University of Virginia Library

Housing: Developing The Developers' Arguments

By STEVE WELLS

(The housing industry has
this year locally come under
attack on many fronts.
Landlord-tenant disputes are
increasing in both number and
fervor, as the gap between the
two appears to be widening.

It is our belief that only
through reasoned dialogue –
which will hopefully lead to a
better understanding of all
positions, possibilities, and
impossibilities – can this gap
be narrowed.

With this aim, The Cavalier
Daily will, in the next several
weeks, be publishing an
in-depth series examining
problems that exist within the
housing industry, presenting
viewpoints of people in all
areas of the industry, and
analyzing financial factors that
affect tenants, landlords, and
investors.

Throughout this series it
should be understood that the
terms "housing" and "house"
apply to both single and
multiple unit dwellings, except
as may be otherwise noted.

The following article is the
first in the series, and presents
the viewpoints of local
developers, contractors, and
real estate agents. – Ed.)

"We're on a big swing on
behalf of the consumer," Daley
Craig points out with a hint of
indignation in his voice. "And I
believe the merchant
downtown would be the first
to tell you that he's just beat
to death with people trying to
protect the consumer and not
giving a damn about the fact
that stuff's walking out of his
door. And if he goes up and
asks a guy if he stole something
from him and he didn't, he can
be prosecuted, and a jury will
hold him liable and cost him
his shirt. It's just ridiculous."

Although it might sound
from the above as if Craig is
spokesman for the Retail
Merchants Association, he is
something of a mogul in the
housing industry in Central
Virginia, being developer and
co-owner of the $15 million
Four Seasons complex on
Route 29 just north of
Charlottesville, and his
comments are merely attempts
to put the problems of
landlords into the same
perspective as those of his
tenants.

"What I'm saying is that as
long as both [landlords and
tenants] are protected equally,
then nobody's got any
complaint. But who's
interested in the welfare of the
landlord? We don't find any
consumer protection agency
around trying to help us collect
our rent when the guy walks
out without paying it."

Begging Question

Craig's remarks, of course,
beg the question of "Does the
public demand more than the
landlord is able to give?" But
before this question can be
dealt with, we first must ask
how the housing industry has
changed in, say, the last ten
years.

According to Craig, "The
cost of housing has increased
faster than people's willingness
to pay for it. Building costs
have gone up somewhere in the
neighborhood the last few
years of four or five per cent
per year. I think that has
nipped the general inflation."

Craig attributes this
significant rise in costs to two
things. First, "demands by

localities and states and the
federal government are such
that they want everybody to
have a Cadillac house rather
than a Chevrolet house, and
this affects the cost of
developing land a great deal.
The cost of developing land has
more than doubled in the last
ten years."

Secondly, "labor is
compensated better than it was
in the past, and I'm in favor of
that. Unfortunately, until the
last two years there was not an
offsetting increase in
productivity of labor, so there
was a devaluation of the
productivity," Craig claims.

In addition to this increased
cost of the product, Craig
points to another economic
trend as a major factor in
molding the industry into its
present shape. "People began,
six or seven years ago, putting
less of their disposable income,
as to percentage, into housing
than previously." Why?

Craig explains, "You hear
the word 'swinger,' well that
applies to people of all ages.
People my age are doing things
that people my age didn't used
to do. They like to spend more
time playing tennis or sailing or
traveling, and that's where that
portion of their money is going
that otherwise would have
been going into housing."

Craig insists, however, that
"while people are willing to
put less portion [of their
income] into housing, they're
looking for that house to do
more for them. And they're
willing for that house to be a
different form. They're
considering a house not in
terms of what it represents but
what it does; there's a
tremendous difference.

"That's the only thing that
saves us," he continues,
"because we can re-design the
product and market it as to
what it does for them rather
than what it represents. And
by re-designing it, we can
deliver it at a price they are
willing and able to pay."

Craig emphasizes his point
with an illustration. "I drive a
1929 Ford, and often people
will say to me, 'Boy, they
don't build them like that
anymore,' and I could very
well say, 'Well, thank God,
because I don't dare put this
car on an interstate highway.'
You see, their needs are
different, and that's why I'm
talking about function. We
don't build houses like they
used to, and if we did people
would never pay the price."

The developer is thus
apparently put in the position
of having to try to build a
quality product while keeping
the costs – both to himself and
to his tenants – reasonable by
today's standards. How can
this be accomplished?

The one way, in Craig's
opinion, is to build on a
massive scale. "We've gotten
ourselves used to a pretty good
standard of living. But we find
out that in order to maintain
that standard of living we've
got to produce more, because
there isn't as much margin in
the individual unit. And isn't it
also true in automobiles? If
you bought a Chevrolet that
was hand-made, you'd be
paying a tremendous price for
it. So there is a relationship –
regardless of and contrary to
what John Kenneth Galbraith
says – between standard of
living on one hand and
productivity on the other."

Craig, whose Four Seasons
project, when completed, will
include 235 individual houses,
165 townhouses, about 400
apartments, and a commercial
area, has obviously experienced
first-hand the advantages
the developer derives from
massive-scale construction.
"When you do a project you've
got certain fixed costs," he
explains, "advertising being
one of them. If it's a small
project, that fixed cost is
spread over less units, and
therefore is higher per unit."
Moreover, "you've got better
buying power with more
volume; you can standardize
more, and get greater
production out of the laborer
on the labor end of it."

Julius Minton, president of
Long Construction Co., a local
contracting firm that builds
350-500 units per year,
elaborates on this point. "It
takes a lot of money to put the
utilities into one house,
whereas if you put ten houses
there, it would be very little
more to put it in ten houses
than it would be for one,"
Minton contends.

Given then that building on
a large scale is necessary from
an economic standpoint, how
has this movement toward
mass production affected the
quality of the product? When
asked his reaction to many
people's claims that housing
isn't as good as it used to be,
Craig simply asks, "Can
anybody substantiate that the
quality of housing has
deteriorated? then goes on
to explain, "What we do today
is build a house and it has, for
instance, mahogany siding, and
big windows without the little
panes. The quality is good; it's
better than it used to be. We
use a lot of glues which we
didn't used to have. But to
stain this house costs $150; to
paint a brick house costs $400.
A man with a spray gun can
stain a house in half a day; it
takes him three days to paint a
brick house."

Experimental Stage

Real estate agent James
Marshall, who handles 700-800
units in the Charlottesville
area, doesn't agree that the
quality is better, but recognizes
the economic demands
involved. "The quality
certainly has not improved.
You have a lot of new types of
materials being used, some of
which you might say are going
through an experimental stage.
What they will be ten years
from now, I don't know. Just
for one example, most people
are now putting in a bathtub
with plastic surrounding it for
the wall instead of the
formerly used tile. One fellow I
know, it's beginning to create
some problems for him. I think
that a little bit more time
would have to elapse to see
whether the product was
installed wrong or whether the
manufacturer might need to
re-design it."

Citing the fact that
"everybody's using wallboard
today instead of plastered walls
even though "it's not the best
product by any means,"
Marshall admits that "You
have to have some kind of
product that takes less labor
and isn't a cost item, really.
Plus the time element. Your
new products that are going in,
there's less delay, in the
building process. If you build a
building with plastered walls,
you've got to quit construction
for two or three weeks while
the plaster dries before you

put up your wood trim. But
with drywall construction, you
put up the drywall and then
the trim immediately.

This, by human nature,
leads us to ponder whether
developers sometimes use
inferior materials in order to
expedite construction and save
money (with the result often
being a sub-standard building).

Craig doesn't think this is
the case. "I don't know of any
developer who intentionally
builds a shoddy product," he
says, adding, "I know a lot of
developers whose products
turn out to be shoddy at one
time or another, or all the
time, but it's always
unintentional, and quite often
these people have used the best
materials. As a matter of fact,
you'd be hard put to find a
developer who is using
second-rate materials, because
there is no way to win with
second-rate materials, and all
builders know that.

"The problems," Craig
asserts, "are in the area of
management, and building is to
some extent an off-sigh
operation. There's a hell of a
difference between controlling
people who are sitting in front
of you in a classroom and
controlling people who are out
there working. We put, and
most builders put, a one year
warranty on their houses. Now
we got people saying that's not
long enough; they want to
crucify the builder. Most of
these liberal critics are just
greedy people."

Still, is the builder not
responsible for ceiling beams
that aren't flush against the
wall or for holes in the floor?
"It's bad management to left
that occur," Craig argues.
"And I've had it occur. Every
builder has had it occur. And
for all I know it might be out
there occurring right now and
won't know it until next week"
But look at what the builder is
faced with. In order to assure
that that's not going to
happen, he's got to have an
inspector in every unit eight
hours a day, and how many
units has he got under
construction at one time? And
is the market going to pay the
price? I think not."

Craig now gets to the hear
of the matter. "The people
who criticize pre-suppose
there's an adequate supply of
labor – trained, sufficient
labor. Now, if your theory is
wrong, all benefits that derive
from that theory are equally
wrong, right? All right, your
theory's wrong."

Charles Hurt, co-owner of
Virginia Land Co. and
developer of Hollymead, a
"planned unit development" to
be built north of
Charlottesville at the rate of
25-50 houses a year for the
next 20 years, elaborates on
the labor problem. "Almost
everybody who wants to call
himself a carpenter is working
as a carpenter today," Hurt
says. "Maybe during the
depression when you had high
unemployment, the guys that
were the less experienced
would retire; they'd go home
and stand on the breadline.
Today all those guys are
working. And maybe the
building is some reflection of
that."

Minton concurs as well,
stating his belief that while the
quality of materials has
remained constant during the
last decade or two,
"Workmanship has fallen off
some because there are just not
many finished carpenters that
know, what they're doing. We
have difficulty getting
competent sub-contractors,"
Minton explains. "I've been in
this business seven years and
I've known no one to be
hungry for a job yet. This is
our biggest problem, really –
to get performance out of
sub-contractors. One of our
biggest drawbacks here in
Charlottesville is sheet rock –
there's very few competent
sheet rock people here, and
this is what holds you up on
every job."

Also, to stir a few
memories, it was Louis
Salamonsky, owner and
developer of the infamous
Hearthwood complex, whose
sloppy construction and
myriad deficiencies The
Cavalier Daily exposed in
September, who contended
that many of his Hearthwood
problems stemmed from "five
subs going bankrupt" on him.
(The real problem here,
however, in Hurt's opinion,
was that Salamonsky "just had
poor management. He didn't
have adequate supervisory
people.")

Nevertheless, given the
apparently acute shortage of
skilled laborers, there looms, as
always, the larger question:
why is there this shortage?

Marshall sees the problem
stemming from "unwillingness
of younger people to get into
the building trade. They prefer
other types of work, and one
reason I would say is it's pretty
hard work, it's rather dirty
work, and also the big thing is
that type of worker only
works weather permitting.
Now we read in the paper
about plumbers, electricians,
brick layers making $6, $7 an
hour; sounds like big money,
but if you were to determine
the number of hours they work
per week the year round,
they're not making big
money."

Also, in Minton's
estimation, there's so much
construction taking place
today that "it's just spread the
whole thing thinner," a case of
too many jobs for too few
people.

But the key factor that all
four men point to is an
over-emphasis on education.
Hurt explains, "I think that the
working man, the skilled
worker probably does not have
the status that he should have.
There was a great emphasis ten
or 20 years ago on the
college education, and the
skilled worker probably didn't
get the recognition and the
status that he was entitled to. I
think we're paying some of the
price now."

Arguing that "We're
training people right now to do
things for which there aren't
jobs when they get out of
school," Craig concurs that
"Everybody's led to believe
that he ought to be an
intellectual. The academic
community over the past 25-30
years established a class society
based on intellectual
achievement and they look
down their noses at people like
me that don't have much
education and are just out
working. So what happens?
[The intellectual] gets himself
up there and gets himself some
tenure and gets himself
elevated so far in that fine
ivory tower, his feet are so far
off the ground he can't even
reach reality."

Marshall, however, believes
that there is going to be an
increasing de-emphasis on
education in the near future. "I
think nowadays you're getting
to where the important thing
from an employer's point of
view is not whether you have a
B.S. or a B.A., but 'what can
you do for me?' And a person
starting out with just a B.S. or
a B.A., what can he do? He's
really got to start in on a
training program of some
description."

***

If all of these difficulties
limit the capabilities of
builders, then what effect has
government assistance –
especially in the area of
insuring long-term loans to
developers – had on the
industry?

Hurt:

"A Lot Of Confusion"

Craig puts it bluntly. "The
FHA programs are rotten. The
government bureaucracy is just
so difficult that it's hard to get
into production."

But, according to Craig,
once a developer has secured
government backing, the
government continues to make
its presence felt. "They inspect
and influence, persuade,
blackmail – and I can prove
that – and all sorts of things,"
Craig argues. "Now, the net
effect I think is good, and I'm
not knocking the FHA in its
fundamental function of
insuring owner-occupant
mortgages. And one of the
reasons I don't knock it is
because it's a money-making
proposition. It has never cost
the taxpayer one cent for
running the FHA, but what
they did was they took the
FHA and put it in HUD –
Secretary Romney with his big
Operation Breakthrough and
all that garbage, and they have
just about destroyed the
FHA."

Whenever one talks of
government intervention in the
housing industry, the subject
of low-rent housing subsidies
cannot be avoided, and on this
subject Craig really lets loose:

"Let me tell you about a
federal government apartment
project in downtown St. Louis.
It was $36 million and it failed.
And one of the reasons it failed
was that the elevators were
improperly designed and the
kids couldn't get to school.
They tore the damn thing
down, and took a $36 million
bath. And yet the fees and the
draft and the commissions that
went into that thing from your
and my tax dollars would sink
a ship."

The problem, as Craig
indicates, basically comes
down to this: "How do you
supply housing to the guy who
needs it? We know that in this
country right now the greatest
need for housing is people who
are making less than $10,000 a
year, and we haven't even
scratched it."

And one of the reasons, in
Craig's estimation, is because
of local and state governmental
controls. "Any time you pass a
law or an ordinance you're not
only creating an asset, you're
also creating a liability...
You've got all these guys going
around making work out of
their job of being enforcers.
They don't do anything.
They're non-productive.
They're Galbraith people."

But more than that, Hurt
explains, "I think what many
people should realize is when
they put burdens on the
landlord, it's something that
ultimately has to be paid for
by the tenants. So to put an
extra burden on the landlord
doesn't provide better housing;
it provides the reverse."

How could government
make it easier for developers to
be able to build for and rent to
all-income families? "By
making utilities and streets
available," Hurt contends.
"Probably over half the cost of
a lot has to do with utilities.
Those utilities can be provided
for by the community. If you
buy a house for $30,000,
about $6,000 of that goes to
the lot, and about half of that
–$3,000– goes to the street.
The community can put the
street in; if they did that,
you'd pay it back in taxes,
right? The community can
borrow that money for half
what you can borrow it for. So
it could bring down your house
payments as much as $200 a
year. That $20 a month can
make the difference whether
you buy this house or not."

Craig concurs, arguing on
behalf of the tenant, "We build
roads in front of houses that

are way too big. They don't
want a big, expensive road.
They don't want all the
drainage structures that the
state highway department
requires; they'd just as soon let
the road get wet every now and
then."

But the big government
paradox to Craig's way of
thinking is the tax structure
which catches the consumer
coming and going. "Here
you've got governments
imposing taxes on people using
real estate as a base for it, and
that generally constitutes ten
per cent of a man's monthly
housing cost. Why in the world
should housing be penalized to
the extent of ten per cent?
And that ten per cent, if
removed, could put a lot of
people who are not able to
afford housing into housing,
right?"

Programs Destroyed

Thus, Craig and at least
some of his colleagues see the
potential good of federal
programs being destroyed by
governmental bureaucracy and
more than occasional
ineptitude, and then totally
undermined on the state and
local levels by unreasonable
taxes on shelter, plus an
insistence upon luxury instead
of necessity.

So whether you're talking
about improving the quality of
low rent housing (which
Minton thinks is perhaps a
pipe-dream: "In so many cases
it's just a new slum.. The
caliber of people a lot of times
that go into these projects do
not want or are not capable of
keeping something nice") or
improving the quality of higher
rent housing, it all comes down
in the end to the problem of
relative costs.

How concerned are the real
estate chieftains and what other
possible steps toward a
solution do they see?"

"I would like to see
improved housing," Hurt
claims. "But I think it has to
be achieved by increased
efficiency and some savings in
cost. I think with labor
saving machines and improved
technology, we have that
opportunity. I don't believe we
are going to get it by
featherbedding, I don't believe
we're going to get it by the
idea that we're going to get the
government to pay the cost.
We're going to have to get it by
increased productivity and
efficiency and the
responsibility of the people
that are living in them."

How does he propose that
increased productivity can be
achieved? "By better trained
people, specialization,
sometimes by better
continuity. The man that's
putting in doors, for example,
under roof in a mobile home
factory puts in maybe 30 a day
compared to eight on the
outside. That has to do with
materials handling. That has to
do with organization. There's a
lot of confusion in the building
trade. Today it's raining, or the
materials didn't come, or
they're downstairs; it can just
be better organized."

Uniform Code

Minton suggests a
uniform building code as a
step toward better
organization. "If you move to
Roanoke to do a job, or
Fredericksburg, or even
Charleston, W.Va., it would be
so much better if you knew
what the codes were without
having to go to that area,
completely investigate their
codes, and conform to them."

Actually, in response to this
problem, Craig has pioneered
and sponsored an effort to get
a uniform building code in

Virginia, one which localities
cannot amend but which will
be flexible to allow for
innovations and new
technology. This uniform
code was passed last year and
will go into effect in 1974.

Marshall views the situation
with less of an eye toward a
need for new, quality
construction, (especially in
Charlottesville, which he
contends is overbuilt) than
toward making tenants in
present housing happy, which
means solving the problem of a
critical labor shortage in the
area of repair work.

As for the existing
problems, Marshall muses, "I
sometimes wonder if all our
discussion pertaining to this is
not making people that were
formerly happy with their
abode now unhappy because of
the constant publicity. You
keep telling somebody
something and sooner or later
they come to believe it. Which
is only normal. Rent is going to
keep going up as long as there's
inflation, and there's nothing
you or I as an individual can do
about inflation. I can
remember when you could
borrow money for an
apartment building at five and
one-half per cent; you now pay
nine per cent or nine and
one-half per cent; so consequently
the cost is a lot higher.

"Now a lot of people are
under the impression that the
landlords with these higher
rents are making a lot of
money," Marshall continues.
"There are more apartments in
town, I'll bet you, that are not
making the net return that
you'd get in a savings account
in a bank than there are
making above. And that's
what's so misunderstood."

And it is precisely this
"misunderstanding" – if
indeed it is that – which will
be dealt with in the next article
of the series.