Statement About Combating Inflation in the Construction Industry and Meeting Future Construction Needs

TODAY, as the result of 5 years of inflation, America is not building the housing that is needed to provide adequate shelter for her people.

Housing starts today have dwindled to a seasonally adjusted rate of 1.3 million per year. If we are to meet our projected housing needs, we must be producing new housing units at the rate of 2½ million a year by 1975.

Our most urgent need is for homes that middle and lower income Americans can afford. Yet today, the average price of all new houses offered for sale is $27,000.

The basic reason why housing is in crisis today is that the cost of buying a house has skyrocketed during the past 5 years. To get at the root of the problem, we must take actions that will end the rampant inflation of construction costs.

The $100 billion construction industry is roughly divided into one-third housing, one-third commercial and industrial building, one-third public projects like schools and hospitals and roads. To meet the needs of our growing economy, demands upon this industry for further expansion in the years ahead will be heavy. By coming to grips with the sharply rising costs of this basic industry, we can do much to stem the tide of inflation throughout the economy.

The runaway inflation of construction costs must be ended. Its costs in human terms--in the urban and rural decay that breeds crime, ill health, joblessness, and despair--are too high for the Nation to pay.

FUNDAMENTAL CAUSES

We do not get at the causes of this problem if we engage in any witch hunt for a villain. This basic problem is quite simply that the Nation's needs for construction outran the industry's ability to expand its productive resources available.

The cost of construction is basically the cost of money, the cost of material, the cost of labor, the cost of management, and the cost of improved land.

To bring down the cost of money, we have taken specific action to direct the flow of more money into the mortgage market. I am proposing new actions to strengthen these efforts to get building now. In the longer run, we must have a strong budget after years of deep deficits and we must have the expansion in credit and money needed to finance new construction in our growing economy. This we have done, and we will continue to do until we achieve our goal.

To stabilize the cost of materials, we have taken action to increase the supply of materials in a wide variety of ways. The most dramatic result has been the lowering of lumber costs, which had risen sharply.

To moderate severe increases in the cost of labor, we must increase the labor supply to meet the increasing demand. This means we must assure equal employment opportunity for all in the industry, increase productivity through vocational training, adopt innovative techniques, and reduce seasonality; and make special arrangements for returning Vietnam veterans in the construction industry.

A shortage of skilled labor runs up the cost of that labor. That is what has been happening in construction. While manufacturing wage settlements in 1969 were about 7 percent, they were almost double that in construction--14 percent. Employment opportunities in construction will multiply in the years ahead. We must provide people with the skills needed to take advantage of those opportunities and bring supply more nearly into line with demand.

To encourage more vigorous, dynamic, and competitive management in the industry, we are engaged in programs to step up innovation and technological development. It is on more progressive management that we must ultimately depend to supply, efficiently and competitively, the building needs of a growing economy.

In greater detail, these are our present and future actions to deal with all four basic causes of rising construction costs:

I. BRINGING DOWN THE COST OF MORTGAGE MONEY

A. In 1969, the flow of funds into mortgages was increased through new commitments of $6.6 billion by the Federal National Mortgage Association and through advances and a reduction of liquidity requirements by the Federal Home Loan Bank Board $5.6 billion to member savings and loan associations.

B. Operation of the mortgage markets was improved. New mortgage-backed securities for sale to institutional investors were created. Interest rate ceilings on FHA and VA mortgages were adjusted to make them more attractive for investors. The position of mortgage lenders in competing for savings was improved by raising the ceiling on yields offered to savers, and by increasing minimum denominations for Treasury bills and agency bond

issues.

C. Special assistance funds were increased by the Government National Mortgage Association and the Farmers Home Administration to support the financing of subsidized housing units.

D. The administration is recommending 1. A doubling of the production of subsidized housing from 293,600 units in 1969 to more than 450,000 units in 1970.

2. A reallocation of $1.5 billion of special assistance funds to programs to increase housing starts. A supplemental budget request has already been submitted to increase the contract authority for two financial assistance programs by $50 million.

3. Authority for the Federal National Mortgage Association to deal in conventional as well as FHA and VA mortgages.

E. I call upon Congress to pass the legislation we have proposed to authorize the Federal Home Loan Bank System to create a secondary market for conventional mortgages.

F. I urge the Congress to act promptly on the administration's proposed Federal Home Loan Bank System program to subsidize borrowing by member savings and loan associations. If Congress acts, up to $250 million will be made available to begin immediately the effort to assist borrowing associations in expanding mortgage loans.

The housing needs of most families are supplied through the market. How successful these home buyers will be depends heavily on how soon mortgage interest rates come down. No more urgent challenge [aces our monetary, banking, and financial community than to help the economy get on with the task of achieving lower interest rates.

II. STABILIZING THE COST OF BUILDING MATERIALS

Lumber prices soared 21 percent from November 1968 to March 1969. The Department of Agriculture was directed to use a supplemental appropriation for fiscal 1969 and an increased appropriation for 1970 to provide additional timber from national forests. The Department of the Interior was directed to make available increased timber for sale. The Interstate Commerce Commission issued orders to relieve the shortage of boxcars used to move lumber and plywood from the Northwest.

The sharp increase in prices which had seriously affected the building costs for single family homes and small apartments was reversed. Lumber and plywood prices have declined from their high levels of a year ago.

III. TO MODERATE SEVERE INCREASES IN

THE COST OF LABOR

Skilled construction labor has been in disturbingly short supply. This shortage has contributed to recent construction industry wage settlements that exceed progress in labor productivity and increases in the general cost of living. They go well beyond the historical spread between construction wages and settlements in manufacturing industries. This is serious for the health of the industry, and it complicates the problem of achieving a new price cost stability generally. Unions and employers must be cautious lest they price themselves out of the market to the detriment of the community as well as themselves. Unless we act now it will be impossible to meet our building needs.

Between now and 1978 almost 2 million new jobs will be created in the construction industry. The normal operation of the labor market will supply many of these workers, but new training and apprentice programs will be required, and access to the skilled labor market must be eased to meet heavy demands in the 1970's.

Training and apprentice programs also must be developed to take advantage of technological opportunities in the home building industry. The nature of skills required may be modified by shifting part of the production and assembly of housing units to off site industrial plants. It is significant that 400,000 mobile homes were produced last year--that industry is strong while traditional housing is depressed. There is clearly a demand for the kind of housing that new, low-cost production techniques could bring.

While the Federal Government looks to the private sector to perform the great bulk of actual construction, its needs for facilities and its financial support of State and local building influence costs and stability for the industry as a whole. Therefore, all Federal agencies must carefully review contracting procedures to make sure that their actions do not unnecessarily disrupt construction activity or inflate the costs of public facilities paid for out of limited Federal budget resources. Conditions in the construction industry change; the Government should recognize that legislation of a generation ago needs to be revised for its relevance to the 1970's. Such a review should produce improvements in procedures and in the administration of regulations.

In the 1970's the construction industry will require a large, well-trained, and expanding work force. Toward that end, I .am directing the appropriate Government agencies to carry out the following programs, reporting their progress at regular intervals to the Cabinet Committee on Construction.

A. Vocational Education

Vocational education programs now provide training to approximately 250,000 persons in skills used in the construction industry (though many ultimately enter other areas). In order to help meet the demand for more construction workers, I direct the designated Federal departments and agencies to give higher priority to training construction workers.

The Department of Labor will communicate to the State and local agencies of the United States Training and Employment Service the serious national shortage of construction workers and encourage local surveys and reports on specific manpower needs in the construction industry.

The Construction Industry Collective Bargaining Commission will establish a subcommittee to develop a program to provide leadership and to communicate the need for developing quality vocational education programs with local school districts, unions, and construction contractors. Greater acceptance of training in vocational education programs, as partial fulfillment of apprenticeship entrance requirements, should be promoted.

I am directing that this subcommittee devote attention to one of our great national needs--the need to restore pride in a craft and to promote the dignity of skilled labor. Construction skills are important to the Nation, and they are a source of pride to their possessors. We must stress that such skills are not only well rewarded financially, but that they are a highly regarded and prized national resource--one deserving of the highest respect.

The Department of Health, Education, and Welfare will work with the States-in developing State plans for vocational education in secondary and post--secondary education as well as cooperative education programs--to emphasize training in construction crafts and to channel these trained people into productive employment.

The Department of HEW will encourage States to provide training in construction crafts in its special funds designated for areas of high youth unemployment.

The Department of HEW will, within 60 days, collect and disseminate information on experimental and innovative training methods and systems, especially in cooperative programs involving construction unions and contractors.

I recommend that the Governors encourage cooperative planning aimed at expanding the supply of construction manpower on a statewide basis, involving the State Employment Service, the vocational education agency, the State Cooperative Area Manpower Planning System, and other agencies and advisory groups.

B. Department of Labor Training Programs

The Department of Labor presently has approximately 30,000 construction trainees in its existing manpower training programs. These programs offer a variety of approaches to pre-apprenticeship training and training in basic construction skills. The programs are the JOBS (Job Opportunities in the Business Sector), Job Corps, MDTA (Manpower Development and Training Act) Institutional and On-the-Job Training. In addition, programs developed specifically for the construction industry include the Journeyman Training Program, the Outreach Program, and the UA-NCA National Journeyman Trainee Trust.

I direct the Secretary of Labor to prepare a plan within 60 days expanding present enrollment in Department of Labor programs providing training for construction skills by 50 percent, increasing this pace over the next 5 years.

1. Apprenticeship

Apprenticeship is one of the best systems for training craftsmen. While there are wide variations among trades, less than half of construction journeymen have received their training through apprenticeship programs. Modern training methods and the large number of pre-apprenticeship training opportunities make it possible to improve existing apprenticeship programs. I am directing the Department of Labor to undertake a comprehensive study of apprenticeship programs in construction crafts during the next 6 months and to recommend to me by October 1, 1970 to what extent and in what ways apprenticeship training programs can be improved and expanded.

2. Veterans' Training Program

To permit the talents of thousands of returning veterans to be employed in a manner beneficial both to the Nation and to themselves, I propose a Veterans' Training Program for the Construction Trades. The young men who have served our Nation, risking their lives and delaying their careers, deserve the best we can give them in providing rewarding employment opportunities.

I am directing the Secretaries of Defense, Health, Education, and Welfare, and Labor to develop training programs in the construction crafts to be provided servicemen during the final months of their enlistment. I anticipate that the program will enroll over 50,000 trainees during the next 2 years. Extensive job placement efforts will be required to provide maximum employment opportunities for the program's graduates upon completion of training. Unions and employers should participate as fully as possible in the planning and implementation of the program to insure that these veterans will be accepted for available employment at a level commensurate with the skills attained.

3. Supplementary Training

While the apprenticeship system provides well-trained craftsmen, its potential is limited now to young people with strong educational background. To expand opportunity for other workers, apprenticeship needs to be supplemented with different types of training for construction crafts. One promising supplementary training program is the agreement signed by the Department of Labor, the National Constructors Association, and the United Association of Plumbers and Pipe fitters (AFL-CIO) to train 500 members of minority groups for positions as journeymen Pipe fitters. I encourage extension of similar training for the disadvantaged to other construction branches and to all regions of the country.

4. Federal Construction Projects

Training opportunities in construction crafts presently are provided on most Federal construction projects. I direct the heads of all Federal Government agencies to include a clause in construction contracts that will require the employment of apprentices or trainees on such projects, and that 25 percent of apprentices or trainees on each project must be in their first year of training. The number of apprentices employed shall be the maximum permitted in accordance with established ratios.

5. Equal Employment Opportunity

There can be no social justice until there is economic justice, and equal employment opportunity is the key to economic justice in America.

To supplement its effort throughout all of industry, the Federal Government has taken a number of steps to insure that employment in the construction industry is available to all persons regardless of race, creed, or color. Executive Order 11246 prohibits discrimination in direct Federal and federally assisted contracts. Title VII of the Civil Rights Act of 1964 prohibits discrimination by business firms and unions.

Carrying out this policy in the construction industry poses special problems because of the temporary and shifting nature of the employer-employee relationship. To meet these problems, the Department of Labor has started the Philadelphia Plan. Simultaneously, the Department encouraged the development of area wide multiparty agreements for increasing the opportunity for minority groups in the higher skilled construction trades. I direct the Department of Labor to continue this vital effort to encourage and assist communities in developing these "hometown" solutions to the need for hiring minority group workers in the construction industry.

I direct all Federal agencies and departments to review their construction programs to make sure that they are in accordance with Executive Order 11246, and to provide assistance in the programs for equal employment opportunity in the construction industry being developed by the Department of Labor. I direct the Secretary of Labor to review and propose revisions as appropriate of Federal regulations governing equal employment opportunity in approved apprenticeship programs. All agencies and departments shall report to the Cabinet Committee on Construction by July 1 of each year on their programs to insure that equal employment opportunity exists in their direct and assisted construction projects.

IV. ACHIEVING MORE DYNAMIC MANAGEMENT

In the longer run new materials, new techniques, improved designs, and innovations in marketing are needed to improve the efficiency of the building industry. In order to encourage these necessary advances in housing, the Department of Housing and Urban Development has sponsored Operation Breakthrough. I strongly endorse these experimental projects to develop creative techniques for housing construction. The Department has already received over 600 proposals as part of Operation Breakthrough, and experimental projects will soon be underway.

A. Stabilizing Industry Operations

The intermittent and seasonal nature of the construction industry has always been a problem in the full utilization of construction resources--especially human resources. The Departments of Commerce and Labor recently completed a joint study of seasonal unemployment in the construction industry. I am directing that the following recommendations of this study be carried out:

I. Counter-seasonal contract award procedures shall be used whenever practical so that peak on site employment coincides with peak construction unemployment.

2. Experimental pilot projects in off season construction shall be conducted by Federal agencies and departments.

3. Interior construction activities such as repair, rehabilitation, and painting shall be performed during winter months unless specific permission for performing these activities at other times during the year is obtained from the agency head.

4. Within the next 3 months, agencies responsible for Federal construction shall identify those programs that can best use off-season labor without substantial extra direct costs.

5. Each agency or department of the Federal Government shall report to the Cabinet Committee on Construction by. July 1 of each year an the steps it has taken during the fiscal year to lessen seasonality and intermittency in its construction projects.

B. Effective Use of Science and Technology

I. The Environmental Science Services Administration (ESSA) in the Department of Commerce shall report on methods to improve the availability and use of weather information in construction.

2. The Secretary of Commerce shall develop an experimental program to promote dissemination of technical information on winter-building technology to the business community.

3. All Federal specifications must include clauses containing plans for construction under unusual weather conditions and the Department of Commerce shall develop a mechanism through which the Federal Construction Council and Federal laboratories can monitor and evaluate innovations in these contracts.

4. The Secretary of Labor shall develop a pilot construction labor market information system in conjunction with its computerized job bank program.

V. AN IMPROVED INFORMATION SYSTEM

The problem of obtaining accurate and timely information about industry activities has posed a difficult problem for the Cabinet Committee on Construction. As a basis for improving the quality of policy decisions involving the construction industry, the Cabinet Committee on Construction is examining improved statistical measures. I direct the Committee to present recommendations for improving the information system in providing statistics on prices and costs, industry compensation and fringe benefit patterns, industrial relations information, mortgage financing and construction loan commitments, industry employment, manpower requirements, training and safety statistics, and changes in the housing stock including mobile homes.

America's $100 billion construction industry with its 3 million workers does not need harassment, unwarranted interference, or political denunciation; it does need better access to mortgage money, less costly materials at more stable prices, an end to archaic regulation that hampers productivity, more dynamic management, and--most of all--more trained workers.

The actions outlined in this statement, together with the legislation to be submitted to the Congress by the Department of Housing and Urban Development, are designed to meet those industry needs.

Construction costs are not the "fault" of any one group; they are the result of a system that urgently needs reform and modernization.

We must take care, in making those reforms, to treat fundamentals rather than symptoms--essentially to bring the supply and demand of labor, money, and materials into better balance. That is the only constructive way to stop the spiral of construction costs.

In so doing, we can simultaneously meet two of the Nation's most pressing needs: the need to open up new job opportunities for millions of working men and women, and the need to provide adequate shelter for everyone.

These measures to improve productivity and to expand resources in the construction industry will enhance the capability of this industry to handle the growing needs of our economy for new facilities.

Policies begun last year to deal with an inflation that had already been allowed to run for years are now moving the economy to the path of stable economic growth. I have, therefore, today terminated my request of September 4, 1969, that activity incident to federally assisted State and local construction projects be curtailed sharply. This will permit the resumption of construction activity necessary to meet these needs for facilities. I am also withdrawing my September request to the Governors to cut back on State construction programs. The Governors' response to that request for voluntary action was both widespread and effective. It is an excellent example of Federal-State cooperation. In this resumption of construction activity, however, I am requesting that in the activation of projects there be special attention to areas with a relative balance in construction resources available as compared with demands for these resources.

The rate of inflation still remains an urgent concern and this action is no signal that our effort to sustain a strong budget has relaxed. As our policy to combat the rate of price increase takes hold, I will take the action necessary to help the Nation's economy achieve a stable growth.