David M. Blank

English

Research Papers in Economics

This PDF is a selection from an out-of-print volume from the National Bureau of Economic
Research
Volume Title: The Volume of Residential Construction, 1889-1950
Volume Author/Editor: David M. Blank
Volume Publisher: UMI
Volume ISBN: 0-87014-454-5
Volume URL: http://www.nber.org/books/blan54-1
Publication Date: 1954
Chapter Title: Introduction to "The Volume of Residential Construction, 1889-1950"
Chapter Author: David M. Blank
Chapter URL: http://www.nber.org/chapters/c7008
Chapter pages in book: (p. 1 - 4)INTRODUCTION
I
THIS PAPER, one of a series originating in the study of capital formation and
financing in the United States,1 presents new estimates of residential construc-
tion, a quantitatively important and analytically distinctive component of
capital formation in this country.
The classification of the paper as "technical" should not mislead the reader.
Neither esoteric language nor complex tools are required to read and under-
stand it; nor is it technical in the sense that it can interest only readers pre-
occupied with the measurement and analysis of residential construction. The
classification "technical" merely means that the discussion is devoted largely
to an explicit and detailed presentation of how the new estimates have been
derived, not to substantive findings —exceptfor some fascinating glimpses in
Section 2. Analysis of the substantive findings suggested by these estimates
is deferred to a prospective monograph, in which use can be made of a
variety of other information bearing on residential construction and its
financing.
The paper should in fact be of interest to everyone who has ever used
economic records, and particularly time series. Economic time series are used
widely for formulating hypotheses, testing generalizations, observing current
changes in conditions, and providing bases for policy choices; and their proper
use requires an understanding of how they are derived, what questions arise
in the process of construction, and how these questions are answered.
II
There has been a great need for a comprehensive measure of the volume
of residential construction, by type and location, over a period long enough
to permit analysis of trends underlying the 14- to 20-year swings that char-
acterize residential construction in this country. The series that have been
available extend back only to 1915 and are subject to some important quali-
fications in the earlier years. The Bureau of Labor Statistics, however, has a
large collection of basic data on construction permits reaching back to the
later nineteenth century and covering a fair number of cities, and it has made
these data available to our group. We have used them to construct a set of
estimates covering the period from the late 1880's through 1929. This paper
is largely an account of the conversion of this mass of potentially valuable raw
data into a continuous, usable record.
I The study was begun by the National Bureau of Economic Research in mid-1950. It is financed
by a generous grant from the Life Insurance Association of America.
1'•Four types of difficulty had to be faced and resolved, some satisfactorily,
others with regrettable but unavoidable arbitrariness. The first type originates
in the gap between a permit and a true record of construction activity. A
permit is a rough and ready declaration of intention; it may lapse, and con-
struction may never take place. Fortunately, this is a minor difficulty in most
times and areas. More important is the bias in permit valuations toward
omission of certain costs that should be included, e.g. architects' fees and land
development costs, and toward understatement of even the costs that are
included. Furthermore, if a true time series on work accomplished is to be
obtained, allowance must be made for the time that elapses between the date
at which a permit is issued and the date at which construction is begun, and
for the distribution of work over time once construction is started.
The second type of difficulty is connected with the coverage of permit data
within each city. Although only cities with a compulsory permit system are
included in the sample, the possibility of under-reporting because of non-
compliance had to be recognized. A related difficulty originates in the changes
in the city boundaries, i.e. of the area within which the permit system is
operating. For in trying to pass from the data for a varying or even a constant
number of cities to some comprehensive total with a consistent definition over
time, the scope of coverage of the raw data would have to be ascertained with
maximum possible accuracy. Under-reporting of unknown magnitude or shifts
in areas of coverage were, therefore, difficulties that had to be overcome.
The third type of problem arises in passing from the data representing a
varying number of cities to estimates that relate to all urban population, in
the country as a whole and preferably by regions. This, in a way, is the most
crucial phase of the procedure; and the reader will find in Dr. Blank's paper
a lively account of the questions faced and choices made. The interesting
aspect of the procedure is the reliance on the assumed and, so far as possible,
tested relation between the volume of construction and population growth in
the permit cities —afactor adequately covered by available data. It was the
absence of any such known relationship and of comprehensive data upon
which to apply even a conjecturally plausible one that made it impossible to
do much with the raw data on nonresidential construction.
The fourth type of difficulty originates in the possibility of extending the
estimates for total urban residential construction to cover construction in other
areas. Dr. Blank has made this extension by assuming that (1) population
growth in nonfarm rural areas can be considered a dominant factor in deter-
mining the volume of new housekeeping residential construction in those areas,
and (2) permit data for the smaller cities can be used to infer the changing
relation over time between new nonhousekeeping residential construction and
population growth in nonf arm rural areas. The decision to extend the estimates
to total nonf arm residential construction (rather than urban alone) necessarily
involved further questions —e.g.the allowance to be made for differences in
.2 •value per dwelling unit between rural and urban areas, and the adjustments
to be made, in calculating changes in rural nonfarm population, for the effects
of the shift of some nonurban areas into urban limits from one population
census date to another.
III
Dr. Blank's account of how the four types of difficulty were resolved 'is
revealing, both as to the many respects in which the situation described is
typical of a vast number of other economic time series, and as to the several
aspects that seem characteristic of residential construction alone. Like many
other widely used economic time series, the primary data used here originate
as by-products of administration. This means that there may be gaps in accu-
mulation and errors in reported magnitudes, and that the coverage, either in
space or over time, may be affected by differences in legislation and com-
pliance. Typical also is the accumulation of the primary records in scattered
and inaccessible depositories —tobe mobilized at some focal place only under
pressure of some nationwide problem or by some control agency aware of
their value. Quite typical also in the story is the dependence of scholars upon
the Government for the supply and treatment of the primary data. We all
recognize that, despite the ingenuity of Dr. Blank and his colleagues, little
could have been accomplished if the government had not used large resources
in the late 1930's to assemble the data, and if the Bureau of Labor Statistics
had not given great help in classifying the data prior to their tabulation.
Popular prejudice to the contrary, the bricks of statistical estimates cannot be
made out of straw alone: they require the clay of primary data and the molding
effort of intelligence and hard work.
The specific characteristics of residential construction emerge clearly in
Dr. Blank's account: the localized character of the industry and the corre-
sponding multitude and variety of jurisdictions covering the enforcement of
regulations and the collection of data; the large number of small producing
units in the field; the lack of standardization of the product and the substantial
quality changes over time; and the fact that not until recently did the field
become a matter of concern for federal agencies, either as to policy or as to
data collection. Similar obstacles to the securing of adequate, countrywide,
consistent series may exist in some other fields. For residential construction
they loom all the larger because of the need for a long statistical record to
permit the analysis of movements that underlie the long cyclical swings char-
acteristic of the industry.
The relevance of these difficulties in securing adequate data for an analysis
of real capital accumulation in this country need not be stressed. That much
effort and ingenuity had to be applied is obvious enough. It is also clear that
several arbitrary decisions had to be made; that the estimates should be used
only with proper attention to the assumptions that underlie their derivation;
3.and that the results are subject to improvement as the recent, more detailed
data accumulate.
While Dr. Blank's work results in the revision of some older estimates, it
would not have been possible without the contribution of past work. In a
sense, this indebtedness to the work of earlier investigators is the most typical
theme of the story, and is eloquently illustrated by the numerous references
in the paper to Wickens, Chawner, Long, Newman, the Bureau of Labor
Statistics, the Department of Commerce, and others. Earlier work was indis-
pensablethe attainment of whatever advance to knowledge the new esti-
mates represent; and they, in turn, should prove indispensable for further
advance. While clearly of importance for our inquiry into long-term trends
in real capital accumulation, they are even more useful as an additional stone
in the structure of growing knowledge in the field, and to that extent, of the
economy at large.
SIMON KUZNETS
.4

The Volume of Residential Construction, 1889-1950

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