20 



HARDWOOD RECORD 



November 25, 1920 



Testimony developed during the hearings held by the Senate eoni- 

 mitteo on housing in Chicago at the Auditorium hotel, Nov. lU and 

 11, failed to sustain the hope and expectation that the building pro- 

 gram iif the nation might be aroused from its lethargy withiu tlie 

 next few months by substantial recessions in the prices of construc- 

 tion commodities, following the lead taken by lumber. According 

 to the testimony given to Senator Calder, the chairman, and his col- 

 leagues of the committee, by leading cement and brick mauufactur- 

 er.s of Chicago and the Middle West, and by labor leaders of national 

 as well as local importance, there is no prospect of reductions by 

 next spring of the cost of the commodities which they represent. 

 The representative (Edward Hincs, president of the Edward •Hines 

 Lumber Company) of the lumber industry alone, of those who gave 

 their expert testimony to the committee during its two-day session, 

 was able to announce a substantial reduction in the cost of his com- 

 modity from the position of peak prices. Mr. Hines reported to the 

 committee the decline in the prices of lumber during the past seven 

 months of from 13.43 per cent to 36.37 per cent; in dollars and cents 

 per thousand feet from $9 to $60; or, using carloads as a unit, with 

 an average of 25,000 feet per carload, from $225 to $1,500 per car. 

 He said that the prices of building lumber arc now as low as they 

 can go and pay for its production. 



But in spite of this, members of the committee and witnesses were 

 moved to reveal a hostile attitude toward the lumber industry and 

 a thorough lack of appreciation of the value of this substantial re- 

 duction in lumber prices. John Donlin, head of the building trades 

 division of the American Federation of Labor, remarked with calm 

 sarcasm that the lumber industry was indulging in no great act of 

 philanthropy when it reduced the cost of lumber 30 per cent, after 

 having raised it 300 per cent. After Mr. Hines had stated that the 

 high altitude attained by lumber prices was due to "a combination 

 of circumstances," Senator Kenyon of Iowa wanted to know if the 

 witness meant "combination of circumstances, or combination of 

 lumbermen?" Thereafter Senator Kenyon questioned Mr. Hines 

 sharply in the very plain effort to have him admit that the high 

 price levels reached by lumbermen were due to collusion on the part 

 of the members of the lumber industry rather than natural causes. 

 Having ascertained from Mr. Hines that southern pine roofing 

 boards that sold, retail, in Chicago last April for $70 per thousand 

 feet could now be had for $45 and $42, Senator Kenyon wanted to 

 know why it was necessary for the lumber dealers to sell their 

 product for $70 a few months ago when they could now let it go for 

 $42. He wanted to know if this was "philanthropy." Mr. Hines 

 explained that dealers are buying lumber from the mills at a much 

 lower figure than in April and that the mills are selling at a loss. 

 Seventy dollars only reijresouted a fair margin of profit, he said, 

 because of the high cost of labor and other difficulties. Labor rep- 

 resents two-thirds of the cost of lumber, and that advanced over 100 

 per cent, to say nothing of the radical advances in transportation 

 and other factors contributing to the production and distribution of 

 lumber. 



Senator Kenyon then made the jioiut that labor cost now is as 

 hirge as when $70 per thousand was charged for roofing boards. 

 Mr. Hines answered him with an explanation of the iieculiar differ- 

 ence between a lumber and any other industrial operation. There 

 is a tremendous overhead expense to be taken care of, he said, which 

 other industries do not have to bear. In order to warrant the 

 building and operation of a lumber mill a timber supply twenty-five 

 years or more in advance of the saw must be purchased and held. 

 This ties up a tremendous anioimt of capital in the way of purchase 

 price and taxes, the interest on which runs into large figures. This 

 overhead cost must be provided for in the selling price of lumber, 

 otherwise lumber operations would have to be conducted at a loss. 



The testimony further of local financiers, real estate men, manu- 



facturers, mortgage bankers, building and loan representatives, 

 architects and sociologists, given at the hearing, induced the con- 

 clusion that unless the cruel and inevitable processes of economic 

 laws force down the cost of building commodities, including labor 

 and credit, little jirogress will bo made in overcoming the housing 

 .shortage until the Government has put in operation some scheme 

 which will artificially render building enterprises attractive. 



Building Paper Unattractive 



The testimonj- introduced agreed without dissension that the chief 

 obstacle to building operations is the unattractive aspect of building 

 securities, paying only 6 to 7 per cent interest as compared to indus- 

 trials paying 8 and more and tax exempt Government securities, 

 I)aying, because of this exemption, better than 6 and 7 per cent. 

 There is no inducement under such circumstances for investors who 

 formerly habitually put large sums in building mortgages to con- 

 tinue that practice. The banks no longer consider loans on building 

 mortgages attractive. Accordingly it was suggested that Congress 

 might encourage investment in building mortgages by arranging 

 for the exemption of such securities from income and other Federal 

 taxation. Senator Calder called attention to the Calder Federal 

 Building Loan Bank bill, which he has introduced in Congress pro- 

 viding for the tax exemption of building bonds and mortgages held 

 by individuals to the extent of $40,000. Exemption of building 

 securities, however, from Federal taxation was objected to liy such 

 competent witnesses as James B. Forgaii, chairman of the Board of 

 t)ie First National Bank and First Trust & Savings Bank, and George 

 H. Taylor of the Cliicago Mortgage Bankers' Club, on the principle 

 fliat it is an unsound policy to add anything to the classes of prop- 

 erty exempt from taxation. Mark B. Eider of the Building Associ- 

 ation League of Illinois, urged the jjassage of the Calder bill (the 

 bill having the exemption feature), which was indorsed by his 

 association last June. Other suggestions were the loaning for 

 building purposes of Postal Savings Bank deposits at low rates of 

 interest, the establishment of a home loan bank in each Federal 

 reserve district, the stock to be subscribed by building and loan 

 associations, and mortgages to be accepted as collateral for loans up 

 to 60 i^er cent of the property involved, and the creation of the post 

 of Secretary of Construction in the President's cabinet. This sug- 

 gestion was made by E. K. Cormack, president of the Consolidated 

 Company of Chicago and representative of the National Builders' 

 Supply Association, who declared that the. housing problem is one 

 which can not be solved by temporary expedients. 



The wisdom of direct loans by the government for building )nir- 

 poses was questioned by various witnesses, and Senator Calder 

 explained several times during the course of the hearings that the 

 committee hoped that the Government would be able to avoid direct 

 subsidies, such as now emjiloyed by the French and British govern- 

 ments to stimulate home building. In Great Britain the govern- 

 ment undertakes one-third of the cost of housing construction and 

 loans money at 2 per cent, which it borrows at 7 per cent. The 

 French government finances housing construction to the extent of 

 50 per cent. Senator Calder said he feared -that if the housing 

 shortage is not improved, within the next few months there will be 

 a popular clamor for such subsidies. 



The exe(iss profits tax and the graduated income tax came in for 

 general excoriation from the witnesses, as being responsible not 

 only for a large part of the reluctance of investors to take build- 

 ing bonds and mortgages, but as responsible in great measure for 

 the high cost of building commodities. There was no dissent from 

 the opinion that the excess profits tax must be repealed and the 

 income tax revised so as to more evenly distribute its burden. A 

 sales tax was suggested by Mr. Forgan and others as a substitute 

 for the excess profits tax, and when Senator Kenyon suggested that 

 iCoiitititit'fl ov ptttjv 2(i) 



