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Mr. GOODMAN. And this bill would help provide a technique which is not now available to the workers in Wichita to help expand the well-being of our national economy as well as the local economy in that area.

Mr. COLE. Of course, Mr. Goodman, you are enunciating some ideas with which we may or may not agree and I hope that it would do that. But the only thing, the only question that I have on this particular point, is whether or not those workers in Wichita, now working, say, 30 or 40 hours a week to pay a monthly installment on a house would, after the adoption of this bill, be required to add another hour or two upon their weekly wage schedule to make the monthly installment. I yet have not seen an answer to that.

Mr. GOODMAN. That, Congressman, goes to the heart of this bill and I would like to give you a chart which I would ask to be inserted in the record at this point, which discusses the basic fundamentals in this bill, and the purpose of its introduction.

(The documents referred to are as follows:)

Equal monthly payments, covering principal and interest, for $10,000 mortgage

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Cost-value comparisons-based on house cost only

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This chart shows the equal monthly payments covering principal and interest for a $10,000 mortgage. Now, if John Jones in Wichita, Kans., trying to buy a house today, goes out and uses his own individual credit and gets the best terms he can, he is likely to come up with a 20-year mortgage at 5 percent interest. If he is fortunate enough to get FHA insurance, he still pays that same rate, 41/2 percent plus the one-half of 1 percent service charge, but if you will look on the chart, you will see that his payment per month for interest and principal would carry him to $66 per month. If this bill passes and the investment market buys the debentures at approximately 2.2, which are the best estimates we are able to get, and the other costs added to it, raise the total rate to approximately 3 percent and the committee sees the wisdom of extending the amortization to a 50-year period, that same worker will pay $32.20 per month for interest and principal for the identical mortgage that would require $66 in the present circumstances.

I don't see how you can believe, Congressman, that Joe Doakes in Wichita, Kans., would have to work harder and longer to pay $32.20 a month contrasted to his present $66 payment for interest and principal.

Mr. COLE. I was in France not long ago and I paid 450 francs for a taxi ride from one short distance to another. It is not a question of how many dollars I paid. It is a question of how many hours I worked in order to obtain those dollars.

I am interested in knowing how many hours of work the man will be required to perform to buy the particular commodity that he wants. The thing that I am driving at is not how many dollars he pays. I don't care how many dollars he pays. I am interested, first, in how many hours he must work in order to buy the commodity he wants. That is the American system and that is what you are interested in, I think.

As Mr. Green pointed out, you have other things in which your organization is interested but certainly you are interested in that one thing.

Now, if the Government gives this man, as we said in the beginning, a $10,000 bill, it cheapens the $10,000 bill. If the Government gives the man a percentage of the $10,000 bill, it cheapens it in relation to that amount.

Mr. GOODMAN. Congressman, I am interested in your reverse position. I sat here many days during the OPA hearings and you seemed less concerned about inflation in those days.

Mr. COLE. I am sorry, I was not on this committee during the OPA days.

Mr. GOODMAN. If you are really interested in the inflationary factors in housing, I would like to give you, and hope we can insert in the record if it is not already in, the article in Architectural Forum which points out the real inflationary factors in the current housing situation. If you are concerned about inflation in housing, I suggest you look into the business of 608.

Mr. COLE. I will be delighted to do so.

The CHAIRMAN. If there is no objection, that may be inserted in the record.

(The article referred to is as follows:)



Not since the tinsel days of S. W. Straus & Co. bond financing has the United States seen anything like its present apartment boom. On Long Island meadows, where only yesterday big estate holders Alfred P. Sloan and Harry F. Sinclair had nothing more than an occasional golfer to obstruct their view, enough garden apartments have sprung up to swing election districts which had been Republican for decades. In Miami, owners of new apartment buildings slashed rents 10 percent, still could not fill them up. In Chicago, where a complete new rental city of 11,000 inhabitants had appeared 27 miles from the Loop and tycoons by the dozen were becoming part owners of apartment buildings, to rent advertising lineage was up 100 percent over a year ago. Some 30 percent of last year's record housebuilding starts were in apartment buildings.

But the remarkable fact about the "great apartment boom" is that this time it is being supported, not by the optimistic financing of some contemporary S. W. Straus, but by the United States Government. Last year, by conservative estimate, 70 percent of the apartment buildings started were covered by FHA mortgage insurance, under which for one-half of 1 percent a year the Government assumes 100 percent of the risk. This means that if too many vacancies appear and mortgage payments cannot be made, the United States Government may become the owner of up to 2.4 billion dollars' worth of apartment buildings. But nobody else involved in the deal will lose a cent. In fact, they will all have made money.

The apartment buildings are all being financed under FHA's famous section 608, which guarantees up to 90 percent of their hypothetical cost or value. This miraculous piece of legislation makes it possible for almost anybody of moderate acumen to become an apartment owner without spending a cent of his own money. The money comes from some eager lender who, even at the worst, cannot fail to make a little profit. In the event of mortgage default, he can simply hand the property over to the Government and take back Federal debentures, now somewhat above par. Even if he just becomes restive, or sees a chance to put his money to work at one-half percent more, he can sell the loan to another helpful Federal agency, the Federal National Mortgage Association, which already owns about $28,000,000 worth of 608 loans. This combination of public risk and private profit is perhaps the only way an apartment building boom could have got started under rent control, which suspends the normal action of supply and demand on all postwar housing. It has, in fact, put up so many apartments that in most cities the housing shortage is now more a matter of politics and rent control than a matter of less housing units per thousand population than was considered normal before the war.

Hundreds of builders all over the East have found that the surest way to tap the 608 bonanza is to consult a local specialist in the idiosyncrasies of FHA apartment building. More often than not this specialist is an architect. One such specialist, who will be referred to as John Smith, thinks that the surest way for a 608 builder to go bankrupt is to hire what the Forum might call a good modern architect. Mr. Smith is quite possibly right. But this should dismay more than modern architects; it points to the very heart of what is the matter with today's Government-backed apartment boom.

Under the 608 set-up, most builders are interested only in a quick profit. They naturally find that they can add nothing to this by making their buildings any better than they have to. The real way to make a profit is to figure out ways and means of making the actual cost of the building less than the amount of the mortgage loan approved by FHA. And just about the easiest way to start this process is to pay the architect only 12 percent instead of the 5 percent fee which FHA allows in its estimate of building costs. By this one simple step, the builder adds more than two-thirds to the 5 percent profit that FHA expects him to make. Smith can quickly point out to him a great many more ways to the same end.

So far Architect Smith has had his finger roughly on $66,000,000 worth of 608 building, and a good guess would be that his earnings have been over $1,000,000. As for 1950, Smith is not particularly worried about the impending March 1 demise of section 608, which has been so kind to him. He is sure that Congress will share his own opinion that a shut-down on 608 building would precipitate a major

depression. "This title alone," he says, "is keeping 3,000,000 men employed in construction and an additional 3,000,000 in the materials industry."

Nor is Smith particularly disturbed by the fact that 608 apartments are now being freely offered for sale in the new market on a 33 percent return basis-i. e., if the new buyer is able to keep them rented at the FHA rent schedules he will make 33 percent a year on his investment. This profit rate is some indication of what the smart guys who are selling out think the buyer's chances are.

Smith simply thinks the sellers are very wrong. He is convinced that more inflation is on the way-"we have to pay off the national debt in cheap money"and that "these 608 buildings will be cheap compared to what we can buy later." Some more detached observers of the present housing situation share Smith's point of view. They say that it is the manifest purpose of the Government to provide housing. Some of this housing is being provided by direct Government action under the public housing law passed last summer. The balance is being provided by Government guaranty under this or that FHA title or under the VA program. The public housing to be rented for $35 an apartment to poor people will cost (in high-cost areas) about $10,000 per unit, not counting land. The FHA apartments to house middle-class families at $20-$25 a room will cost about $2,000 less, and, if Government overhead were included in the public housing costs, FHA apartments would be even bigger bargains by comparison. These philosophic viewers hold that, even if the Government.eventually has to swallow the cost of all the FHA apartments put up since the war, the cost will be much less than the cost of public housing. And by harnessing the most acquisitive aspects of private enterprise to FHA housing, the Government has already gotten more new apartments started under FHA in the past 3 years than it is likely to provide in the next 2 or 3 under public housing and at about fourfifths the cost. Under the circumstances, perhaps it is unkind to look a gift horse in the mouth and wish that the standards set for the FHA housing had been better.


In any event, Smith is an intelligent man and a competent architect, and an excellent specimen of an indispensable element in our society: The man who gets things done. Unlike many other diggers in the FHA gold mine, he is no apologist. "Sure we're gambling with the Government's money," he says cheerfully. "Any man who would gamble with his own money under rent control would be a fool." It is hard to argue with this point of view. In a way, the FHA formula is an attempt to compromise with the basic economic dilemma of rental building today: The fact that new rental buildings at $2,000 a room must compete with rent-controlled buildings built 10 years ago for $800 a room-and still pretty good housing.

For many years, Smith has specialized in designing the type of apartments favored by FHA and is widely acquainted with its staff. He has the whole encyclopedia of rental housing regulations written in the back of his head. He knows how to meet 608 minimums without spending an extra dollar, and he also knows just what kind of plans will get the quickest processing.

Smith's intimate 608 know-how has put a lot of men in business. "Give me any smart businessman," he says, "and I can make him an apartment builder in 3 weeks." Candidates show up in his office by the hundreds. He tells them how much they can afford to pay for land, exactly what to build, what rent schedule to set up, where to go for mortgage financing. He attends to all the FHA processing. The builder is on his own for materials buying and for construction (if he lacks experience, he simply hires a good building superintendent). One of the ways in which Smith is a great boon to a 608 builder is his precise knowledge of current construction costs. He gets this by the direct route of being a 608 sponsor himself. This year he is building (as well as designing) $10,000,000 worth of 608 jobs, and he says he will build $25,000,000 more next year. His building firm is an interesting one: Participants in the sponsorship are the plastering contractor, floor layer, carpenter, and Smith.

This is no

Smith's architectural work has not appeared in the Forum. reflection on his ability, but rather an indication of his own frankly expressed prejudice against contemporary design. "No matter what kind of project these modern designers attempt," he says, "it always turns out to look just like a gas station."

While Smith's own planning principles would sound elementary to a qualified "modern" architect, they are probably in advance of the great body of 608 apartment planning. In spite of the huge volume of work in his office, "We turn out

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