the utilization of this legislation in the 1954 building season. The delay, however, that might be occasioned by awaiting Presidential action, might suspend the effective use of the act until the 1955 building season. Minority housing: It is a concern of the building industry to provide housing for minority groups. The problems in developing this type of housing are unique. It is anticipated that several of the problems will be resolved by the current legislation, principally with regard to the proposed liberalization of 213 mortgage proceeds. With less of a downpayment required, a greater number of the minority groups will be in a position to participate in the benefits of the act. It is also expected that the provision with regard to a 90 percent ratio of mortgage to value on a section 207 with a room average of 2 bedrooms, can be favorably developed, provided that the mortgage amount can be increased slightly from $7,200 to $7,500, as heretofore requested. The projects developed pursuant to this section will produce housing at moderate rentals. The unresolved problem with regard to developing a minority housing program of any substantial scale is the availability of mortgage money. There are savings institutions that have taken minority housing loans and who have been satisfied with these loans in their portfolio. Nevertheless, the market for these offerings is limited and therefore, the loans are sold either at a substantial discount, or there is no market for said loans. It has been suggested that lending institutions might be more receptive to these loans if the guaranty of the Federal Housing Administration were not limited to the form of debentures. Mr. RAIDER. I just want to make a few comments on the statement. The present program on section 213 is definitely on the downgrade under the present legislation. The main reason for it is the fact that there have been high downpayments recently, and those downpayments have been due primarily to increased costs of construction in the city of New York. I am from the city of New York and the associated builders represent the builders that are building in the city of New York. I think Senator Maybank inquired of a previous speaker why the downpayment had increased so substantially, up to the $2,000 that it is running now. That is due primarily to the increased costs of construction. In other words, the mortgage financing is the same. It is approximately $9.000 a unit. And the construction cost has gone up in New York City from 10 percent to 15 percent, which has increased the job from $9,300, let's say, in the case of Dorey Miller, to about $9,990, with the increase in downpayment from $300 to an average downpayment of $1,000. It is my opinion that the proposed legislation will remedy this situation by increasing the mortgage financing and reducing the downpayment. However, there is one obstacle that I see in the present legislation, and that is the change in ratio of mortgage to estimated value, in place of the previous legislation, which related mortgage to replacement cost. Replacement cost was a fact. Replacement cost was based upon what a builder would go out and find what the building would cost him to erect. Value is very indefinite. It is used by FHA, based upon capitalization. How FHA will be able to apply capitalization procedure, where you are dealing with nonprofit organizations, I don't know. I do know that presently where value is applied to land by the FHA local offices, by the district director and by the underwriters, that there has been a great deal of difficulty, because in some cases they have just not arrived at figures applicable to land. If this same procedure is followed through with the entire process of the job, there is going to be great difficulty in determining definitely what you can get on a certain project. Builders have gone to expenses of probably $50,000 to $100,000 in order to initiate processing. It is our opinion that by changing from replacement cost to estimated value, there would be too much discretion in the hands of the district director and in the hands of the underwriter, and that the increased program for increased mortgage financing will accordingly be defeated. We think that the same formula used in the present legislation, of ratio of mortgage to replacement cost, should be adopted, rather than ratio of mortgage to valuation. Another objection to the bill is the fact that it provides for Presidential authorization in order to become effective. You have just made the statement that you expect the bill to be submitted on the floor on or about May 1. Once the bill is passed and once it has been signed, if we must await Presidential action we might have a greater delay and it will take us out of the 1954 building season and throw us into the next building season of 1955. The only experience with Presidential authorization was in connection with section 203, and in that one particular case, the President never acted affirmatively and the bill never took effect as a result of it. We are afraid that the same thing may happen here. But even if the President should act affirmatively, there may be quite a delay between the time that the builders act and the time that the President affirmatively acts on it. One other thing I have to say is in respect to something that the bill omits: The present law permits insured mortgages for cooperative corporations only. It is suggested that instead of insuring mortgages made by a cooperative corporation, that a mortgage can be insured that is made by any mortgagor who, in turn has made a contract with a cooperative group to deliver the building to them upon completion. I think that will solve three problems. The first problem would be that it would take the assumption of risk from the cooperative group, in respect to increased costs due to strikes, weather conditions, and other factors. Secondly, I think that by forcing the builder to put up the cash and the working capital, instead of having him receive the proceeds of both those funds from the cooperative group, that you will probably get more responsible and substantial builders in the field. And, thirdly, I think it will eliminate a lot of difficulty that we are now having in relationships between builders and stockholders. The great difficulty is the fact that you have interference during the cost of construction. The builder has his plans and specifications, and he intends to comply with them, but he has been interfered with by the cooperative groups. I have represented cooperative groups of 340 and 350 units, and you are always bound to find some individual in that group that interferes. If we can leave that interference out until the completion of the job, we will be in a better position to have an effective program. And I think the one way of doing that is by changing the legislation, so that instead of insuring only cooperative mortgagors, you insure any mortgagor, providing he has the contract to deliver upon completion of the job to a cooperative group. That, in summary, is what our memorandum says. The CHAIRMAN. Thank you very much. Mr. RAIDER. Thank you. The CHAIRMAN. Now, Mr. Donahue is not here. He will put his statement in later. The next witness is Mr. Johnson. STATEMENTS OF BYRON L. JOHNSON, ASSOCIATE PROFESSOR OF ECONOMICS, AND GENE T. SKRIVAN, CHAIRMAN, BUILDING INDUSTRY AND REAL ESTATE DEPARTMENT, UNIVERSITY OF DENVER Mr. JOHNSON. I am Byron L. Johnson, associate professor of economics, University of Denver. And I would like to introduce Gene Skrivan, chairman of our department of building industry and real estate management, at the University of Denver. If you don't mind, I would like to have Mr. Skrivan make the opening statement. The CHAIRMAN. Without objection, your Outline of Housing for the Independent Aging, for Discussion by Nonprofit Groups, by Byron L. Johnson and Gene T. Skrivan, will be placed in the record at the end of your remarks. The CHAIRMAN. You may proceed. Mr. SKRIVAN. We will take no more than 5 minutes to cover this, Mr. Chairman. The idea is new, since what we are discussing is housing the independent aging. This has been an area which has been completely overlooked by builders, mortgagees, people throughout the housing field, and, as such, it has turned into a kind of minority housing. We have approximately 14 million people over 65 now, and their number is growing at a rate of over 400,000 per year. Now, in industry, from the mortgage standpoint, the aging are questionable risks; hence, large downpayment, and short-term mortgages, because of the declining income cycle for that type of person. Therefore, it has been quite difficult for them to get an adequate type of mortgage, and they have been at least jeopardized, if not denied, going out into the housing field to do this. The industry is not organized to provide for them. Speculative housing has in no way met any of the needs for this particular group. There have been some small projects, but they have been very minor in the percentage accomplished. In the existing facilities, we find that the aging populating is living in oversized units, in homes that are too large and, in many cases, run down. Their dilapidation, the proportion of the aging population living without such things as plumbing, running water and that sort of thing, is much higher than for the average population. And as a result they need homes which are peculiarly suited to their needs. Now, what types of housing do the aged want? Basically, they need housing that fits their personal and family circumstances, that is suited to their living habits, and that which provides for their independence. They don't want to be housed in old folks' homes. They don't want to go out to "grassy acres." They want to be right where they have grown up, where they have long been living. They are very stable in their living habits, and they need housing which situates them under those conditions. Now, one of the main reasons why we are here is because the only housing program which is easily adaptable to this is a trust corporation, and the only housing program which includes trust corporations is section 213 of the Housing Act. The idea is that a sponsoring organization would sponsor the trust corporation, since such a corporation would have a perpetuity that would not be given by a person 65, 70, or 75. And this is the only possible means that these people have to get adequate housing for their needs under adequate financing situations, and at prices which they can afford. Now, who will undertake to provide housing for the aging? Churches, lodges, fraternal orders, veterans' organizations, unions, professional organizations-people whose interest is in this particular group. Now, the only way that they can afford it is by 40-year loans, under section 213, with 10 percent down, which is now provided for trust corporations. FHA may now issue a commitment for 90 percent of estimated cost of such housing. Now, we have already contacted a number of organizations concerning this plan, using section 213 as it is now set up. The proposed change in S. 2938, from cost to value, is one which would make it extremely difficult to go to such a group, such as a church, and ask them to take a chance on what value may be. The cost, they are willing to do. They are not a speculative group. Therefore, they are not interested in speculating on the market. They are basically interested, though, in securing a sufficient amount of money so that they can adequately take care of their aged, but they must of necessity borrow on of a cost picture to give them a true value basis, and to operate from a truly sound financial condition. This housing for the aging should be absolutely economically sound. It should be one in which the individuals will receive housing they will pay for, but it will be one which will make a difference. It will make a difference in the housing suited to them; it fits their income and leaves them in the community to which they are adapted. The sponsors which we have talked to have all been enthusiastic in their reaction. The Congregational Church of Denver-I am talking now about the sponsors in Denver we have talked to-and the Baptist Church, the Lutheran Church, the Christian Church, the Jewish Family and Children's Service, the Episcopal Diocese, Catholic Charities, Nursing Alumni, Retired Teachers, and the Methodist Church. The CHAIRMAN. Let me say this: You may have a good idea. Mr. SKRIVAN. I think it is a whale of a good idea, sir. The CHAIRMAN. I wish we had more time. I wish you would prepare more information on it and place it in the record. I wish you would spend some time with Mr. McMurray here, of our staff. You may have a good idea. (The additional information requested follows:) UNIVERSITY OF DENVER (COLORADO SEMINARY), Hon. HOMER E. CAPEHART, Chairman, Committee on Banking and Currency, United States Senate, Washington, D. C. DEAR SENATOR CAPEHART: We attach herewith the full statement that we would have made if we had had time to do so last week. I want to express our deep gratitude to you personally for your courtesy in hearing us and for the friendiness of your response to this proposal. Your courtesy to us in view of your >ther engagements was most heart warming. Frankly, we believe that if our church or other sponsoring groups can borow, through a trust, 90 percent of cost, we will have no difficult in carrying out experimentation with this type of housing. We have grave doubts about he wisdom or propriety of asking church or other nonprofit sponsors to risk sums of money in planning a housing program when they cannot know until after they have invested many thousands of dollars in land and plans what HA will estimate the "value" of a proposed project to be. We trust that You and your committee will be able to work out some resolution of this probem that will not impair in anyway the opportunities we see in the use of the rust corporation under section 213. Mr. Skrivan joins with me in expressing our very real gratitude to you for he opportunity you have afforded us. Sincerely yours, BYRON L. JOHNSON, Associate Professor of Economics. STATEMENT OF BYRON L. JOHNSON, ASSOCIATE PROFESSOR OF ECONOMICS, UNIVERSITY OF DENVER Mr. Chairman and members of the committee, we appreciate very much the Opportunity you have afforded us to discuss briefly this morning a completely new proposal we have been developing to use the trust form of organization n order to build, under section 213 of the Federal Housing Act, housing for he oldest members of such consumer groups as churches, labor unions, lodges, raternal organizations, and the like. I am Byron L. Johnson, an associate professor of economics at the University of Denver and I have with me this morning my colleague, Mr. Gene T. Skrivan, hairman of the Department of Building Industry and Real Estate, also of the University of Denver. We have been engaged for more than a year in studying the problems of providing better housing for the senior citizens of our country. There are already 14 million aged persons, that is persons over 55 years of age, and their number is growing at the rate of 400,000 each year. Most of these people desire housing which will preserve their independence and permit them to live their own lives as they see fit. We think it is sigificant that in 1950 only 3.14 percent of the aged population were in institutions. Tables 1 and 2 show the breakdown of the institutional population among he aged, by sex and age, and by type of institution. The aged are often left with relatively low incomes because only a small percentage of them are at work; most of them are living on savings or on ensions or on income from members of the family and the like. Because of heir income situations they usually cannot afford new, expensive, attractive omes. The attached tables 3 and 4 show the income position of the aged. |