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ment Service in securing labor and to cooperate and negotiate with Federal departments, war industries, and private contractors in the handling of all questions of labor supply, wages, hours of labor, and other conditions of employment. It was also to make such provision as should be necessary for the living quarters, health, and recreation of the employees of the corporation and of its contractors. By October 26, 1918, the requirements of this division as laid before the United States Employment Service numbered 12,356. By November 1, projects were on the average about 50 per cent manned. It was exceedingly difficult to secure labor and to retain it after it had been secured, due to the competition of other Government departments. (These difficulties are described in the report of the Industrial Relations Division, p. 222.)
In spite of these difficulties the Housing Corporation attempted to maintain a 10-hour work day and six work days per week with no Sunday work, realizing that there would not be an increase in relative efficiency if the amount of overtime was increased. This rule was very generally followed except during particular emergencies. Much time was also spent in adjusting disputes between employees and the contractors. Such disputes covered the employment and discharge of non-union men, conformity or nonconformity with union rules and practices, wages and hours of labor, and virtually all of the usual subjects of dispute between workmen and their employers.
work and was submitted as well for the project as a whole. The work of this branch was a means of saving large sums of money in construction costs to the Federal Government, and it was also effective as a means of coordinating field operations and preventing delays in the fulfillment of contracts. (See Appendix XII, p. 207.)
FISCAL RECORD. The Housing Corporation comprised a Treasury Division, responsible for cash receipts and for prompt payment of audited vouchers and preparation of schedules of disbursements, and a Fiscal Division, responsible for audit of all payments and other records for the control of all transactions and for accounting. Each of these divisions maintained field representatives, the field auditors of the Fiscal Division being charged with the control of financial transactions at projects, subject to the rules of procedure of the Washington office. Traveling auditors were appointed to supervise the work of field auditors of several projects. Each field auditor familiarized himself in detail with the contract and maintained a continuous audit of transactions under that contract, including pay-roll record and the bills of the contractor and vendors.
Disbursing officers for each project cooperated with the field auditor to insure prompt payment of the obligations to the corporation. Each disbursing officer was responsible for seeing that approved vouchers presented to him were promptly paid and that contractors operating under fixed-fee contracts were reimbursed for their weekly pay-roll after the same had been audited and approved by the field auditor. Daily reports were submitted from the project disbursing office showing the balance of cash on hand, the receipt of funds, the amount disbursed, and the balance to the credit of that office, together with an itemized schedule of sums paid on approved vouchers. An accountant in the Washington office checked the schedule of disbursements. (See Appendices XVIII and XIX.)
DEVICES TO SPEED PRODUCTION AND REDUCE COSTS.
To provide for maximum speed and minimum cost an accurate continuous record of cost and progress of work was essential. A cost engineering branch was, therefore, established in the Construction Division to watch all expenditures and orders and classify them by communities and compare these with estimated cost to make sure that the contractor was living up to his contract.
Every two weeks the cost engineer prepared a graphic report, summarizing all accounts and all quan. tities of materials and labor purchased and delivered to the project. These reports showed the quantity of work done and to be done, subdivided according to a standardized mode of classification. These expenditures were compared with the official budget and with the works superintendent's latest revision of that budget. By means of this device excessive costs were immediately noted and brought to the attention of the contractor and pressure was brought to bear to reduce costs. Charts were also drawn up to show progress of the work with reference to the time requirements specified in the contract. The progress report was itemized for each portion of the
SUMMARY OF CONSTRUCTION OPERATIONS.
The first construction contract was awarded on July 8, 1918. By November 11, 1918, 60 general construction contracts had been awarded on as many different projects and 23 more were ready to be let. With the signing of the armistice, on November 11, 54 projects were abandoned, 15 were curtailed, and 22 were to proceed as originally planned. In no case did the Housing Corporation proceed with construction unless it was judged that there would be more salvage to the Government from completion of the project and sale of the houses than would accrue from the sale of materials already ordered on construction already begun. Three of the contracts which were ordered completed were for remodeling dormitories, apartment houses, and hotels purchased by the corporation. Three other projects for, the construction of temporary houses at remote powder plants at Seven Pines, Va., Tullytown, Pa., and Woodbury, N. J., were transferred to the War Department, as it was realized that these properties would bring a larger return to the Federal Treasury if sold in conjunction with the industrial plants for which they were built. One project at Pompton Lakes was reduced to 15 semiportable houses, which were completed but not occupied, as they were no longer needed by Ordnance inspectors for whom they were built. Two projects, one for Washington Navy Yard houses and apartments, the other for Bethlehem, Pa., were subsequently canceled. Effort was made to push construction to speedy completion, and on December 21, 1918, there were 19,369 men on the contractors' pay rolls, the maximum force employed at any time.
The original program had contemplated the construction of houses for 24,970 families, or approximately 125,000 persons. Under the revised program of April, 1919, houses were to be built for 6,148 families, or approximately 30,800 persons. The original program had also contemplated the provision of quarters for 12,865 single men and 11,132 single women, either in dormitories, hotels, or as boarders in family houses. Under the revised program quarters were to be provided for 4,932 single men and 3,375 single women, of whom 4,338 men and 3,073 women were to be housed in dormitory buildings, 244 men in existing hotels on which alterations were made, 130 women as boarders in family houses, 172 women in buildings convertible into houses, and the remainder of the men in family houses.
For details of original program see Vol. II, Table 1, pp. 390–393. For details of actual construction containing later revisions, see Vol. I, Appendix XII, p. 200.
MANAGEMENT OF THE PROPERTIES.
The problem-Should houses be sold or rented?-How should rents be determined?-Demand for housing-
properties-Appraisal-Method of sale--Cost of management.
another essential obligation arising out of the fact
that these housing developments are in a sense "inodel American history offers no precedent for extensive
communities.” building of private dwellings by the Federal Govern
It is not claimed that the houses built by this corment. Although there are residential properties owned by the Federal Government in its parks and
poration are ideal in form or arrangement. To some reservations, at its navy yards and arsenals, no com
extent beauty and convenience were sacrificed to speed
and economy (criticism of these houses will be found plete communities have been constructed prior to the
in detail in Chapters V and VIII of Vol. II of this war for the use of the industrial population.
report), but the developments were model communiIn many European countries governmental depart
ties in the sense that they are being studied and will ments have constructed houses for rent or sale to in
inevitably be copied by the architects and builders dustrial workers or to the general population. With
of the future, especially by housing corporations very few exceptions such construction has been by
established by manufacturers and by groups of municipal or provincial governments rather than by
public-spirited citizens. Since these communities will the national authorities. Where the central govern
be under close observation it is particularly important ment has engaged in housing it has generally been
that the Federal Government should be a model landeither in an advisory capacity or through loans to
lord, and a model not of lavishness or of sentimental municipalities or other agencies under restrictions
welfare work, but of equity in its civic relations governing the type and quality of house to be con
and of good sound business policy. structed and the terms of rent or sale. Such a policy provides the advantages of local management of and
SHOULD HOUSES BE SOLD OR RENTED? responsibility for the housing operation and the advantages of promotion, supervision, direction, and The basic problem of operation was to determine financial assistance from a highly competent group
whether houses should be rented or sold. Throughof specialists with a permanent national office.
out the early months of 1919 scores of houses were For reasons given in an earlier chapter (see p.
being completed each week and it was necessary to 23) and because primarily of the nature of the war
come to a decision in this matter which could be
apemergency this more usual mode of governmental plied to each of the various types of houses and each construction was not tried in America. The problem of the diverse districts in which the dwellings had instead of being attacked by municipal and State been constructed by the United States Housing Corgovernments was handled directly by the Federal poration. Although houses were being completed Government, and although centralized control was ready for occupancy, the estates were unfinished beindispensable as a part of the war program, it neces- cause roads could not be built or lawns graded until sarily involved management problems of peculiar after the spring thaw. If the houses were to be put difficulty.
on sale before the estate was completed they would The primary obligation of the Housing Corpora- bring a lower price. Another reason for postponing tion in the management of its properties, in view of sale and applying a rental policy universally was the fact that these properties were not ready for op- that the labor conditions of the country during the eration until after the signing of the armistice, was early months of 1919 were unsettled, and the moveunquestionably to salvage as much as possible of the ment of prices was uncertain. war expenditure, so far as that could be consistent It seemed highly undesirable to sell properties unwith the welfare of the tenants. There was probably til their reproduction cost under peace conditions
could be ascertained, and it was unfair to the laborer or other prospective house purchaser to ask him to pay the current price for such property when a general falling of prices or of wages might make this purchase a poor bargain and cause him hardship. It was therefore determined that none of the permanent houses constructed by the corporation should be placed on sale until each estate was completed and until a carefully selected board of appraisal had determined the actual value of the completed properties.
against public policy, it became increasingly evident through the winter and spring of 1919 that if further residential construction were to be undertaken by private initiative in relief of the acute housing shortage then existing in the several communities, the rental schedule of the United States Housing Corporation would have to be so fixed as neither to impair the savings invested in competing property nor to discourage the flow of additional capital into new housing. At the same time the rental schedules could obviously not be fixed beyond the abilities of the average family
HOW SHOULD RENTS BE DETERMINED?
One of the most difficult questions of operation was to determine what the rentals of houses should be. The Housing Corporation had to contend with the astonishingly prevalent belief that the Federal Government, in view of its large resources and paternal function, should rent its houses at less than the prevailing market rates. At the navy yards this tendency was particularly strong. The navy-yard worker has tended to look upon housing accommodation as an essential perquisite in addition to wages. In the industrial communities, however, except where the Federal Government was a large property holder, unduly low rentals were not expected.
The maximum amount of rental obtainable from a given community was on the other hand to be determined with reference to several factors the cost of the development, the wages of the employees, the demand for houses of the type which have been built, the value of similar properties erected by private capital and the prevailing rentals for similar properties and for properties within the same district.
DIFFICULTY IN FRAMING A RENTAL POLICY. The situation was unusual and inherently surcharged with misunderstanding and difficulty. If the properties of the corporation were rented too low an enormous loss to the Government through reduced selling prices was inevitable. If the properties were rented for more than was held to be fair by the existing public opinion, denunciation and protest could not be escaped.
Under these circumstances, and in the absence of any knowledge of the actual values lying in the various properties as determined by appraisal after completion, the corporation tentatively fixed its rental schedules as best it could. Through its Industrial Relations Division a painstaking investigation was made of the salaries and wages earned on the average by prospective tenants, and the rentals charged for somewhat similar if not competing properties were carefully studied and formulated by experienced realtors. The schedules were then fixed by the corporation in the exercise of its best judgment and with the avowed intention of revising such schedules later upon the basis of the returns of the boards of survey appointed to appraise the properties.
If the corporation expected denunciation and protest to follow the establishment of rental schedules determined in this manner, it was not disappointed. Its officials were denounced as “ profiteers” and organized protests were made to the officers of the corporation, to Members of Congress, to the Secretary of Labor, and even to the President himself. Nevertheless, with the exception of towns like Bridgeport, Conn., Erie, Pa., and Cradock, Va., where local conditions were unsettled, the houses of the corporation were rented as soon as completed, and on January 1, 1920, exclusive of those sold, show an average occupancy for all projects of 93.6 per cent.
WHAT CONSTITUTES A FAIR RENTAL? Since the economic factors underlying the investment of capital in real estate appear to be but imperfectly understood, a wide divergence of opinion as to what constitutes a fair rental return has been encountered.
DEMAND FOR HOUSING.
With few exceptions the spring of 1919 found the communities in which the Housing Corporation had gone forward with all or part of its war program distressingly short of housing. New buildings, due to insistent demand, were often rented not only before the utilities and planting of the project were in order, but even before the buildings themselves were finished in all details. The projects created by the corporation comprised in most instances urban and suburban additions to established communities. In such developments the demand for houses and their approximate rental value were more readily ascertained. But the towns of Cradock (near the city of Portsmouth, Va.) and Bay Terrace (near the city of Vallejo, Calif.) were entirely new communities, complete to a large extent in themselves. In these developments the values could be differentiated only through occupancy and use.
The subsidizing of any community or class of workers by the Federal Government being obviously
Many, following the rule-of-thumb worked out before the era of modern improvements and when obsolescence of style and neighborhood were unknown terms, have defined a fair rental as from 9 to 10 per cent gross on the capital invested, or, where excess war cost is to be written off, on the actual values lying in the properties as found by appraisal.
Others have asserted that since the properties were created by a Government agency they should constitute a weapon in restraint of “ profiteering" and the fair rental should not exceed 5 per cent gross. Still others have urged that on the present price level of commodities gross rentals under 14 per cent
for dwellings and 18 per cent for heated apartments are a subsidy in fact and a violation of both the spirit and the letter of the housing legislation.
RENTAL IS RELATED TO VALUE.
It goes without saying that an investor should ensure the return of his capital with interest. If he builds houses of an appropriate type in an appropriate location with reasonable regard to economy and in response to a real demand he should be able to recover his principal in addition to interest on his investment and reward for his labor and the risk undergone. Capital invested in residential construction must be recovered out of rents. The rental return on residential property is therefore intimately related to its value.
If the capital invested in residential property is to be recovered with interest out of rents, such a sum must be annually returned for the use of the propcrty as shall cover not only interest and carrying charges but proper reserves for vacancies and bad accounts and for depreciation and obsolescence.
Land varies in area and quality. It is essential that the dimensions and the locations of the lots be considered.
Structure varies in size and quality. It is also essential that the cubage and the number of rooms, the materials of construction for walls, roof, and finish, be considered.
Equipment varies in extent and quality. It is also essential that the nature, capacity, and grade of the heating system, plumbing system, lighting system, and other installations be considered.
Manifestly neither the houses themselves nor their rents can be standardized on the basis of rooms, nor, indeed, on the basis of any simple formula. The rentals which properties should earn can be compared only on the basis of normal costs modified in algebraic addition by the intangible values created in the land by neighborhood and by factors of demand. * The value of thy property,” said Confucius to his scholar, “ dependeth upon thy neighbor." ATTEMPT TO ASCERTAIN PROPER RENTAL RETURN
ON REAL ESTATE. Anticipating somewhat the situation that later de veloped, the Division of Public Works and Construction Development of the Information and Education Service of the Department of Labor in the winter of 1919 addressed a questionnaire on the general subject of real estate investments to the constituent bodies of the National Association of Real Estate Boards. This questionnaire was formulated for the purpose of securing in usable percentages statistical data relating to revenues and expenses on typical real properties classified in some ten utilizations. The replies received were for various reasons few in number and the Information and Education Service went out of existence before they could be tabulated.
The cost of living continued to advance and controversies over rents increased so alarmingly in the congested centers that the eternal conflict between landlord and tenant reached a stage of almost irreconcilable difference. Naturally the United States Housing Corporation could not avoid the backwash of this unprecedented situation in the communities where its projects were located and it soon becamo evident that in some of these communities at least. unless the economic factors underlying investments in residential real estate were more definitely perceived by the public, a period of misunderstanding and distrust inimical to the general welfare was inevitable. The situation was clearly one that could be stabilized only by knowledge.
A rental return on residential property which shall be fair to the investor (and which will render it possible to build houses to rent) is directly dependent. of course, on established factors of interest and car
CAN RENTALS BE STANDARDIZED?
In the honest belief that the rental schedules of the corporation were arbitrarily fixed and no consideration given to underlying factors of equity, a number of tenants and tenants' organizations demanded that the rents on all projects be standardized on the basis of rooms. Thus the corporation was invited to prepare a chart on which should be set out in comparative form the rents fixed on each project for 4, 5, 6, 7, and 8 room houses, and this chart was confidently relied upon to prove the alleged inconsistencies of the corporation's rental schedules.
Improved properties may be intelligently compared only by inventorying and appraising the elements comprising the three component parts into which they may be resolved: