Evening star., 1920-12-04
Low RENT BLAMED
FORH0US|NG CRISIS
Expert Says Capital Must
Have Fair Return From
Building Operations.

! That the housing problem will not
be solved until rents are readjusted
I so that investors shall receive a fair
return on their invested capital is
the declaration of Luther Conant, jr,
of the research department of the
! Housing Company of Boston. The
| minimum economic rate of return on
| dwelling houses is 13 per cent. he as
serts.
Citing figures prepared by the
United States Housing corporation.
showing that the normal operating
cost for an ordinary dwelling house
is IL per cent of it's value, Mr.. Co
nant points out that gross rental of
nearly IA per cent would be needed
to return even 6 per cent on the in
vestment. He goes on:
practically no reliable estimate
has placed the operating cost OF
dwelling g-house property at less than
z per cent.
obviously. therefore, the old rule
Of thumb of 10 per cent gross rental
should be discarded. The foregoing
calculation of operating costs sug-
gest that a gross rental of 13 per
cent is a minimum economic return
on such property.
"a gross rental of IL per cent
means that a house and lot worth
$4,000 should rent for $1,O40 year or
roughly. $S7 per month; a gross
rental of IS per cent would mean. for
such house, a rental of $100 per
month.
Present Congestion.
THE country today is faced with
shortage of homes for at least one
million families. The population is
congested beyond the highest point
ever previously reached. There are at
present approximately 121 families
for every 100 houses. against an av-
erage of about 115 families per l00
houses in 1915, and 112 families for
every 100 houses in 1900. In view OF
The rapid influx of immigration. TINS
congestion obviously must increase
unless the construction of houses Is
speedy resumed on an extensive
scale.
THE question arises. however: HOW
can such construction be hoped 1or
~ tbe landlord cannot secure a fair
return on his investment? The SIM
ple fact is that community cannot
expect houses to be furnished uhless
such housing will return a reasonable
profit to the builder and to the own
er who purchases for investment.
"lcn an lHCOIHe VI . pei >'
cent or more can be secured from
gilt-edge securities. it is unreasona-
Bile to expect that business men VIII!
undertake the burden and expense OF
building and operating dWeilns
house property for per cent, per
cent or per cent, which fairly ex-
presses the return in large num-
Der Of cases.
Rise Has Been Slow.
"In the face of sensational increases
in building costs and heavy increases
in operating expenses, rents in gem
eral have risen very slowly. Ihus.
reports of the United States bureau of
labor statistics show that. while the
cost of living as a whole increased
81 per cent between 1913 and Decem-
ber, 1919, the average increase in
rents was only 80 per cent. Likewise,
studies by the National Industrial
Conference Board show that. whereas
the increase in cost of food between
July, 1914, and July, 1920, was 1ls
per cent, that in clothing 166 per cent
and in sundries IS per cent. the aver
age increase in cost OF Shelter was
only So per cent.
"These figures reflect one Of the
fundamental factors in the present
housing crisis, namely, a stubborn
resistance to any increase In ex-
penditure for one of the prime neces-
saries of life. shelter, in the race OF
most extravagane expenditure Tor
such articles as silk shirts. silk stock
ings, rugs, and a hundred and one
other luxuries. 1t is automatic that
capital seeks the maximum rate OF
return. and so long as 1t can COM
mand double the return in the pro-
duction of luxuries that it can secure
through the production Of housing
the present housing shortage will be
unrelieved. In each case the cure
for an undesirable situation is really
in the hands Of the consumer.
Depends ON Return.
THAT houses will be built when the
financial return is adequate is shown
by the fact that. although housing in
many localities came almost to stand
still. the erection of garages reached
unusual proportions. Thus, whereas in
1919 only thirty-three tenement houses
were built in Boston. 606 garages were
erected at a cost of over $5.OO0,OO0.
Building statistics of other cities for
the current year show similar conditions.
Had the erection of dwellings, offered
the same rate of return. there can be
no doubt that builders would have been
equally ready to undertake their con-
struction.
This. then, is the crux Of the -hous-
| ing problem, andiit will not be solved
permanently by any number of new
| legislative acts, new city ordinances, or
| court rulings. 1t will be solved perma-
nent1y only through such a. readjust-
ment of rentals to real estate values
| as will again automatically attract capi-
| tai to the building industry.
$50 far as this readjustment can be
effected by a reduction in building costs.
| this is highly desirable. But the read
! iustment must be made. And it will be
made most effectively and with least
| friction if the tenant will distinguish
| between rents which are exorbitant and
] III