Mr. FOLEY. I think I suggested this morning, if you took an $8,000 figure as the amount, it would be 250,000 units.

Senator CAIN. Except for very general language, as I read it in the bill, about avoiding extravagant design, are there limitations on the maximum amount of loan that can be made per family unit?

Mr. FOLEY. The limitations, while not stated in dollars in the bill, are pretty clearly set forth in the requirements. One that the cooperative association participating must be made up substantially of families that fall within the middle income group. On the other hand, the project to be approved would have to be one that could offer rents, or the equivalent rents classification, within the means of such families, so that your costs would be definitely limited by such factors.

Senator CAIN. I may have misunderstood. I understood you to say that families living in a cooperative substantially must be those possessed of middle incomes. What are the exceptions?

Mr. FOLEY. The language of the amendment does not say that every member of such an association must fall within them, and in the experience of the organization of cooperatives there seems to be a basis for that; because much will depend, in the success of such an operation, on its having trained leadership within itself, that leadership necessarily being a matter of personality, experience, background, and so forth.

Senator CAIN. I think that is interesting for us to know; and important. You are suggesting that, in more than a general way, most of the families will be those possessed of middle incomes, but for reasons

Mr. FOLEY. Reasons inherent in the effort to get a successful operation

Senator CAIN. There will be exceptions. Then we differ in this measure from our concept of low rent, where when a person's income exceeds a certain figure during his tenancy, he is required to leave. Mr. FOLEY. Yes.

Senator CAIN. But in your cooperative, there will be no such restriction.

Mr. FOLEY. There will be no such restriction, as set up in the bill. Nor do I think that it would be a practical provision.

Senator CAIN. You may be very right, sir. I just don't know. For the record, it is a fact, Mr. Foley, that in projects assisted under housing there are definite limits. We are all in agreement on that? Mr. FOLEY. Yes.

Senator CAIN. And you think that is not a proper thing—to suggest such maximum limit here?

Mr. FOLEY. I think the effect is obtained by the provisions which are cited.

Senator CAIN. I venture the guess that many a question will be raised in the absence of that limitation in years to come.

Mr. FOLEY. Neither do I say that consideration of the possibility should be foreclosed at this time.

Senator CAIN. Yes.

Mr. Foley, I think you have often and consistently and very commendably, from my point of view, emphasized in your public speeches the fact that reduction in construction costs is the core of the so-called housing problem.

Would you tell me what there is in this bill that is going to reduce housing costs?

Mr. FOLEY. You mean the actual construction costs of a building? Senator CAIN. Yes.

Mr. FOLEY. Which, of course, will generally apply whether cooperative or otherwise. You will note in my statement this morning that I referred to the demonstrated possibilities of savings in operations and maintenance, which has been gone into this afternoon, and to the potential savings in construction costs. We have not in this statement attempted to enter a factor of savings in rent based on a claimed saving in construction because of cooperative features. Whether or not in the course of successful experience with cooperative operation that might follow, I am not able to say, but I would suggest that there is such possibility. But it is not calculated here.

As to your question as to what in this would produce lower construction costs, no matter by whom construction work was done, I think there is no magic formula in this bill to do that, except that again there is the same sort of thing that we are trying to provide. For instance, in our section 207 amendments there is a strong incentive on the part of those who are going to organize the cooperative and live in it and have to pay this mortgage, to get the most they can for their money.

Another incentive on the part of contractors and others, who in the early stages at least, will do the building, to be able to provide the kind of a project that will be acceptable under the regulations set forth here, which certainly will require an incentive, furnish an incentive to try to drive their costs down.

That is a generalized answer, but I think it is a realistic one.

Senator CAIN. Thank you. I am curious about this as an American. I wonder whether any building will take place under the FHA section 203 if substantial financing is to be made available to groups organized under this bill. We are talking about the middle-income group. Why should a single individual, desirous of having a home for himself and family, consider the rather liberal provisions of FHA section 203 when right across the street, if he wants to live in a group society, he can get much more substantial benefits?

I am wondering what effect cooperative housing will have on a broad scale on individual home ownership in this country by citizens included in the middle-income group. I don't know the answer.

Mr. FOLEY. I have given a great deal of thought to that, Senator, as you might suppose.

I do not believe, nor does the volume of the program suggested here seem to support the idea that anyone else believes, that a majority of those 8,000,000 families in the group we have just talked about will be actively interested in the cooperative project. It is another factor added to the many devices that we already have to provide means of obtaining housing for the families in need of housing. Now, I think you would have to recognize, and it is recognized in other proposals before the Congress, that there is a wide variety of attitudes and dispositions among the States and among the American people with regard to how they want to live, where they want to live, and what relations they want to have with their neighbors. There are all sort of attitudes and dispositions among the people.

Now, this, as I put forth this morning, is just another one of a series of incentives to private enterprise so they can help meet the need. Senator CAIN. I think the cooperative movement is a splendid thing, particularly for those who join in it and are to become a part of a cooperative.

But I am wondering to what extent and how far the Federal Government ought to go in putting a premium on the advantages of the cooperative movement. I am considering this bill, now. It would be one thing if this bill that is before us gave the choice to the American people of either getting into the cooperatives or getting into FHA or VA for their loans, if it gave them that choice of doing that or joining in a group system, if the net cost were to be the same both ways. That would be one thing. But I think that the individual has the freedom of choice. Here I maintain, until I am proven otherwise, that we are encouraging people to live in a group. I do not see how you can get away from that.

Mr. FOLEY. From one point of view and ignoring certain of the facts of the situation with respect to housing, you might be right, Senator. The fact of the matter is, however you are referring, of course, particularly to the advantage in the interest rate which might come about?

Senator CAIN. Well, I do not want you to oversimplify the question, but under the proposed cooperative movement as compared with the FHA and the VA rental structure, you are cutting that figure by approximately 25 percent.

In other words, we are saying to Americans, "If you want the cheapest possible housing, housing made available by the American Government, the Federal Government, join a cooperative." That is what I am talking about, Mr. Foley.

Mr. FOLEY. I understand.

Senator CAIN. And that is what I am concerned about. And I do not see how you can get away from that.

Mr. FOLEY. Well, our point of view with respect to that, Senatorand perhaps I may not make this as clear to you as it is to me is this: This bill does not propose giving these advantages, such as they may prove to be, to cooperatives just because they are cooperatives.

Rather, it recognizes first a need for and a shortage of housing within the reach of the group of people we are talking about, which has been fairly well demonstrated by the figures I have given you and which is not currently being met and for which we are trying to find answers, and for which we may eventually find other answers, particularly through our efforts toward the reduction of costs-efforts in our research program authorized last year.

This combination of such devices is designed in the hope of producing a volume of housing at a lower cost within the range of this group of people which is not now served and which presently does not have any immediate prospect of being served otherwise.

Now, if it were possible to combine the factors which give a special nature to the borrowing group involved in this proposal in some other form other than cooperatives, removing as this removes the profit motive and the opportunities for speculation and so on-and may I say here that speculation has not been the least of the factors that have caused a rise in the cost of housing in the past few years—then

I would say "yes," give that same type of incentive to this other group, but not because it goes by the name of a cooperative. I think that covers the point as far as your question goes at this time, Senator.

Senator CAIN. I have this question also. I am concerned about the advancement of funds for preliminary planning. It might be, I grant you, the only possible way to do it; but I see in there a vast encouragement to speculative developments. There are those who are smart and who know their way about in the housing and finance fields, and they might be able to get around these groups of people who want housing but know nothing whatsoever about these aspects but just want to go into a cooperative so they can get housing. I think that situation might come about through the willingness of the corporation to advance them the 5 percent.

Mr. FOLEY. Up to 5 percent.

Senator CAIN. Yes. Maybe my fear is not a proper one, but I cannot help but see that speculative aspect.

Mr. FOLEY. I cannot and would not say, Senator, that your fear could be called entirely groundless. We all know and have had a great deal of experience with these people you describe as knowing their way around in these mortgage operations.

But you are overlooking, perhaps and I think it is likely because you have not had sufficient time to go into all of it-certain other factors.

One of them is the technical-advice provision here which is designed to very largely—and I believe it will almost entirely-remove the possibility of such groups you mention that know their way around in these fields getting to the cooperatives for the speculation you fear. Senator CAIN. What do you mean by "technical advice?"

Mr. FOLEY. Technical advice upon the setting up of the cooperative in the first place, and in the development of their preliminary plan for proceeding.

Now, actually, it is probably true that in the history of cooperatives in fields other than housing in the past that much of the failures that have taken place have been due to the fact that persons without knowledge and not knowing where to go and who had no place to go to have been exploited to some extent by these other people.

You are also, Senator, I think overlooking the fact that 5 percent is a maximum figure.

Senator CAIN. Yes; I know.

Mr. FOLEY. Also that the duty is upon the Administrator to see that regulations are put into effect which will, as far as possible-and I think the extent of that possibility is large-safeguard against that kind of exploitation.

One of the points that I pointed out in my testimony this morning is that this 5 or 3 percent or whatever is the percentage of advance decided on in individual cases is not simply made available in a lump sum to any of them.

Senator SPARKMAN. It is not automatic.

Mr. FOLEY. It is not automatic. These other steps have to take place ahead of it. May I say one further thing, Senator, and I will try to say it very briefly?

Senator SPARKMAN. Yes.

Mr. FOLEY. There has been, of course, considerable discussion of this specific proposal as there has been of all other proposals in the

past, and there have been fears expressed, some of them sincere-let me say many of them sincere, I have no doubt expressed by some with whom I have had a great deal of contact in my work in years past. For instance, it has been stated that this is a move to take over governmentally the whole of the middle third of the housing field.

Now, I submit that that comes with rather bad grace from a section of the industry that must know that we are here really before you today with a device to assist them still further in developing the field for themselves, and I submit it is against the declaration of policy by the Congress of the United States in the Housing Act of last year, in which it was made very clear that the intent and the purpose of all this is to give all the aid and incentive that is properly possible from governmental sources to assist private enterprise to broaden itself and to continue its effectiveness in the housing field.

I think I should say that in view of these statements that have been made.

Senator CAIN. Mr. Foley, if you will permit me just a few moments

more.

Mr. FOLEY. Yes, Senator.

Senator CAIN. I wondered if further consideration should not be given to the point of the equity in the proposal. It is, as I understand it, 7%1⁄2 percent and it extends over a 20-year period with a cash equity payment which amounts to 21⁄2 percent.

Now, we are proposing these houses not for the lower one-third of the American income families but for the middle one-third. I like to think that the families in the middle third in this great country are prepared on the average to put in something better than 2%1⁄2 cents on the dollar for a home in which they wish to live.

Mr. FOLEY. Well, I think it would be a mistake to assume from the language of the bill that the bill necessarily limits the initial investment by cooperatives to 21⁄2 percent of the face of the mortgage; that is, immediate and initial equity investment.

"Equity investment" is something of a misnomer there since the money is not in the usual sense a down payment but is by way of an incentive; it is available as a cash reserve; it is supplementary.

Senator CAIN. But it is a sum that to the individual, to him or to her, represent an equity payment.

Mr. FOLEY. Yes; but, as I say, it is a mistake to assume that the bill limits the initial investment to 21⁄2 percent. It specifies that as the amount that will be required to be paid in the purchase of stock before the mortgage is fully paid out, but the bill does not limit it to that. Neither does it specify that there shall not be any other down payment.

It does leave room for the requirement to have all or part of the necessary working capital through regulation, although the bill does specify that working capital may be included in the mortgage amount. As a matter of fact, what it does do is leave a degree of flexibility that perhaps is necessary and desirable in the early stages of developing a cooperative movement.

On the other hand, just as for instance I think I intimated at least in our discussion of the 100 percent veterans' loan today, I think it is not a considered policy of the Housing Agency-at least not as far as the FHA to encourage people not to pay down on houses; in other words, to encourage the maximum of debt, since the maximum of debt simply