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either off site or on site, then delivered to the building lot and erected by skilled crews on the job.
Mobile homes, on the other hand, are complete movable dwellings, as the name implies, fabricated in a factory on an assembly line basis. I would like to inject at this point, however, that while it is on an assembly line basis, the mobile home industry as we know it in the industry, is far from an automated or mechanized high-speed industry.
The mobile home does not have generally permanent foundations on the building site. It is usually wheeled or trucked to a concrete pad and rests on the concrete pad. Interestingly enough, the current statistics relative to mobile homes are that the mobile home is not mobile. The average mobile home travels an average of 300 miles in a 5- to 7-year lifespan. They are now being produced in either single or telescoping or bolted-on-the-site multiple units. The term in the industry is known as a double-wide, which can achieve a width of up to 24 feet.
Very importantly, the mobile home is not judged as real property. It is considered personal property and taxed as such.
Sectionalized houses are three-dimensional movable building modules that are fabricated in a factory, delivered to the site, and placed on permanent foundations as opposed to the temporary foundation of a mobile home. They do generally comply with local building codes, or at least can be made to comply with local building codes. They meet zoning requirements and are quite comparable to site-built dwellings. As a matter of fact, a quality sectionalized house should be indistinguishable and can be indistinguishable from a site-built, stick-built house. Importantly, they are judged as real property as opposed to personal property, and again are taxed as real property.
In our opinion, we believe that industrialized housing, except for high-rise buildings, will involve increasingly sectionalized housing. I cannot present myself as an expert on high-rise buildings, because our firm and our activities have been primarily in single-family housing, low-rise.
Now, we come to the question, why should we even be bothering about discussing industrialized housing? After all, we have been able to house the people of this country since the birth of the Nation. Why, suddenly, do we have the problem? Why, suddenly, should we be considering industrialized housing? We have prepared some charts which I think can explain this quite graphically.
Last year, a goal was set for the country by President Johnson of 26 million housing units over the next 10 years. I think everybody here has seen "pros and cons" as to whether we are going to achieve that goal.
We sat down at one point in our company and tried to figure, can we really achieve as a nation 26 million housing units in the next 10 years if we build as we are currently building? Quite frankly, we came to the conclusion that it is impossible, for two reasons.
First, as Mr. Finger pointed out, there is a critical labor shortage. Now, in 1968, the U.S. housing industry produced 1,535,000 housing units. We took one trade, which we assumed to be a typical trade required in the housing industry. In this case, it happened to be plumbers, but we believe the analysis I am about to show you would be applicable to electricians, carpenters, masons--any trade.
In the United States, operating in general construction last year, there were 386,000 plumbers. Now, we got that from the Department
of Commerce Construction Review. We assumed, because we could not find the statistic anywhere, that half of these plumbers were involved in residential construction and we feel that that is a reasonably fair assumption. As a matter of fact, if it were more than half, what will achieve at the end of this chart would be even more disastrous. So let's assume half. That gives us 193,000 plumbers required, working on the 1,535,000 houses built last year.
Now, at least in our case, and we are among the major builders in this country, the only reason we built 1,535,000 housing units was not a result of demand, we just could not build any more. We were in the happy position last year and the year before that of being able to sell as many houses as we built. Therefore, if we accept the goal of 26 million housing units in 10 years and if we built 1.5 million last year, then on a straight-line increase to achieve that 26 million, in the 10th year, we are going to have to be producing 3,665,000 housing units.
To do that, and assuming that the efficiency of plumbers is as good as it is going to be, with perhaps moderate increases, we are going to need 464,000 plumbers in that 10th year. However, based on the 1.7-percent annual increase in the U.S. work force, we are going to have 452,000 total plumbers in 10 years, and again, assuming even more than half being involved in residential, we are going to find ourselves with 259,000 plumbers available for residential construction.
The point here is that between what's needed and what will be available will provide a discrepancy of 205,000 plumbers short of the numbers of housing units we are going to want to build in that 10th year to achieve the 26,000,000 over 10 years.
In addition to that, we are pricing ourselves out of the market. You all recall the Levittowns of 1946, when we were building houses and selling them at $7,990. Our average-priced house today is $29,000. We still represent one of the largest builders in the country. So cost becomes a very critical factor.
We considered a typical low-priced unit and we considered the direct cost of the unit, excluding land, excluding financing charges, excluding our own overhead. The direct construction cost today of one of our units, labor and materials amounts to roughly $11,000.
Now, we assumed-no, we did not assume, we know that in that $11,000 figure, we have $4,400 for field labor. If we took that $4,400, and historically, we know we have been hit with roughly 10-percent wage increases on labor over the past 10 years and we can only assume that the same will be true in the next 10, that $11,000 figure, using sitebuilt, skilled labor, is going to go up to $15,175 by 1975. However, if we take that same $11,000 direct cost for the same constructed unit and build it in a factory, with semiskilled and unskilled labor, which is all that is required for the factory-built house, and provides, incidentally, a far greater labor force availability, we have $1,200 for field labor in 1968 and $1,400 for shop labor.
Now, again, historically, the field labor is going to increase at 10 percent and the shop labor is going to increase at 5 percent. By 1975, that factory-built house is going to cost us $12,709, or a difference of over $2,000. That is a significant number. So we are not saying that industrialized housing today or tomorrow is going to be less expensive, but it certainly is going to contain costs a lot more effectively than the site-built house. There, then, is the reason why we have to do something if we expect to achieve any sort of goal that we have established for ourselves.
Now, so that my visit here today, aside from doing wonders for my ego, can be of some benefit, we have given some serious thought as to what we think really is necessary to create the climate, to create the environment that would be conducive to bringing about industrialized housing in this country. To that end, in a very humble kind of approach, we call upon Congress to take certain actions to set the groundwork to enable us, the industry, to respond to the Operation Breakthrough's, to respond to the national goals set by former President Johnson, and the country.
First, we believe that something should be done to reduce the confusion, the complexities, the contradictions of local building companies. To that end, we support and highly endorse the concept of a National Institute of Building Sciences.
We suggest legislation establishing a National Institute of Building Sciences, the effect of which would be to encourage a municipality to evaluate new production techniques on a rational basis. In other words, a wall should not have to be 2 by 4's, 16 inches on center. A wall should have to be able to support a number of pounds under a certain wind load; performance rather than materials, catering to no industry or no interests but the American people.
Secondly, we request that Congress exert the same influence as it would on building codes by establishing a National Institute for Building Sciences, by establishing an Institute of Environment Sciences that would develop the same kind of standards for zoning concepts, for environment, for the situation in which the dwelling unit is placed, as it would on the construction of the dwelling unit itself.
Third-and I hope I am not putting Mr. Finger in a compromising position, because we intend to be one of the bidders of Operation Breakthrough—we urge Congress to thoroughly support and encourage Operation Breakthrough, because we think it is going to be terribly effective in developing innovative building techniques, and a response to the need for industrialized housing.
We also suggest increased funding for sections 235 and 236 of the National Housing Act and raising the limits of the eligibility of the housing units under those sections of the act. Right now, the act has finite dollar limits as to the cost of the unit, and it is not tied in with any inflationary or cost-of-living index. As such, if we maintain it at its present course, it will be avoided or unacceptable or unavailable to the mass housing market in a very short time.
Fifth, we urge authorization for variable rate mortgages so that housing can attract its fair share of available financing. What we mean by variable rate mortgages is that when a homebuyer takes out a mortgage, he would take it out at a price that was competitive with the commercial lending market. And if the commercial interest rate increases, so would the mortgage rate, of that particular mortgage. However, the home buyer would not pay any more on his monthly payments.
Representative MOORHEAD. The monthly payments remain constant? Mr. BIEDERMAN. The monthly payments would stay the same. The duration of his mortgage would increase. For example, he starts out with, today, a 9-percent mortgage, 25-year payout. The commercial lending rate increases, say, to 10 percent. His mortgage interest rate increases to 10 percent. He still pays his $185 per month or whatever, but the length of the mortgage increases to, conceivably, 30 years. When the mortgage market decreases, his interest rate decreases and the length of his payout decreases as well. But his monthly payment maintains at a constant level.
In addition to that, we think that an inclining rate of mortgage makes a good deal of sense. The young home buyer in America can look forward to increased earnings during his business career. It would make good sense, we believe, for his mortgage to parallel the rate of his potential earnings so that a young couple could buy housing at a low mortgage rate and as their earnings increase, the rate of their mortgage would increase, which would make the mortgage a very attractive investment for lending institutions. He might start out at a low interest rate of 5 percent, but as his earnings increased, both his carrying charges and his interest rate would increase at the same rate.
Seventh, we believe that pension funds and insurance companies as well as all other financial institutions should be required to invest a minimum percentage of their funds in residential mortgages. If we indicated to pension funds and required of pension funds, for example, that 10 percent of their investments be placed in real estate mortgages, a vast well would be opened for funding for residential construction.
Eighth, we advocate that Congress allocate substantial funds solely for the research efforts required to develop satisfactory and equal techniques for industrialized housing. Gentlemen, there is no member of the building industry that I know of, be he manufacturer or builder, that is capable of taking on singlehanded the research that is required in building. We have subsidized aerospace, we have subsidized our transportation segments of society, we have even subsidized shipbuilding. But we have done very little in the areas of research and development for the building industry for housing of American people.
We suggest strongly that conceivably tied in with this proposed Institute of Building Sciences or Institute of Environmental Sciences, a research branch be set up, funded by the Federal Government, for the research of developmental techniques and new innovative construction methods. We believe that with Government help along the lines we have outlined here and with effective action by the building industry and other elements of American industry, industrialized housing truly could provide a decent home for every American. Thank you very much. (Mr. Biederman's prepared statement follows:)
PREPARED STATEMENT OF CHARLES L. BIEDERMAN
I am proud to have the opportunity to share with this Subcommittee our thoughts concerning industrialized housing.
If we define industrialized housing as a systems approach to residential building which employs assembly line techniques, manufactured components and some degree of mechanization, then we have been producing industrialized housing for many, many years. However, because of a number of constraints, some originated by builders themselves, some by local authorities, some by special interests, some by market place inertia, others by the peculiar nature and unique character of our building industry in this country today, we as a group have fallen far short of the degree of industrialization achieved by other American producers.
Let's consider that industrialized housing, at least for the purposes of our present discussion, excludes the small degree of industrialization we have accomplished with our primitive site-built assembly and installation methods. Rather, let's consider it as a mechanized, factory--built method of producing hous ing modules and panels in a controlled environment.
What, then, do we think of industrialized housing?
We believe that the housing goals of this nation cannot and surely will not be met if we do not vastly improve the productive capacity of the housing industry. We at Levitt are actively investigating the feasibility of industrialized housing, or manufactured housing or whatever you choose to call it at this very moment. Even though we feel that our present methods of construction are more economical, we foresee a housing need which cannot be satisfied with our present site-built techniques. That's so because current methods require a great amount of skilled field labor working under variable and unpredictable weather conditions. We must find ways to reduce the total amount of field labor and the work skills required in housing. At the low rate of 142 million starts predicted for this year, there are simply not enough carpenters and electricians and plumbers. Their number-absolute number, not percentage-is decreasing every week. How could we build 2 million houses this year? We can't! We lack the capability! We don't have the capacity to construct the houses required to satisfy our current needs. The only answer we see to former President Johnson's request for 26 million housing units by 1978 is in factory production by semi-skilled workers in place of field production by skilled workers.