construction and business cycles - st. louis fed

November 1946 SURVEY OF CURRENT BUSINESS

Construction and Business CyclesBy Sidney Gertler

THE MARKET FORCES which mostactively determine the volume of

construction at the present time areprimarily forces stemming from the war.They include the enormous volume ofinternal migration during the war; thesubstantial increase in incomes; the risein the general price level and in con-struction costs; the extraordinary ac-cumulation of savings; the developmentof large backlogs of demand for manytypes of goods; and, with particular ef-fect upon housing, the great increase inmarriages and the rise in the number ofdoubled-up families.

The war has disrupted the continu-ity between the prewar construction sit-uation and that existing at the presenttime. Analysis of the present construc-tion prospects by the usual technique ofexamining the current situation in com-parison with substantially comparableimmediately preceding periods and as-sessing the results of relatively smallchanges in demand and supply factorsis therefore a method that seems at thisparticular juncture to offer little promise.

In view of the need for longer-rangeanalysis, the purpose here is to under-take an examination of the recent his-tory of construction and of the associa-tion between business and constructioncycles. This entails an examination ofthe short cycle which followed the lastwar for the purpose of finding the con-trasts and similarities between that andthe current cycle.

Some of the major factors which haveenjoyed historical or academic accept-ance as explanations of observed trendsand events can thus be weighed. Anattempt will be made to evaluate a fewof the more important explanationswhich have been offered for constructionbehavior, and to review some of theshortcomings of the data now availablefor construction analysis.

Cycles in Business and ConstructionFluctuations in construction activity

affect general business activity because

Summary

The recent war interrupted therising phase of a major construc-tion cycle which began in the mid-thirties. Deficiencies carried overfrom the prewar period are beingreinforced by war-caused stimuli,so that construction activity willalmost certainly carry forward athigh levels in the immediatefuture, although such factors ashigh prevailing costs or the possi-bility of a short business recessioncannot be disregarded.

The very strength of the under-lying construction situation can berelied upon to bolster the economyin the period ahead even if weak-nesses should appear in otherbusiness sectors.

construction is itself a major componentof general business, and because the ex-pansion and contraction of constructionactivity have repercussions upon theother components of general business.However, the fluctuations of generalbusiness activity by no means follow thesame pattern as do those of constructionactivity.

Thus, general business activity hasbeen found by one investigator to fluc-tuate in a major cycle of from 6 to 12years, but generally within a range offrom 7 to 10 years, and averaging some-what over 8 years. Superimposed uponthese major business cycles and distort-ing their course are minor businesscycles of from 2 to 6 years, but generallywithin a range of from 3 to 4 years, andaveraging about 3% years.1

However, the course of general busi-ness activity is not merely cyclical, sinceit also exemplifies the effect of randomfactors which stimulate or depress busi-ness in various degrees. Wars are themost notable of such stimuli, and there

are some grounds for believing that agreat war breaks at least partially thecontinuity between prewar and post-war business cycles, with the result thatafter each great war a new set of minorand even major business cycles is likelyto be generated. Among the other ran-dom factors affecting business are theweather, discoveries of natural resources,the settlement of new regions, the rise ofnew industries, changes in tariffs, andother significant acts of government.

Length of Construction Cycles

The most pronounced cycles of con-struction activity have had a length offrom 16 to 19 years and have averagedbetween 17 and 18 years.2 In addition tothese cycles, construction is also subjectto less pronounced cyclical fluctuationsresulting from the successive stimulationand depression of construction duringthe swings of the major and minor busi-ness cycles. Such movements, reflectinggeneral business conditions, affect thecourse of construction activity and tosome extent determine the precise tim-ing of its peaks and troughs, but the ma-jor swings of the construction cycle ap-pear to be largely unaffected.

The amount of decline of business ac-tivity in its cycle from peak to troughhas in recent business cycles ranged from25 to 35 percent below its peaks. Onthe other hand, the decline of construc-tion activity in its cycle has fallen 50 to70 percent below the peak level attained,

Note: Mr. Gertler is a member of theConstruction Division, Office of DomesticCommerce.

1 Cp. Alvin H. Hansen, Fiscal Policy andBusiness Cycles (1941), pp. 18-19.

2 Much of the discussion on cycles is basedon the findings of earlier investigators anddepends heavily on the published results oftheir researches. The principal sources forthe materials used are the following: AlvinH. Hansen, Fiscal Policy and Business Cycles,(1941); George F. Warren and Frank A. Pear-son, World Prices and the Building Industry(1937); Clarence D. Long, Building Cyclesand the Theory of Investment (1940); Wil-liam H. Newman, The Building Industry andBusiness Cycles, Studies in Business Admin-istration, Volume V, No. 4, University ofChicago Journal of Business, Volume VIII,No. 3, July 1935; John R. Riggleman, "Build-ing Cycles in the United States, 1875-1932",Journal of the American Statistical Associa-tion, June 1933, Vol. 28; and Wesley C.Mitchell and Arthur F. Burns, StatisticalIndicators of Cylical Revivals, NationalBureau of Economic Research, Bulletin 69(1938).

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November 1946

8 SUEVEY OF CURRENT BUSINESS November 1946

so that construction activity at its peakis two or three times that at the trough.Because of the greater variation of con-struction and because of its importanceas the largest single industry exceptagriculture, it is a particularly significantcomponent of general business.

Construction and Business InteractionSince the construction cycle with its

average length of some 17 or 18 years en-compasses four or five minor businesscycles, there is a tendency for about halfof the business booms to be somewhataccentuated by construction booms, asappears to have been the case in the1920's, while the other half of the busi-ness booms attains relatively low peaksdue to the insufficient responsiveness ofa depressed construction industry andof others contributing heavily to capitalformation, as during the business re-covery of 1933-1937. Similarly, abouthalf of the business depressions aremitigated by the buoyancy of construc-tion as an important factor in capitalformation, as in the business declinescommencing in 1847, 1864,1883, 1900 and1920, while the other half of the businessdepressions tend to be more severe andprolonged because they are coincidentwith a low phase of the constructioncycle—as in the depressions commencingin 1837, 1857, 1873, 1893, and 1929.

A high level of construction activitydoes not assure a continuous businessboom, but what is assured is that thepeaks and the troughs in business activ-ity will both tend to occur at a higherlevel than if construction had been de-pressed. In addition, when constructionis active or increasing in activity, theupswings in business tend on the averageto be longer in duration, and the down-swings shorter.

The longer upward and downwardswings of the construction cycle areinterrupted by many contrary move-ments due in large part to—or perhapsin anticipation of—the temporarily op-posing movements of major and minorbusiness cycles. An outstanding excep-tion occurs during a great war, whenbusiness expands while construction maybe forced to contract despite consider-able, but repressed, demand for theproducts of the industry.

Similarities in War Periods

The present post-World War II situa-tion of both construction and generalbusiness is at least in part analogous tothe post-World War I situation. Prior toWorld War I, construction had reached apeak in 1909, at which time a surplus ofreal property was considered to havebeen produced, so that construction ofbuildings declined to a trough by 1918,

Chart 1.—New Private Nonfarm Construction and Industrial Production,Expressed As Percentages of Long-Term Trends x

PERCENT OF TREND200

150

100

PEfSiOD

BUILDING PERMITVALUES

$

i I i i I i I 1 i I i i i I ! l i l I L L L J

NEW PRIVATE CONSTRUCTION ***(NONFARM)

IJJ l.m i I n j t I M n 1 H n I i n t I i 11 i 1 m i

- p R R

ESTI I I

1875 80 85 90 95 1900 05 10 15 20 25 30 35 40 45 5046-742

i Trend for building permit values was calculated for 1875-1933, and for industrial production for 1899-1929. Buildingpermit values and new construction were deflated by use of cost indexes described in footnote 3 of text.

Sources of data: Industrial production, indexes of National Bureau of Economic Research for manufactures and min-erals combined for 1899-1918, linked to industrial production series of Board of Governors of the Federal Reserve Systemfor subsequent years. For other series, see footnote 3 of text. Deviations from trends calculated by U. S. Departmentof Commerce.

with the physical volume of all construc-tion reaching its trough in 1920. War-time restrictions may have helped de-termine the precise timing of the lowpoint, but on the basis of past experiencewith the construction cycle a low pointwas to be expected at about that time.This trough in construction activitycame at a time when general businessactivity was stimulated by war and itsafter effects, so business moved oppo-sitely from construction.

At the end of World War I, the de-mand for the products of constructionhad again caught up with the availablestock of such products, so that thereaftera construction boom gradually developed,reaching a peak for new construction in1926 and for all construction, includingmaintenance, in 1927. Meanwhile, bus-iness went through a number of cycles,with peaks in 1920, 1923, 1926 and 1929,and troughs in 1921, 1924 and 1927.These fluctuations of business activitywere reflected to varying degrees in theminor movements of construction activ-ity, but without noticeable effects on themajor movements of construction, i. e.,the rise to a peak in 1926-1927 and down-ward thereafter. Throughout most of

the 1920's the buoyancy of constructioncooperated with other factors to keepbusiness at a generally prosperous level.

The great depression of the 1930's wasbrought on by a combination of manyfactors, only one of which was the de-cline of construction activity after 1927.Nevertheless, the low level of construc-tion during most of the 30's was one ofthe chief obstacles to full recovery. Itwas only at the very end of the decadethat construction attained anything likea high level.

Trie evidence available indicates thatconstruction cycles preserve consider-able continuity through even a greatwar, though such a war may delay oreven split the peak of a constructioncycle. If a great war comes when con-struction is inactive, as during the CivilWar or World War I, construction, ifaffected by wartime restrictions, will ex-pand less than other business, therebyleaving the low phase of the constructioncycle largely unaltered. After such awar, any war-caused stimulation of con-struction, such as results from a highermarriage rate or the needs of recon-struction, will merely accentuate thesubsequent active phase of the construe-


November 1946

November 1946 SUKVEY OF CUREENT BUSINESS 9

tion cycle without much affecting itstiming. If a great war comes at a timewhen the active phase of the construc-tion cycle would be expected, as duringWorld War II, most construction willhave to wait; but the prewar shortagesthat had been about to generate a con-struction boom might carry over intothe postwar period, when they will bereinforced by war-caused stimuli, sothat construction will tend to boom inthe immediate postwar period.

Two World War Cycles Compared

Are there any lessons to be learnedfrom our economic experience duringand after the last war which may nowserve as a guide in formulating policy,and in dictating action aimed at bring-ing about high and sustained levels ofconstruction activity? The problem isprimarily to ascertain whether there areany factors in the current constructionoutlook which may cause a sharp reac-tion from present levels, and secondarilyto note whether the boom and rapid col-lapse which followed World War I offerany clues to the behavior of the construc-tion market in the near term.

Though analysis of cycles indicates apostwar construction boom, the size andduration of such a boom cannot be de-duced solely from cyclical analysis, par-ticularly since the construction boom ofthe 1940's appears to have been split bythe war into two parts: the earlier 1940-1942 phase, and the postwar phase. Ex-actly how much construction boom thelatter will include must be deduced froma study of pertinent factors in the cur-rent situation, and whatever can belearned from the situation followingWorld War I.

Chart 1 presents indexes of construc-tion and of business activity in theUnited States from 1875 to 1946.3 Chart2 illustrates fluctuations in building ac-tivity and in the index of building costsfor two World War periods. The per-mits series for the World War I periodis seasonally adjusted and covers pri-vately financed buildings such as office

3 For 1875-1933, the building permit indexused was obtained from William H. Newman,The Building Industry and Building Cycles(1935), table IX, pp. 63-71. This index isbased on: Bradstreet's building permitvalues, 120 identical cities for 1911-1933;Babson's monthly values of building per-mits in 20 cities for 1903-1910; Ayre's per-mits in 50 cities for 1900-1902; and permitdata from 13 cities, for 1875-1900. Thebuilding cost index of the American Ap-praisal Company (revised) was used for1913-1933. For earlier years, use was madeof Newman's cost data based on arithmeticaverages of the American Appraisal Com-pany's cost indexes for frame, brick, andreinforced concrete buildings, for 1900-1913,

716961—46 2

buildings, lofts, warehouses, factories,garages, hotels, apartments and dwell-ings, and represents the value of workstarted each month. The panel forWorld War II shows the fluctuations ofthe dollar value of work put in place onnew private construction (Commerceseries excluding public utilities) monthlyfrom August 1939 to July 1946, as com-pared with the American AppraisalCompany cost index for the same period.

The salient points in the movement ofthe building permits series after thefirst World War may be summarized asfollows: (1) the volume of private build-ing covered by permits got off to an ex-cellent start in 1919; (2) activity in thefirst quarter of 1920 indicated a recordyear on the basis of normal seasonal fac-tors; (3) that promise was not fulfilled,and 1920 became a year marked by con-tinuous slump with the low point reachedin December; (4) an unbroken risingtrend, which obliterated the usual sea-sonal pattern, prevailed all through 1921and continued with only minor setbacksthrough the peak years of the late1920's.

A similar situation seems to be emerg-ing in the post-World War II period.Construction in the private commercialand industrial categories and in the resi-dential categories proceeded at a mod-erate rate in the beginning of 1945 anddrew little stimulus from the termina-tion of hostilities with Germany in Mayof that year. (See chart 3.)

Other construction, heavily weightedby military projects, levelled off afterVE-day. After VJ-day, construction forthe military services began a precipitatedrop, but private construction of alltypes continued to rise at an acceleratedpace. The effect on the year as a wholewas that the rather small volume of$4.75 billion was completed, as com-pared with $4 billion in the previous yearof war-restricted construction.

The monthly rate of operations, whichhad begun to speed up in the fall of 1945,continued right on through June 1946with hardly any slackening. Some

and of the frame and the brick building costindexes for 1875-1900. For 1933-1946, costand building value data of the Departmentof Commerce are used. Due to the incom-pleteness of the major building cycle com-mencing in 1933, no normal trend for build-ing was computed for 1933-1946 and a con-stant normal was assumed. The relativelylow level of the building index for theseyears reflects in part the low level (at con-stant prices) of building in 1933-1946 ascompared to a normal determined by thehigh average level of the 1918-1933 buildingcycle, and in part results from the smallerproportion of total new construction in theprivate nonfarm building category, particu-larly during wartime or depression.

straws in the wind, however, seemed toindicate that a downturn might be im-minent. Especially noteworthy were: adiminution in the rate of increase invalue of construction put in place; a de-cline in number of new dwellings startedafter a peak in May; the fact that thetime required to complete new structureswas lengthening, and had increased by atleast 50 percent for single dwelling units;and increasing qomplaints that actualcosts of construction were well abovethose reflected in official materials pricesor nominal wage rates.

Close examination of all factors is re-quired to determine whether a turningpoint has been reached.

Factors Influencing Construction

Before coming to any conclusions as tothe meaning of similarities in shortcycles of building construction it is neces-sary to examine some of the reasonswhich have had more or less historicalor academic acceptance as causal ele-ments in the patterns observed. Thisis a prerequisite for an effort to deter-mine on a logical basis whether theparallelism indicated on the charts issignificant, and, too, may make somecontribution to the analysis of the pres-ent situation and its foreseeable con-sequences.

Population Movements

Population movement, an importantfactor influencing construction, includesnot only changes due to natural increasebut to additions resulting from immigra-tion, and migration within the borders ofthe country. Increase in the number ofdwelling accommodations necessarily re-quires increases in the number of schoolsand hospitals; community, business, andrecreational facilities; roads, highwaysand public utility services. The influ-ence of major movements in populationgrowth upon construction is unques-tioned.

But the effects of population growthin the short run must be carefully ap-praised if the conclusions are not to bemisleading. In a single area, popula-tion changes may not affect buildingactivity noticeably; on the other hand,building activity may change while pop-ulation growth is approximately level.Some of the reasons for this are con-tained in the economic abilities of thenew population, availability of capital,interboundary movements, vacancyrates, general business conditions, legalrestrictions in the form of zoning orhousing laws, and the age and char-acteristics of both the existing buildingsand the existing population.


November 1946

10In considering the growth of popula-

tion or increases due to migration it isimportant to note that the significantfeature is the net addition to populationin.a given area—and not the net addi-tion to population for the country as awhole. "An increase of population inone locality does not offset a decreasein population in another locality. Be-cause of the immobility of buildings, amigration of people within a nation orfrom the farm to the city may call forthnew building activity in just the sameway that a net rise in total populationwill. Therefore, in speaking of 'popu-lation growth' we mean the sum of allincreases in population, rather than anet change in total population."4

For this reason, estimates of total needfor additional housing based on nationalfigures for the increased total population,estimated number of marriages, undou-bling and doubling of families, and num-ber of vacancies are apt under favorableconditions to understate the total de-mand. These data lead to a figure rep-resenting needs considered relative tonet changes in the total population.

In spite of these deficiencies, theanalyst is not helpless in the absence ofdata for many important local areas.While it is true that a more precise esti-mate of need can be made from a sum-mation of the increases in population

4 Cp. Newman, op. cit. p. 33.

SURVEY OF CURRENT BUSINESS

in each community, this total may ap-proximate the net figure under certainsets of circumstances. However, thesum of positive increases must necessar-ily be larger than a net figure and wouldprovide a more realistic estimate of totalneed than a net difference between posi-tive and negative changes in populationover the entire country.

It seems evident that accumulated de-mands resulting from migration, in-creases in population, and family forma-tion are much greater in relation to totalpopulation now than they were after thelast war.

The gross requirements for additionalhousing by the end of 1947 are estimatedby the National Housing Agency at about4.5 million units. Against this require-ment, approximately 1.4 million existingunits will become available due to nor-mal turnover and vacancies occurring asthe result of dissolution of familiesthrough death or divorce. Thus the netneed of 3.1 million dwelling units willnot be completely satisfied by the Vet-erans' Emergency Housing Program, thegoal of which is to make a total of 2.7million temporary and permanent unitsavailable by the end of 1947.

A measure of the stress imposed onfamily living by the current shortage isprovided by a recent government survey.Although, as of June 1946, almost three-fourths of the married veterans hadseparate dwellings, the remaining 1,500,-

November 1946

000 were living with other families or intrailers or rented rooms.

Construction Costs

Considerable weight is usually assignedto the hypothesis that building costs arethe controlling factor in constructionactivity. The rigidity of building mate-rials prices and cost of services comeunder the most intensive scrutiny in anysurveys to forecast demand for the prod-ucts of building. An examination of thedata during short cycles indicates thatbuilding costs rise as building activityincreases, and fall off very slowly or evenadvance slightly when building activityslackens.

The association of rising costs withfalling building activity has been gen-erally analyzed as a contributing reasonfor choking off a boom, or contributingto an unsound price structure which mayresult in deferred collapse of the real-estate market. These considerations areimportant, but they do not mean thatrising costs necessarily choke off buidingvolume. During most of the upwardphase of a short cycle, volume and costsrise simultaneously. The subsequent de-cline in volume, perhaps accompanied bya further rise in costs, may or may notbe due to the influence of costs alone.The association between these two fac-tors has no implications for a causal re-lationship between the two; indeed, theassignment of a causal relationship is as

Chart 2.—Private Construction Activity and Construction Costs in Two War and Postwar Periods

INDEX, 1920-30 »IOO INDEX, 1920-30 = 100 MILLIONS OF DOLLARS INDEX, 1920-30 = 100200

WORLD WAR I

200 800

150 600

100 400

WORLD WAR H

200

150

50 200

PRIVATE CONSTRUCTION '&(LEFT SCALE)

nl I I I,,1915 1916 1917 1918 1919 1920 1921 1922 1923 1939 1940 1942 1943 1945 1946

1 Basic data for World War I period are the unrevised series and for World War II are revised series; revisions of annual data are available from 1913 and of monthly data fromJanuary 1939.

2 Data are 3-month moving averages, adjusted for seasonal variation.s Represents new private residential and nonresidential construction, excluding public utilities.

Bradstr<Sources of data: Construction costs, American Appraisal Company, recomputed to a 1920-30 base by U. S. Department of Commerce; building permit values (120 cities) Dundstreet, Inc.; private construction, joint estimates of U. S. Departments of Commerce and Labor.Digitized for FRASER

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November 1946

November 1946 SURVEY OF CURRENT BUSINESS 11difficult here as in any other branch ofeconomic behavior.

It is clear, of course, that under somecircumstances an increase in costs is it-self responsible for a downturn in build-ing activity. Such a chain of causationis perhaps particularly likely to operateif the increase in building costs is seri-ously out of line with increases in in-come. Costs, however, are not neces-sarily a continous dominant factor inthe construction market, and many ofthe rises and declines in constructionvolume are brought about by the opera-tion of other forces.

It is perfectly understandable that theintroduction of these other factors couldoffset the effect of rising prices and per-mit a building boom to progress despiteincreasing costs. One writer on thissubject5 concludes that if "[certain]comparisons between building costs andminor building cycles suggest any causeand effect relationship, it would be thatfluctuations in building activity give riseto fluctuations in building costs, ratherthan vice versa."

The record of building costs is of par-ticular interest during the first WorldWar period. In 1915 and 1916 small in-creases in building volume initiated wereregistered, but these increases were co-incident with increases in building costs.In 1917 and 1918, building activitydropped off, due principally to war re-strictions. Building costs, however, con-tinued to rise steadily during 1917 and1918. A likely explanation is that wagerates were high and the war-engenderedbuilding activity was extremely profit-able. There existed the peculiar situa-tion of a sharp rise in costs (the indexrising from 140 to 180) while buildingactivity slackened off and fell to one ofthe lowest points recorded in thatperiod.

Following the armistice in November1918, building activity initiated—asmeasured by building permits—began toboom. The value of permits issued in-creased without any let-up until June1919). This increase was not visiblyhampered by the steady increase inbuilding costs which continued at thesame rate which had characterized itsince the middle of 1917. After June1919, issuance of building permitsdropped off and the boom collapsed,reaching its low point in December 1920.

Simultaneously with the beginning ofthe collapse in building construction,costs began to rise at a steeper rate thanthey had in the previous three years,reaching the high point in June of 1920while building activity was still tumbling.From that point until mid-1922 buildingcosts declined again, but the low point

Chart 3.—New ConstructionActivity

MILLIONS OF DOLLARS1,200!

TOTAL*

E Newman, op. cit., p. 23.

Sources of data: Joint estimates of U. S. Departmentsof Commerce and Labor.

was practically the same as the point ofdeparture for the original post-warbuilding boom which began early in 1919.Such behavior of costs, in rising sharplyafter the number of permits issued hadbegun to drop, perhaps is explained bythe fact that the volume of constructionin progress but not completed createdsufficient pressure of demand to forceprices higher. Although the longer-range outlook indicated by new permitsgranted was such as to foreshadow a de-cline in demand and hence weakening ofprices, the short run effect was quite theopposite.

Many students of construction trendshave concluded that the rise in buildingcosts brought about the decline in build-ing activity, and that the recovery ofbuilding in 1921 and 1922 occurred be-cause building costs declined sufficientlyto make it profitable once more to under-take new construction. Some of the moreastute observers have hedged with thequalification that the decline was suffi-cient to permit a rise in building activityto get under way, but that it did not gofar enough to permit the boom to bebuilt on a sound basis. In other words,the building boom was founded on an un-sound cost basis and the high prices

which were paid were responsible for theultimate collapse of building activity sev-eral years before general business condi-tions turned down.

The explanation offered above impliesthat there is a disparity between themovements of building costs (and build-ing materials prices as an element ofthose costs) and other prices—thatbuilding materials prices rise so muchmore rapidly than general prices thattheir real cost becomes prohibitive.Thus, when prices of building materialsare out of line with general prices, rents,and national income—and the exchangevalue of building materials is high rela-tive to general commodity prices—build-ing activity must decline until buildingcosts are more nearly in balance withother prices and economic indexes. Butif the state of balance is misjudged andbuilding activity proceeds prematurely,the groundwork is laid for a serious col-lapse.

It is not necessary to reject these ex-planations in order to conclude that theyare insufficient as a basis for determiningat what point building activity will re-lapse. The importance of other factorsin the situation is so great that for aconsiderable period their weight mayoverbalance the effect of high relativeprices and costs of building. Withoutdenying the possible bearish influence ofprice factors in the present situation,there are counter-tendencies in the1946-47 construction outlook for exam-ple, which may bring about a high levelof sustained construction activity.

The association between rising build-ing costs and building activity that wasnoted after the first World War made itsappearance again in the comparable pe-riod following the second World War.The years 1939, 1940 and 1941 were goodbuilding years, with each year's total ofbuilding activity successively higher.During this period the index of buildingcosts rose steadily if slowly from 200 inmid-1939 to 225 at the end of 1941.Private building activity declined in 1942,but this decline was more than offset bya tremendous volume of war-inspiredpublic construction—so that 1942 wasthe biggest year in the recent history ofconstruction. The same causes whichwere responsible for the rise in buildingcosts in the previous war were effectiveduring this period, and high wages,coupled with large demands, made ahigh cost level almost inevitable.

In 1943 and 1944 new construction ac-tivity was restricted by government or-der to essential projects; total volumewas $7.9 billion in 1943 and $4.2 billionin 1944. Despite the low level of con-struction and the fact that price controlson building materials were effective dur-Digitized for FRASER

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November 1946

12 SURVEY OF CURRENT BUSINESS November 1946

ing most of this period, costs of con-struction continued to rise and stood at265 at the end of 1944, as compared with240 at the peak of building activity in1942.

Relaxation of controls on building in1945 occurred in two stages. Industrialconstruction was encouraged after thecessation of hostilities with Germanyand all types of construction were en-couraged after VJ-day. Controls onconstruction were completely removedwith the revocation of Limitation OrderL-41 in October 1945. Private buildersreacted very strongly to the opportuni-ties in building and started off a boomwhich resembles closely the pattern of1919.

Although price controls continued ineffect during this period, increases inwage rates and official price increasesgranted by OPA were sufficient to ac-celerate the rate of increase in the costof building construction which had pre-vailed for almost four years.

The increases in costs shown by theindex do not measure all the increase incost which occurred. On the materialsside, the difficulty of policing lumberprices and minor illegalities in the caseof half a dozen other important con-struction materials raised actual mar-ket prices considerably above officialprices. On the labor side, increases inwage rates were magnified by occasionalside payments. Total costs of labor wereincreased by an inability to proceed effi-ciently on the job due to delays in de-livery of materials, lower productivity,and inability to obtain craftsmen at theparticular time required by the progressof the job.

Despite these cost increases, buildingactivity has attained a tremendous rate.The fact that increasing building activ-ity was again in this instance associatedwith sharp price increases would seem totemper the theory that rising pricesimpede the inauguration of a buildingboom. The coincidence of high pricesand rising construction volume is evi-dence, too, of the importance of psycho-logical factors in business economics.Entrepreneurs, and speculators particu-larly, are not deterred by the level ofcosts they must meet to engage in busi-ness. Their motivation lies in the factthat costs can be met and covered by aprofit if their ventures are successful.The expectation of profit in a given dealor series of deals is the lure that permitshigh and increasing prices to be paid.The study of changes in building activityseems to exemplify the thesis that busi-ness advances by expectation of gain andthat high prices alone do not discouragebuilders.

Rent Levels and New ConstructionIt is sometimes maintained that re-

strictions on the amounts which may becharged in rentals have a depressingeffect on the market and thereby tend toretard construction of new multi-familyfacilities. The matter of determiningthe magnitude of a rental increase whichis necessary to compensate for totalincreases in building costs for varioustypes of structures is a subject worthy ofclose study. However, the assumptionthat pressure on rents was a contribut-ing factor to the slackening in residen-tial building which occurred in 1919 doesnot seem to conform to the facts. Dur-ing World War I there were restrictionson rentals that had but slight legal sup-port. Consequently it is not surprisingthat the available indexes of rentals forthat period show that rents began to risein 1917 and continued through themiddle of 1919.

The assumption that rental rates werea depressing factor at least partly re-sponsible for the slump in building in1919-20 is contradicted by the fact thatthe decline in construction in mid-1919coincided with a stepped-up rate of in-crease in rentals. By 1921, which wasthe year of recovery for residentialbuilding, residential rents had becomefairly stabilized and their increase fromthat year until 1926 was rather minor.Despite the tapering off in rental in-dexes, residential construction continuedits upv/ard pace and reached its peak in1925. The 849,000 dwelling units builtin 1926 still constituted a high totalwhen compared with the level of build-ing in the period 1917 through 1921.

The apparent lack of relevance ofchanges in rent indexes as an explana-tion for changes in residential volumemight perhaps be countered with theclaim that the decline in building whichoccurred in 1920 was associated with cir-cumstances in which rent levels obtain-able were not sufficient to support theprojected number of rental units, andthat building of these units consequentlydropped off. In terms of this reasoning,the higher rent level which prevailed in1922 and following years—although onlyvery slightly higher than the previouslyexisting ones—provided enough financialincentive to make building of additionalresidential units attractive. That thisexplanation does not cover the data from1917 to 1920 detracts somewhat from itsusefulness. Perhaps the most satisfac-tory conclusion to be reached is that rentreturns considered as a single elementdo not explain the upward and down-ward movements of residential buildingand must be considered in conjunctionwith other factors.

Thus, the factors which we have al-ready examined and which receive gen-eral recognition ias being among themost important in influencing the vol-ume of construction seem to have pro-vided no conclusive direction to an un-derstanding of the building situationwhich concerns us at the present time.The contention which has been ad-vanced by many analysts that risingbuilding costs are responsible for sti-fling building activity seems particularlyinadequate in the face of the data whichhave been presented for the two WorldWar periods, from which it seems fairlyplain that rising costs by themselveshave little effect on the inauguration ofa period of great building activity.

Inadequacies of Relevant Data

At least a partial explanation for thefailure of the elements considered inthis analysis to provide a clear cut basisfor forecasting the future can be offered.The basic difficulty appears to be thatthe data available are almost all aver-ages or net figures which purport to rep-resent activity for the country as awhole. These measures have beenadopted and are used because they havethe merit of condensing a wealth of datainto a few series of figures which canbe easily handled. But the merits ofconvenient series also contain seriousdrawbacks to their usefulness, becausethey frequently obscure the interactionof significant factors and tend to hiderather than to reveal underlying causeswhich are the objective of research.

We have made the point above thatan increase in population is one of thefactors for which a national figure haslittle meaning. The factor in which wehave an interest is the net addition topopulation at any given locality. Themeasure of need for new dwelling unitsbased on increase in population in thenation as a whole would be the sum ofall net additions in various localities. Asimilar point can be made for the studyof vacancies. It does not matter if thenet vacancy rate of the United Statesis 2 percent or 4 percent or 6 percent.The data required are vacancy rates forgiven localities which can be associatedwith the population increases and withother important factors such as incomes,savings, rent levels, general business ac-tivity, age distribution of the population,and characteristics of housing for thespecified areas.

In like manner, the effect of differ-ences in savings and income on the totaleffective demand for housing may beconsiderable in communities whichotherwise have superficially similarprospects for construction activity.Other factors, including some whose in-


November 1946

November 1946 SURVEY OF CURRENT BUSINESS 13

fluence may not have been apparent tous, succeed in differentiating variouslocal markets for building. Close studyfor one area might give us a sound basisfor forecasting progress of constructionover a fairly short period. However, anattempt to study these factors on thebasis of the averages or net figures avail-able for the nation as a whole does notseem to offer as good prospects for fore-casting. Difficult as the undertakingwould be, it seems that a first rate fore-casting job can be done better on thebasis of adding together the findings forindividual communities than by at-tempting to analyze the national situa-tion on the basis of a half dozen con-venient indexes of economic progress.

Prospects for Construction

Although it can be shown that gen-eral price increases do not retard thebeginning of a construction boom, it isevident that price increases may affectthe progress of the boom. The difficultyof assuming an association between highcosts and the cessation of a constructionboom on a national basis may perhapsbe resolved by consideration of whatmight happen in individual cases and forparticular localities. It is perhaps alsopossible to ascertain how much of a dif-ference is necessary to stifle an upwardmovement in construction after it isunder way. This consideration shouldinclude the case of private individualsbuilding residential units, as well ascommercial and industrial structures andpublicly financed construction.

Home Sales Market

Treating private individuals first, itis estimated that more than two-fifthsof American families receive incomesof less than $50 per week and are notcandidates, generally speaking, forhouses whose carrying and maintenancecharges amount to $50 per month ormore. By common agreement, the lat-ter means a house which sells for $6,000including the lot. Such individuals arenow being asked to extend themselvesand to buy houses at prices averagingmore than $8,000. The rush to buy thesehouses seems to indicate that there areenough people with incomes sufficient toafford them, or that people who cannotafford them are brushing aside the impli-cations of the burden of the long-termobligations they are assuming, becauseof the desperate housing plight in whichthey find themselves now.

The effect of over 100 OPA increasesfor building materials in April, May,and June 1946, unofficial price rises inthe period of decontrol between July 1stand July 27th, and the inability of the

OPA to resist most of the price increasesdemanded, has been further large in-creases in the prices of building mate-rials. These increases may merely pro-duce a level of prices no higher than theunofficial quotations which have pre-vailed for several important materialsfor more than 6 months.

These price increases will, to some ex-tent, stabilize contractors' costs, and itmay be that contractors who have previ-ously been afraid to make commitmentsto build houses will now undertake to doso. The prevailing high costs—with anupward trend indicated—have a slightadvantage over the previous cost situa-tion in that they are relatively stablecosts. If these conditions stimulatebuilders sufficiently to produce an in-crease in the supply of houses, it is, ofcourse, an encouraging development, butit can be fairly well assumed that indi-viduals who can afford a $6,000 houseand who might extend themselves tobuy an $8,000 house will simply departfrom the house purchase market whenthe price goes up to the neighborhood of$10,000.

The controls imposed by the Veterans'Emergency Housing Program set a ceil-ing of $10,000 for single family homeswhich may be built while the program isin effect. Because of high prices andcosts, homes selling for $10,000 containthe amenities and equipment associatedwith $5,0G0-$7,000 price tags in the pre-war period. There is a substantial mar-ket for houses embodying more facilitiesand more elaborate construction thanthose which can be built while controlsare in effect.

Since this demand must of necessityremain unsatisfied, some observers con-clude that there is thus created a back-log of demand for high-priced construc-tion which will help to support buildingactivity when demand for utility units atlow prices tapers off. This is true to acertain extent but its importance caneasily be exaggerated. Some support willcome from those whose incomes, savings,and standard of living warrant the con-struction or purchase of truly high-priced, high-quality homes. This may betermed the bona fide demand, and, cal-culated on prewar statistics adjusted forwartime changes, it produces only a verysmall number of potential purchasers,who may be considered the cream of themarket.

Another segment of the demand forhigher-priced homes is less substantialand is supported chiefly by the inflatedprice levels prevailing for residentialproperty. In this category we havehome owners who are candidates forhigh-priced houses by virtue of the factthat they have homes which they can

sell. An individual who bought a $10,000home in 1939 may receive as much as$16,000-$18,000 if he sells now. There-fore, such a person is likely to be in themarket for a $16,00Q-$20,000 house. Ob-viously, the contribution to support ofthe higher-priced market made by suchindividuals is not very firm and dependsupon the continuance of present highprices for real property.

Despite the importance of demand forhigh-priced dwellings in setting stylesand creating the market for new mate-rials, equipment, and improvements tobe incorporated into new homes, the vol-ume of home buying by the upper-bracketgroups is not large and cannot for longsustain the house-building market. Withhigh prices forcing low- and middle-in-come demand out of the house-purchasemarket, the demand for housing accom-modations must inevitably express itselfas demand for rental units.

Residential Rental Market

In general, rents demanded for newmulti-family units are rather high, re-flecting, in part, expensive building prac-tices under present conditions. How-ever, high rental rates are not now strongdeterrents to prospective tenants, andthey offer better than average returns tobuilding operators.

The outlook for the building of apart-ments and apartment units is good be-cause of high demand. Even at veryhigh rentals, new dwellings for rent pre-sent a distinct contribution to the reliefof existing shortages. The main reasonfor this is that individuals who under-take contracts to pay rents which theycannot afford are not undertaking long-term legal contracts and jeopardize noequity. It is quite possible to pay twoor three times as much as one can affordfor a period of two or three years if onehas a backlog of savings. Such a con-dition prevails for a great many indi-viduals and family units. In the longrun, such a deal would probably provebetter than undertaking now to buy ahouse which is overpriced and possiblyjerry-built.

Favorable opportunities for landlordsare also present in the current situa-tion. Recognition of the fact that pres-ent and anticipated costs are not out ofline for large builders is evidenced by theemergence of several life insurance com-panies as builders in New York City,Boston, and one or two other communi-ties. Efficient management, large scalepurchasing and bargaining power—bothwith material suppliers and with laborunions—give them an advantage in hold-ing the costs of their completed struc-tures to a minimum in the present mar-


November 1946

14 SURVEY OF CUEEENT BUSINESS November 1946

ket. Of course, it is possible that thereturns which tempt life insurance com-panies to embark on long-term invest-ments would not attract individuals orgroups with smaller capital resources.

Nonresidential and Public Building

The situation in commercial and in-dustrial building is even better than theoutlook for residential building. Thesetypes of construction can earn a muchlarger return for their owners or opera-tors. The cushion of savings acquired bybusiness concerns is very large, and theability to write off losses under generoustax laws lessens the risks for those order-ing the construction of commercial andindustrial buildings. High prices affectthis class of builders far less than theydo residential builders.

Publicly financed building is unlikelyto play an important part until the de-mand for private structures has beensatisfied. The volume of public construc-tion will be confined largely to the provi-sion of streets, public utility services,and a few long-delayed developmentprojects and public improvements suchas bridges, tunnels, and other measuresnecessary to save some growing citiesfrom self-strangulation. Perhaps theone exception to the control of publicbuilding is the construction which is pro-ceeding for the Army and Navy. How-ever, the military services have agreedto limit their construction in order topermit scarce materials to be channelledto private residential and to private andpublic hospital buildings.

The Current Outlook

Prospects for construction, includinghousing, appear very good for the periodimmediately ahead. Beyond this short

period—perhaps the next two years—many of the elements of demand willcontinue to work powerfully toward along-sustained high level of constructionactivity, but this longer period is out-side the scope of the present discussion.

The underlying strength of the con-struction situation depends upon theenormous size of the demand for housingand other products of construction.While it is recognized that latent fac-tors exist—particularly the possibility offurther sharp increases in constructioncosts and the possibility of a fairly gen-eral recession in business activity, origi-nating in other segments of the econ-omy—which might work against contin-uance of high levels of activity in con-struction, it is not believed that if thoseforces developed they would be powerfulenough to affect seriously the strong de-mand for new buildings and other con-struction products.

Construction costs, though greatly in-creased since the last prewar year, donot appear to be sufficiently high to bringabout, of themselves, a construction de-cline. There is some evidence, however,in the recent decrease in the volume ofreal-estate transfers, in the recent ap-parent tendency towards stability inprices of residential property, and in theincreasing discussion of deferment of in-dustrial and commercial construction,that further large price increases mightlead to at least a temporary decrease indemand at the new, higher prices. Sucha decline would probably be particularlynoticeable in residential construction.However, if the building of dwelling ac-commodations should falter as a resultof sharp price increases, the slack mightvery well be made up—at least in 1947—by private commercial and industrialbuilding.

A major factor to be considered inassessing the short term situation is theeffect of a general business recession ordepression occurring within the nextseveral years. The accumulated de-mand for housing and the low level ofresidential building during the war yearsimply that the demand for more dwell-ings will be substantial even during ashort recession. The effect of a reces-sion, in fact, might be to bring about acost structure which would provide hous-ing at lower than prevailing prices.

The effect of a recession upon privatecommercial and industrial constructionwould probably be more pronounced thanupon residential construction, becausethere would be a strong tendency topostpone construction to take advantageof prospective lower prices, and becausemore of the edge would be taken off thedemand.

Support for a high level of constructionwould be provided by public construc-tion. Backlogs of demand have beenbuilt up during the war years in publicconstruction as well as in private, andan increasing volume of this demandcould be unleashed—though with somelag.

It has been assumed in the above re-marks that a near-term recession wouldbe neither sufficiently severe nor suffi-ciently long-lasting to have an extendeddepressing effect on employment andincomes. More consideration wouldhave to be given to the effects whichmight flow from a long-continued majordepression. However, the very strengthof the underlying construction situationappears to be one of the strongest pos-sible guarantees against a major depres-sion of this nature in the period imme-diately ahead.

The Business Situation(Continued from p. 6)

Thus, while the ratio of capital securedthrough new issues has been increasing,this has not been the major source ofthe funds used for plant expansion. Thecorporations came out of the war withsubstantial liquid reserves, and currentdepreciation charges plus retained earn-ings have provided a large volume offunds for expansion purposes. To someextent, also, bank loans may have pro-vided funds for plant and equipment ex-penditures.

Profits RisingCorporate profits in the aggregate

have been rising since the low point of

the reconversion period in the firstquarter of 1946. Second quarter profitswere larger than in the first quarter,and the company returns so far issuedcovering the third quarter reflect afurther rise, as well as considerable less-ening of the disparity of performance be-tween the so-called reconversion indus-tries and the others. The former groupis not yet reporting profits relatively ashigh as the others, but the difference incomparative performance is not so strik-ing as in the first quarter. The railroads,which experienced a deficit in the Janu-ary-June period, did better in the thirdquarter.

Profits before taxes are less than dur-ing the war, but with the reduction inthe effective tax rate profits after taxes

are currently above the war levels. Theyare likewise considerably above any pre-war totals, though in relation to the vol-ume of corporate sales, profits so far thisyear did not reach prewar ratios for yearsof high business volume.

The difficulties in the new capital mar-ket can hardly tee ascribed to either thelack of investment funds available or tothe current level of profits. What ap-pears clear is that—just as in the stockmarket where a shift occurred in buyers'expectations—doubt arose as to theprices at which new securities were beingoffered.

Savings Reduced, But High

While available data do not indicatethat the demands for additional capital


November 1946

November 1946 SUEVEY OF CUEKENT BUSINESS 15

in the new issue market are outpacingthe supply of available funds, it is none-theless a fact that, compared with a yearago, the supply of investment fundsavailable from current savings of indi-viduals has been reduced.

The large rise in consumer expendi-tures immediately following the end ofthe war occurred during a period whenthe disposable income of individuals (in-come received less taxes paid) under-went a decline. While this income sub-sequently rose from the reconversion low,it was not until mid-1946 that disposableincome moved above the war peak. Thissharp rise in the ratio of spending to in-come has meant that by the past quarter

the net savings of individuals were re-duced to only about half as much as theywere in early 1945.

While the current $20 billion annualrate of savings is still large on the basisof prewar totals, the amount is muchless than it was at the end of the war.Nevertheless, the liquid funds of individ-uals rose to an all-time high by theend of the third quarter of this year.Furthermore, the reduction in currentsavings does not mean that the fundsavailable for investment out of currentincomes have necessarily been reducedin proportion to the decline in total sav-ings since the reduction in savings would

not be expected to be uniform by incomegroups. The flow of dividends, an im-portant source of incomes available forinvestment, has increased about 10 per-cent so far this year over a year ago.

Under prevailing economic conditionswhich have been reviewed in the pre-ceding section, it is not surprising thata more cautious attitude is appearingwith regard to the value of new securityofferings. Prices of these securities overthe longer run will be determined by thetrend of basic interest rates, and by theearning power of securities over a periodwhen a more usual demand-supply po-sition than exists at the moment has beenrestored.

New or Revised SeriesEstimated Number of New Dwelling Units in Nonfarm Areas: Revised Series for Page S-5 *

Year andmonth

191019111912191319141915

1916-1917-1918-1919-1920-1921..

1922..1923-1924..1925-1926-1927-

1928-1929..1930-1931..1932..1933-

1934-1935..1936-1937-1938-

1939JanuaryFebruaryMarchAprilMayJuneJu ly .AugustSeptember...OctoberNovember. . .December. _.

Monthly avg-

Totalnon-farm

475,000480,000490,000455,000445,000475,000

480,000230,000120,000330,000247,000449,000

716,000871,000893, 000937,000849,000810,000

753,000509,000330,000254,000134,00093,000

126,000221,000319,000336,000406,000

515,00032,30030, 70042,90042, 90053,30045,90044, 20051, 20042,40042,90045,10041, 200

42,900

Urban

196,000359,000

574,000698,000716,000752,000681,000643,000

594,000400,000236,000174,00064,00045,000

49,000117,000211,000218,000262,000

359,00023,23021,64830,14328,60538, 20231, 78829,83535,49528, 244

32, 29430,828

29,900

Item

1940

Total nonfarmUrban, total

P r i v a t e l y f i -nanced, total-

1-family2-family...Multifamily.....

Publicly financed.

1941


P r i v a t e l y f i -nanced, total. .

1-family2-familyMultifamily

Publicly financed.

1942


P r i v a t e l y f i -nanced, total..


Publicly financed.

1943

Total nonfarmUrban, total ._.

P r i v a t e l y f i -nanced, total.


Publicly financed.

1944


P r i v a t e l y f i -nanced, total,

1-family2-family..Multifamily

Publicly financed

Janu-ary

27,02218,916

15,98111,018

9973,9662,935

41,19827,505

24,36117,0351,3216,0053,144

34,50021, 552

16,95613,8661,1631,9274,596

45,00021,010

5,8703,567898

1,40515,140

17,30011,016

8,2226,257

977988

2,794

Febru-

34,86224,891

20,97414,3291,3525,2933,917

43,76528,094

21,79516,4801,5183,7976,299

51,30036,071

21,59915,6791,4644,45614,472

40,10022,578

6,1154,676588851

16,463

13,5009,050

7,8606,161409

1,2901,190

March

46,76231,572

28,51321,8821,5685,0633,059

60,17236,171

31,83824, 7602,2574,8214,333

52,70031,970

28,98823,0451,9643,9792,982

33,00017,994

9,2996,6001,0661,6338,695

18,10012,359

9,0206,9221,165935

3,339

April

56, 55138,324

34,19426,8912,0355,2684,130

75,15948,045

38,31630,8282,3345,1549,729

59,70033,336

25,42217,7652,8044,8537,914

26, 70016,779

9,8686,5431,3691,9566,911

14,3009,586

8,5286,3591,0031,1661,058

May

57,73737,941

33, 23726,8091,7704,6584,704

70, 69043,885

39,40530,9672,3886,0504,480

60,60026,091

12,38110,065

8891,42713,728

33,60020,682

12,3468,3261,6462,3748,336

16,50010,923

9,7436,981956

1,8061,180

June

49,97229,861

27,69423,1021,5133,0792,167

77, 20347,994

37,30230, 5492,2114,54210,692

46,30021,998

11,3448,3871,0561,90110,636

21,80014,132

11,4227,4401,6862,2962,710

17,50011, 558

9,9737,5541,3931,0261,585

July

57,39336, 631

31,58025, 7741,8413,9655,051

74, 61045,025

40,47431,8872,0616,5264,551

26, 70016,636

12,8389,2481,1392,4513,798

24,20014,798

11,0867,4971,4082,1813,712

14,5009,830

8,1146,537

860717

1,716

August

56,48336,918

31,63026,2831,9123,4355,288

69,75041,622

34,02929,3561,9772,6967,593

27,50016,975

13,39710,087

7932,5173,578

27,60017,430

13,0887,2511,9343,9034,342

12,8008,768

7,2735,443655

1,1751,495

Sep-tember

57, 76238, 481

31,08225,4812,0913,5107,399

67,04640,389

30,80126,0112,2182,5729,588

40, 40022,479

13,3129,8541,1052,3539,167

24,30014,016

10, 9066,6851,5352,6863,110

11,3007,758

6,2284,948

575705

1,530

Octo-ber

65,96043,099

33,159-26,1712,2194,7699,942

56,17933,646

29,70924, 7272,0002,9823,937

32, 20022,431

11,5188,8761,1211,52110,913

28,10016,724

11,8407,0181,8023,0204,884

11,1007,469

6,8845,288

735861585

No-vember

48, 53331,126

23,47118,4901,4493,5327,651

46, 65127,868

24,33717,9101,2985,1293,531

30,40014,954

9,1446,5541,1651,4255,810

26,10019,100

9,4127,0151,3091,088

11,6008,460

6,3624,880

612870

De-cember

43, 563,28,852

21,65115,7911,2194,6417,203

32,77719,338

17,09814, 5141,1691,4152,240

34,30016,345

7,9935,4821,0841,4278,352

19,50014,007

8,4626,132993

1,3375,545

10,8008,022

4,9663,950

568448

3,056

Total

602,600396,612

333,166262,02119,96651,17963,446

715, 200439,582

369,465295,02422, 75251,68970,117

496,600

184,892138,90815, 74730,23795,946

350,000209,250

119,71478,75016, 23424,73089,536

169,300114,799

93,17371, 2789,90811,98721,626

Month-ly

aver-age

50,21733,051

27,76421,8351,6644,2655,287

59,60036,632

30, 78924,5851,8964,3075,843

41,38323,403

15,40811,5761,3122,5207,996

29,16717,438

9,9766,5631,3532,0617,461

14,1089,567

7,7645,940826999

1,802

i Compiled by the U. S. Departmeiti of Labor, Bureau of Labor Statistics, except estimates for 1920-29 which are from the National Bureau of Economic Research. The estimatesare based on building permits issued for privately financed dwelling units and notifications of contract awards supplied by the awarding agencies for publicly financed units. Nor-mally they are considered to represent the estimated number of new family dwelling units upon which construction work was started. In recent months critical shortages of buildingmaterials and limiting orders have caused considerable delays in the start of construction or, in some cases, abandonment of the work. The data since the beginning of 1945 should,therefore, be considered as number of new dwelling units for which permits were issued or contracts awarded. Family units gained by alterations and conversions, trailer units, anddormitory accommodations are not included. The urban estimates beginning 1930 cover urban areas as defined in the 1940 census, including all incorporated places with a 1940 popu-lation of 2,500 or more plus a small number of unincorporated civil divisions classified as urban by special rule; earlier urban data include places of this size as defined in the 1930census. The total for all nonfarm areas includes the data for urban areas and estimates of all other new family dwelling units, except those on farms, which are not shown separately.

The basic data on building permits for 1920 and earlier years included only the larger cities; the coverage has been steadily expanded and reports now include over 2,400 cities,accounting for 85-90 percent of the total urban population, and 1,000 rural incorporated places; since 1939 a small number of counties have reported building permits for unincorporatedareas. Supplemental data were made available for January 1940 to August 1942 by the Defense Housing Agency and the Works Progress Administration.

The classification of urban units by type of dwelling shown in the Survey prior to the May 1946 issue includes both privately financed and publicly financed construction. Thelatter has not been reported by type of dwelling since April 1943 but has been predominantly 1-family since that time and was included in the 1-family classification as shown in themonthly Survey through the April 1946 issue. Since the middle of 1942 most of the public housing has been temporary.


November 1946

construction and business cycles - st. louis fed

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