THE QUANTITY OF PUBLIC LOW-RENT HOUSING PLACED UNDER CONSTRUCTION 1950 AND AFTER Due to the multiplicity of local and administrative problems in getting under construction the program voted in the National Housing Act of 1949, it will be a significant achievement to begin 30,000 to 50,000 units during 1950. In following years, the average may rise to as much as 150,000 units. However, in the then ensuing 5 years, it will be recalled that a similar number of substandard dwellings must be removed under the terms of the act. This quantity of lowrent housing appears to be less than the decline of private residential building which has been indicated. EXHIBIT A.-New privately financed residential construction in nonfarm areas compared with gross private domestic investment1 1 The Housing Situation, Housing and Home Finance Agency, June 1949, table 24. 2 Federal Reserve Bulletin, January 1950, p. 97. October 1949 rate. 49 months average. EXHIBIT B.-Housing need, 1949-50 Number of nonfarm families which will require housing in 1960__ 1 39, 500, 000 1, 600, 000 Total 41, 100, 000 Estimated effective supply (nonfarm), beginning 1949– 34, 829, 000 Net additional units which need to be added to supply by 1960 to keep up with rate of family formation___. 6, 271, 000 Total replacement and rehabilitation need- 8, 470, 000 Total nonfarm new construction, conversion, and rehabilita- 14, 741, 000 Add total new farm construction and rehabilitation need_. Total United States housing need by 1960--. Average per year, 11 years_. 1 Derived from Bureau of the Census estimates of total families in 1960. 2, 000, 000 to 3, 000, 000 16, 741, 000 to 17, 741, 000 1, 523, 000 to 1, 613, 000 Source: Table 27, p. 42, The Housing Situation, Housing and Home Finance Agency, June 1949. Source: Table 26, p. 41, The Housing Situation, Housing and Home Finance Agency, June 1949. TECHNICAL STATEMENT OF PETER HENLE, SECRETARY, AMERICAN FEDERATION OF LABOR HOUSING COMMITTEE I appreciate this opportunity to discuss with you some of the technical questions raised by H. R. 6618. FINANCIAL PROVISIONS It is contemplated that under this bill housing cooperatives will obtain loans from the National Mortgage Corporation for Housing Cooperatives at an interest rate of approximately 3 percent, and for an amortization period of up to 50 years. The prospect of 3 percent, 50-year loans has led to cries of "subsidy" and "discrimination," serious charges if they can be proved. In considering this problem, it is important to review the bill's history. Last year, many Congressmen introduced measures providing for loans that would be made directly from the Federal Government to housing cooperatives. The American Federation of Labor endorsed those measures and we still believe that this would be an effective program. However, because of the objections that were raised to the idea of direct loans by the Federal Government, it was agreed that the entire problem of financing cooperative housing would be completely reviewed. The provisions in the present bill are the result of this study and review. Instead of direct loans from the Federal Government, a new Mortgage Corporation, jointly owned by the Government and the housing cooperatives, will be established. This Corporation will obtain its funds by issuing Governmentguaranteed debentures for the investment market, and in turn will loan the proceeds of these debentures to housing cooperatives. It is expected that the resulting interest rate to the cooperatives will be approximately 3 percent. Does this 3 percent interest rate represent a subsidy? It definitely does not, because the 3 percent covers not only the cost of money to the Mortgage Corporation, but in addition it includes one-half of 1 percent for all administrative costs, and one-eighth of 1 percent for a financial reserve. Moreover, it is important to notice this fact: Insurance companies, savings banks, or other investment sources which purchase the debentures issued by the Mortgage Corporation will receive an extremely attractive investment. There will be no servicing or administrative cost normally connected with a mortgage loan. All that the investment company will have to do will be to clip the coupons bearing interest at approximately 21⁄2 percent. Moreover, the debenture will be supported by the security behind many different mortgages for many different projects in many different areas of the country, issued by the Mortgage Corporation. The comparatively long amortization period does represent somewhat of a departure from traditional practices. We must be careful, however, not to let the heavy hand of tradition and habit obscure a realistic view of our housing problem. There is no special sanctity about the traditional 15-, 20-, or 25-year mortgage. In many European countries mortgages run up to 100 years. It is quite true that wherever possible a young married couple wants to pay off its mortgage as soon as possible. However, with the present housing shortage, many young married couples cannot afford to own any house with a mortgage because of the high monthly payments that are required. One way to reduce these monthly payments is to lengthen the amortization period. Certainly young couples today would prefer a decent home with a longer amortization period on the mortgage than no home at all. Moreover, under this program it is quite likely that many cooperative groups will voluntarily be paying off their mortgage at a faster rate than the terms of the loan require. INCOME LIMITATIONS This is a housing program for families whose incomes place them in the middle third of our population. With this fact in mind, a few individuals have suggested that not a single family which is not in this middle-income category should be eligible to occupy any units built under this program. We emphatically disagree with this point of view. We strongly feel that there should be no specific income limitations written into this legislation since the proposed program involves no subsidy, is privately financed, and stands entirely on its own feet. This point is particularly important for a realistic and effective program. We do not want a program which will deny cooperative housing to all members of a union local or veterans post simply because a few members may have incomes slightly above or slightly below the so-called middle-income level. We believe that the present wording of the bill makes it certain that these projects will in fact be built for middle-income families. Before any cooperative can obtain a loan, the Administrator, under section 204a, has to certify that "the proposed housing project will meet a need for housing for families of moderate income in the locality.". In addition, the Administrator has to certify that the rental schedule for the project will make it available for these middle-income families. DEFERRED PAYMENT We are pleased to note that the bill contains an arrangement, long advocated by the A. F. of L., under which monthly payments could be suspended for specified periods so that families whose incomes are temporarily reduced by unemployment, illness, injury, or other misfortune would not be forced to lose their homes after making their regular monthly payments for many years. DOWN PAYMENTS Under the terms of the bill before you each cooperative borrowing from the Mortgage Corporation would be required to subscribe to the capital stock of the Corporation in an amount equal to 72 percent of the value of its loan. Of this amount, one-sixth would have to be paid at the time application is made for the loan and an additional one-sixth just prior to actual receipt of the loan. This means, in effect that each member of the cooperative would have to make a down payment of approximately $100 very soon after the organization of the group and another $100 a few months later but prior to actual construction of the project. We feel that this might work a considerable hardship upon some members of such cooperatives, and we would, therefore, suggest that the second $100 be payable at the time of occupancy of the project rather than prior to the beginning of construction. This would mean that the member of the cooperative would have to make a down payment very soon after the group was organized, but that he would have a little more time to raise the necessary cash to pay the second installment on his down payment. STATEMENT OF CLYDE T. ELLIS, EXECUTIVE MANAGER, NATIONAL RURAL ELECTRIC COOPERATIVE ASSOCIATION Mr. Chairman and gentlemen of the committee, my name is Clyde T. Ellis. I am executive manager of the National Rural Electric Cooperative Association which is the voluntary service organization of the rural electric systems of the country. Eight hundred and forty-nine systems are members of NRECA, with local memberships totaling 2,339,621 in 42 States and Alaska. I am happy to make this statement at the request of your able chairman, Congressman Spence, but I am obliged to say to you that our organization as such has taken no position with regard to either this particular bill or the general subject of housing. I understand, Mr. Chairman, that you desire from me a general statement as to how the cooperative rural electrification program has functioned from the standpoint of the farmer, with the idea that such statement might be of some benefit in your consideration of the proposal to extend the REA cooperative principle into the housing field. As you know, the REA Act was passed in 1936. At that time only 11 percent of the farms in the country were electrified-and most of those were in the suburbs of the towns or along the principal highways. Today, approximately 85 percent of the farms are electrified. The rural electric cooperatives and a few power districts are serving over 3,000,000 farms and rural establishments. The incorporated Rochdale-type cooperatives has without question provided the vehicle and the opportunity for our farmers to really work together in an inspired program. Not only have the cooperatives brought the blessings of the electric age to these 3,000,000 farm families, but their program paved the way and provided the competitive force which caused the power companies to serve additional hundreds of thousands of farm families which they probably never would have served except for the REA program. Abe Lincoln is often quoted as saying: "The legitimate object of government is to do for a community of people whatever they need to have done, but cannot do at all, or cannot so well do for themselves, in their separate and individual capacities." That is exactly what the REA principle is, for through REA the Government lends money to farm groups and at the same time provides certain technical guidance and assistance to enable those farmers to provide themselves with a service which they could not otherwise enjoy. Probably no program for the permanent progress of rural people has ever accomplished so much in so short a time as REA. On November 30, 1949, REA had loaned to 1,062 cooperatives and power districts $1,942,453,707. The repayment record of the farmers' electric cooperatives doubtless sets some kind of a record in American financing. The Government has not as yet lost a dime on a loan to a co-op. It has lost on a loan to a power company. As of September 30, 1949, the co-ops had paid back $213,033,386.38. They are now paid ahead of schedule $19,782,981.41. Only one-half of 1 percent of their scheduled repayments were more than 30 days overdue. It is estimated that for every dollar of Government funds which the farmers have borrowed under the REA program they have spent an additional $3 for house wiring, water pumps, refrigerators, milking machines, radios, and more than 300 other appliances. Hundreds of thousands of people are working directly and indirectly in the factories and on the electric co-op systems as a result of the rural electric program. This far-flung cooperative endeavor has not cost the Federal Government 1 penny. The interest which our people have paid on their loans over and above what the funds cost the Government has more than compensated for administrative costs. We believe that the rural electrification program is not only one of the best examples of democracy at work but also of free enterprise at work. The farmers own the co-ops themselves. They are proud of these businesses which they have built and are paying for. The service which they provide themselves through their own free business enterprise vastly increases their income and their daily health, happiness, and comfort--and enables them to pay more taxes. The very fact that we have here 3,000,000 farm people working together in vast new community efforts at a time when we are losing the country schools, churches, and community centers is something worth considering as a value which cannot be measured in dollars. No one knows better than our people how very, very much rural housing is needed. A high percentage of our rural homes are antiquated. Better farm homes will mean better rural electric systems. Better farm homes will mean better living. At present, the door seems to be closed to farm people generally in their efforts to obtain reasonable credit and access to technical know-how for modern home construction. I am happy, Mr. Chairman, to make this statement in response to your request. If a cooperative housing program would work one-half as well as the cooperative electric program has worked, it would be a blessing indeed to the American people in the cities, villages, and on the farms. GOVERNMENT LENDING TO COOPERATIVE AND NONPROFIT HOUSING CORPORATIONS (Analysis of H. R. 6618 by Chamber of Commerce of the United States) This bill, H. R. 6618, introduced by Representative Spence on January 6, provides for a new method for financing housing for rent or sale to be constructed by cooperative and nonprofit organizations. The purpose of this measure like its predecessor, which was rejected by the House in 1949, is to meet an alleged need for special credit facilities to provide housing for what are referred to as "middle-income families." These families, it is claimed are unable to provide decent housing for themselves through the facilities presently available to them. The Chamber of Commerce of the United States must register its opposition to this as to the predecessor measure. It does so on the grounds that: 1. The measure is not essentially different from the one for direct Government lending rejected by the House last year. 2. The proposed facilities are not essential to the continued improvement of general housing conditions. 3. The measure carries to a climax the process of breaking up the mortgage credit system into a number of special credit systems providing special privileges for separate groups in the population. 4. The measure will create further unsound demands for Government intervention which will be difficult to resist. THE BILL IS NOT ESSENTIALLY DIFFERENT FROM ITS ORIGINAL FORM The original proposal in H. R. 5631 was described as providing "direct lending" for cooperatives and was much criticized as making mortgage lending a direct governmental transaction. The present measure seeks to meet these criticisms by setting up means-to use the words of the HHFA Administrator— "to carry out the contemplated program through the investment of private capital, thus eliminating the necessity for direct Federal loans." The means chosen for enlisting private capital are the establishment of a corporation completely capitalized with Federal funds, which may issue debentures fully guaranteed by the Federal Treasury. This is plainly an example of a confusion in terms that has been growing up with the expanding of the Federal Government in real-estate finance. Last year, for instance, it was contended that the purchase by private individuals and institutions of tax-free bonds issued by local governmental housing agencies represented the use of private capital for public or Government housing. It could be as easily argued that the purchase of Federal bonds by private individuals and institutions make the operation of the Federal establishment a matter of private capitalistic enterprise. The difference between a bond that is directly issued by the Treasury and one that is fully guaranteed by the Treasury as to principal and interest is not substantial, except that the latter does not show up in the budget as a Treasury transaction. The financial operation of the proposed National Mortgage Association for Housing Cooperatives is consequently essentially a governmental operation. The directly governmental characteristics of this operation are further demonstrated by the complete control over its personnel and activities that is vested in the HHFA Administrator. The objections that were valid for the original provisions remain valid for the present one, despite the thinly disguished effort to meet them. THE MEASURE IS NOT NEEDED The Administrator's contention that "the necessity for greater and more generally effective activity in this area (middle-income housing) is more important than ever" is not substantiated. Since the end of the war, well over 3,600,000 new dwelling units have been built, with probably at least a million more units added by remodeling older buildings in addition to several million existing houses that have been put into good condition by repair and renovation. Certainly the great bulk of these dwellings have been occupied by families in the middle-income group as the Administrator has defined it as including urban families up to $4,000 annual income in small places and $4,900 annual income in large cities. In fact the best case that the Administrator can make is that "some middleincome families in most areas have been priced out of the market, and many such families have run into difficulties in high-cost areas." It would be difficult to conceive of an economic climate so beneficent that some families would still |