Construction Financing of Single Family Homes in the Middle West, 1946 - 1950

222 Pages·09.257 MB·English

by  Harvey, Robert Otto

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Harvey, Robert Otto
CONSTRUCTION FINANCING OF SINGLE FAMILY HOMES IN THE
MIDDLE WEST 1946 - 1950
Indiana University, Graduate School of Business D.C.S. 1951
University
Microfilms
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University
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CONSTRUCTION FINANCING OF SINGLE FAMILY HONES
IN THE MIDDLE WEST
19^6 1950
-
BY
ROBERT 0? HARVEY ‘
A Dissertation Submitted In Partial Fulfillment of
the Requirements for the Degree of Doctor of
Commercial Science In the School of
Business of Indiana University
INDIANA UNIVERSITY
1951
ACCEPTANCE
This Dissertation has been accepted in partial ful­
fillment of the requirements for the Degree of Doe tor of
Commercial Science in the School of Business of Indiana
University.
Date lkj±14.
yrv*—’X.
, School of Business
flhail'lrMn. *
MeBPer ^
Member
PREFACE
A comprehensive study of the financing of single
family dwelling unit construction in the Middle West was
carried out by several members of the Faculty of the School
of Business, Indiana University, under a grant from the
Housing and Home Finance Agency. The case method of re­
search was employed exclusively. The project was carried
on from July, 1950 to August, 1951*
Members of the project staff included: Director,
Arthur M. Weimer, Dean of the School of Business; Asso­
ciate Director, Edward E. Edwards, Professor of Finanoe;
and D. Lyle Dleterle, Professor of Accounting; Schuyler F.
Otteson, Associate Professor of Marketing; David W. Thompson,
Associate Professor of Accounting; MAtthew P. Dogan, Assist­
ant Professor of Business Law; Arthur E. Warner, Instructor
in Business Administration; and Robert 0. Harvey, Instructor
in Real Estate and Land Economics.
This study is based on the cases collected in the
construction financing project. An attempt has been made
to analyse the cases, summarize the findings, and present
conclusions and recommendations on dwelling unit construc­
tion financing.
Neither the construction financing project nor this
report could have been undertaken without the financial
support of the Housing and Home Finance Agency. Dr. Richard
U. Ratcliff, Director of Research, Housing and Home Finance
iii
Agency, Mr. Dave Lowery and Mr. Neal MacGiehan, also of the
Housing and Home Finance. Agency, have rendered great assist­
ance during the conduct of the primary research and the
preparation of this report.
The important contributions of Professor D. Lyle
Dieterle, Professor David V. Thompson, Professor Matthew P.
Dogan, and Mr. Arthur E. Warner are gratefully acknowledged.
The advice, encouragement, and patience of Dean Arthur M.
Weimer, Professor Edward E. Edwards, and Professor Sohuyler
F. Otteson have been of the greatest assistance to the
author. It ia doubtful that this study could have been
brought to completion without their help.
iv
TABLE OF CONTENTS
Chapter Page
I INTRODUCTION ..................... 1
II THE ULTIMATE OWNER: HIS ROLE
IN CONSTRUCTION FINANCING . . . 6
III CONSTRUCTION FINANCING FOR
HOUSEBUILDING FIRMS ............ 57
IV THE ROLE OF FINANCIAL INSTI­
TUTIONS IN FINANCING
CONSTRUCTION ................... 110
V SUMMARY, CONCLUSIONS AND
RECOMMENDATIONS ON THE
FINANCING OF SINGLE FAMILY
DWELLING UNIT CONSTRUCTION . . . l66
v
CHAPTER I
INTRODUCTION
Despite the importance of construction financing to
housebuilding, relatively little research has been conducted
on the financing of the construction of single family dwell­
ing units. Consequently, little information about construc­
tion financing methods, problems, and risks is generally
available. A considerable amount of statistical informa­
tion is available on the volume of mortgage lending, inter­
est rates, loan maturities, housing starts and dollar vol­
ume of construction put in place, but relatively little has
been published which reveals the nature, characteristics,
and importance of the various sources of funds in a given
housebuilding operation and the circumstances surrounding
their use."*"
Occasional articles devoted to the subject of construc­
tion credit have appeared in the journals of trade associa­
tions interested in real estate financing. Some of the more
common financing techniques and problems have been men­
tioned in real estate and real estate financing textbooks,
but the flow of credit into housebuilding has been neglected
as a research topic in recent years.
^Statistical information of the type mentioned can
be found In the Survey of Current Business. The Federal Re­
serve Bulletin. Housing^tatisilcs. and the annual' reports
of the Housing and Some Finance Agency and subsidiary
organizations.
2
Recognizing the need for research In this area, the
Housing and Home Finance Agency contracted with the School
of Business, Indiana University, for a research project on
construction financing of single family dwelling units in
the States of Illinois, Indiana, Michigan, and Ohio.
The project was directed toward the determination
of: 1) the adequacy and effectiveness of construction
credit; 2) the availability of credit for purchasing and
improving land; 3) the effect of construction lending prac­
tices on builders1 operations and capital requirements;
and I}.) the risks involved in construction financing.
The case method was used in carrying out the pro­
ject. Thirty-seven cases were collected for the study by
a specially organized research staff of faculty members of
the School of Business. Each case is an examination of
some type of housebuilding operation which was carried on
in the Middle West during the period 19l}-6 to midsummer
1950.
In so far as possible no two cases treated identical
2
problems or situations. An attempt was made to have each
case explain construction financing under circumstances
different from those in other cases collected. An effort
was made to provide variety as to size of city, type of
financial institution, type of construction project, type
p
A descriptive index of the cases is contained in
the Bibliography.