nearly 800 veterans and their families
jammed the town hall
to help him demand the change.
WHEREAS Levitt shows that a capitalist revolution in home building is possible, the Byrne Organization shows what it takes for anyone starting from scratch.
The Byrne Organization is the dressy cognomen for a collection of peripatetic Texans who, for the last 35 years, have been building whatever needed to be built from Cuba to Wake island.
The founder and head is John E. Byrne, a ruddy¬faced, outspoken ex-cowpuncher.
A good 75 percent of the brains and energy of Jack Byrne and his men are now concentrated on a development five miles from the edge of Baltimore, where Byrne is producing 1200 houses with an aggregate sales value of $8,000,000.
There will also be some rental apartments, a shopping center, theater and other community facilities. Houses at Harundale, as the development is called, are being finished at the rate of between ten and 15 a day.
Byrne’s basic house, which sells for $6950, is larger than Levitt’s; it has three bedrooms instead of two, but no attic.
Like Levitt’s, it stands on a radiant-heated slab, but unlike Levitt’s it is of highly unconventional materials.
The walls are of welded steel-frame construction, lathed and plastered on the inside.
The exterior is stucco, composition shingle or painted aluminum clapboard.
The roof is of welded steel-truss construction covered with wood sheathing and asphalt shingles.
The whole house could be turned over and dropped without appreciable dam¬age.
Nevertheless, when finished, it is surprisingly orthodox and attractive in appearance.
At Harundale, Byrne operates open shop without contracts.
For ordinary building materials he has negotiated direct purchase con¬tracts with suppliers, although this has usually involved arrangements with local building-materials dealers.
He buys a good deal of unorthodox material – steel and aluminum in particular – where there are no trade agreements to be respected.
The core of Byrne’s system is the inexpensive temporary shop adjacent to the site.
At Harundale this shop consists of nine huge Quonset huts.
The unsolved problem of prefabrication is how to ship a house or any substantial part of it at reasonable cost.
By locating his fabricating plant next to the building site,
Byrne believes he has side-stepped this problem.
He thinks the shop can be moved from one site to another at small cost.
The complete assembly of copper coils for the radiant heating, the plumbing assembly, walls, partitions and the complete roof down to shingles and chimney are all put together in the Quonset huts.
The roof section, which weighs four tons, is hauled on a specially built trailer to the site, where a power crane drops it on the walls.
Within minutes after it is in place, a welder has fused it to the walls.
Because he has a large and experienced organization, Byrne has been able to dispense almost entirely with subcontractors.
The preliminary result of this system is a supply of substantial small houses at a thousand dollars or more below the market.
But Byrne estimates that his present system could not be used effectively for fewer than 300 houses at a time.
Unlike Levitt, Byrne is not yet out of the woods.
The Federal Housing Administration has given the Byrne house full approval, and during the first six weeks after sales opened 76 were sold.
However, customers have to be persuaded that the unconventional construction is good.
Moreover, what Byrne, or any similar builder, does in the future depends on ability to find a lot of money.
Before the first foundation was laid at Harundale, Byrne had invested $750,000 in an inventory of lumber, steel and other materials; $350,000 in trucks, bulldozers and power tools; and $150,000 in his temporary shops.
An examination
of only two builders
may not be final proof
that the hope
of the housing industry
lies in larger-scale operations.
But what size can accomplish is at least significant.
Both Byrne and Levitt are large enough to afford a management that actually manages and to evade the toll gates where the rest of the industry pays tribute to the industry’s antique distribution system.
By building several hundred houses at a time
they are able to use power equipment
and production-¬line methods,
the basis of capitalism’s
claim to superior efficiency.
If the result is not yet a cheap house,
there is reasonable indication
that this is the route
by which cheap houses
will have to come.
Copyright 1947, Time Inc., Time and Lift Bldg., Rockefeller Center, New York 20, N. Y. (Fortune, August, ’47)
Reader’s Digest – Post article comedy:
» ONE Texas town has posted a sign that really slows down motorists:
“20 MILES AN HOUR OR $19.90.” -Contributed by Coleman Cox
» SIGN in a Bayshore, Long Island, dry-goods store window:
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