Recovering, Slowly

In their cheerful forecasts for a summer surge in the U.S. economy, Washington policymakers have counted on a strong rebound by the housing industry--the foremost victim of last year's tight money. Though housing has clearly begun to climb back from its worst slump in almost a decade, the revival so far has been a bit sluggish. Last week the Commerce Department reported that March housing starts showed a mere 1.7% gain from their February doldrums, to an annual rate of 1,171,000 new houses and apartments. At that pace, the industry was barely bettering its performance during the last half of 1966. "It's easier to scare buyers away than to get 'em back," says Los Angeles Builder Ben Deane, sounding a common sentiment among his colleagues. "The recovery is going to be slow."

Cheaper Loans. Still, builders, lenders and economists agree, with rare unanimity, that the ailing industry will regain its health by year's end. President Leon Weiner of the National Association of Home Builders last week predicted that a substantial upturn during the summer and fall will lift starts to a 1967 total of 1,300,000, as against 1,220,000 in 1966. Such optimism is based mainly on the Government's sharp switch toward easier credit. Interest rates on home mortgages have dropped faster than in any recent period in Federal Reserve records. Eastern investors who demanded a 6.6% and 6.7% return on their money last fall are now snapping up loans at 6%, and a few of them are willing to take as little as 5.9%, according to mortgage brokers. As a result, Housing and Urban Development Secretary Robert Weaver told Congress last week that the Federal Housing Administration may cut the 6% rate that it now charges on home loans "if the trend continues." But Weaver added: "I wouldn't say when."

There is a reservoir of demand. In certain cities, housing construction has ebbed so much that builders insist that some types of accommodation are in short supply. In Manhattan, private apartment building dropped to an eight-year low of 2,812 units last year, and rent increases of as much as 10% have become common when leases expire in apartment building units not subject to rent control. "By midyear," says President Irving Rose of Detroit-based Advance Mortgage Co., "the apartment market should be particularly tight in New York City, Detroit, San Francisco and San Jose, Calif."

A Blow to Cost Cutting. Similarly, last year's building plunge erased a glut of some 100,000 unsold new houses in California. "Now," says Vice President C. E. McCarthy of the Bank of America, "there are actual shortages, except in units priced over $40,000 and in poor-quality developments."

In a number of cities, including Pittsburgh, Chicago, Atlanta and Cincinnati, builders' efforts to step up production are complicated by shortages of carpenters, plumbers, bricklayers and electricians. "The building trades are replacing only 50% of their people who retire," explains Robert Teti of Pittsburgh's Ryan Homes. "It's tough to get craftsmen to work on the site, so you do it at the factory."

That has been the trend in construction for years, but last week the U.S. Supreme Court ruled in two 5-to-4 decisions that unions may legally boycott prefabricated materials in order to preserve their right to perform work on job sites. In the key case, the majority upheld the refusal of Philadelphia carpenters to install factory-finished doors in a housing project built by Frouge Corp. The decisions dealt a blow to cost-cutting efficiency in an industry that has only belatedly begun to emerge from its ancient handicraft ways. That problem, the court ruled, should be resolved by Congress.

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