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"(i) 'State shall mean the several States, the District of Columbia, and the Territories, dependencies, and possessions of the United States. “(j) 'Administrator' shall mean the Housing and Home Finance Administrator.

GOVERNMENT CORPORATION CONTROL ACT “Sec. 316. Section 201 of the Government Corporation Control Act is hereby amended by striking out the words 'and (4) Federal Deposit Insurance Corporation' and inserting in lieu thereof '(4) Federal Deposit Insurance Corporation, and (5) National Mortgage Corporation for Housing Cooperatives'.”

Senator SPARKMAN. Our first witness is Mr. Raymond M. Foley, Housing and Home Finance Administrator. Mr. Foley, will you come around, please?

We are glad to have you with us, Mr. Foley.

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Mr. FOLEY. Thank you, Senator.

I have a prepared statement that should not take too long, and if you permit I will read it through; and then Acting Commissioner Greene of the FHA has a brief statement which you might also want to have presented in advance of any questions.

Mr. Chairman and members of the subcommittee, I welcome this opportunity to discuss with you today the proposed new housing legislation which is before your subcommittee for consideration. As you know, this legislation is in the form of proposed amendments to S. 2246, Senator Sparkman's bill on which your subcommittee held hearings last summer, and which was favorably reported to the Senate on August 11. My comments this morning are directed to the pending amendments to S. 2246. Of these, the first and most important is, in effect, a substitute for the present title III of S. 2246.

In our opinion, it offers a much improved and more workable system for encouraging the production and financing of additional housing within the means of middle-income families through cooperative and nonprofit corporations.

The other pending amendments relate to the FHA. One would provide for a sound and workable permanent mortgage insurance program for rental properties to take the place of the emergency section 608 program. We do not believe the latter should be continued beyond March 1, 1950, its presently scheduled expiration date. The other would place the Title I modernization, repair and home improvement program of the Federal Housing Administration on a sound permanent basis.

Now, as to the middle-income housing proposals and the Cooperative Housing Act. As members of the subcommittee will recall, when I testified before you during the hearings on S. 2246 last summer, I filed a detailed statement which I had previously presented to the House Committee on July 25, 1949, when I was testifying on H. R. 5631, Representative Spence's companion bill to S. 2246. In that statement I set forth our views on title III of the bill which would have established a new program of direct Federal lending to cooperative-ownership and other private nonprofit housing corporations for the construction of housing for middle-income families.

Senator MAYBANK. May I interrupt for a minute there?

I want to get before the committee another bill which I understand deals with subject matter included in S. 2246. It was called to my attention by Senator Anderson, who wrote me under date of January 9. I haven't read your prepared statement fully, but I understand you are not commenting on it in this statement. Would you comment on it at the end of this testimony so that we may have the bill before us, if the Chairman doesn't object?

Senator SPARKMAN. Yes.

Senator MAYBANK. I will put this bill in along with S. 2246 so it might be handled at this time.

Senator SPARKMAN. Certainly.
(The bill referred to, S. 2570, follows:)

[S. 2570, 81st Cong., 1st sess.) A BILL To provide for the conveyance of certain property in the village of Deming, New Mexico, to such

village Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That the Housing and Home Finance Administrator is authorized and directed, upon payment for the land as herein provided, to convey to the village of Deming, Luna County, New Mexico, all right, title, and interest of the United States in and to the land, and improvements thereon, constituting that part of the Florida Vista public-housing project designated as project numbered NM-29052, and located in the said village of Deming.

Sec. 2. The village of Deming shall as a condition to such conveyance pay to the United States an amount substantially equal to the cost to the United States of the land (including survey, title examination, and other similar expenses incident to acquisition but excluding the cost or value of all improvements thereto by the United States other than extraordinary fill).

Mr. FOLEY. I indicated to the subcommittee at that time my firm conviction that the development of a sound and workable method for further meeting the housing needs of middle-income families would clearly be desirable and in the public interest. Primarily because title III relied entirely on the use of direct Federal loans to accomplish its desirable objectives, I suggested to your subcommittee that there was a need for further careful study and analysis of the means of reaching those objectives.

In so stating, I had specifically in mind the provisions of the declaration of national housing policy contained in the Housing Act of 1949— that "governmental assistance shall be utilized where feasible to enable private enterprise to serve more of the total need.” It was my belief that this policy declaration would be better implemented if it were possible to carry out the contemplated program through the investment of private capital, thus eliminating the necessity for direct Federal loans.

Since then the Housing Agency and several of the members of your subcommittee have given a great deal of careful thought and study to this matter. Out of that study and out of the many consultations which we have had, both within and without the Government, we have developed the proposal which is before you today. We think it represents a sound and workable approach, we are glad to be able to recommend it strongly to you. I am particularly pleased to be able to advise you that the enactment of this legislation would be in accord with the program of the President.

This proposal is designed, in fact, to carry out the President's recommendations in his state of the Union message when he said:

To aid middle-income families, I recommend that the Congress enact new legislation authorizing a vigorous program to help cooperatives and other nonprofit groups build housing which these families, i. e., middle-income families, can afford.

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For the past several years, the Government has been concentrating much of its efforts in the housing field to stimulating greater activity on the part of private enterprise in serving the needs of the middleincome market. Today, the necessity for greater and more generally effective activity in this area is more important than ever. sults from the fact that high prices and costs of housing have tended to price many middle-income families out of the market at the same time that the housing shortage has seriously limited the supply of adequate existing housing available to them at prices they can afford. This has not affected all middle-income families equally, it is true. Many such families have been able to satisfy their housing needs. Nonetheless, some middle-income families in most areas have been priced out of the market, and many such families have run into difficulty in high-cost areas. The problem has been most acute for families who, for economic or other reasons, should rent rather than buy.

The provisions of title I of S. 2246 as reported by the Senate Banking and Currency Committee are designed particularly to increase the effectiveness of the Federal Government's aids and incentives to private enterprise to expand its operations in the middle-income housing market. For the most part, these proposals would carry further in practice the policy, now firmly established in FHA legislation, of directing the most liberal mortgage-insurance aids to housing in the lower rent and sales brackets.

However, as I am confident your subcommittee realizes, not withstanding our present and other proposed additional measures designed to expand the effective area of operations for private housing, it is clear that there will remain a considerable segment of the middleincome housing market which will not be everywhere served by the current production of private industry, or by the existing inventory of older housing. The program which we are now recommending is designed to help private enterprise meet those further needs.

It is important that no single proposal should be regarded as the total program for encouraging the production of housing for middleincome families. On the contrary, each should be properly viewed in the context of the total—as an added factor to supplement existing activities and other Administration proposals already pending before the Congress or included in these amendments.

Before I discuss the principal features of the new middle-income proposal, I should like to define broadly the income range of these families and their position in the housing market in terms of the rental equivalent which they can afford to pay.

On the basis of hitherto unpublished data collected by the Bureau of the Census for the year 1948, we are able to present a much more up to date picture of what is meant by the phrase "middle-income” than was possible last spring or summer. For the purposes of this discussion, the middle-income housing market for the country as a whole can be defined as comprising those urban families of two or more persons whose cash incomes were between $2,700 or $2,800 and $4,400 a year. Approximately one-third of the urban families in this country had annual incomes within that range during 1948, according to the latest census study.

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Senator Long. You say approximately one-third of the families had incomes-do I understand one-third had incomes over that?

Mr. FOLEY. Yes; as the table will make clear.

Senator Douglas. You are speaking of urban families; not of families of the country as a whole?

Mr. FOLEY. That is correct, so far as the figures of $2,800 to $4,400, which I just gave as representative of the country as a whole. The table furnished to you, however, gives further break-downs, which I should like to discuss briefly.

We have supplied to your subcommittee a compilation based on this Census study which gives a good picture of 1948 income distribution. I should like particularly to call attention to the last five columns of the table which relate incomes to the size of the communities where these families live. It will be noted that in cities with a population of one million or more, one third of the families had incomes within the range of $3,135 to $4,841. In smaller communities, the income range for the middle third of the population dropped somewhat, until in communities of 2,500 to 10,000 population the range is $2,451 to $3,929.

(The table referred to will be found on p. 37.)

Mr. FOLEY. Having defined the middle-income housing market for the country as a whole, in these terms, let us examine what rent or rental equivalent families within these income ranges can afford to pay. On the basis of the usually accepted rule of thumb that monthly expenditures for shelter should not exceed 20 percent of income, housing for middle-income families should be available at shelter rents ranging from $45 per month to $73 per month, or at a median shelter rent of approximately $59 per month.

I should like to make perfectly clear to your subcommittee what is included in our definition of "shelter rent." For this purpose we have defined shelter rent as including the total amount which must be paid by the tenant, exclusive of utilities. In the estimated rent and cost schedules which I will summarize later for you, we have estimated the cost of utilities at $8.50 per month. In effect, then, gross rent, which can be defined as the total amount a tenant occupant must pay on the median basis we are discussing, would be about $59 plus $8.50, or $67.50.

One useful guide in making analyses of this sort can be found in the FHA statistics on mortgage characteristics analyzed on the basis of mortgagors' income. For example, during 1948 mortgagors with an effective monthly income of $250 to $300 purchasing new homes were undertaking a total monthly housing expense of $70.66. "Monthly housing expense" for this purpose includes mortgage payments, maintenance cost, and operating expenses. The average mortgagor in this income group had an effective monthly income of $262.44, so that his monthly housing expense averaged almost 28 percent of monthly income. Statistics from this particular group of FHA mortgagors have been selected because they fall roughly into the middle-income group which we are discussing this morning.

Under the terms of the amendment dealing with cooperatives and nonprofit organizations which we have recommended, we have reason to believe that it will be possible to obtain rentals closely approximat

range which an analysis of current incomes shows to be necessary. It is our expectation, in fact, that rents can be reduced approxi

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mately 25 percent below rents currently being obtained in FHA section 608 rental projects.

Admittedly, the figures on "monthly housing expense" on sales housing, because they include equity payments, are not strictly comparable to rent charges. Nevertheless, the fixed amounts which must be paid each month, as a percentage of income, do give a good indication of the relative ability of middle-income families to pay for their housing. Since, particularly for middle-income families, it is the monthly cost which determines the type of housing which such families can afford, the comparison is significant.

Like the present title III of S. 2246, the proposed amendment relies on cooperative and nonprofit organizations as a means through which additional housing for middle-income families can be obtained. I should, therefore, like to make perfectly clear why I believe that organizations of this type hold special promise for added progress toward attaining our total housing objective in the middle-income field, and thus warrant the encouragement and assistance which the proposed amendment would provide.

The cooperative principle is as old as America. It has proved tremendously successful in many fields. The various agricultural cooperatives in the production and marketing field are, I suppose, the finest example we have of the desirable results which can be obtained through cooperative organization.

Our basic problem is, after all, one of further cost reductions, in construction, financing, or maintenance, or, preferably, by a combination of economies in all three. Cooperative housing and nonprofit housing offer great promise of achieving such cost reductions because of savings immediately obtainable in operation and maintenance, and potentially, in construction costs. Further, the amendment provides an economical financing system, since all economies obtained by cooperatives or nonprofit organizations are automatically translated directly into reduced charges to the consumer.

There are many reasons which are frequently cited as to why the development of housing cooperatives has not been more widespread. Certainly one of the principal obstacles, on which almost all authorities agree, is the extreme difficulty which groups of would-be housing cooperators have ordinarily found in obtaining the necessary financing of their operations. Another is the lack of accumulated experience, such as exists in other areas of housing, through which groups of prospective cooperators would be assisted and guided in proper organization. The organization of a cooperative for the purpose of producing or owning and managing residential property is admittedly not easy, but the successful ventures which have been made and the success of the cooperative principle in other fields make me optimistic as to the possibilities for accomplishing true total housing cost reductions through cooperative organization and have convinced me that the time is ripe for the initiation of a vigorous program to show that real progress can here be made through the application of the cooperative principle to housing.

It is noteworthy, from a study of various cooperative housing undertakings in the country, that the difficulties I have mentioned have often resulted in enterprises finally only partially using and benefiting from the cooperative principle.

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