In the next 30 years America's population is expected to grow by at least 80 million-equal to adding the present populations of England and France to the United States. And the overwhelming majority of these people will live in urban areas. Yet millions of Americans today are ill-housed and major portions of central cities are dilapidated or decaying areas.

The Housing Act of 1949 established a national housing goal of "a decent home and a suitable environment for every American family." But the government did not place major emphasis on meeting the nation's housing needs and for many low- and moderate-income families that goal was not fulfilled.

Nineteen years later, Congress adopted the Housing and Urban Development Act of 1968, to speed up the building and rehabilitation of housing through federal assistance and a variety of incentives to business. The Act's 10-year goal of 26 million additional dwelling units, including at least 6 million subsidized units for low- and moderate-income families, can be met only if there is a national commitment backed by effective government policies to achieve it.

But today, more than a year after the 1968 Act was adopted, there is little evidence of such government policies and measures. The clear-cut evidence, in terms of actual construction, is to the contrary.

To achieve 26 million additional dwelling units in 10 years an average yearly rate of 2.6 million-the number of housing starts in 1969, should be moving up sharply from the 1.5 million units in 1968 toward 2 million. But the government's restrictive monetary and fiscal policies and the highest interest rates in

NATHANIEL GOLDFINGER is director of the AFL-CIO Department of Research

100 years are causing a sharp decline of residential construction rather than a sharp increase.

Between the winter months of 1968-69 and the past few months, the yearly rate of housing starts has dropped from 1.7 million dwelling units to 1.4 million. Housing starts are headed down, not up. Unemployment among construction workers is increasing. The soaring trend of interest rates is pricing an increasing percentage of families out of the market for single family homes and new apartments. Skyrocketing interest rates have increased costs to home builders, prices and monthly payments to home buyers and rents to those who seek new apartments.

The economics department of the National Association of Home Builders reports that monthly payments on principal and interest on a 25-year mortgage with 20 percent down payment rose from $139.80 for a $25,000 house purchased in June 1968 to $156.96 for a similar home bought in mid-August 1969, as the result of soaring money costs. This is a rise of $17.16, or over 12 percent to be paid each and every month for 25 years.

While the Secretary of the Department of Housing and Urban Development speaks in general terms of the need to increase home building, the Federal Reserve, the Treasury Department and the White House are embarked on a severely restrictive economic policy that tightens the money supply, shoots interest rates upward and hits residential construction. The Administration's talk and actions have been in opposite directions.

America is actually moving backward in home building, while there is considerable talk of moving forward.

Some of this talk about moving ahead. towards

meeting the nation's urgently needed housing goal, centers around the Department of Housing and Urban Development's "Operation Breakthrough." If we are to believe at least part of the sales pitch that surrounds it, "Operation Breakthrough" is soon going to result in a reduction, or considerably slower rise, in the price of residences, monthly payments on homes and rents on apartments. Such an objective is certainly a worthy one.

National attention has been focused on an effort to cut the costs of construction-material and labor costs-through radical changes in the technology and management of residential construction as a key to solving the housing problem. However, even if one or more radical technological breakthroughs are achieved in experimental stages in the next year or two, it would probably take another 5 to 10 years before these breakthroughs could be tested sufficiently through experience and consumer response.

There is an obvious time lag between radical technological changes in experimentation and significantly widespread application. If any radical technological breakthroughs are achieved, they will have little impact on America's ability to meet the 10-year housing goal established by congressional legislation in 1968.

What the present effort may actually achieve, after stripping it of the sales pitch, is much more mundane than the "breakthrough" title implies. If reasonably successful, it should be able to accelerate the continuing trend of the past 25 years towards pre-fab components, pre-fab units and modules-all of which would step up the trend toward reducing the on-site labor component of the price. It should be able to increase the use of new materials, such as plastics. It should help to attract some large firms into the business and improve the managerial efficiency of residential construction.

All of these would result in some cost reductions, if and it is a big if in the light of actual experience -if there is a large and expanding volume of construction. In fact, a large volume of home building would by itself provide some cost savings and unless a steady expansion of volume operations can be achieved, even the feasible aspects of this effort will remain largely unrealized.

However, we are told by the news media that labor costs are the chief problem in residential construction. Many people believe this myth and they also believe that trade unions are the major impediment to reduced housing costs, although only about 20 percent or less of residences are union built.

Following through on these views. public attention has been focused on a need to reduce on-site construction activities, particularly the on-site labor cost, by moving many of these building activities from the construction site to the factory. And the aim is to prevent such savings on on-site labor from being offset by increased costs of producing and transporting materials from the factories through the stepped-up use of new and less expensive materials.

But Dr. Michael Sumichrast, chief economist of the National Association of Home Builders, recently supplied the Joint Economic Committee of Congress with details on the costs of a single-family residence and the figures tell a vastly different story.

Dr. Sumichrast's figures show that between 1949 and 1969, on-site labor costs fell sharply from 33 percent of the price of a home to 18 percent-indicating a considerable shift to pre-fab factory operations and a rise in on-site productivity, as well as sharp increases in other costs.

While this shift from on-site labor to factory and materials activities was taking place, the cost of mate rials increased only slightly, from 36 percent of the price of a home to 38 percent. In those 20 years, the cost of the structure-everything excluding land, financing and profit-fell from 70 percent of the price in 1949 to 56 percent of the price in 1969:

Source: Bureau of Labor Statistics and National Association of Home Builders Economic Department. Congressional Record. October 29 1969, pg. E9113.

The focus of attention therefore is on only 56 percent of the price of a single-family home-and en those costs. which have been either sharply declining or relatively stable components of the price. But there is little if any attention given to the sharply rising components of the price-land costs and financing costs which, in combination, rose from 16 percent of the price of a home in 1949 to 31 percent in 1969.

As an example, based on these figures, the on-site labor cost of a $20,000 house is $3,600. Let us 29sume that this cost is reduced 20 percent through the increased use of pre-fab, which brings the on-site laber cost down to $2.880. If the cost of materials can be held the same, despite the shift to pre-fab, and if land and interest rate costs and profits were all stable, the 20 percent cost-saving would reduce the price of the $20,000 house to $19.280. That is a saving, but hardly a "breakthrough."

Moreover, to the home buyer or renter, the actual saving in monthly payments or rent is much smaller than even that small amount. On this aspect of the issue, the report of the Kaiser Committee on Urban Housing, issued in December 1968, sheds some light. And the Kaiser Committee's cost breakdowns are reasonably close to those of the National Association of Home Builders. According to the Kaiser Com mittee's report, the on-site labor cost is 19 percent of the price of a single-family home and 22 percent of the price of an elevator apartment unit, while the

materials cost is 36 percent of the price of a private home and 38 percent of an apartment unit.

According to the Kaiser Committee's report, debt retirement-on principal and interest-is only 53 percent of the monthly occupancy cost of a single-family home and merely 42 percent of the monthly rent of an elevator apartment unit. Other costs include such factors as taxes, utilities and maintenance.

According to these Kaiser Committee estimates, the price of the mortgage, and the interest payments on that price, amount to only about one-half of the monthly occupancy cost of a home or rent on an apartment. The on-site labor cost is approximately one-fifth of that amount, or only about 9 percent to 11 percent of these monthly occupancy costs to the home owner or renter, including the interest payments on the labor cost:

Source: McGraw-Hill Information Systems Technical Report. President's Committee on Urban Housing, December 1968.

On the basis of these cost figures, a 20 percent cut in construction workers' wages or a 20 percent increase in productivity-would reduce the monthly occupancy cost to the homeowner or renter by only about 2 percent. The Kaiser Committee says, "All on-site labor costs represent such a small percentage of monthly rents that a general reduction of 20 percent for all workmen would mean only a reduction in rent from $100 a month to $98 in a typical unit."

And that includes the cost of the interest payments on the on-site labor cost.

While debt retirement of principal and interest is approximately only half of the monthly costs of a house or rent on an apartment, over one-half of the debt-retirement portion of those monthly payments is for interest charges, at recent interest rates. The price of the property, therefore, accounts for only about 20 to 25 percent of the monthly occupancy costs to the home owner or renter and, in turn, the on-site labor cost accounts for only about one-fifth of that amount.

Therefore, the actual on-site labor cost component of monthly occupancy costs-excluding interest payments on the labor cost-comes to only approximately 4 to 5 percent of those monthly costs of a homeowner or renter. A 20 percent increase in the wages of all on-site workers or a 20 percent reduction of on-site labor through increased use of pre-fab-therefore directly involves only about $1 of each $100 of monthly rent or occupancy costs of a single-family home, when interest charges are excluded.

All of this adds up to some very clear facts: The major part of housing costs to the renter or homeowner is interest charges-the price of borrowed money to the developer, builder, landlord and homeowner. The on-site labor cost accounts for only a small part of the price of the property and a much smaller portion of monthly occupancy costs to the

owner.

The on-site labor cost component of housing has been the victim of gross distortion, ignorance and anti-labor myths. The sole focus of public attention on on-site labor costs and labor-saving technology is largely based on a hoax. If the costs of housing are to be reduced or if such rising costs to the consumer are to be slowed down-interest rates and land prices, as well as labor and materials costs, have to be reduced or curbed and managerial efficiency has to be improved.

Anyone who focuses sole or major attention on the labor-cost component of housing costs-whether

it be an Administration spokesman or college professor-is dodging the key issues of financing costs and land prices. Unless those costs are cut or curbed, it will be impossible to bring the consumer's housing costs under some manageable control-regardless of the progress in pre-fab.

The building trade unions are cooperating with employers in the increased use of pre-fab and modules in residential construction. But substantial advances along those lines can do only little to curb the consumer's housing costs if soaring land prices and financing charges are not curtailed. And unless land and financing costs are curbed or reduced, it is unlikely that America can soon achieve the expanding volume of residential construction the country needs and which, in itself, would produce some cost saving.

Some people ask whether America has the material resources and manpower to attain the 10-year housing goal of 26 million dwelling units. The answer is decidedly yes. However, the needed national commitment, backed by effective government policies, has not been made.

In 1955, private and public new housing activities accounted for about 4.5 percent of the total national production. But in recent years, the dollar outlays for new residential construction have been not much greater than in 1955-despite increased prices-and such activities have declined to about 2.5 percent of the much greater gross national product.

In the coming years, total national production should rise by 4 to 4.5 percent per year, excluding price changes, if high levels of production and employment are to be maintained-and probably about 5.5 to 7 percent per year in current dollars. If home building activities rise as fast in the 1970s as total national production-in contrast to the sharp cyclical swings and relative stagnation since the mid-1950s— the volume of residential construction will increase, but not enough to attain 26 million additional dwelling units in 10 years.

To attain the 10-year housing goal, private and public outlays for residential construction will have to increase at a somewhat faster pace than the gross national product to rise from about 2.5 percent of the GNP in recent years toward about 4.5 percent of a growing GNP in the seventh or eighth year.

This is not an unreasonable goal in terms of feasibility. Such proportion of national economic activities for residential construction was attained in the past, as in 1955, and it can be attained during the course of the 1970s. But its achievement requires changes in government policy.

One major needed change is for the federal government to shift from providing inducements and subsidies for business investment in plant and equipment to an emphasis on housing. Federal policy will have to substantially curb its variety of devices to encourage an increased share of total national production for business investment in plant and equipment, which

has cut into the flow of available private savings for investment in home building-and which has also tended to increase the cost of borrowed money.

Rates of increase and levels of business outlays for plant and equipment have been unsustainable in recent years. If such rates of increase and levels of business investment are brought down to more moderate and sustainable levels, more private savings would be available for investment in new residential construction, which is the tailend of the money market.

It would ease the residential construction industry's losing competition for available funds with businessinvestment loans, which are considered the top choice in the money market. It would also eliminate or considerably reduce the sharp cyclical swings in home building, since it would provide a steadier flow of private savings into residential construction.

In addition, positive government encouragement of home building is needed. Pooled mortgage bonds, authorized by the 1968 Act, would be of assistance in attracting funds into housing. Additional encour agement is probably necessary-such as a federal requirement that a modest portion of pension and similar trust funds be invested in government-guaranteed residential mortgages for Internal Revenue Service approval.

Such measures should be accompanied by a gencral reduction of interest rates, an ample growth of the money supply and, if monetary restraint is necessary. a sheltering of residential construction from the ravages of tight money. The combination of such gov ernment policies is needed to provide a greater supply of private funds for home building and to reduce the costs of borrowed money.

However, sole reliance on the private market. even with government encouragement, will not increase residential construction sufficiently-particu larly dwelling units for low- and moderate-income families. The direct role of government will have to be increased.

Direct public outlays for new residential construction, in recent years, have amounted to only about $700 million--about one-tenth of one percent of total national production. These sums will have to be increased to meet the 10-year housing goal

Such increase in direct government outlays would require some small changes in the composition of federal expenditures during the course of the next 10 years. with greater emphasis on housing. The expected $15 billion annual increase in federal revenues as well as the leveling off of defense expenditures since mid-1968 and the hoped-for end of the Viet Nam war-will make it feasible to increase substantially the flow of direct government outlays for residential construction, particularly for lower-income housing. In combination with government efforts to strengthen the position of the private housing market, such increases in direct public expenditures should enable America to meet the goal of 26 million dwelling units in a decade.