I am reading from the annual report of the Housing and Home Finance Agency for the year 1947, table 12, at page 38, which contains a statement of the operating expenses on 102,000 dwelling units. Of course, we know these projects are subsidized and we know that they are tax-exempt, but we are not speaking now of any part of the operations that reflects those items. We are only going to talk about the dollars-and-cents costs and actual operating expenses. This part of the table does not reflect the subsidy, and it doesn't include tax exemptions. Of course, in the cooperative projects that we are talking about they would be fully taxable, except in a few States where they have passed some special legislation. But certainly the Federal legislation would not require any tax exemption, and most people connected with the cooperative movement feel that they would prefer not to see tax exemption in this kind of program.

As the Administrator of the Housing and Home Finance Agency said in his testimony, the average monthy expense on public-housing projects is $20.50. That covers the expense of management, operating services, dwelling utilities, repairs, maintenance, and replacements. In New York City there has been an operation under the New York State law on about 1,000 cooperative units. New York City is a higher-priced area, but the figure on their operating costs is interesting. It is $25.33. If we were to take an average for the country as a whole for cooperative housing as undertaken by this bill, my own opinion is that the costs would be less than the $20.50 average that exists on public-housing projects, because these people who would live in these projects would own the projects and, therefore, have a greater incentive to achieve self-help and maintain the property.

Mr. MITCHELL. Has there not been a great deal of complaint on the part of some people that the public-housing costs are high because the people do not have the interest in their shelter and, therefore, have caused the maintenance rate to go up?

Mr. KROOTH. I have heard that complaint. I think that there was a good deal more truth to that in the war-housing projects when people came in on a temporary basis and really didn't regard those projects as anything but a place that they would stay while they were on a war job. I do think that the permanent low-rent public-housing projects have had a good record of achieving low maintenance and low operating expenses, but I think that the cooperative projects would do better

Mr. MITCHELL. They would have a greater incentive there, and despite that complaint the record on public housing on the cost has been very good.

Mr. KROOTH. I would say so. For instance, there is a project outside of Dayton, Ohio, Greenmont Village, which was built by the Federal Government but leased to the cooperative for operation in 1942 and then, subsequently, it was acquired by the cooperative.

We used to use those figures sometimes in talking with the publichousing authorities and saying, "Why can't you do better in comparison with that?", because in that cooperative their figures were running about a third less than the figures in a comparable public-housing project.

Mr. DEANE. Mr. Mitchell, will you yield there?
Mr. MITCHELL. Yes.

Mr. DEANE. I had the opportunity some weeks ago to visit a colored public project in Raleigh, N. C., and I can report a remarkable maintenance. As I visited in several of the units a very special interest was being shown by each occupant. It was most pleasing and represented a real appreciation on the part of the tenants.

Mr. KROOTH. That has been my observation, too. There is one thing I want to say on this point and that is that, in citing these figures, I don't think that there is any intention-I know there is no intention on my part-to cast any reflection on the manner in which private operators are handling their rental properties. I think it is just a question of difference of approach. In a private rental development, it is customary for management to provide a number of services. On the other hand, we started out way back in public housing saying that if we were going to get the rents way down, that the people would have to do their own painting and do the maintenance of the halls and take care of more of the grounds. The projects were designed with that idea in mind and certainly that is the underlying thought here, that the people would do more of their own work. Actually this bill requires that for a project to be eligible, there must be a showing that the project will be laid out in such a way, and that it will be operated in such a way, that the people undertake these selfhelp obligations, because that is part of the program to get the costs down.

Finally, on the matter of savings, there are the savings that result from eliminating one of the high charges included in the rents of FHA rental projects. Part of the rent charged in those projects is to create a high vacancy and collection reserve because of the thinness of the market at the high rentals charged. With more moderate rentals, it is possible to reduce the amount charged for this purpose. The FHA rental projects add 7 percent to the rents to cover possible future collection or vacancy losses. Only 2, in our judgment, need be charged in a cooperative project involving modest rents for which there will be a continuing market. Actually in public-housing projects, experience has shown that collection and vacancy losses were less than onehalf of 1 percent. The savings from eliminating this high charge for vacancy and collection reserves equal $5 per month.

In summary, it is our view that we can reduce the cost of housing by $21 per month through the use of a cooperative which takes advantage of nonprofit and self-help methods. This, together with a $14 saving in financing costs, would mean a total reduction in rents of $35. Three-fifths of this saving is the result of the use of the cooperative to undertake the housing, with its nonprofit and self-help features. The other two-fifths is the result of the new financing methods, which reduce costs and, therefore, can demand investment at a lower interest rate. The combination of savings would reduce the average FHA 608 rental to about $60 a month, including all utilities, or a shelter rent of about $52. And this figure is definitely within the means of middle-income families.

The important point to recognize is that the savings involved in this program are only partially savings resulting from more attractive financing. These financing terms would be made available only if the project could demonstrate that it would achieve the other types of savings which I have described so that the project can achieve a monthly housing cost within the reach of families of moderate income.

In conclusion, we feel that the enactment of H. R. 6618 is necessary to carry out the national housing policy stated in the Housing Act of 1949, namely:

**

that the general welfare and security of the Nation and the health and living standards of its people require * * the realization as soon as feasible of the goal of a decent home and a suitable living environment for every American family. *

*

*

The present housing legislation falls short of meeting this goal by failing adequately to meet the housing needs of families in the middleincome third. These are the families that constitute the backbone of America. This substitute bill is directed toward meeting the needs of this group, and we therefore urge its enactment.

The CHAIRMAN. Thank you, Mr. Krooth, for your statement. Are there any questions?

Mr. BUCHANAN. Mr. Krooth, last year the House passed H. R. 67, providing for 95 percent FHA insurance on a $7,000 house. If the Senate were to pass this bill, do you not think that that would be sufficient to cover the middle-income group under the FHA plan?

Mr. KROOTH. The $7,000 figure, as I recall it in the House bill, was for a two-bedroom unit and there was a provision that that figure could be increased to $8,000, if necessary. For a three-bedroom unit, the 203 (d) program was to provide for houses of from 8 to 9 thousand dollars; and for a four-bedroom unit 9 to 10 thousand dollars.

The usual rule of thumb is that the monthly housing cost, including utilities, would amount to something under 1 percent of the cost of the housing. This, by the way, is borne out in an FHA table-table 63 in its 1947 annual report-which indicates that on a house with a value of about $8,350 they figured monthly housing expense at $84. On that basis, it would mean that the two-bedroom unit costing $7,000 to $8,000 would have a monthly expense of $70 to $80. Wholly apart from the question of the extent to which those houses can be built, we are already getting at the top of the middle-income group that we are talking about. I think that those houses can be built in some of the lower-cost areas. Where they are built in the lower-cost areas they will meet the needs of some of the middle-income families, those families who don't have more than one child, perhaps, or have a small enough family that can fit into the small, two-bedroom houses that are involved there.

When we get to three-bedroom houses-there is a tremendous need for larger units-and the four-bedroom houses even in those areas where these can be built at the prices indicated, the monthly housing costs will be beyond what middle-income families could pay. A three-bedroom unit would have a monthly housing expense of $80 to $90 and a four-bedroom unit of $90 to $100.

In higher-cost areas, my own feeling is that, first, we are not likely to get very much of a volume of houses built at the prices stated in section 203 (d). If we do, it is going to hit the top levels of the middle-income group. I agree fully that everything should be done to encourage the building of more lower cost housing and I think that that is one of the things that will happen under the cooperative legislation. I think it will provide a stimulation, a competition to build more in those areas. I think that we need more encouragement to lower-cost housing to help meet the needs of some of the middleincome families. Very definitely, I don't look upon the section 203

(d) program as meeting the needs of the preponderance of the families in this middle-income group, certainly not getting down to the average or below the average of what these families can afford to pay. They can afford to pay, generally speaking, something in the neighborhood of $60 a month.

Mr. BUCHANAN. If you were to list a summary of the accomplishments of cooperative action on existing cooperative housing in the Nation today, just what would you point out as the highlights for the advantage of a cooperative scheme?

Mr. KROOTH. I would say the highlights would be, No. 1, the savings in operating expenses due to the nonprofit feature and the self-help features. No. 2—and this has only just been started-savings in construction costs.-Murray Lincoln, in his testimony before the Senate committee, referred to the fact that they had set up a nonprofit cooperative building association, similar to what they are using in Sweden quite extensively. They built a project and were able to complete it at 20 percent less than the bids that they had received, so that I think that there is a real hope for construction savings. This has not been talked about very much in the hearings. There is a real hope of getting lower construction costs. The third feature is one, unfortunately, which has been achievable only in certain areas. It is the cheaper financing that has been made available through private channels in a few areas of the country-I say a few areas, I really only know of one where there has been any notable amount of it, namely, New York City. There the Amalgamated and some of the others have made a good record in operations and, therefore, insurance companies and others have been willing to lend the money on good terms.

Under this bill, through the mortgage association good terms would be made available throughout the country as a whole. This includes the small communities where they just have no such possibility today. Mr. BUCHANAN. Would there be any tax saving?

Mr. KROOTH. I think that the general attitude throughout the country would be that cooperatives should be taxed the same as any other housing, because we are dealing with middle-income housing.

Mr. BUCHANAN. I do not mean tax exemption, but I mean in urban redevelopment areas would there be any savings made possible by group operation under a cooperative housing plan?

Mr. KROOTH. I think group operations would result in the operating and construction economies. I am not clear, Congressman Buchanan, as to what you had in mind by tax savings there. Are you speaking, for example, of what has happened in some of the redevelopment projects where, in New York, for example, if someone will come in and redevelop an area they will freeze the taxes at the old rate for a period of years?

Mr. BUCHANAN. In many communities they are on the outer periphery of a community and probably that land is now leased as farm land, the projected development, and by agreement with the local city councils they may be able to continue the assessment on that particular project over a period of years. That is the thing that I had in mind which would enable them to enjoy possibly lower taxes but would mean an increased increment to the township or municipal authorities immediately adjacent to the parent city.

I know on one project they saved something like $30,000 a year, but it meant almost the same increased tax return to the community

of that same amount of $30,000 a year. I have a specific project in

mind.

Mr. KROOTH. I wouldn't be surprised if some of the State legislatures wanted to use that and other means. It has been interesting, the extent to which a number of the States have passed laws to try to do something about this very difficult problem of middle-income housing.

Mr. BUCHANAN. They were able to do this in a local municipality without any State assistance. They already had that authority to do that on their own.

Mr. NICHOLSON. Under this bill, nobody ever really owns their home, do they? They just rent it, that is all.

Mr. KROOTH. That was true of last year's bill, Congressman Nicholson, but under this bill it is definitely contemplated that individuals could own their homes. In other words, free-standing houses would be built by the cooperatives and the title to the house would pass to the individual.

Mr. NICHOLSON. And the mortgage runs for 60 years?

Mr. KROOTH. Fifty years, sir.

Mr. NICHOLSON. You do not start to raise a family until you are around 25—I suppose that is the average age-so you would be 75 before you got to own the house?

Mr. KROOTH. That is one way to look at it. Another way to look at it, sir, is this: There is that family with four children, and they need a home and they can only afford to pay $60. If they can get a good home and pay $60 and have a mortgage that runs 50 years, I think they might prefer to do that instead of just looking from the outside at a house that has a mortgage running for 25 years, but where the monthly cost is $85, because they can't live in it. In other words, it is just a question of whether, through a longer amortization period, we can bring the cost of the house down to a point where they can afford to live in it.

Mr. NICHOLSON. Of course, paying interest for 50 or 60 years makes your over-all cost of that house, if it is a four-room or five- or six- or seven-room house, just so much more. If it is a six-room house, it will probably cost you $3,000 more in interest to buy that house than if you cut the mortgage down each year and do it in 15 years.

Mr. KROOTH. Congressman Nicholson, you and I can afford to buy a house that way, and certainly it is to our advantage to pay the mortgage off as fast as we can.

Mr. NICHOLSON. I bought a house when I was getting $1,500. I figured that I had to pay rent, anyway, and perhaps I could get $10 or $15 a month more somewhere by doing away with things, and my house was paid for-well, not quite paid for-in 15 years.

Mr. KROOTH. Do you remember what you paid for it?

Mr. NICHOLSON. I think I paid about $6,000 for it.

Mr. MULTER. When you bought that house, Mr. Nicholson, didn't it have a standing mortgage?

Mr. NICHOLSON. I went to the savings bank. I put up $2,500 and took a $3,000 mortgage from the savings bank and paid 6 percent on it. When I got a little more money, I cut it down and cut it down. I got the soldier's bonus of $1,600. I took that off of my house. I mean, if you are going to own a home, you ought to own it and not try to tell somebody you own a house when you are paying rent.