Building Up?

The U.S. construction market is about as confused as a husband on moving day.

Since last October, the number of new houses started each month has dramatically declined--but applications for permits to build houses have steadily increased (see chart). Which of these "indicators" really foreshadows the future is a matter of vital importance to the U.S. economy, for construction now accounts for one-ninth of the gross national product.

Changing Rules. Optimists argue that the statistics on housing starts, although weighted to take into account the normal winter slump in building, do not make proper allowance for the fact that the recent winter was the worst in 50 years in many parts of the U.S. The optimists believe that many builders who sat on their permits during the winter will hatch them this spring. They point out that, historically, all but 1% of the building permits issued in the U.S. are eventually used.

Pessimists in the construction industry, of whom there are many, put little faith in the thumb rules of yesterday. What worries them is that builders have confidently taken out permits at an annual rate of 1,200,000 houses--but a lagging marriage rate is expected to create only 800,000 new families in the U.S. this year.

(The number of Americans reaching marriageable age each year is currently held down by the low birth rates of the Depression years.) In addition, many areas of the nation are so plainly "overbuilt"' that apartment rentals are softening, and some owners are offering several months' free rental to pull in tenants.

The Tall Crop. Even the gloomiest builders concede some hopeful signs. Contract awards for private housing were 29% above 1961 levels in January and February. The FHA recently reduced its down-payment minimums to a rock-bottom 3%, which helped send FHA insurance applications 10% above the early 1961 rate. The Government is also getting off the ground with its direct loan program for housing for older people, now has 20,000 applications. And Washington intends to increase its public housing starts from last year's 40,000 to 50,000 this year.

At least one segment of the building market is already booming. Partly to cope with the ever-mounting paperwork created by the burgeoning of such service industries as insurance and banking, U.S. business is building a tall new crop of office skyscrapers. This year, office space will be increased by 10% in Boston and Chicago, 15% in Los Angeles, 20% in Washington --and New York City will add twice as much space as already exists in Baltimore. All told, heavy construction contracts are running 11% ahead of early 1961.

Balancing the good portents with the bad, the New Frontier's economists still hold to their four-months-old prediction that 1962 urban housing starts will increase by 124,000, to 1,400,000. If they are right, the construction industry may yet supply the long-awaited "lift" needed to put some real steam in the recovery. An increase of 124,000 new houses would add at least $5 billion to the G.N.P.--half in the cost of building and equipping the new houses and half in the added income spread through the economy by construction hands, real estate agents and others who service the building business.

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