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Comparison of estimated gross monthly rental on an $8,000 472-room unit financed under proposals for nonprofit and cooperative housing for

families of moderate income and with a 90-percent mortgage insured by F# A under sec. 608 on a privately owned (for profit) project at selected mortgage terms and interest rates

$84. 80
2 5.94

78.86

4 30.00
510. 67

40. 67

38. 19

14 27.86
15 3. 00

30. 86

17 7.33

3 Operating expenses-including all utilities and a reserve for replacement-of $24.40 per unit per month, assuming same experience as on PHA low-rent housing assisted under USHA Act.

These figures for estimated operating expenses represent actual operating experience on large-scale rental-housing projects insured by the FHA, adjusted to reflect what in the opinion of FHA represents a national average operating cost on a well-run project, including utilities used by the tenants.

Sec. 608 project at

Moderate-
income coop-
perative or
nonprofit

project

33 years, 33 years,

50 years, 50 years,

Current
terms

33 years,
3 percent

344 per

342 per

50 years,
3 percent

344 per

50 years, 342 per 4 percent

cent

cent

cent

cent

Income:

Gross dwelling income.
Less vacancy allowance

$64. 67
11.94

$90. 32
2 6. 32

$85. 80
26.01

$86.86
26. 08

$87. 96
2 6.16

$79.85
2 5. 59

$81.03
2 5. 67

$82. 26
2 5.76

Gross income expectancy

62.73

84.00

79. 79

80. 78

81.80

74. 26

75. 36

76.50

Operating expenses and taxes:

Operating expenses.
Real estate taxes.

3 24. 00
5 10.67

4 30.00
5 10. 67

4 30.00
3 10. 67

4 30.00
510.67

4 30.00
5 10. 67

4 30.00
310. 67

4 30.00
510.67

4 30.00
610. 67

Total.

35. 07

40.67

40.67

40.67

40.67

40.67

40. 67

40. 67

Cash available after operating expenses and taxes.

27. 66

43. 33

39.12

40.11

41.13

33. 59

34. 69

35.83

Debt service:

Interest and amortization. 32 percent on outstanding balance

0 25.83

7 33.00
15 3. 00

8 28. 79
15 3. 00

0 29.78
16 3. 00

10 30.80
15 3. 00

11 23. 26
15 3.00

12 24. 36
15 3. 00

13 25.50
15 3.00

Total debt service

25. 83

36.00

31. 79

32. 78

33. 80

26. 26

27.36

28. 50

Cash available after debt service.

16 1.83

17 7.33

17 7. 33

17 7.33

17 7.33

17 7. 33

17 7.33

17 7.33

1 Vacancy reserve of 3 percent used in view of cooperative feature and low rental rate.
· Vacancy allowance of 7 percent.

• Real-estate taxes at 1.6 percent annually on total cost.
* Loan at $8,000 for 50 years on a level annuity basis.
! Includes principal and interest payments on a $7,200 mortgage at 4 percent for 32 years, 7 months, on a level-annuity basis.
Includes principal and interest payments on $7,200 at 3 percent for 33 years on a level-annuity basis.
Includes principal and interest payments on $7,200 at 374 percent for 33 years on a level-annuity basis.
10 Includes principal and interest payments on $7,200 at 342 percent for 33 years on a level-annuity basis.
11 Includes principal and interest payments on $7,200 at 3 percent for 50 years on a level-annuity basis.
11 Includes principal and interest payments on $7,200 at 344 percent for 50 years on a level-annuity basis.
13 Includes principal and interest payments on $7,200 at 344 percent for 50 years on a level-annuity basis.
14 Includes principal and interest payments on $7,200 at 4 percent for 50 years on a level-annuity basis.
10 Mortgage-insurance premium of one-half of 1 percent of the outstanding balance.
16 Contingency reserve of 3 percent of taxes, operating expenses, and debt service.
17 Funds available for income tax, reserves, and dividends.

[graphic]

The allowance for real-estate taxes of 1.6 percent annually on the estimated total cost or appraised value was estimated on the same basis as the operating expenses. The actual taxes paid by 608 and 207 projects in the area covered in the operating expense estimate were reviewed, and a middle ground was chosen which resulted in an average relationship to estimated cost of 1.6 percent annually. The question of the level of taxes was considered in the same meeting and by the same staff members of the Federal Housing Administration, the Public Housing Administration, and the Office of the Administrator, Housing and Home Finance Agency that considered operating expenses. The level chosen appeared reasonable in view of the available experience, but is not typical of areas with either high or low levels of real-estate taxes. This percentage was set up in relation to estimated cost or appraised value and not assessed value, which is often a smaller amount than cost. Thus, if the assessed value of a project were 50 percent of estimated cost, the allowance for taxes would amount to 3.2 percent of assessed value.

The cash available after debt service was estimated by providing a 672 percent after the payment of operating expenses and real-estate taxes, which on an $8,000 unit would amount to $43.33 per month. Out of this amount, the debt service, which includes monthly payments on interest and principal and the mortgageinsurance premium of one-half of 1 percent on the outstanding balance of the loan, must be paid, leaving a balance of $7.33 per unit per month. From this balance the owning corporation must pay the Federal income tax of approximately 38 percent of net taxable income, any State or local income tax and corporate or business tax, the amount of which would vary between States and localities. Additionally, any reserves other than for replacements must be established out of these funds.

The estimating of amounts for the items that are to be paid from the $7.33 balance is difficult. For example, the amount of the Federal income-tax liability would increase each year as the interest paid on the outstanding balance decreased so that toward the end of the term of the mortgage loan a substantial proportion of this balance would be used for paying Federal income tax. Without assuming a definite location for a project, the amount of local or State income tax, if any, and of corporate and business taxes that have to be paid are indeterminate. The exact allocation of the balance of $7.33 to taxes, reserves, dividends, and mortgage prepayments does not appear feasible. However, the methodology of permitting à 642 percent return on the estimated cost of the operating expense and real taxes was that administratively adopted in conjunction with rent control shortly after the war.

The 3 percent allowance for contingencies used in estimating the rent level of a nonprofit or cooperative housing project was set up to provide funds for any reserves deemed desirable, a possible underestimation of operating expenses if such should prove to be the case, any State or local business tax which the organization might have to pay, and the small amount of income tax which a cooperative may have to pay. Îhree percent of operating expenses, real-estate taxes, and debt service was deemed reasonable for this purpose. If the amount of the contingency allowance is larger than required, the excess may be returned to the occupants of the units as rent rebates, and if it is too small the rental rate would have to be increased.

Senator SPARKMAN. Are there any further questions?
Senator DOUGLAS. No; no further questions.

Senator MAYBANK. I notice this book has a great deal of information in it.

Mr. FOLEY. That is a report of the Department of Labor. It is one of a series of at least two that I have seen which is very informative.

Senator MAYBANK. Yes; I wouldn't ask permission to put the whole thing in the record, but I might suggest that the staff look this over and whatever is directly affecting the questions I have asked or Senator Douglas has asked, that a résumé be made of it and put in the record.

(The information referred to follows:)

NONPROFIT HOUSING PROJECTS IN THE UNITED STATES (Based on report prepared by the Bureau of Labor Statistics Bulletin No. 896,

March 1947)

INTRODUCTION

The cooperative housing groups in the United States have been established to take advantage of the economic and social benefits from group action. Their goal is to reduce costs for their members by producing or purchasing housing accommodations and by maintaining the projects. Cooperative housing has a further objective as a demonstration that men working together can build about them a better place to live.

The savings from cooperative action arise from (1) the nonprofit nature of cooperative or mutual enterprise, (2) the elimination of unnecessary expenses or waste, (3) good planning, and (4) in some cases by increasing the owner's opportunity to furnish a part of the labor or materials required for his dwelling. In the permanent operation and maintenance of some or all of the properties, housing cooperatives reduce costs by lower vacancy turn-over and by less property deterioration than under the usual tenancy.

Prior to World War II, most of the cooperative housing in the ited States was limited to apartment houses which had been built or purchased by cooperative associations. There were also some cooperative developments which provided single-family dwellings. It was not until after World War II, with the extreme housing shortage, that a new wave of housing cooperatives developed. Encouraged by the advantages resulting from cooperative effort, many veteran and labor groups built housing ranging from a few units to entire projects including stores and churches. Some purchased units from the Government and cooperatively own and manage the projects; still others are in the planning stages or are no longer active.

This report discusses the experience of selected housing cooperative projects which are indicative of the experiences of other housing cooperative groups. Two of the projects considered are examples of all-the-way cooperative housing, the cooperative being responsible for all the steps through completion of the dwellings and retaining permanent title to the property. One of the projects illustrates those cooperative groups which do not participate in the preconstruction or construction stages but take over a finished project. There are also three projects in which self-help is the significant feature under which the members do a considerable part of the construction labor themselves and receive title to their properties on completion of the project or of payment.

The remaining projects illustrate several other types of cooperative action—the development of a new community complete with streets and public utilities; varying degrees of participation by labor organizations; a building guild experiment to provide annual wages to building-trade workers as well as houses for the members; and certain rather uncommon financing methods.

SPONSORSHIP OF PROJECTS

The initiative for starting a housing cooperative may come from various quarters. The projects discussed in this report were carried on under various types of sponsorship. Three were sponsored by one or more labor organizations. In one of the projects the sponsor was a clothing-trade union and in two a textile union. Sponsors of other projects included a university employees' association, a city housing commission, a religious service organization, a private citizen, a United States Senator, and a foundation. The other projects discussed in the report were without outside sponsorship.

MEMBERSHIP CONSIDERATIONS

Membership rights

Generally, membership in a cooperative is open to all those who are interested in securing housing on a cooperative basis. A few groups have admitted only members of the sponsoring association. Only after the project is completed and the dwelling units are occupied is membership restricted to the member owners. This action is taken because nonresidents are not interested in becoming members of an association which does not provide them with benefits and the residents themselves would probably not want to have nonresident participation in running their affairs.

In associations adhering strictly to the cooperative principle, the member does not secure title to an individual dwelling but receives stock in the association or a certificate of indebtedness. A withdrawing member turns his stock back to the association either at par or in an amount arrived at by appraisal which takes into consideration depreciation and current market conditions. The most use of the lease-stock arrangement has been made in proiects of the apartment house or multifamily type because of the difficulty of giving title to a single apartment or dwelling unit. The experience of the Amalgamated group covering over 20 years is indicative of the success of the lease-stock arrangement. The lease arrangement is also a feature of the mutual plans at Dayton, Ohio, and South Bend, Ind.

The majority of the projects have an agreement between the housing association and the member whereby there is a limitation on the member's right to dispose of the dwelling occupied by him. In most instances a member desiring to withdraw and dispose of his holdings is required to give the association an opportunity to redeem his equity. If it fails to do so within a specified time, he is at liberty to transfer it to a purchaser acceptable to the association.

In some cases the redemption provision was a dead letter because the association had no funds with which to redeem the member's equity. In others the association had given the member title to his dwelling and could not enforce the withdrawal provisions. For example, in the St. Paul project giving of title led to some houses being sold three or four times, each time at a higher figure. The cooperative spirit in which the homes were undertaken disappeared. At Front Royal, Va., almost before the houses were completed, one dwelling had been sold by a member at a $2,000 profit. Among the described associations in which individual title rests with the member, Crestwood, Wis., appears to be most successful in retaining its original group intact. Several houses had been sold but none at disproportionate prices. Members' financial interest

There is considerable variation in the down payment required in cooperative projects. In the Amalgamated buildings, where the development cost averaged about $1,500 per room, a member was required to pay $500 a room. The down payment in the East River Cooperative Apartments is about $500 or 20 percent. In most of the projects discussed in this report, each member is required to have an initial equity amounting to about 10 percent.

To provide a reserve against disasters, some of the cooperative groups have an arrangement under which the individual members pay off their indebtedness at a faster rate than the association itself, thus building up reserves which can be drawn when needed. Various forms of insurance have also been used to protect the participating families and incidentally the whole project.

FINANCING

Funds for the financing of cooperative housing are secured from members' down payments, the sale of stock and debentures, and the contracting of mortgage loans from insurance companies, banks, and other financial institutions. Some of the cooperatives were financed from union funds while others received aid from the Federal, State, and local governments.

Several of the projects discussed in this report illustrate financial participation by public authorities. In 1934 a FPWA loan was made to one of the projects. Another example of Government participation is the mutual home-ownership projects. All the steps of land acquisition, community lay-out, and construction were first carried out by the Federal Government as war housing, using funds provided by congressional appropriations. The cooperatives entered the picture only at the end of World War II when the Government began to dispose of war housing. No subsidy was involved as "economic” rents were paid by the residents during Federal operation and the property was purchased by the cooperatives at sums fixed by appraisers as representing its current valy

City assistance in various forms is involved in one of the projects constructed under the New York State Redevelopment Companies Act. The act offers organizations which meet its requirements of rentals not to exceed specified amounts and limited return on investment the advantages of land prices reduced through condemnation and the exemption of all improvements from taxes for a period of 25 years.

Other examples of Government financing include a project which received loans from a State agency which used Federal relief funds and another project financed by city and county participation.

COOPERATIVE ACCOMPLISHMENTS

Among the accomplishments of cooperative action in the projects here described were the following, each of which resulted in substantial savings for the membership:

1. Land acquisition, provision of public utilities, and complete community planning.

2. Integrated architectural and contractual services.
3. Combined title insurance, and use of a master title to land.
4. Bulk purchase of materials and furniture and/or equipment.

5. House construction on contract or by exchange of labor. This saving cannot be evaluated but it is known to be great.

6. Permanent operation and maintenance of some or all of the property.

7. Tax savings, made possible by group operation under urban redevelopment acts or under limited-dividend statutes, resulting in a saving of $30,000 per year in one project.

8. Interest savings by group negotiation, resulting in savings of $97,865 in one case, $900 per year in another, and over $2,700 per year in a third.

DIFFICULTIES FACED BY HOUSING COOPERATIVES Undoubtedly one of the major needs of the cooperatives and one that most of them feel is that of competence in the technical matters of law (incorporating the association, searching titles, drawing up and closing land-purchase and buildingconstruction contracts, etc.), selection of qualified architects and contractors as well as accounting and possibly engineering services. Such specialized knowledge should be available to housing cooperatives throughout the country.

Cooperatives also depend too often upon the continued solvency of all their members to meet fixed costs. Some of the housing cooperatives are so constituted that if a few members are unable to meet the fixed charges, the entire project may become insolvent.

Another weakness is that housing cooperatives are usually initiated during a period of great housing shortage and high costs. As a result, there are continuously high operating charges and inflated debt structures. If the wage and price level again declines as in the 1930's, the cooperatives may have difficulties holding their membership.

There is also the problem of satisfactory financing. There has been local opposition to cooperatives and fears by mortgage companies that cooperatives are poor risk factors.

If the cooperatives have proven themselves as in the case of Amalgamated, the mortgage companies have been interested in financing them.

ALL-THE-WAY COOPERATIVE HOUSING

Amalgamated housing projects, New York City

Probably the best example of cooperative housing in the United States is the Amalgamated Clothing Workers' projects in New York City. The cooperative housing idea was first considered at the 1924 convention of the union, but no definite action was taken until April of 1925. Prior to the convention, a group in the union organized the ACW Corp. to provide themselves with cooperative housing. This organization was taken over by the Amalgamated Clothing Workers which then acted as the agent for construction. Seven building projects were undertaken: Three by the Amalgamated Housing Corp., two by the_AH Consumers Society, Inc., one by Amalgamated Dwellings, Inc., and one by East River Cooperative Apartments. There was a total of 1,720 apartments with 6,648 rooms.

Union funds were not used to finance the construction of the projects. At the beginning, the union acted as sponsor and guarantor and several organizations composed of union members or affiliated with the union advanced temporary loans to enable the project to get under way.

Financing.–Both the Amalgamated Housing Corp. and Amalgamated Dwellings, Inc., are limited-dividend companies organized under New York State Housing Act. A. H. Consumers Society, Inc., is organized under the regular corporation law. The buildings constructed by the first two organizations enjoy a 20-year exemption (on buildings, not land). In return, their rental is limited to $11 per room in the Bronx and $12.50 in Manhattan. Under the original limited dividend act, the granting of tax exemption was mandatory if the project was approved by the New York State Board of Housing. Subsequently, the law was

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