trend of mortgage amounts. A mortgage for an average new home jumped from $9,375 in 1955 to $15,960 in 1960 and to $19,094 in 1970. Then it almost doubled to $34,785 in 1976. Quite a change.

"TYPICAL" FAMILY OF 4 BUYING A NEW HOUSE, 1ST YEAR EXPENSES (SHARE OF INCOME GOING FOR HOUSING

The third major area of increased annual expense was payment for utilities. maintenance and repairs. This increase has been particularly severe in the last several years because the cost of heating and cooling has increased faster than most other expenses.

The items combined under the housing expense category "utilities and other" increased 8.7 percent a year between 1955 and 1975. However, this category accounted for a 16.8 percent share of the increase in the 1970-76 period, and last year, due mostly to energy cost, this share jumped to 18.9 percent of the $1,230 increase. Taxes accounted for 52.1 percent ($641), and mortgage payments for 29.2 percent ($359) of last year's housing cost.

In spite of soaring increases, last year saw a record number of people buy homes. There were 1.1 million new units started and 3 million existing homes sold.

How is this possible?

One reason is that over the years we have been able to stretch out the length of the mortgage payments. In 1955 the average length of a mortgage was 21.3 years; in 1976 it was 28 years.

Another reason is that down payments have been lowered substantially as a percentage of the loan. In 1955 the loan-to-value ratio was 68.4 percent. In 1976 this was 78.7 percent.

Both of these moves were designed to make it easier for people to acquire homes, and they did. These moves had to be made to counteract the rapid increase in overall mortgage rates.

The third reason is that an "average" family with an "average" income did not buy an "average" house. Last year buyers of a typical new home had considerably more income than the average for all families.

Last year the average family income was estimated to be $14,750. But the incomes of households that bought new homes averaged $21,615, or 46.5 percent higher.

Today's buyer probably has a wife who is working, rather than being the sole provider. In 1955 only 27.7 percent of married women worked. In 1970, 40.8 percent worked, and in 1976 the number reached 49 percent.

Another factor to be considered is that today's new home buyer is more likely to have another house which he can sell, using the equity to buy a new unit. This was not generally the case in the mid-1950s.

Last year only 35 percent of new-home buyers were first-time buyers. An equal number were second-time home buyers; 15.2 percent third-time; 8.2 percent bought a home for the fourth time, and 6.3 percent were buying for the fifth time or more.

Buying a home is a good idea, in spite of the cost and increased expenses. It is a singular protection against inflation as well as a unique means of saving. In the final analysis, however, one must recognize the fact that rising costs are making it more and more difficult for the average young man, woman or couple to pay for a house.

This is especially true since most people want bigger houses, with more amenities and a larger chunk of land. It is consistently surprising to find, year after year, that people want more rather than less in housing. After World War II a typical dream house contained less than 1,000 square feet. Today it measures slightly over 1,600 square feet.

Today's house must have a family room and 21⁄2 bathrooms. Ten years ago 75 percent of all new homes built had no air conditioning; last year one-half did not have it. In 1970, 62 percent of all units were without a fireplace; last year only 42 percent did not have any. Today only 24 percent of all new houses are without garages, and 53 percent have two or more-car garages. And so on.

Buyers pay a bigger share of disposable income as well as more dollars. This share seemed to level off during the 1960s at about 24 percent of net income. But in 1975 it was up to 27.9 percent. Last year it was estimated to be 28.4 percent. Compare this to the 20.3 percent share in 1955.

Clearly, the problem is not that we don't make enough money. We just don't have enough left in our pay check.

Mr. SUMICHRAST. We are getting into the same area the Canadians are, or Britain or Europe.

Ten, fifteen years ago we could allocate 65 cents of purchasing dollar to build a house. We can no longer do that. We can put aside less than 50 percent for the structure.

Why? Because of all of these crazy things you have to go through. There is no way to fight these. Gordon can tell you some horror stories on this.

Senator BYRD. Mr. Smith, what is the cost of the average home in Fairfax County these days?

Mr. SMITH. I believe the average for new construction is someplace around $62,000 to $63,000.

Senator BRYD. If you go back 10 years it was what, $40,000?
Mr. SMITH. Probably in the mid-thirties.

I have a few different thoughts on that, Mr. Chairman.

We hear a lot of comments that the young family today cannot go out and buy a new house. I would agree with that, and I would raise the question, should they go out and buy a new house, a young married couple? My feeling is their first housing should be an apartment, then maybe a townhouse or a condominium, then maybe a single family.

I know when I grew up you did not dream of owning a house when you were first married. You saved. You did not go on a vacation. You put your money aside, because you knew you wanted to buy a house. You did not go to the theater, you did not do a lot of things.

Senator BYRD. I wasn't considering somebody that young. I consider 40 young.

Mr. SUMICHRAST. People have an alternative. They can buy an existing house. Existing houses are cheaper, other than in Washington. Washington is the only place in the Nation where existing homes are actually more expensive rather than less expensive.

Senator BYRD. As a rule of thumb, what does a building cost per square foot in northern Virginia?

Mr. SMITH. About $30 a foot.

One of our biggest problems is the price of land is taking an increasingly larger portion of the total product. There used to be a rule of thumb in the industry that 20 percent of the cost of the finished project was for the cost of the finished lot.

Now I think in northern Virginia, it is possibly closer to 30 percent. I have seen a couple of cases where the builder spent 35 to 40 percent for a lot cost.

Senator BYRD. Let me see if I understand this. If it were 30 percent, the cost of the lot for a $65,000 home would be $20,000? Mr. SMITH. That is correct.

Senator BYRD. Is that normal?

Mr. SMITH. You would be very hard-pressed in Fairfax County today to find a lot that would be less than $20,000. It is extremely difficult to find that.

Mr. SUMICHRAST. You cannot find any lot, unless you go way out to Frederick.

Senator BYRD. I was in Williamsburg over the weekend. While I did not go to the new development outside of Williamsburg, some of my friends did. They told me the lots were selling there for about $50,000.

Mr. SUMICHRAST. That does not make sense.

Senator BYRD. Senator Curtis?

Senator CURTIS. I was interested in what you said about subsidized housing. What types of subsidized housing?

Mr. SUMICHRAST. Section 8.

Senator CURTIS. What is the other?

Mr. SUMICHRAST. Section 235.

Senator CURTIS. What is the difference between 235 and 236?
Mr. SUMICHRAST. 235 is for sale housing, 236 is rental.

Senator CURTIS. Have you written any 235's?

Mr. SUMICHRAST. There are no 235's being built now. Less than 1,000 last year. At the peak, there were as many as 330,000 built in a 3-year period, a little over 100,000 a year.

Mr. SMITH. We have never built any.

Senator CURTIS. The program had a lot of problems. There could be, on one side of the street, someone paying for their house in a conventional way with a neighbor with a 235 house with similar income, very similar and the purchaser of the 235 house had a very substantial subsidy.

Mr. SUMICHRAST. That was one of the problems.

The biggest problem with 235, was actually, in the existing houses not in new, where a lot of speculation was done. Detroit was one area where a lot of people made a lot of money and a lot of people were actually put in jail as a result of it.

In the new housing, 235 was a fairly successful program. The problem you mentioned was one of the major problems.

Senator CURTIS. What made it successful? Did poor people actually get them?

Mr. SUMICHRAST. No, not poor. The typical buyer of 235 had an income of about $7.500. The typical public housing income was about $2.200. The typical-203 being nonsubsidized income was about $14,000.

It was about one-half or two-thirds what the typical unsubsidized FHA housing was, only one-half of what the typical family income today for new homes is $21,000. People with medium or average incomes do not buy new homes.

The people have typically double incomes and make more money than the average family makes. The average family income is about $14,750. The people who buy houses do have about $7,000-$8,000 more income.

Senator CURTIS. I was very critical of that subsidizing. It was very expensive for the Government. It was a good bargain for the person who got it, but terribly unfair to their neighbors who had to pay for it in taxes.

Mr. SUMICHRAST. The 235 program was a cheap program compared

to 236.

Senator CURTIS. It may have been, but it gave a portion of our people treatment that they did not give to the great number of people who do not buy a house.

Mr. SMITH. Another problem with these particular programs is that they tend to be funded in the down cycle. By the time they work their way through the legislative process and become funded and HUD finally gives the OK on them, we are probably coming out of the cycle and they are used as a stimulus to the economy. They are placed on the industry while the industry has already recovered.

Probably they should be initiated in the legislative process when the industry is at its very peak. When we are at the peak, we know we are going to come to a valley. By the timelag of delay, getting our program involved, it will be a year and a half. That is when you need it the most.

Mr. SUMICHRAST. We expect a decline in production next year. We should be working on to help us do something next year when the interest rates will go up, when the mortgage money will dry up and the construction will start declining.

Senator CURTIS. Thank you, Mr. Chairman.

Senator BYRD. Thank you very much, gentlemen. You have pointed out to us that the housing industry is very important to the economic growth of the country.

Our next witness is Edward I. O'Brien, president of the Securities Industry Association. He is accompanied by Stephen Small, assistant vice president and legislative counsel for legislation.

Please proceed, Mr. O'Brien.

STATEMENT OF EDWARD I. O'BRIEN, PRESIDENT, SECURITIES INDUSTRY ASSOCIATION, ACCOMPANIED BY STEPHEN SMALL, ASSISTANT VICE PRESIDENT AND LEGISLATIVE COUNSEL FOR LEGISLATION

Mr. O'BRIEN. Mr. Chairman, my name is Edward I. O'Brien; I am president of the Securities Industry Association. Accompanying me today is Stephan K. Small, assistant vice president and legislative counsel for taxation.

SIA represents approximately 550 leading investment banking and brokerage firms headquartered throughout the United States which, collectively, account for approximately 90 percent of the Nation's securities transactions conducted in this country. The business of our members includes retail brokerage conducted on behalf of 25 million shareholders, institutional brokerage, over-the-counter market making, various exchange floor functions, and underwriting and other investment banking activities conducted on behalf of corporations and governmental units at all levels.

I wish to commend the committee and its chairman for their decisions to hold hearings on incentives for economic growth. These hearings provide a timely and welcome opportunity to reexamine the effect of the Nation's tax policies on the process of capital formation. Moreover, the hearings permit public comment on various proposals before specific legislation is introduced.

In the thousands of miles that I travel throughout this country each year. I have the opportunity to speak with many investors, large and small, as well as the heads of corporations, institutions, securities firms and salesmen. I am very much impressed with the tremendous interest on the part of citizens of all types on the overall subject of our economy, the need for prudent fiscal budgetary management of the Nation's resources, and the recognition that we need to build our capital and our well-being in the future. There is also a strong tide in favor of providing equity or fairness for the average shareholder who is, by and large, not a person of substantial means. This desire for fairness is, in great measure, reflected in the area of dividend taxation and incentives for investment.

People tell me from across the country that they wish to see some material steps taken to relieve the double taxation of dividends as well as to enable them to share in the country's growth through stock ownership.

We believe that strong and stable growth of the Nation's economy is a prerequisite to the expansion of job opportunities for a growing work force, to the resumption of world leadership in the standard of living enjoyed by Americans and to the availability of a sound tax base for revenues to support needed government services and national defense.

We are gratified to note the growing consensus that such essential economic growth is best achieved through greater capital investment in the private sector. And many regard a major revision of the tax code as it applies to capital formation as the best way to spur the stable economic growth we need. National leaders in both the public and private sector have called attention to the need for Government action to encourage capital investment. Consider the following:

Tax stimulus legislation presently pending in the Congress contains incentives for business to expand hiring.

The Joint Economic Committee published a staff study last year which focused on the need to broaden stock ownership.

Senator Humphrey and Congressman Rostenkowski have introduced legislation (S. 1055, H.R. 5359) which would establish a national policy "to provide sufficient incentives to assure meeting the investment needs of private enterprise.”

Treasury Secretary Blumenthal in several speeches has stated that one of the administration's goals will be to encourage increased investment in order to provide jobs and higher productivity.

The House Ways and Means Committee published a Task Force on Capital Formation which recently published a paper, Tax Policy and Capital Formation, discussing a number of approaches to increase investment.

The Americans for Democratic Action have called for elimination of the corporate income tax.

The previous administration published Blueprints for Basic Tax Reform which included as part of one sweeping proposal the integration of individual and corporate income taxes.

Importance of the individual investor. Effective solutions to capital formation must recognize the importance of the individual investor as a source of new capital. I must tell you in candor that I believe that there is a false notion prevalent with respect to shareholders and stock