rate was down by one-third to 10.5 billion dollars. The export surplus also has contracted, from the peak rate of about 10 billion dollars annually to a current rate of 4.2 billion dollars. The current surplus of merchandise exports is actually somewhat smaller than our current foreign-aid expenditures. 10. Consumer finances The use to which consumer savings are likely to be put is of significance as well as the quantity of savings. Those families in need of homes, furniture, equipment, and automobiles, are those most likely to spend if they have the money. The top 10 percent of families who hold two-thirds of the liquid assets are an important source of expenditure, but much or most of these funds are not likely to be used for housing or consumer goods. Dissaving or going into debt has been a more widespread characteristic of middle-income families during the last 2 years. (See the 1949 Report on Consumer Finances, Federal Reserve Bulletin, January 1950.) The 1949 Survey of Consumer Finances was issued recently by the Board of Governors of the Federal Reserve System. This data has important meaning for the problem of decent homes for Americans. A family spending unit is defined as all persons living in the same dwelling and related by blood, marriage, or adoption, who pooled their incomes for their major items of expense. Out of a total of about 50,000,000 spending units, 14,000,000 had no liquid assets whatsoever, no bank accounts, bonds, or other similar assets. A fourth had only from $200 to $999, and about a third had $1,000 or more. Of those spending units holding liquid assets in 1949, the median amount held was approximately $790. When these family units are ranked by amount of liquid assets, the top 10 percent held roughly two-thirds of all liquid assets, reported. During 1948 about 13,000,000 added to their liquid assets, while about 16,000,000 reduced their holdings during the year. (Liquid assets are defined as including United States Government bonds, checking accounts, and savings accounts in banks, post office, or savings and loan associations. Does not include currency, cash values in life-insurance polices, or investments in securities other than Federal bonds.) CONSTRUCTION OUTLOOK FOR 1950 IS LESS HOUSING A total production of only 800,000 dwellings was predicted for 1950 in the real-estate section of the Washington (D. C.) Post on January 29, 1950. But there is an average annual need of over 1,500,000 units, agreed upon by a number of diverse sources as shown in the table attached as exhibit A. Estimates of homes needed for new family formation alone vary generally from 500,000 to more than 600,000 per year. "The total value of private construction to be put in place in 1950 probably will be about 13.1 billion dollars, nearly 7 percent less than the anticipated total for 1949 of just over 14 billion dollars. Declines are expected next year in all major classes of private construction-residential building, nonresidential building, farm construction, and public utility construction. "In 1950, the number of privately financed new dwelling units started is expected to be down to about 830,000, and the value of private residential constructure put in place will drop to around 6.5 billion dollars (from 7 billion dollars in 1949). "The outlook is for a decrease of about 7 percent in 1950 in the total value of private nonresidential building to be put in place. Industrial construction probably will drop about 26 percent from this year's total, continuing the downtrend that has been so marked during 1949, as immdeiate postwar expansion plans were completed. Construction of new churches and of social and recreational facilities also is expected to decline next year from the high levels of 1948 and 1949." "Farm construction probably will continue to ease off, following the trend of farm income. Railroads and telephone and telegraph companies are believed to have passed the peak of their immediate postwar construction programs and are expected to spend less money for new construction in 1950 than they spent this year. Electric light and power companies, likewise, probably will begin to curtail their new construction outlays next year." (Construction and Construction Materials, U. S. Department of Commerce, November 1949, pp. 5-6.) DOLLAR VOLUME OF MORTGAGE FINANCING DECLINING It is highly significant that the dollar volume of nonfarm residential mortgages recorded of $20,000 or less has shown a decline during 1949 even though the 61731-50 -29 number of dwelling units completed was slightly higher than in 1948 (1,019,000 in 1949 to 930,000 in 1948). While this is due in small part to the decline in costs of building (down 2.8 percent from 1948, Housing Statistics, HHFA, December 1949, p. 1).1 It is apparently due to the decrease in size of units, both in fewer bedrooms, and smaller rooms as typified in the "economy house" and rental housing insured under Section 608 of FHA. Dollar volume of mortgages under $20,000 (nonfarm) For this type of mortgage recorded, which includes most residential mortgages, it is seen that there was a drop in dollar volume from 1948 to 1949 of about 4 percent. REMOVING FHA SECTION 608 RENTAL HOUSING AND MORTGAGE PURCHASES BY FNMA WILL SHARPLY LESSEN AMOUNT OF MORTGAGE FINANCING Out of the total of 902,600 units started in the first 11 months of 1949 as reported by the Bureau of Labor Statistics, 330,390 were FHA insured or 36.6 percent (non-farm permanent dwelling units, p. 26, Housing Statistics). Of these 102,017 were insured by FHA under section 608 of the National Housing Act, or 31 percent of all FHA insured units in this 11-month period. By dollar volume of the face amount of the mortgage insurance written, the 608 rental housing was $910,000,000 out of the FHA total of $2,913,930,000 for the 11 months, or 31 percent of dollar volume. The Veterans' Administration guaranteed loans on 249,594 homes during the first 11 months of 1949, which was a marked decline from the 323,470 for the same period of 1948 and 498,572 for 11 months of 1917. While not all of these were new homes, this number of guaranteed mortgages had a sizable effect upon the economic demand for housing and hence upon the construction over a longer period. The principal amount of the mortgages partially guaranteed during 11 months of 1949 was $1,479,985,773,000 (of which about half or $653,487,053,000 was guaranteed). The purchase of mortgages by the Federal National Mortgage Association, allegedly for resale, also had a major effect upon the volume of money available from private lending institutions for mortgage financing and hence directly upon the volume of construction. As of November 30, 1949, the outstanding balance of mortgages purchased was $767,000,000 with commitments undisbursed of an additional $791,917,000. Another $940,662,000 was reported available for commitment (Housing Statistics, December 1949, p. 40). Of the $767,000,000 already committed at that date, $409,070,000 was used to purchase FHA-insured mortgages, and $357,930,000 to purchase Veterans' Administration mortgages. The effects of these FNMA purchases of mortgages will certainly continue into 1950, but once the funds are exhausted, a sharp decline in the total amount of mortgage financing may be expected. Builders will no doubt bring heavy pressure to have additional funds allocated to the FNMA. This type of mortgage purchasing is the most inflationary procedure possible. Speculative builders have full opportunity to obtain FHA and VA commitments, to reduce their standards of construction and quality of materials and workmanship to a minimum and include in their "cost" estimates a maximum of "water" by inflated estimates of the price or value of land, architects' services, overhead and other costs. Such known FHA procedures (Architectural Forum article, January 1950) are in 1 A decline of 4.2 percent is reported in construction costs by the composite index of the U. S. Department of Commerce, from October 1948 to October 1949 (p. 18, December 1949, Construction and Construction Materials, U. S. Department of Commerce). All construction materials were reported to have dropped 7.1 percent in price during the same period. The index of the quantity of production of all construction materials is reported to have dropped from 160.8 in October 1948 (1939 equals 100) to 141.2 in October 1949. sharp contrast to the interest of consumer members of cooperatives in keeping costs down and quality and standards up, as envisaged in the Cooperative Housing Act. CAPACITY OF THE CONSTRUCTION INDUSTRY A principal measure of the capacity of an industry is the size of the labor force. The increase in general unemployment has been noted. Employment has also been declining in the construction industry, as shown in the following tabulation of estimated employment in contract construction (Housing Statistics, December 1949, p. 18): From the above data, it can be seen that the average of 2,162,000 persons employed in contract construction during the first 11 months of 1949 was lower than the peak of 2,340,000 in August 1949 by 7.6 percent. In view of the fact that the American economy was capable of employing more than 65,000,000 persons in the civilian labor force and in the armed forces at the same time during the war years is also indication that there is considerable reserve capacity in the labor force. In the case of the production of construction materials, it is important to note that the quantity produced declined 10.1 percent during the first 11 months of 1949 as compared with the same period in 1948 (Housing Statistics, op. cit., p. 1). The month of November 1919 was 12.2 percent lower than the same month a year preceding. It is apparent that the production of construction materials is not now at capacity. A significant comparison is contained in the percent which new nonfarm residential private investment is of gross private domestic investment. In the attached exhibit B, it is shown that residential construction investment was as much as 32.8 percent of gross private domestic investment in 1925, but was as little as 12 percent in 1946. This proportion rose to 17.5 percent in 1947 and only slightly continued to increase to 18.6 percent in 1948. The prediction that investment in new plant and equipment will decline during coming years has been previously noted. If this does happen, it is apparent that there would be a somewhat corresponding increase in the proportion of the building industry which might engage in residential construction. However, the dollar volume of mortgages under $20,000 has already declined as shown above. The dollar volume of residential building has also declined during 1949, as follows: It can be seen that all privately financed construction declined and all residential building declined although the total of all construction. increased. .slightly from the first 11 months of 1948 to the same period of 1949.. 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__. Total Estimated effective supply (nonfarm), beginning 1949_ 1 39, 500, 000 1, 600, 000 41, 100, 000 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__. 2, 000, 000 to 3, 000, 000 16,741, 000 to 17,741, 000 1,523, 000 to 1, 613, 000 1 Derived from Bureau of the Census estimates of total families in 1960. 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 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, |