MIDDLE-INCOME HOUSING

MONDAY, JANUARY 16, 1950

UNITED STATES SENATE,

SUBCOMMITTEE ON HOUSING AND RENTS OF

THE COMMITTEE ON BANKING AND CURRENCY,

Washington, D. C. The subcommittee met, pursuant to recess, at 10 a. m., in room 301, Senate Office Building, Senator John J. Sparkman presiding.

Present: Senators Sparkman, Maybank, Douglas, Long, Flanders, and Bricker.

Senator SPARKMAN. The committee will come to order, please. Our first witness is Mr. Murray Lincoln. We are glad to have you with us, Mr. Lincoln. Do you have a prepared statement? Mr. LINCOLN. Yes, sir.

Senator SPARKMAN. Will you identify yourself for the record, and then proceed in your own way?

STATEMENT OF MURRAY D. LINCOLN, PRESIDENT OF COOPERATIVE LEAGUE OF THE UNITED STATES OF AMERICA

Mr. LINCOLN. My name is Murray D. Lincoln, of Columbus, Ohio. I am president of the Cooperative League of the United States of America and am appearing here today for the Cooperative League and for the National Cooperative Mutual Housing Association.

I am also president of three insurance companies, and because the problem of investment and security for the funds of insurance companies and other sources of private capital which are invited to participate in this program under the Maybank amendments are of concern to this committee, I would like to speak to that subject first. These companies are the Farm Bureau Mutual Automobile Insurance Co., the Farm Bureau Mutual Fire Insurance Co., and the Farm Bureau Life Insurance Co.

These companies serve over a million policyholders in the eastern United States. They are typified in the insurance industry by some of our competitors as being among the fastest growing insurance companies in America.

The Farm Bureau Mutual Automobile Insurance Co. had its beginning in 1926 with $10,000 capital which was invested by the farmers of Ohio in a project which they had no idea would succeed. Today our total insurance assets are $75,000,000 with surpluses of $15,000,000.

I only mention in detail these statistics because they point up our interest in the discussion before this committee.

As an insurance company executive I am vitally concerned in the possible use of our company funds for investment in cooperative hous

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ing ventures. We must be certain, as near as an investment organization can be certain, that our investment funds are protected. If we invest any money in a cooperative business venture it must have as great a chance for success as any other type of business venture.

There are other reasons why we are interested in the cooperative housing bill and its amendments, gentlemen. Someone has pointed out in previous housing testimony that there are some 8,000,000 persons in the middle income group who are a potential market for homes. Some may already have homes but their needs are subject to change and new building devices and materials may create new demands in this group. This is a vast potential market for business.

Senator Bricker of this committee very graciously met recently with members of our staff to tell us of his observations as to what happens in the Scandinavian countries in terms of social progress when a potential housing demand is met. We profited by the Senator's observations and evaluations. I am certain too that the Senator realizes the interest of our Insurance companies in these amendments, to be one of using our insurance funds for the benefit of those people who entrust them to our business judgment. As Senator Bricker likely knows the roots of our existence are deep within the cooperative way of doing business. As I mentioned a little earlier, the farmers of Ohio joined together to provide the capital necessary to form our insurance companies. These farmers had also joined together in cooperatives to sell agricultural supplies to themselves in order to reduce their cost of doing business. They were merely applying the same principles of economics to the costs of their insurance. And today both farmers and city people are insured and benefited by these companies. Also, these policyholders represent a bloc of our middle income population who must have their housing needs cared for. What better way to help them is there than to use some of their funds for housing?

I may also add that our cooperative business approached a total of insurance in the cooperative business of about $100,000,000 a year. We have successfully met competition on fertilizer, feed, insurance, and credit.

We have loaned money, I think, over the last 12 years at a better rate of return and interest than any of the banking systems have done, so when we say we can do certain things as we want to point out, I think it is backed up by ample experience.

Senator SPARKMAN. Are your operations restricted in the State of Ohio?

Mr. LINCOLN. Only in our Farm Bureau cooperatives in the rest of the 48 States, including Senator Flanders' State of Vermont.

These are our interests. Unfortunately, however, the funds which are available from our business institutions to help solve the housing problem cooperatively are a pittance compared to those for which there is a need. While we believe that this is an urgent need and that the potential demand for this legislation is great, we are asking the Government to provide nothing which we as a free-enterprise business institution would not ourselves do if we were sufficiently large to operate on a Nation-wide scale.

I am happy to be able to report to this committee on a very interesting and important conference held here in Washington, December 16. The meeting was called to work out a mutual agreement on policy on cooperative housing. Participating in the conference were repre

sentatives of the major veterans' groups, labor organizations, cooperatives, housing organizations and other public interest groups as well as about 15 officials of existing cooperative housing projects. Skeptics said we could never get together-but we did. We spent a full day without any reporters or Government officials around. We had some arguments. But when the day was finished we were able to present to the Housing and Home Finance Agency and the staff of the Senate Banking and Currency Committee nine basic points on which there was unanimous agreement.

The conference was in agreement that every effort should be made to bring private capital into the development of cooperative housing and that any legislation presented should include provisions under which the Government might encourage the enlisting of private capital by the guarantee of income debentures, the creation of a mortgage association for housing cooperatives or some other method. There was, however, agreement that the bringing in of private capital should not be a condition precedent to granting the construction loan or the permanent financing.

We feel that the Maybank amendment does this in admirable fashion.

The conference agreed that the interest rate to the cooperatives for both construction and long-term financing should not exceed the going Federal rate, plus one-half of 1 percent. By this formula the costs of financing can be brought down to a point where it is possible to build housing that middle income families can afford-and yet not require any subsidy from the Government. This is a formula which will make middle income housing pay its own way.

A third point of agreement by all these organizations of veterans, labor, cooperatives and housing organizations was that the amortization period should not exceed 60 years. Your Senate subcommittee came back from Scandinavia reporting that 100-year amortization is common there on well built housing. We do not go that far. We are happy to see that the Maybank amendments aim for 50 years.

The American Federation of Labor in a statement presented to this committee in July of 1949 points out that—

the change from a 35-year 42-percent loan to a 60-year 3-percent represents a saving of $17.40 a month on a $10,000 loan.

On a 50-year loan this saving is still $15.20 per month. That alone is a very important factor in putting decent housing within reach of moderate-income families.

The conference endorsed as a fourth fundamental the need for 100 percent loans to cover development cost, but advocated that within 5 years the cooperative association shall have at least a 5-percent equity in addition to the normal retirement of the mortgage.

The Maybank amendments accept the same principle but are a bit more conservative than we were. I, personally, like the more conservative approach. This provides, through subscription to stock of the mortgage association, for a 21⁄2-percent down payment before the loan is granted and a 72-percent equity payment, in addition to regular mortgage charges, in the first 20 years.

A fifth point of unanimous agreement was the need for a new administrative agency. Here we disagree fundamentally with the Maybank amendments. We feel that there is a great need for such a structure

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which would, of course, be a constitutent unit in the Housing and Home Finance Agency, the HHFA. But it would be on a level with the Federal Housing Administration, FHA, and the Public Housing Administration, PHA. It should be sympathetic to and devoted only to the promotion and financing of cooperative and nonprofit housing. Its administrative chief should be appointed by the President with the concurrence of the Senate.

I do not want to trouble you with details on that point. On the positive side it should be pointed out the great success of the Rural Electrification Administration with a similar organizational set-up. On the negative side is the stark, heart-rending failure of a cooperative program thrown in with FHA as it has been for the last few years. Jerry Voorhis, executive secretary of the National Cooperative Mutual Housing Association, placed in the record of the House hearings last year a detailed record of the treatment cooperative projects suffered at the hands of a preoccupied or hostile set of officials in FHA. The other points of agreement which there is just time to enumerate

are:

The need for great care to prevent speculators and profiteers from taking over the program.

The need for adequate measures to see that the projects are within the reach of middle income families but that no arbitrary limitation of income be imposed which would create class lines and deprive the projects of the leadership essential to its success.

The right of the cooperative housing association to repurchase the members' shares where it is necessary to withdraw from the project. This also helps prevent speculation.

And finally and of great importance-provision for both individual and group ownership. The principle of home ownership is an essential to an American free economy.

These have been technical points. Dave Krooth of the National Housing Conference, who is really an expert on these matters, is to be a witness and can answer your questions on these better than I can. Now we turn to something I really like to talk about.

One of the best examples of how cooperative action brought abundance to farmers with the help-but not control-of Government, is in our electrical development, familiarly known as REA's. Prior to 1935, less than 15 percent of the farmers in the Nation had electricity-in Ohio this figure was about 18 percent.

In 1935, to help electrify the farms and also to make work, the Government made loans to cooperatives available at the cost of money to the Government.

At that time farmers in the State of Ohio were paying private companies a connection charge to bring the lines from the road to the farm buildings.

The private companies charged any fee they could get away with— and in addition-9 cents a kilowatt-hour for the power. Under the REA plan-in addition to lowering the cost of money to the people, connection charges were eliminated and the power rate was fixed at 4%1⁄2 cents per kilowatt-hour. Senator Douglas told a conference in Columbus recently that this project may actually result in a small profit to the Government even at this low interest rate.

His statement would certainly seem to answer the detractors of these amendments we are discussing when they say that administra

tive costs are not sufficiently cared for. At the present time more than 80 percent of the farmers in the Nation are electrified and in Ohio we can point to 97.6 percent as being electrified. This has opened up vast new markets for electrical supplies which farmers have purchased-just as a housing program on a similar basis would create demand for billions of dollars of building supplies and house furnishings.

In addition to that, I don't think, gentlemen, you can ever properly appraise the value of this program, because it created a vast potential market for all sorts of appliances and everything else that I do not think anybody has ever been able to adequatley appraise.

The remarkable thing about this program in retrospect, gentlemen, is that our detractors then said that private business would take care of the problem and that if we proceeded at the rate we anticipated that there would be no demand for the current.

Quite to the contrary, I have never heard of a single old-line power company going out of business, and in fact we do hear of power shortages in various parts of the country. It seems to me that the REA as in housing gives a clear cut example of how those in leadership position constantly underestimate people's capacity to consume when they are able to do so.

Under REA, which was a separate constituent administrative agency, technical assistances, planning, and supervision were provided which contributed materially to the success of the program. It seems to me that the present legisiation is sound in using this experience so as to provide for such assistance in a cooperative housing program.

We should recognize too that at the time REA was created there were in existence less than 50 electric cooperatives. At present there are about 100 housing cooperatives and the fund of experience in construction, management, and maintenance is comparably much greater. Even with this fund of experience, however, the provision for technical assistance would contribute greatly to the success of the program.

If it is necessary to cite precedent for the creation of the National Mortgage Association for Housing Cooperatives-let me point to the Federal land banks, production credit associations, and particularly to the banks for cooperatives which have done so much for American agriculture. You gentlemen are very familiar with all those institutions and their operation, so I will not go into detail.

The experience of cooperatives in meeting the needs of the people is ample evidence that this proposal does not plunge us into untried or unsuccessful fields. Nor would I say socialism, as has been said to this committee.

The majority of American farmers are members of cooperatives and rely on them to cut costs and increase income, increasing the welfare-if I may use the word-of the American farm family.

If there were time I could give you an account of the great success of our farm supply cooperatives, our marketing co-ops, rural electric cooperatives, credit cooperatives, our insurance organizations and other forms of cooperative free enterprise.

Your subcommittee, composed of Senators Sparkman and Flanders, my own Senator Bricker and Senator Freer have just recently returned from a study of cooperative housing in the Scandinavian countries and will give you a more complete and up-to-date report than I can. My