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

trend of mortgage amounts. A mortgage for an average new home jumped from $9,375 in 1955 to $15,960 in 1960 and to $19,094 in 1970. Then it almost doubled to $34,785 in 1976. Quite a change.

"TYPICAL" FAMILY OF 4 BUYING A NEW HOUSE, 1ST YEAR EXPENSES (SHARE OF INCOME GOING FOR HOUSING

The third major area of increased annual expense was payment for utilities, maintenance and repairs. This increase has been particularly severe in the last several years because the cost of heating and cooling has increased faster than most other expenses.

The items combined under the housing expense category "utilities and other" increased 8.7 percent a year between 1955 and 1975. However, this category accounted for a 16.8 percent share of the increase in the 1970-76 period, and last year, due mostly to energy cost, this share jumped to 18.9 percent of the $1,230 increase. Taxes accounted for 52.1 percent ($641), and mortgage payments for 29.2 percent ($359) of last year's housing cost.

In spite of soaring increases, last year saw a record number of people buy homes. There were 1.1 million new units started and 3 million existing homes sold.

How is this possible?

One reason is that over the years we have been able to stretch out the length of the mortgage payments. In 1955 the average length of a mortgage was 21.3 years; in 1976 it was 28 years.

Another reason is that down payments have been lowered substantially as a percentage of the loan. In 1955 the loan-to-value ratio was 68.4 percent. In 1976 this was 78.7 percent.

Both of these moves were designed to make it easier for people to acquire homes, and they did. These moves had to be made to counteract the rapid increase in overall mortgage rates.

The third reason is that an "average" family with an "average" income did not buy an "average" house. Last year buyers of a typical new home had considerably more income than the average for all families.

Last year the average family income was estimated to be $14,750. But the incomes of households that bought new homes averaged $21,615, or 46.5 percent higher.

Today's buyer probably has a wife who is working, rather than being the sole provider. In 1955 only 27.7 percent of married women worked. In 1970, 40.8 percent worked, and in 1976 the number reached 49 percent.

Another factor to be considered is that today's new home buyer is more likely to have another house which he can sell, using the equity to buy a new unit. This was not generally the case in the mid-1950s.

Last year only 35 percent of new-home buyers were first-time buyers. An equal number were second-time home buyers; 15.2 percent third-time; 8.2 percent bought a home for the fourth time, and 6.3 percent were buying for the fifth time or more.

Buying a home is a good idea, in spite of the cost and increased expenses. It is a singular protection against inflation as well as a unique means of saving. In the final analysis, however, one must recognize the fact that rising costs are making it more and more difficult for the average young man, woman or couple to pay for a house.

This is especially true since most people want bigger houses, with more amenities and a larger chunk of land. It is consistently surprising to find, year after year, that people want more rather than less in housing. After World War II a typical dream house contained less than 1,000 square feet. Today it measures slightly over 1,600 square feet.

Today's house must have a family room and 21⁄2 bathrooms. Ten years ago 75 percent of all new homes built had no air conditioning; last year one-half did not have it. In 1970, 62 percent of all units were without a fireplace; last year only 42 percent did not have any. Today only 24 percent of all new houses are without garages, and 53 percent have two or more-car garages. And so on.

Buyers pay a bigger share of disposable income as well as more dollars. This share seemed to level off during the 1960s at about 24 percent of net income. But in 1975 it was up to 27.9 percent. Last year it was estimated to be 28.4 percent. Compare this to the 20.3 percent share in 1955.

Clearly, the problem is not that we don't make enough money. We just don't have enough left in our pay check.

Mr. SUMICHRAST. We are getting into the same area the Canadians are, or Britain or Europe.

Ten, fifteen years ago we could allocate 65 cents of purchasing dollar to build a house. We can no longer do that. We can put aside less than 50 percent for the structure.

Why? Because of all of these crazy things you have to go through. There is no way to fight these. Gordon can tell you some horror stories on this.

Senator BYRD. Mr. Smith, what is the cost of the average home in Fairfax County these days?

Mr. SMITH. I believe the average for new construction is someplace around $62,000 to $63,000.

Senator BRYD. If you go back 10 years it was what, $40,000?
Mr. SMITH. Probably in the mid-thirties.

I have a few different thoughts on that, Mr. Chairman.

We hear a lot of comments that the young family today cannot go out and buy a new house. I would agree with that, and I would raise the question, should they go out and buy a new house, a young married couple? My feeling is their first housing should be an apartment, then maybe a townhouse or a condominium, then maybe a single family.

I know when I grew up you did not dream of owning a house when you were first married. You saved. You did not go on a vacation. You put your money aside, because you knew you wanted to buy a house. You did not go to the theater, you did not do a lot of things.

Senator BYRD. I wasn't considering somebody that young. I consider 40 young.

Mr. SUMICHRAST. People have an alternative. They can buy an existing house. Existing houses are cheaper, other than in Washington. Washington is the only place in the Nation where existing homes are actually more expensive rather than less expensive.

Senator BYRD. As a rule of thumb, what does a building cost per square foot in northern Virginia?

Mr. SMITH. About $30 a foot.

One of our biggest problems is the price of land is taking an increasingly larger portion of the total product. There used to be a rule of thumb in the industry that 20 percent of the cost of the finished project was for the cost of the finished lot.

Now I think in northern Virginia, it is possibly closer to 30 percent. I have seen a couple of cases where the builder spent 35 to 40 percent for a lot cost.

Senator BYRD. Let me see if I understand this. If it were 30 percent, the cost of the lot for a $65,000 home would be $20,000? Mr. SMITH. That is correct.

Senator BYRD. Is that normal?