along and owns his own home, the real-estate taxes that he pays he then can deduct as a tax deduction on his income tax and the same thing would be true of the cooperative owner. He can get a deduction, a proportionate deduction, on his income-tax return for what his monthly charge includes, to the extent that his monthly charge includes a real-estate tax.

Mr. KROOTH. That is right. He can do that whether he is a part of a cooperative or owns his own home. That is right.

Mr. MULTER. If he owns the multifamily dwelling in which he lives?

Mr. KROOTH. That is right, as long as it is set up on the basis where he is acquiring something, which is contemplated.

Mr. MULTER. I think you mentioned something about the cooperative in New York. Do you know how many units are in the amalgamated cooperatives in New York?

Mr. BUCHANAN. It is on page 69 in the Senate report.

Mr. MULTER. Good. Do you know if there are any unions that have built any cooperatives outside of New York City, Chicago, or elsewhere? Are you familiar with those?

Mr. KROOTH. I don't recall, sir. I know there is one project in Philadelphia, but I don't think they regard that as a cooperative. I think they undertook that as a limited-dividend project.

Mr. BUCHANAN. Starting at page 69 of the Senate committee hearing there is a complete list of the housing projects in the Nation, broken down as to housing built by labor unions, by mutual housing

groups.

Mr. MULTER. Thank you, Mr. Buchanan.

Now, then, there was mention made that too many cooks spoil the broth and that you may have too many cooks in a cooperative. In the housing cooperatives that you are familiar with, in every instance the erection of the building was done by competent builders who were employed by the cooperative to do it?

Mr. KROOTH. I think the sound way in which a cooperative has to function is that you take all the cooks together and let them express their views as to the kind of house they want designed and talk in terms of broad principles, but finally after that discussion, then from that point on, it has to be handled as a business operation with fixed responsibilities in certain people to do the job. Certainly the mortgage association would regard this as one of the things that it would have to look to, to see whether they were dealing with a competent borrower that was set up to operate that way. If it wasn't, then I would think that that would be enough to disqualify them from getting a loan.

Mr. TALLE. Will you yield to me, there?

Mr. MULTER. Yes.

Mr. TALLE. If you let a lot of cooks design the house, you will get a remarkable kitchen, anyway.

Mr. MULTER. I have some good recipes.

Mr. TALLE. I am seeking education, Mr. Krooth. I have listened to all of the testimony and several witnesses have used the term "profit system." Quite often too, the term "speculative profit" has been used. Invariably, witnesses have left out one-half of our system because we do not have a profit system, we have a profit-and-loss system. Do you believe in that, Mr. Krooth?

Mr. KROOTH. Yes, definitely.

Mr. TALLE. This matter of speculative profit, how would you define that?

Mr. KROOTH. Speculative profit, I would think, would involve a businessman launching on an operation with the hope of profit and that is where the speculation comes in, because he doesn't know whether it is going to produce a profit or loss. I agree with you fully on that.

Mr. TALLE. There is nothing wrong in that, is there?

Mr. KROOTH. In other words, it could be speculative profits and speculative losses, because any transaction that you go into might turn out to be a loss.

No; there is nothing wrong in it. If anything, I deplore the tendency in our private-enterprise system to not have enough enterprise. More and more investors have come to feel that the risks have to be completely underwritten by the Government. That is true in a good deal of private housing, serving the top-income third.

So much of it now-FHA, VA guaranties and so on-is set up on the basis where the Government guarantees against risks. It has come to the point where if you try to get adequate financing in what we would regard as the old-fashioned way without Government assuming the risk, you just can't undertake an operation.

Mr. TALLE. Let me use some specific figures, which I know to be actual. Here is a fellow who bought a little piece of land in 1922. He paid $725 for it. It was within the corporate limits of a city. He had an abstract cost, I think, of $10 in connection with clearing the title, so the cost to him, you might say was $735.

Last year, he sold it for $1,900. That looks like a very handsome profit, does it not?

Mr. KROOTH. He has had money he invested there for almost 30 years.

Mr. TALLE. That is right. He sat down by lamplight with lead pencil and paper and he figured his taxes and he figured what he might have gotten out of that money if he had lent it. Actually, he borrowed the money, so he figured the interest he had paid out and there was a phantom looking over his shoulder in the form of a capital gains tax and after he was through with his calculations he discovered that although he paid $735 for the piece of land and sold it for $1,900, 27 years after he bought it, he lost money on the deal.

Now just how much speculative profit is there in this situation, with a capital-gains tax at the level that now prevails?

Mr. KROOTH. In the case you have cited, it doesn't seem to me he has made much of a profit, because besides everything else the value of the dollar is different today.

Mr. TALLE. He lost money.

So I come to the next point. I gather that the thesis of your argument is that housing is something that should not be traded in.

Mr. KROOTH. No. That is not so, Congressman. If I have said that, it is only because in my testimony I am concentrating on one segment of the problem, namely, the problem of the middle income who just can't get housing when it is traded in.

I am a complete exponent of the idea that we want houses traded in and we want houses built through the normal profit method. As far as they can go in meeting the needs of the American people, that

is fine. However, I say that if in using that method there are people who can't get housing, that housing is an important enough thing to good family life and good citizenship that we ought to try to find a way of getting housing to those people.

We can't build public housing, surely, for these families. Actually, the proper approach to these problems should be in the first instance to see if within our private enterprise method there isn't some way that we can help bring costs down and make housing available to those people.

I regard this bill as a means of providing private capital at lower interest rates to people who will use self-help methods. And I think that is just as much a part of our American private enterprise system as the other side, when a man is building with the hope of speculative profit and with the possibility, sometimes, of speculative loss.

Mr. TALLE. Perhaps I misunderstood what you said earlier, then. I understood you to say that if a person entered into this form of organization, if he chose to leave he could get his money back.

Mr. KROOTH. Yes; that is true and I think there is a special reason for that. I don't object. I think it is fine for people to trade in housing, as long as they are paying the trading prices for money, and operating in the normal way, but I think when we pass legislation which sets up a separate system, even if it is a private capital system, and make certain lower interest rates and longer periods of amortization available to serve moderate-income families, then I don't want that man who has gotten the benefit of it to speculate on selling those financing terms to somebody in the top income third. These things were made available to him so he would have a house. When he is ready to move out of the house, he should turn it back to the cooperative and get his money back and then the cooperative should sell it to another family that is in that middle-income group.

That is all I am saying. I think it is part of the price of getting this kind of finacing that he had to forego speculative profit on it.

Mr. TALLE. Of course, the term "getting your money back," is a pretty tricky thing, is it not, with the dollar losing value? Because getting your money back means you are getting so many dollars back, not purchasing power.

Mr. KROOTH. Yes. Well, I just used a broad term there. Actually, since the people will be owning the cooperative, each individual would have the right not only in his house but in any reserves that had been built up and so on. I think you have to have a fair system, I agree with you, and it might turn out for one reason or another to be a little bit more than what he put in. I don't know how you would adjust for the difference in the dollar when your mortgage is fixed in advance; that's one thing that doesn't get adjusted but I think it is a problem that needs to be studied to make sure that equity is done to the people who move out.

Mr. TALLE. I wonder what would happen to the Treasury of the United States if all income from capital gains were stricken out. There couldn't be any capital gains tax if a fellow just got his money back, because there would be no gain.

Mr. KROOTH. I am not advocating that, Mr. Talle. I am only saying that when a fellow gets certain special advantages in terms of lower interest rates and so forth, he shouldn't be allowed to go out and speculate on that. If he has a regular FHA mortgage or build

ing-and-loan mortgage, and he sells his house for more, why that is fine. That is part of the nature of our system.

Mr. TALLE. Do not misunderstand me. I want everybody to have a good home if it is possible. I am certainly for that, but it is certainly not a simple problem, as you and I very well know.

I am wondering about some of the things that may trouble us if we do this and that and some other things. It is not easy to see the full effect of what we may do. I think anybody who has the responsibility of legislation should be well informed before he proceeds to vote on any important proposition.

That is all, Mr. Chairman.

Mr. DEANE. It appears that private building is due to lose one of its main props in 608. I was interested in a statement mentioned by a witness yesterday which appeared in Business Week, January 14. I quote:

If the plan goes through

speaking of this Spence bill

it offers a new outlet to the large investor such as insurance companies.

Are you in a position to discuss the feeling of private capital so far as this particular bill is concerned?

Mr. KROOTH. My understanding is that there has been a certain amount of sounding out of prospective investors as to what their attitude would be toward this type of security. Actually, when some of the Members of Congress returned from studying housing systems abroad, they felt that the new legislation ought to be written with a greater emphasis on private capital methods. The first thing was to see if it was possible to do it with mortgage financing. As that matter was discussed, it became clear that there were certain servicing costs; also that there was a certain type of investor who bought that kind of security and thought in terms of 4 and 412 percent-possibly 312 in certain cases. And the reason for that is illustrated by the study of those four insurance companies which shows how much cost is involved in handling those mortgages before they finally get their

return.

Then discussion was initiated with a different class of investor who buy things to go into their portfolios without having all the responsibilities of the mortgages. They buy a bond and clip the coupons on it and are sure that it is well secured.

I think there has been enough exploration so that it is clear that the bonds of the Mortgage Association which are contemplated here will have an excellent market and that they will probably sell at about one-eighth of 1 percent above Government bonds.

Mr. DEANE. If 608 goes out, as it appears to be going, a large avenue of housing investment will be lost. Is that not true?

Mr. KROOTH. Of course, there will be a large volume of 203 mortgages, individual mortgages, and there will be some 207 rental housing, but I am sure nothing like what the 608 has been, because they will have to have a substantial investment in that program. So I think you are right that, besides the need among these middle-income families, it is going to be important to the economy to make sure that we have a good volume of housing production. Some people are talking about its volume dropping down from one million to eight hundred

thousand this next year. That will be a serious thing to the economy if that happens. I think if we can stimulate further housing production and bring more private capital in through other channels that would be very desirable.

Mr. DEANE. After all, we are thinking in terms of human beings in trying to provide a sound housing program in this bill. If it takes 10, 15, or 50 years to provide suitable housing, what is wrong with such an approach? There is nothing in this bill which will prevent a cooperative member from setting his equity, receiving a fair return, and going out and using this equity in building his own home. Is that not true? Mr. KROOTH. You mean an individual in a cooperative who had paid off his house completely?

Mr. DEANE. That is right.

Mr. KROOTH. I wouldn't want to answer that question categorically. I think the purpose of the legislation contemplated that he wouldn't sell financing terms and get the benefit of a speculative return, although the language of the bill

Mr. DEANE. I do not think you understand. Take a unit of separate, different houses on a block of land. A man, one of the members, within 10 years pays for his unit or house. He wishes to sell the house back to the cooperative. Is it not likely true that because of his income and otherwise, the only way that he would ever have built up enough cash reserve to enable him to own his own home would be through the cooperative program?

Mr. KROOTH. I see the case you are speaking of. There it seems to me quite clear that if he has paid off the house and no longer has the benefit of financing terms, he would automatically get freed. There would be a release clause in the blanket mortgage and his unit would be freed from it and then he might be free to sell the house at any price. I think that that is true.

Mr. DEANE. I have been impressed with the fact that every witness so far has suggested an amendment to the legislation to set up an administrator to vigorously expedite this program. Would you care to go into that more in detail, other than the statement you have made?

Mr. KROOTH. I think that it is terribly important that that happen because this program will require a concentration on the particular objective without diversion of other responsibilities and, also, I do believe that the most effective way of administering these housing programs is for the Commissioner of the constituent units to have all the tools in his own hands to do the job.

I think, and I have spent a good many years in Government, that if a Commissioner is charged with a responsibility to do a job and part of the tools are in the administrator's office or somewhere else, you get a division of responsibility and you don't get the concentration on action.

I recognize and I think it is sound-that all the housing programs be together under the Housing and Home Finance Agency. The administrator's office should concern itself with over-all matters of policy and how one program has an impact on the others, but I don't think that they ought to get into operating phases of the program. I don't think it is good for the administrator's office either, because