municipal estates are making allowance for an admixtures of some middle-class families who may wish, for one reason or another, to live within the general residential neighborhood. This presents some nice questions of site planning and design, but the general purpose is clear enough. It can be achieved quite as well under the provisions of the Wagner bill.

4. English low-rent housing receives a larger proportion of its grants from the central government than any other local governmental function to which the central government contributes. The English system of grants-in-aid from the central to the local governments is further developed than ours. In the year 1934, however, only 33 percent of the net cost of 10 local governmental services, including housing, receiving grants-in-aid was taken care of by funds from the central government. Not counting housing, the largest proportion_paid by the central government on any service was 52 percent. For housing, however, slightly over 80 percent of the net cost borne by governmental agencies that is, the subsidy-was paid by the central government. This may be somewhat reassuring to those now concerned by the fact that in the immediate future, at least, the Government will have to provide nearly all of the unreturnable funds in low-rent housing. This is not to say that local and State governments should not contribute it, and when they are able to. They would be encouraged to do so by the United States Housing Authority provided for by the Wagner bill. In their present financial condition they can hardly be expected to make substantial outlays until they are assured that the Federal Government's machinery is set up to carry on a long-term program.

Another fact too often overlooked is that the talk about housing in England before the war and even the legislation permitting local governments to build for working-class families, resulted in a negligible number of houses. After the war the central government's contributions were provided for and housing became a practical matter. The change was, of course, due to many causes, but among them most certainly was the accelerating effect of substantial financial participation by the central government.

5. English experience shows that the central Government's subsidy should be definite in amount and contractual in nature. The first post-war act, the Addison Act, placed the central Government in the position of making up rental deficits on houses constructed by local authorities. Admitting that this act was applied during the worst possible conditions-an acute shortage, exorbitantly high building costs, and general unrest-the results show that it was not a good form of subsidy. In a period of about 2 years it provided only about one-sixth of the English subsidized housing, at an annual cost of about one-half the total now paid by the central Government. The Wagner bill avoids this danger. The grants by the United States Housing Authority to local housing agencies are to be definite and contractual. A maximum amount for such grants is also set.

6. The English record shows that properly devised and intelligently administered housing subsidies do benefit low-income families. Although they may be made in the form of grants per housing unit constructed, they do in effect supplement the rent-paying ability of the families occupying the houses.

The theoretical objections often advanced here that they will result in power wages among the classes living in the houses have not been borne out by English enterprise. The Labor Party's strong support of housing legislation and practice is evidence on this point. Similarly, there is little ground for the belief that subsidies have unduly raised building costs. To evaluate the influences on such costs during a period including the post-war demoralization of the entire building industry, the economic depressions of the twenties and the remarkable building boom of the last 2 or 3 years, is a most difficult job. With the committee's permission, however, I would like to submit as a supplement to my statement a table showing average costs of subsidized housing and the volume of subsidized and total building for the years 1923 to 1934, inclusive, and some written comments on the figures given.

I believe that any objective analysis of these figures leads to the conclusion that, particularly during the twenties, changes in building costs in England were very closely connected during that time with variation in the volume of building. This seems reasonable in light of the fact that during the war ordinary construction enterprise was practically paralyzed. It took several years to reorganize itself and to get back to normal. During this period sharp increases in the demand for housing did raise building prices. In 1928, after this condition had been largely corrected, a sharp drop in the demand for building, which happened to coincide with a reduction of subsidies, resulted in a considerable lowering of building costs. In general, however, both the ups and downs in building costs can be explained much more satisfactorily by changes in the volume of building than by attempting to relate them to changes in subsidy.

Furthermore, the early subsidies, by providing business when the entire building industry was flat on its back as a result of the war, undoubtedly helped the industry during the trying times of reorganization in the early twenties. There was a strengthening and stabilizing force for the industry, which was struggling to recover from 4 years of paralysis during the war, a shortage of men caused by the war's toll of killed and maimed and the economic collapse of 1921.

7. English, like American housing history shows conclusively that good housing for most low-income families is not obtained by overbuilding middle-class housing and moving the poorer families into the extra dwellings abandoned as a result of the building. This sounds so simple that it is a continual hope of some persons genuinely interested in housing conditions. Both here and in England it does work to a very limited degree but never on a scale that gives any promise of creating really decent housing for the great number of wage earners and lower paid white-collar workers. The changes that naturally come in an old residential district when one income class moves out and a less well-to-do class moves in, are the beginning of blight and economic decay. English populations move about much less than ours do, but when they do the results are similar.

Some persons have claimed that this process of handing down extra housing has not worked well in American cities because of our old system of short-term, unamortized mortgages. English private small-house construction has been based upon a very stable system of long-term, anortized mortgages. This difference in mortgage prac

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tice has not made the handing-down theory of low-rent housing a practical means of housing low-income families decently.

8. Finally, English housing practice has demonstrated that investment in low-rent housing developments, subsidized to keep the rentals low, is unusually safe. The larger English cities borrow the capital funds for housing construction in the general market for longterm funds. The loans are usually retired over a period of 60 years. Many smaller cities have borrowed large sums for housing from the public works loan board.

This board's policy deserves special notice. The board, which has a continuous existence of more than a century, is composed of leading industrialists and business men. It is an independent agency lending funds of the central government. In general, it discourages loans to local authorities for periods longer than 30 years by charging higher interest rates on them than on shorter term advances. Because of their excellent record, however, the board has relaxed this policy in respect to loans for housing purposes. Furthermore, in 1935, roughly, 70 percent of the board's outstanding loans were for housing. These two facts are striking evidence of the high opinion of some of the leading business minds of the Kingdom on the safety of investments in subsidized housing.

Although it may not be at once apparent, Senator Wagner's bill ought to lead to the recognition of housing as a good investment by those solvent citizens who are now looking high and low for reasonably safe outlets for their investment funds. Once the novelty of the securities of local housing authorities has worn off, investors should not be slow to see that mortgage investments in housing with sufficient subsidy to keep rentals low would be a first-class investment. By bringing rentals down into the immense market of low-income families now untouched by building enterprise, the Federal subsidy should practically remove the chief hazard in past and present mortgage invesment, namely, the ease with which the market for higher rental housing and for commercial space as well-can be ruined by overbuilding.

When this fact is grasped by investors the program contemplated by Senator Wagner's bill would rapidly develop into an effective combination of private and public moneys in housing on a scale in accordance with the undeniable need and the technical possibilities. The details will be developed as time goes on. In general, private funds will probably be given first mortgages; the public investment will be in a junior position. Public funds, in the beginning Federal funds, will supply the subsidy.

In closing, may I point out that although English experience can help in the consideration of Senator Wagner's bill, the basic ideas of decent housing for families of low income and of the Federal Government's responsibility to assist financially in maintaining a high standard of living, are not importations from England or any other country. The American standard of living is a phrase that sums up an ancient boast in this country. Decent housing for families of low income should add new meaning to the phrase. On the other hand, the Federal Government throughout our history has continually subsidized enterprises and undertakings that were believed to be in the general interest and that needed such assistance.

(The additional information submitted by Mr. Woodbury is as follows:)

SUBSIDIES AND BUILDING COSTS IN ENGLAND

The charge has been made (in my experience, more often by Americans than by Englishmen) that the English housing subsidies have merely increased building costs and that their benefits, therefore, in the main have not reached those for whom they were intended. Some general figures of costs per unit of subsidized housing by years have been cited from time to time in support of this assertion. These figures are unsatisfactory indexes of building costs because they reflect also the influence of changes in the average size of dwelling units. Inasmuch as in recent years the average size of the houses built in each year has decreased, the figures of average cost per subsidized house exaggerate the decrease in costs of housing construction from 1926 to 1933.

In my opinion, the chief fact to be kept in mind in judging subsidy in this respect is the very simple one that substantial increases in the demand for housing materials and services will tend, in the short run, to increase their prices, particularly when conditions are not favorable to a rapid increase in supply. To the extent that subsidies strengthen the demand for building materials and services, they will make for short term increases in construction costs. Other market forces may, of course, affect the influence of this or any other single factor on price. Unless their influence on costs is substantially greater than that of other factors, increasing demand in the same proportion under the same general conditions, it seems unreasonable to attribute the increases in cost to the subsidy rather than to the normal workings of the price system. Subsidy policy, to be sure, should be determined and carried out so as to prevent too abrupt changes in the volume of construction. During the early years of the English subsidized housing program, however, the pressure for immediate building was too great for allowance to be made for this consideration. The urgent need for more and still more decent, livable housing space was the controlling force.

The table below presents some of the elementary information for consideration of this issue. The effect of the size of the housing units built has been eliminated by taking as the unit the average cost per superficial foot of houses built by local authorities. A rough measure of the possible effect of the volume of construction on building costs is given by the figures on the number of subsidized houses and the total number of houses built in the same years. The "link relative" given for each series of data is simply the proportion that the figure for a year is of the corresponding figure for the preceding year.

Costs per superficial foot of houses erected with Central Government subsidy, number of subsidized houses, and total number of houses erected in England and Wales, 1923-34

1 Source: Facts and Figures Regarding the Present Housing Situation and the Progress of the AntiSlum Campaign in England and Wales, by John G. Martin, secretary of the National Housing and Town Planning Council (November 1935, p. 9). Average cost per superficial foot, January to August 1935, was 8s. 3d.

2 Source: Housing Policy in Europe (International Labour Office, 1930, p. 91) and Housing, House Production, Slum Clearance, etc., England and Wales (Ministry of Health, 1935, p. 6).

It is a more sensitive index of changes from year to year than the ordinary index number. The year 1923 is taken as the base year for these series because the Housing Act of 1923 marks the beginning of the long-term subsidy program in England as distinguished from the hit-and-miss emergency activity stimulated by the Addison Act, and also because it is the first year for which official statistics are available on the construction of privately built, unsubsidized housing.

No final conclusions on such a complex subject are justified from so simple a table as the one above. It does open to serious doubt, however, some glib statements about the effect of subsidy on construction costs. For example, it has been said that the sharp increase in costs in 1924 was due to the liberal subsidy of the Wheatley Act. This statement has been repeated by many persons without any further examination and apparently in ignorance of the fact that the Wheatley Act was not passed until August 7 of that year and, therefore, could not have had any very great influence on the average costs for the year. (Cost figures given in the table are for calendar years.) When the link relatives for subsidized and total housing construction for 1924 are taken into consideration, however, the superficiality of the original statement is very apparent. Subsidized housing construction increased in 1924 over three and one-half times, and total housing construction increased by 59 percent. Such sharp increases in the demand for building materials and services so soon after the War and its resultant paralysis of all branches of the construction industry, might well have made a 12 percent increase in construction unavoidable, regardless of the existence of the Wheatley subsidy. Furthermore, the considerable, but less substantial, increase in construction costs in 1925 was accompanied by a material increase in both subsidized and total construction, although these increases were less spectacular than those of the former year. No change in subsidy policy was made from 1924 to 1925. In short, under the conditions of those years, building costs seem to have been very sensitive to changes in the volume of demand.

Similarly, many persons have pointed to the sharp drop in building costs in 1928, the first full year after the first reduction in both the Chamberlain and Wheatley subsidies. Some of them have somewhat rashly claimed that this was clearly cause and effect. Again, a casual examination of the figure on volume of construction raises some very serious doubts about this simple explanation. In 1928 the volume of subsidized building dropped to 59 percent of 1927 and the amount of total building to 71 percent of the preceding year. Such sudden declines in the volume of building and the demand for building materials, particularly after the building business had become geared to a substantial and increasing volume over a period of 4 years, might have been sufficient explanation for the drop in costs without attributing all or a large part of it to the change in subsidy. Certainly no reasonably objective person would attribute the decrease of costs to subsidy alone without considering the other factors, and having considered them, he would certainly conclude that the change in subsidy was only one of several factors in the cost change and probably a minor one.

Another situation in point is the effect of the discontinuance of the Wheatley subsidy at the end of 1932. This marked the first time since the war that English low-rent housing did not have the benefit of a general subsidy. According to some theories, this should have been followed by a very sharp decline in construction costs. The year 1933, however, showed a drop of only 4 percent in average construction cost. This should be compared with the fact that subsidized construction declined only 1 percent. Furthermore, total construction increased by a third. (This was the beginning of the present building boom, set in motion largely by lower interest rates following the refunding of the national debt in 1932.)

It might well be argued that the 1933 cost figures were influenced considerably by the large volume of subsidized building carried on during the year, plans for which had been filed before the subsidy was discontinued in December 1932. If this contention be accepted, one certainly would expect the sharp decline in construction costs to take place the following year, 1934; but the cost figure for that year was 1 percent higher than in 1933, possibly because total construction increased by about a quarter. Again, cost changes seem to be more closely connected with volume demand for construction materials than with subsidy policy. Certainly the English record, under any fair-minded analysis so far made, does not force anyone to conclude that all subsidies will benefit chiefly builders and building supply companies by raising prices rather than help families of small income by lowering rentals.