denied adequate housing. These people must be given relief from the totally unwarranted and inequitable burden of the present anti-inflationary policy.

Mr. Chairman, your bill to create a national development bank will also provide relief in areas which suffer most by tight money and high interest. These areas have not caused the inflation and yet are required to postpone urgent needs in order to relieve the strains on the economy.

However, I have serious reservations regarding the provision for making or guaranteeing loans to commence and industry. I believe low- and moderate-cost housing, community development, and supporting public facilities are the most urgent needs and the inclusion of loans to commerce and industry simply lessens the credit available to

them.

I see much overlap between Mrs. Sullivan's bill and your bill and would like to see more consideration given to consolidating both bills into a national housing and development bank.

There is a growing concensus on the need to make the Federal Reserve more responsive to the will of the President and the Congress. However, strong arguments can be made in support of the need for an independent Federal Reserve, for the present, I am going to withhold comment on this bill pending further consideration and information. Mr. Chairman, my closing comments will be on your mortgage investment act. This is a subject I feel very strongly about and to which I am deeply committed.

At its 1969 convention, the AFL-CIO expressed its concern about our Nation's housing crisis and adopted a resolution urging all of its affiliated international unions, central and State bodies, district councils, and trustees of pension funds to invest a percentage of their total assets in the AFL-CIO mortgage investment trust. It urged participants to allocate a percentage of their total assets to this program on a continuing basis.

Briefly, the AFL-CIO mortgage investment trust is a pooled trust fund for investment in federally insured or guaranteed construction loans and mortgages. The trust began operation in 1965. A group of union leaders serve as voluntary board members and AFL-CIO President George Meany is chairman.

We in organized labor feel that investment in FHA insured and VA guaranteed mortgages provides a reasonable rate of return, a high degree of security and provides funds for the construction of socially desirable housing so urgently needed.

It also helps provide employment for the building and construction trades and for the industries that supply materials and furnishings for housing.

In December of 1955, the IBEW, after reviewing its investment. portfolio which consisted primarily of common stocks corporate and government bonds, made a basic policy decision to increase its purchases of real estate mortgages. We decided that FHA insured and VA guaranteed mortgage loans would be the appropriate vehicle to implement this program. We identified six cities in which mortgages would be purchased and set amounts of annual investment in each city based on its size. Our first year's investment amounted to $12 million.

The bulk of funds available for investment is from a per capita assessment of our building trades members.

In each city we made a careful search to identify the leading mortgage banker. The mortgage banker contacts local builders and arranges construction financing. After the homes are built and sold to approved buyers, the IBEW purchases the mortgage. Every month we receive a check and a report regarding collections and delinquencies from the mortgage bankers.

The servicing of mortgages has, for all practical purposes, been reduced to a clerical operation by the mortgage banker.

Presently, the IBEW is investing about 50 percent of all available funds in mortgages. Table 3 below shows the amounts invested, the percentage of mortgages included in the portfolio and the rate of return on the total investment. The results are more than adequate to support our pension fund.

(Table 3 referred to follows:)

At the present time, the IBEW pension fund and its affiliated funds own a total of approximately 16,000 mortgages which are valued in excess of $250 million. Since 1955, nine cities have been added to our program and it is our intention to invest about $40 million in FHA's and VA's during calendar year 1970. A list of cities included in our investment program is attached.

(The list of cities referred to follows:)

First, the formula for determining the investment required of each pension fund is very arbitrary and possibly subject to political pressure. It, also, is an undue burden on the investment managers because

of its unpredictability. Its requirement of adjusting funds on a monthly basis is impractical since commitments are usually made a year in advance. I believe a more desirable formula would be one with a fixed annual percentage investment cumulative to a predetermined percentage of the total portfolio.

Second, I would like very much to see this approach applied to all tax-privileged investment.

Finally, I believe the penalty is too severe in that it directly penalizes the beneficiaries of the plan and not the individuals responsible for making the investment decision. Also, it does not provide a directive for expenditure of funds collected under penalty. I strongly suggest a means be developed to protect the interest of the beneficiaries and to assure that the funds collected through penalties reach the housing market.

Thank you, Mr. Chairman and committee members. This concludes my testimony.

Chairman PATMAN. Your prepared statement will be placed in the record at this point, Mr. Keenan. And we are indebted to you for a fine statement.

(The prepared statement of Mr. Keenan follows:)

PREPARED STATEMENT OF JOSEPH D. KEENAN, INTERNATIONAL SECRETARY, INTERNATIONAL BROTHERHOOD OF ELECTRICAL WORKERS

Mr. Chairman and members of the Banking and Currency Committee, I am Joseph Keenan, international secretary of the International Brotherhood of Electrical Workers. I am here today because I feel that we as a nation have failed to grasp the urgency of meeting the housing needs of low and moderate income families. The existence of festering slums in the shadow of magnificent skyscrapers challenges the very existence of our urban areas. Unless the Nation can provide workable solutions to the social turmoil which is ravaging our country, its future as a free democratic society is in doubt. We are at a critical time in the life of this country. The great social injustices which presently exist in this country should not, cannot and will not be tolerated any longer.

The National Commission on Violence stated flatly, "This Nation must spend billions of dollars to alleviate ghetto conditions if it is to reduce the fear of violence that is gnawing at the vitals of urban America." In a report on urban crime released recently, the Commission warned the Nation's cities are fast becoming divided into armed camps of haves and have-nots.

It also said, "In slums increasingly powerful social forces are generating rising levels of violent crimes which, unless checked, threaten to turn our cities into defensive, fearful societies."

Dr. Milton S. Eisenhower, Chairman of the Commission, stated that reversing the spiraling growth of violent crime would cost "billions * * * massive sums of money" over several years.

The Commission warned, in what it felt was its most important recommendation that, "Only progress toward urban reconstruction can reduce the strength of crime-causing forces in the inner city."

Much time is spent in debating the various priorities for allocating this great Nation's tremendous resources. This is pure lunacy because the needs are clear, the stakes are high and the options are few.

This Nation's success or failure in the seventies will depend on whether we can re-establish faith in our representative form of government or whether government by special interests groups will prevail; on whether we will continue to worship material goods; on whether we are willing to dedicate our enormous energies and resources toward creating a livable environment or whether we will persist in our blind obsession with unrestrained production. The foremost challenge in the forthcoming decade will be achieving the goal of assuring "a decent home and a suitable environment for every American family" established in the Housing Act of 1949 and reaffirmed 19 years later in the Housing and Urban Development Act of 1968.

The present anti-inflation policies have made a shambles of the housing industry and are self defeating since they are directly responsible for the soaring increase in the price of both new and existing housing. The scarcity of livable housing drives its cost beyond justifiable cost and profit.

The housing industry has been victimized by a one-two combination of high interest and tight money.

High interest rates have foreclosed on the dream of homeownership for millions of American families.

Let's look at the impact of high interest rates on today's Vietnam veteran by comparing his situation with that of the Korean war veteran in 1952.

Today a typical $20,000, 30-year FHA insured mortgage at a 9 percent effective rate costs the buyer $160 a month or $57,600 over the life of the mortgage, $37,600 interest alone.

In 1952, a Korean war veteran could find a house with a $10,000 mortgage at 4-percent rate. The monthly payments were less than $50 and debt retirement. both interest and principal, was less than $18,000; $8,000 of which was the cost of interest.

Within 17 years, the interest rate increased from 4 to 9 percent and the price of the house increased to where the mortgage required has doubled from $10,000 to $20,000. But monthly mortgage payments have more than tripled. Doubling the interest rate and doubling the mortgage have more than tripled the costs to the home buyer.

The interest charges are also partially responsible for increasing the typical mortgage from $10,000 to $20,000 because builders borrow money to buy land and materials, pay workers, etc. These interest charges are simply added to the price of the house. Manufacturers of building materials borrow money to run their factories and pass on the extra cost of borrowed money to the builders, and so the vicious circle goes, pricing an increasingly large percentage of the population out of the effective housing market and condemning them to dependence on Federal subsidy.

I think this is an appropriate point to digress a little and cover the cost of housing construction. The general public has been mislead into believing labor is primarily responsible for increases in the cost of housing and that significant cost reductions are possible through industrialization of the housing industry. Some visionaries see an entirely new, highly industrialized, housing industry rising out of the rubble of the present industry. I seriously doubt it because a highly industrialized industry requires large scale capital investment and no investor in his right mind will invest in an industry that has been the yo-yo of our national economy. I believe this persistence in belief of the coming of a new industry is indicative of an over all unwillingness to accept the fact that there is no simple solution to the problems confronting the industry. The plain, cold hard fact is that significant cost reduction in the production of housing is not likely in the foreseeable future.

The National Association of Home Builders recently supplied the congressional Joint Economic Committee with the following details which indicate that between 1949 and 1969, on-site labor costs fell sharply from 33 percent of the price of a home to 18 percent-indicating a considerable shift to prefab factory operations and a rise of onsite labor productivity, as well as sharp increases in other costs. While this shift from onsite labor to factory and materials activities was taking place, the cost of materials increased only slightly, from 36 percent of the price of a home to 38 percent.

The cost of the structure in these past 20 years fell from 70 percent of the price in 1949 to 56 percent of the price in 1969.1

The focus of attention, therefore, is on only 56 percent of the price of a single family home and on those costs which have been either sharply declining or relatively stable components of the price. But there is little, if any, attention given to the sharply rising components of the price-land costs and financing costs which, in combination, rose from 16 percent of the price of a home in 1949 to 31 percent in 1969.

All of this adds up to some very clear facts. The major part of housing costs to the renter or homeowner is interest charges-the price of loaned money to the developer, builder, landlord, and homeowner. Let's compare the increase of the

1 See table 1, in Mr. Keenan's statement.

FHA ceiling from 7 to 82 percent on a 30 year, $20,000 mortgage to the entire cost of onsite labor. The increase in the interest rate will cost the home buyer $5,040 over the period of the mortgage. The cost of onsite labor, assuming at sale price of $22,000, $2,000 down and a $20,000 mortgage and using the Kaiser committee's estimate of 18 percent for construction cost for onsite labor, is $3,960. In short, the cost of a 1 percent interest increase alone is almost 30 percent greater than the entire cost of onsite labor. The onsite labor cost accounts for only a small part of the price of the property and a much smaller portion of monthly occupancy costs to the homeowner and renter.

The Kaiser Committee on Urban Housing probed deeper and analyzed monthly occupancy costs. A report prepared by the McGraw-Hill information systems for the Kaiser committee identified debt retirement, taxes, utilities plus maintenance and repair as the four major components of monthly occupancy costs of a single family house. On the basis of this study, the Kaiser committee concluded, "All onsite labor costs represent such a small percentage of monthly rents that a general reduction of 20 percent for all workmen would mean only a reduction in rent from $100 to $98 in a typical unit.

The IBEW Research Department recognized the convenience of lumping construction and development costs together with financing costs as debt retirement still presented a distorted image of labor's impact on monthly occupancy costs. Using the same data McGraw-Hill provided the Kaiser committee, they separated construction and development costs from finance costs and applied a more current rate of interest. In a true relationship of the various monthly occupancy costs, labor accounts for only 4 percent or $7.60 of the monthly occupancy costs. Given entirely free labor, the $194 monthly occupancy costs would only be reduced to $186.40.2

And, now I will return to my main subject, the impact of present monetary policy and inflation on the housing industry.

Our Nation's money managers in their insensitive wisdom were not satisfied with the impact of high interest rates so they implemented policies which dried up the availability of credit.

Mortgage credit accounted for about one-third of the cut back in total outstanding credit in 1966. It is a gross injustice to impose one-third of the cut back necessary to reduce inflation on an industry which comprises 32 percent of the GNP. The situation is intolerable and grossly inequitable.

Evidence indicates that, under present conditions, builders fortunate enough to obtain funds build only for the high-income market. This is clearly evident when the tight-money year of 1966 is compared to 1965. In 1966, the sale of housing priced under $12,500 dropped 51 percent, houses priced between $12,500 and $15,000 declined 42 percent and those between $15,000 and $17,000 slid 20 percent. While low and moderate housing was being massacred, the sale of housing priced over $30,000 rose 10 percent.

Eleven months of an extremely restrictive monetary policy and 15 months of fiscal austerity have not resulted in stable prices simply because those who have to bear the burden of these policies are not the cause of inflation. The present tax structure is rigged in favor of investment and thus, tax reform is an essential element of any effective anti-inflationary policy.

There is broad, general agreement on the need to stop inflation. The disagreement is how to stop it and who should bear the burden of anti-inflation policies. Organized labor believes in a selective approach, the rifle as opposed to the blunderbus, whereby efforts are made to control areas of the economy which are causing the inflation. We also believe in a reasonable and a responsible and not a restrictive fiscal policy.

Unfortunately, inflation has been a convenient excuse for not recognizing the fundamental inadequacies of the mortgage instrument. For many reasons, mortgages traditionally have always been and will always be the least competitive form of investment. Large, powerful corporations will always have a distinct advantage over the home buyer. In a struggle for funds, the end result is always the same higher interest for all and still a shortage of funds in the mortgage market.

We humans are the only creatures on this planet gifted with the ability to think and yet, we exercise this gift creatively and rise above ourselves only under

1 See table II, in Mr. Keenan's statement.