Construction: Too Much Too Soon?

Construction in the U.S. is humming at a record $67 billion-a-year rate, and that ought to make everyone close to the building business happy. But it doesn’t. There is open concern— expressed by Federal Reserve Board Chairman William McChesney Martin Jr. and chief Presidential Economist Walter Heller, among others— that the long postwar building boom may be coming to a pause. In the past two years, builders have put up twice as many apartments as they did the previous two years, and there has also been a marked rise in the number of office buildings, motels and shopping centers. Now the builders have more on their hands than they need.

From New York to Los Angeles, the apartment vacancy rate is on the rise, climbing to 14% in Philadelphia, 15% in Fort Worth. In Las Vegas, realtors are stuck with 3,200 unrented apartments. Rents in Cleveland and Detroit have already dropped 7% in the past year.

Builders have seen the vacancy signs on the wall, and in many cities are slowing down. Office construction so far this year is off $20 million in Los Angeles; Phoenix builders recently cut a planned 18-story building to ten stories. In New York City, where a tightening of the zoning code has complicated the contractors’ problems, apartment construction is only one-third what it was a year ago. But Southern California builders are constructing 25% more apartments than last year.

Mortgage leaders are becoming much more selective than at any time since World War II. An officer of Manhattan’s Manufacturers Hanover Trust Co. says that bankers there are now “looking twice” at all loan applications from builders. Prospective hotel builders have a particularly difficult time finding mortgage money (many lenders believe that the current room shortage in New York City is a short-range phenomenon that will disappear as soon as the World’s Fair closes). Partly to tighten up lending by savings and loan associations, the Federal Home Loan Bank Board this year increased the associations’ reserve requirements.

It is a fact, however, that while the bankers and bureaucrats are concerned about the short-range outlook, they are not pessimistic about the longer view. They believe that any slump in the near future will not be bad enough to restrain the economy’s overall advance, and that demand for buildings will again send construction to new highs by 1967.