need of such housing are unable to pay the full economic rent required to liquidate the direct loan.

We find that housing for the elderly requires special sites and special facilities and services which increase considerably the cost of operation, design, and construction. Most older persons want to live in the city where land and construction costs are highest. They much prefer this location to living in isolated, pastoral areas. The building itself should be fireproof and the units specially designed for safety, conservation of energy, and opportunities for forming new friendships. In addition, older persons need easy access to health facilities, social services, and, above all, to activity centers fore meaningful living in the retirement years.

All of these elements increase the cost of building housing for senior citizens and raise the level of economic rent above what many older persons can afford to pay.

The institute urges that a program be established to help finance these special costs and to assist in opening opportunities for such housing to more of the Nation's senior citizens who need them.

For example, some of our architects have worked with nonprofit groups which have borrowed funds under section 202. Projects have been built with units specially designed for the elderly, with services to meet their needs and at rental charges ranging from $20 to $50 below the regular market.

However, even with these advantages, the units serve effectively only a proportion of the middle income elderly. This proportion is small, although in absolute numbers it is large. However, there are many elderly couples or widows who need such housing but who could afford to pay only $50 a month rent for a unit which rents at $75 to $80. These elderly couples or widows are thus eliminated from consideration by the fact that their incomes are just below the necessary amount. They are also very likely to have a little too much income to be eligible for public housing which is so badly needed for the lowincome groups.

The AIA therefore recommends that the HHFA institute a program which would be helpful to such elderly couples or widows in obtaining housing specially designed for them and under the operation of a responsible nonprofit group such as a church, union, or civic organization.

We request that this letter be given your serious consideration.

Sincerely,

J. ROY CARROLL, Jr., F.A.I.A.,

President.

Senator CLARK. Our last witness this morning is Mr. Sillik Polayes of New York City.

Mr. Polayes, I do not want to cut you short. The hour is late, and you are probably hungry, too. I would appreciate your making your presentation as short as you can.

We can put your memorandum and your proposed bill in the record and they will be printed in full. You may just proceed in your own

way.

STATEMENT OF SILLIK POLAYES, ATTORNEY, NEW YORK, N.Y., ACCOMPANIED BY PETER PAUL MEAGHER, NEW YORK, N.Y.

Mr. POLAYES. In that case, Senator, I would like to have Mr. Meagher approach and possibly discuss it at more length.

Senator CLARK. Yes, come on, Mr. Meagher. We would be happy to have you up here.

Mr. POLAYES. The material I submitted to The Little Old New York arose out of the West Side Renewal Area, and I had an extremely active role in that area concerning also 107(b) of the National Housing Act, as well as demolition, new policies that the city has instituted concerning modernizing housing.

Senator CLARK. Mr. Polayes, is your activity a professional one, or is it a civic one?

Mr. POLAYES. It is both professional and civic. I happen to represent the nonprofit housing company called a Mitchell-Lama company, a neighborhood group called Strycker's Bay Housing Corp.

Senator CLARK. Would you like this letter from Peggy Mann Houlton to be printed in the record?

Mr. POLAYES. I would.

Senator CLARK. That will be done, together with the enclosed supplemental material.

Mr. POLAYES. Now I would like to introduce Mr. Meagher. Senator CLARK. Yes. You had better state your full name and address, Mr. Meagher.

Mr. MEAGHER. My name is Peter Paul Meagher. I reside at 200 West 54th Street, New York.

Mr. Chairman, and distinguished members of the committee, first, I wish to thank you for this opportunity to testify here today. Secondly, for the record, I wish to state that, although I am presently serving as the deputy commissioner of the Department of Real Estate of the City of New York, I am nevertheless appearing here as a private citizen. I wish to add, however, that I do come with the knowledge and consent of the mayor's housing policy board. Furthermore, you will find in the mayor's supplemental memorandum, filed with you today, his endorsement of a modification upward of the mortgage insurance limits of section 203. It is to this section that I will address myself and submit for the record a specific proposal, a bill to amend the section and a memorandum in support of the bill.

At this time when the President has called upon the Congress to amend section 203, and when this committee of the Congress, having before it Senator Sparkman's bill, is responding to that call, it is appropriate to raise an issue which has often been raised in many our large cities across the country, whenever the problems of urban housing are discussed in terms of legislative need, but an issue, nevertheless, which has yet to be raised here.

And that issue is: how to cause the amenities of section 203 to accrue to urban areas in even some small measure of their almost boundless accruals to suburbia and exurbia.

Mister Chairman, and distinguished members, I submit that the bill I bring for your consideration, and which I respect fully urge you to seriously consider, can cause this to happen.

I respectfully submit that the bill I bring before you can in great measure accomplish for our cities what the existing statute has done for our countryside.

Section 203, which, in the lingo of builders and people working in the field of housing, is referred to as "an old workhorse," has in most part been responsible for the creation of the major extensions for our cities which have been brought into being since the end of the Second World War.

Section 203 was designed primarily to provide the impetus to builders and lending institutions to meet the enormous demand which had built up by the war's end for new homes.

Senator CLARK. Your point is that section 203 mortgage limits are unrealistic for center city property and we need rebuilding areas as much as we do in the suburbs?

Mr. MEAGHER. Senator, that is correct, but I am also raising an issue here that an option should be created within the amendment which would be applicable to rehabilitation.

I believe that we can all agree that a more effective and successful statute has never been enacted in the field of housing than section 203. Although this legislation addresses itself to new construction, it has, by virtue of administrative interpretation, been adapted in some small degree to the rehabilitation, conversion, and improvement of existing sound structures. I believe the time is overdue for this section to be revamped so as to provide an affective means for the residents of large urban center, acting under their own steam, to bring back their otherwise sound dwellings from the limbo of blight and thus to aid their respective municipalities in the restoration of existing communities.

The question can be rightly asked: Does not section 220 provide such a means? In my memorandum in support of my proposed bill I undertake an analysis of the application to date of section 220 in a pioneering renewal program now underway in New York City, and, with your leave, Mr. Chairman, I would like to quote from it briefly:

Making section 220 available to applicants is no easy task for a local governing body. The section is hedged around by safeguards which makes mortgage insurance under this section difficult to obtain for brownstone rehabilitation. The Federal Housing Administration is responsible for protecting the insurance commitment of the Federal Government since it guarantees a lending institution against any loss when a mortgage is placed under its insurance program. The FHA reserves the right not to issue an insurance commitment unless and until a sponsor can demonstrate that his project is economically feasible. In addition, no mortgage under this section may be insured until an urban renewal plan has been approved by both the local governing body and by the Housing and Home Finance Administration. In any large municipality, experience has shown that these approvals and demonstrations of feasibility take many years to achieve. Yet use of the section now that it has been applied nationally does not demonstrate its applicability in all situations. Already the vacancy rate in "section 220 jobs" has assumed alarming proportions. This is not to state that the section does not have applicability in some cases (e.g., in structures of larger size) where its use has been, and should be, sanctioned by the local public agency, but its use as an effective tool must be carefully scrutinized in every situation in view of the above findings.

Reliance on section 220 as a sole remedy to rehabilitate sound structures in blighted urban areas will leave hardly a dent in the monumental task of community restoration facing our municipalities and, furthermore, in what it does accomplish leaves new problems for the future. Moreover, the benefits of section 220 are not available to areas which are not officially designated for urban renewal, but which stand in equal or greater need of rejuvenation. Therefore, nothing can be gained in an extension of the benefits of this section. In fact, such a course may serve to burden the Nation further to the extent that new losses are added to those now accruing to the Federal insuring agency. Instead, the remedy must be found in the use of a statute with broader applicability, but which, in order to be effectively utilized in urban areas, must be amended to meet the realities of the present urban market.

In closing, Mr. Chairman, I wish to assure the committee that the bill advanced here is in no way inconsistent with the appropriate sections of the bill you have proposed; rather it seeks to supplement S. 2468.

For the reasons I have cited, I strongly urge the committee to report out favorably my bill as part of the chairman's amended omnibus bill. Senator CLARK. Thank you very much, sir. I will ask the staff to ask the appropriate official at FHA to have a look at your proposal and let us know what their thinking is.

We appreciate you and Mr. Polayes coming down here, gentlemen. I am sorry we had to keep you waiting so long.

(The memorandum and bill, previously referred to, and a letter in response by the Housing and Home Finance Agency, along with the letter and supplemental material mentioned, follow:)

MEMORANDUM SUBMITTED BY PETER PAUL MEAGHER

In support of a bill to amend the provisions of section 203 (b) (2) of the National Housing Act in relation to increasing the maximum mortgage insurance amounts for occupants mortgagors of one-, two-, three-, and four-family residences

The object of this bill is to amend section 203(b) (2) of the National Housing Act so as to provide increased flexibility in connection with the improvement, conversion, or rehabilitation of family residences located in large urban centers in order that municipalities may be aided in the restoration of existing communities.

INTRODUCTION

The brownstones slated for rehabilitation in the West Side urban renewal area were constructed as single family dwellings in the last quarters of the 19th century and the early years of the 20th. These structures are three or four stories high plus a basement. They average 15 to 20 feet in width and are about 50 feet deep. Some have extensions of varying stories.

Over the last three decades many of these structures gradually were converted to use as boarding houses and later as licensed rooming houses. The cessation of construction of housing during World War II and the resulting housing shortage accelerated the conversion either legally or illegally of the balance to rooming house use. In May 1954, conversion to rooming houses was outlawed. This action was prompted by widespread overcrowding and exploitation of investments which provided sparse maintenance, and virtually no improvement. These factors became important considerations in the selection of this prime area of Manhattan as the locale for the pilot urban renewal experiment in the city of New York.

OBJECTIVES

Two essential objectives of the West Side urban renewal plan are: (1) Redevelopment of avenue fronts where old law tenements stand, and (2) Rehabilitation of the brownstones within the block interiors. These objectives, of equal importance, are also interdependent. The success of the rehabilitation program is vital to attract and hold redevelopment sponsors to their commitments. The participation of sponsors from the private sector is essential to carry out the intention of the legislation; namely, to direct subsidies to cities for rebuilding and augmenting their tax basis.

FEDERAL TOOLS

Originally the city of New York, through the housing and redevelopment board, looked to design a rehabilitation program that would return many brownstones to either single- or two-family use, with a substantial number of the balance being converted to floor-through units. Such a program would have as its purpose the creation of a stable community designed for family living. The principal rehabilitation tool provided by the Federal Housing Administration in an officially designated urban renewal area is section 220 of the National Housing Act. Inherent in this section is encouragement of a type of conversion which works contrary to the city's objective.

Under section 220, as applied to rehabilitation, economic feasibility is established ideally only through the introduction of the maximum number of units permissible in any given structure under the city's building code. Conversely, in order to more closely approximate the maximum benefits under section 220, a rehabilitation sponsor (owner-user or investor-builder) must, in the rehabilitation plans, provide the maximum number of units.

30-944 0-6440

In applying the provisions of section 220 to its pilot program, the housing and redevelopment board arrived at questionable, above-market rentals. Rather than abandon the program the city sought to compromise its objectives with the provisions of section 220. The board enunciated a policy of tax abatement and exemption for a 9- to 12-year period based upon enabling legislation in the city's administrative code (J41-2.5), enacted in August 1961.

While the granting of tax relief will allow the city to proceed with rehabilitation under this section, the problem of inadequate rentals or higher vacancy ratios will nevertheless appear again in a decade. Furthermore, at one point, if abatement and exemption continue to increase, their total will reach a threshold beyond which the remaining yield to the city is less than the cost required to provide essential services to this particular community. Since the tax relief contemplated is already considerable in connection with the redevelopment aspect of the plan, this compromise, if fully resorted to, would not be consistent with the principles of proper planning.

DIFFICULTIES AND DANGERS

Making section 220 available to applicants is no easy task for a local governing body. The section is hedged around by safeguards which makes mortgage insurance under this section difficult to obtain for brownstown rehabilitation. The Federal Housing Administration is responsible for protecting the insurance commitment of the Federal Government since it guarantees a lending institution against any loss when a mortgage is placed under its insurance program.

The FHA reserves the right not to issue an insurance commitment unless and until a sponsor can demonstrate that his project is economically feasible. In addition, no mortgage under this section may be insured until an urban renewal plan has been approved by both the local governing body and by the Housing and Home Finance Administration. In any large municipality, experience has shown that these approvals and demonstrations of feasibility take many years to achieve. Yet use of the section now that it has been applied nationally does not demonstrate its applicability in all situations. Already the vacancy rate in section 220 jobs has assumed alarming proportions. This is not to state that the section does not have applicability in some cases (e.g., in structures of larger size) where its use has been, and should be, sanctioned by the local public agency, but its use as an effective tool must be carefully scrutinized in every situation in view of the above findings.

A PROPOSED REMEDY

Reliance on section 220 as a sole remedy to rehabilitate sound structures in blighted urban areas will leave hardly a dent in the monumental task of community restoration facing our municipalities and, furthermore, in what it does accomplish leaves new problems for the future. Moreover, the benefits of section 220 are not available to areas which are not officially designated for urban renewal, but which stand in equal or greater need of rejuvenation. Therefore, nothing can be gained in an extension of the benefits of this section. In fact, such a course may serve to burden the Nation further to the extent that new losses are added to those now accruing to the Federal insuring agency. Instead, the remedy must be found in the use of a statute with broader applicability, but which, in order to be effectively utilized in urban areas, must be amended to meet the realities of the present urban market.

One essential planning ingredient which has been overlooked is a continuing analysis of the user market. In the West Side area, for example, we are aware of middle-income families desirous of purchasing brownstones for use as distinct from ownership for profit. To bring this market into a sizable brownstone rehabilitation program and at the same time achieve the valid objectives of our city planners, we urge an amendment of section 203 (b) (2) of the National Housing Act, to make it usable in this program. Until such an amendment is enacted, the city of New York will not have the means necessary to stimulate the entry of capital from this available market into its first major rehabilitation program, as well as into other blighted areas unblessed by an urban renewal designation.

The effect of this amendment would provide the first effective means for the residents of large urban centers to improve, convert, or rehabilitate their properties, thereby aiding municipalities in the restoration of existing communities.