those with a volume of more than $8 million net return is only 28.3 percent. This is a major reason why the little guy survives the ups and downs of the housing cycle, while giants go broke.

Only big builders have the capacity to invest in equipment and large land tracts for future development and to diversity into other activities. Large investments in land tend to get builders into trouble.

There are exceptions, such as Ryan Homes, which do not hold land or develop it. They buy individual lots and pre-sell their units.

Giants in the industry, on the other hand, work with relatively less of the entrepreneurs' own money than the small builders. This is because they often sell equity shares to the public, while small builders have their own money sunk in the business.

Many of these data come from "The Second Cost of Doing Business," a study done for the National Association of Home Builders in 1975 by the consultant accounting firm of Laventhol, Krekstein, Horwath & Horwath. Some of its conclusions were:

General and administrative expenses seem to decrease as a percentage of sales as volume increases. This decrease can be explained by economies of scale. Financial expenses are higher for larger builders than smaller ones. (One would have thought it was the other way around.) The explanation seems to be that smaller builders rely more on their own equity, while larger ones tend to have a greater capacity to borrow.

Marketing expenses tend to decrease with the increase in sales volume. This is attributable to the larger builders' ability to use their own staff, maintain models and benefit generally from economies of large volume.

The "current ratio" shows that builders with sales volume of between $4 million and $8 million are the most solvent. They can best maintain their liquidity. The percentage of net profit on total assets employed shows a downward trend with volume. Ordinarily, increasing volume results in better utilization of assets, but even this apparently has some maximum limitation in terms of volume level. Now let us put a house together and see how the cost pieces fit at different times. This is illustrated in the following table (1977 figures are for the first quarter): SHARE OF COST BY MAJOR CATEGORIES

As I pointed out in previous articles in this series, today a substantially smaller portion of the total cost is left for the house the bricks and mortarthan ever before. Only 47 cents out of each dollar are left for the structure, compared to an estimated 69 cents in 1949.

What do we pay for the structure itself? This is shown in the second table. I broke down the cost for a typical house built in 1972, 1973, 1974, 1975 and in the first quarter of 1977. The sales price in 1977: $45,200.

As you can see, there has been little real change among the individual items over the years. Lumber, millwork and carpentry labor are the three largest components of the hard cost. Plumbing, concrete and masonry are the next group of major items, followed by drywall, wood flooring, heating and electrical work. This house, of course, could not be built in Washington. As everybody knows, this is one of the most expensive areas in the country. What the data try to portray are the nationwide costs of a typically priced unit.

There are some peculiarities of the housing market affecting costs which I have purposely left out of this series in order to concentrate on relevant cost issues. However, they deserve at least brief mention.

As we have seen, the cost of land has increased disproportionately, for the most part because of decisions of local, state and federal agencies either to limit the usage of the existing sewer systems, because of no-growth attitudes of some communities, because of environmental problems and other planning controls.

This happened at a most unfortunate time, when the demand for new homes started to accelerate because of the bulge of post-World War II babies entering the market. This demand is substantially above the demand experienced during the 1960s. At that time we could easily be satisfied with an average of about 1.5 million new units annually. We need at least 1.8 to 2 million units through the 1970s.

Another piece of the puzzle of new-housing cost has been the parallel increase in the prices of existing homes. Prices of new homes are interrelated with prices of existing homes.

Hence, if people pay 12 to 15 percent more for an existing house than the previous year, as has been the case in some "good" parts of the Washington area, the prices of new homes-and particularly the price of land in those areas will follow the same trend.

There are some costs which we cannot do anything about, as they are determined by the prices of all other goods.

The cost of other factors, however, such as land, could be controlled by increasing the supply. There are still others, such as nonproductive fees, charges and environmental costs which add little or nothing to the house, which could be reduced. This would be a great help in stopping the fast rise in overall cost.

SOURCE US Department of Commerce: National Association of Realtors; prepared by National Association of Home Builders. Economics Department.

14, 459. 01

15, 685.71

18, 040. 10

18,645. 20

21, 108.00

100.0

100.0

100.0

100.0

IT ADDS UP-AND HURTS

The main reason why it is becoming more and more difficult to buy a house, or for that matter simply meet all of our financial obligations is that government directly or indirectly takes much larger chunks out of our pockets.

In 1955 a typical American family could buy a new home for $13,700. The breadwinner, meanwhile, worked a total of 6 hours and 30 minutes each week to pay the government.

Today the typical American family must pay $44,200 for a new house. The breadwinner works all day Monday and half of Tuesday each week just to pay Uncle Sam, plus additional hours to pay other "uncles" at the state and local levels.

A better way of measuring the impact of taxation is to compare all government expenditures to total national income rather than take typical family of four.

This shows that federal, state and local government expenditures in 1948 constituted 24 percent of national income (or all of the money we collectively make. In 1955 this share rose to 30.9 percent; in 1966 it reached 34.4 percent; in 1970 it was 39.3 percent, and in 1975 it hit 48.3 percent.

Nearly one-half of all our income is spent on the three levels of governmentcompared to the one-quarter of our incomes we spent 30 years ago. The major problem in making ends meet is the unmistakable and continual increase of this share year after year.

These changes in housing expenses have been particularly severe since 1970. This, of course, was the result of higher inflation and a rapid increase in federal deficits.

Between 1970 and 1976 both state income taxes and Social Security payments increased at a 15.6 percent annual rate; real estate taxes were up 12.6 percent, and mortgage interest payments were up 11.4 percent annually. Yet disposable income increased by only 6.5 percent.

Last year real estate taxes increased 20 percent; utilities (mainly due to increased fuel prices) were up 20 percent insurance of homes was up 18.5 percent; mortgage payments rose 14.4 percent; federal income taxes were up 12.5 percent and disposable income increased only by 7.3 percent.

We keep getting socked with new taxes and increases in existing ones, and finding ingenious new ways to pay for new layers of bureaucrats, new handouts, programs, controls, agencies, bureaus, departments, so-called essential services, more red tape and paper shuffling without anybody seriously considering what this will ultimately do to our "free" economic system.

This trend toward more and more taxation is clearly visible in all our daily activities. It is ruining incentives to work. Already it has badly damaged the ability of small and medium-size businesses to operate. Insofar as housing is concerned, it makes it harder and harder for the average person to acquire a house.

It has been said that Americans are more willing than most other nations to be led into slavery through the continual increase of the tax burden. The same people would say other nations would have risen in revolt.

This, of course, is not entirely true. Several other nations, including the Scandinavian countries and Great Britain, have even higher levels of taxation and they have not revolted. Still, their form of government has changed. A large portion of their industry has been nationalized, mostly as the result of the inability of private enterprise to function.

But wait. Isn't the same thing happening in the United States? The influence of government on our ability to buy homes is only one example of the striking changes which have occurred in the last 20 years.

In that time a typical family of four who have purchased a house have seen the following average increases:

State income tax, up 1,235 percent or $352; Social Security, 882 percent or $741; mortgage interest payments, 497 percent or $2,222; real estate taxes, 354 percent or $547; mortgage payments, 322 percent or $2,900; federal income tax, 305 percent or $2,468; hazard insurance, 225 percent or $85; other housing expenses, 209 percent or $205; heat and utilities, 189 percent or $382; price of a new home, 187 percent or $25,600.

Meanwhile, gross income has climbed just 210 percent or $9,298; disposable income, 181 percent or $7,228. But gross income needed to qualify for a loan on a new house is up 219 percent or $14,430.

The cost per square foot of a new home is up 124 percent or $13.95, and the median number of square feet per new home is up 27.9 percent or 381.

Grouping the cost items into four major categories shows the following distribution:

Taxes, up $4,108 or 53.6 percent of the total increase; mortgage payment/interest, $2,222 or 28.9 percent; mortgage payment/principal, $678 or 8.8 percent, and utilities and others, $672 or 8.7 percent.

The total increase in costs is $7,680, $452 more than the increase in disposable income, which came to $7,228.

CHANGES IN HOUSING EXPENSES AND INCOME/ANNUALIZED PERCENT CHANGES

This analysis of cost factors affecting home ownership could not measure precisely what has happened over time, because there is no such thing as an “average" house or family.

What I have tried to do is show the relative changes among major items effecting the purchase of new homes during given periods.

The plain truth, simply put, is that although people theoretically might qualify to buy a new home because their income has increased in proportion to the increase in prices of homes, they cannot pay for it. After everyone gets finished reaching into their pockets, there isn't enough left to make the monthly payments. Every day there are more fingers, and the fingers seem to get longer and dig deeper and deeper.

In terms of dollar outlays, or share of total increase, mortgage interest payments constituted the second most important increase among housing expenditures for the 20 year period 1955-75. The average American new-home buyer paid $2,222 more for interest in 1975 than he paid in 1955. Nearly 30 percent of the increase in housing costs and taxes has gone for this item.

The annual interest for the average new-home mortgage in 1955 was $446. Ten years later it was $911. Another 10 years saw the cost nearly triple to $2,668 in 1975, and last year it rose to $3,022. This reflected the higher mortgage amounts (the result of higher priced homes) and enormous increases in interest rates. Although it may sound unbelievable, the average mortgage rate in 1955 was 4.88 percent. In 1965 it was still only 5.75 percent. In 1976 it reached 8.75 percent.

Stretching out the length of mortgages helped ease the burden. Down payments were cut to make the purchase easier, but this only added to the rising