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low VA appraising from areas in which these discount margins are wider, that the builders are getting hurt by them.

I was told by a particular VA office the other day that they figure the ordinary project builder is coming out with $400 a house-we'll say a $10,000 or $12,000 house after paying the discount margins that are currently obtained in the area for nonselective lending. By that I mean, for 100 percent 30-year loans. There is, as you know, a different price tag tacked on to a 10- or 20-percent downpayment loan for 20 years and one that is a 30-year loan for 100-percent evaluation. And that may vary as much as 5 points.

So, in a sense, looking at the thing very detachedly, and prescinding for the moment, as to whether these high charges should be imposed on the builder, the builder is paying for an easier market, a broadened market, and to a considerable degree the veteran is gaining an advantage there, where he gets this very liberal loan, for 30 years, with very small downpayment. And it is that latter feature that has induced most people to accept the one-for-one plan with some equanimity.

Senator SPARK MAN. Well, is this dip, where we see them go down perhaps as low as you have mentioned, to 90 or 91, is that a temporary adjustment brought about to a great extent through the incre ise in interest rates, or is this going to continue to operate to operate that way? Because, if it does, it seems to me, then, that somebody is getting hurt, and somebody else must be making an undue profit on the thing.

Is the builder? Is it the home buyer that is getting hurt? Or, if somebody is making an undue profit, who is it?

Mr. KING. Well, I think there are a little of all those things in it, Senator. But, I don't think there is a preponderant adinixture of just one of those things.

Senator SPARKMAN. Do you think it is a swing of market conditions? Mr. KING. Yes; one of the most aggravated discount areas in the country has been the Los Angeles area. Three or four months ago builders were paying as much as 6 points for 4-percent loans there. Now, I am told that the going price for, we'll say, a 10-percent downpayment type of loan, is up around 98 or better, in that area, but that there is still a 6-point take-in other words, the price would be 94, or maybe 93, if a builder figures he has to have a 100-percent no-downpayment, 30-year commitment.

Those figures show the market has narrowed very considerably since the dark days of last June or July, and one reason they are not narrowing much faster than they are, is that you can't stop a builder who figures he is hard pressed to get money today from taking a bad bargain. His own industry has warned him. A lot of people have warned him that he doesn't need to take bargains quite that bad. Most of the industries are finding that so. But there are some builders that don't have such good entries to credit and they have to get it the hard way.

Senator BENNETT. In the building industry, as in any other industry, there are men with more courage than others, and some with more judgment, and some with better business sense. There is always a variation in the way a man operates, even in the same market.

44750-54-pt. 1--14

Mr. KING. Unquestionably the only suggestion we thought of, when we were asked by some builders' representatives about this some months ago, was education. We thought they ought to educate the builders into knowing what the yield factors were, and what moneymarket factors they were actually confronting, and I think they are trying to do something in that regard.

Senator BENNETT. I have no further questions. This has been a very interesting and pleasant day, Mr. King. We appreciate your coming up.

Mr. KING. I am very grateful for the opportunity and for the consideration you have shown to me, Senator.

Senator BENNETT. You have a pretty good record. We will now hear Lt. Gen. W. S. Paul.

STATEMENT OF LT. GEN. W. S. PAUL (RETIRED), ASSISTANT TO THE DIRECTOR FOR NONMILITARY DEFENSE, OFFICE OF DEFENSE MOBILIZATION

General PAUL. Mr. Chairman, and members of the committee. I appreciate this opportunity to appear before your committee in behalf of S. 2938. The Office of Defense Mobilization is concerned with this bill primarily because of the impact of Federal housing programs on the Nation's vulnerability to air attack. We believe that its enactment would enable the Administrator of the Housing and Home Finance Agency to give greater and more effective consideration to this aspect of housing than would otherwise be possible. Our comments are directed particularly to section 803 and section 701.

It is well known that the industrial strength of the United Statesboth in terms of manufacturing facilities and trained labor forces— is now heavily concentrated in limited areas within a relatively small number of cities. Two-fifths of the Nation's entire population and over half of all persons employed in manufacturing now live in the top 40 metropolitan areas. Half of these live in the top 5.

And although there has been a great outward movement to the suburbs in recent years, the preponderance of the industrial labor force and plant capacity is still located close enough to the central cities to be imperiled if they are attacked with modern weapons.

That degree of concentration makes it possible for an enemy to inflict stupendous losses with a relatively small expenditure of modern weapons, if, by stealth or otherwise, he is able to penetrate our defenses and attack his chosen targets. It is a condition which the country cannot continue to accept with safety. It is, however, a condition that can be corrected if the building of new city structure-factories, homes, streets, et cetera―is kept to reasonable densities and properly spaced.

For several years the Federal Government has ben urging industrialists to locate new defense-supporting plants a safe distance from potential target zones in major cities, and has offered inducements in the form of accelerated tax amortization. Over 80 percent of all plants falling in the defense category have complied and industry generally is supporting the dispersion program.

But defense industries cannot operate without labor and plants that have been safely dispersed might prove to be of little value when most

needed if much of their labor force continued to live close to the probable target zones of central cities.

Therefore, if the full benefits of the industrial dispersion program are to be realized, means should be available to encourage builders to erect homes in the outer suburbs or smaller cities within commuting distance of the dispersed plants.

Excessive concentrations of population within small areas present attractive targets even without the presence of defense industries. It is frequently possible to reduce the size of such concentrations in the course of slum clearance and urban renewal operations.

Improved construction of residential buildings can do a great deal, at very low cost, to reduce the scale of damage from blast and fire and hence reduce a city's value as a target. Appropriate standards could be required in connection with new construction receiving Federal aid under the Housing Act.

Measures of this kind, though perhaps minor in themselves, can have a great cumulative effect, increasing over the years, in making the Nation's cities less vulnerable to enemy attack and hence less attractive as targets. In the long run they serve as effective deterrents to attack since they lessen an enemy's chances of achieving decisive results.

Section 803 on page 106 of the bill before you directs the Housing Agency and its constituents to exercise their powers, functions, and duties, consistent with the requirements of the act and other applicable law, in such manner as will facilitate progress in the reduction of the vulnerability of congested urban areas to enemy attack. This does not commit the Administrator to any specific actions but it does permit him to utilize the various measures under his jurisdiction in a manner to promote the Nation's security.

There is another provision of this bill which is of particular interest from the standpoint of reducing the country's vulnerability to attack. That is the provision in section 701 permitting Federal assistance to agencies of State and local governments for the planning of metropolitan areas or intrastate regions.

One of the obstacles to effective dispersion around our great cities is the lack of local governmental units with a broad enough territorial jurisdiction to guide development in the outer fringes of the area. Because of that lack, industries have difficulty finding sites with adequate community services, housing developments may be improperly related to places of employment, highways fail to meet the new requirements, et cetera.

Many of the problems that are being encountered both by central cities and the suburbs around them could be avoided if there were adequate coordinated planning for the whole area. Section 701 of the bill would offer an incentive to and assistance in such planning and in that way would contribute to the national defense.

It is not our purpose this morning to suggest specific measures to be taken under this bill in the interest of national security. They are now being studied by a staff group representing the Housing, Civil Defense and Defense Mobilization agencies.

For the present, the provisions of the bill appear to be adequate for dealing with situations in which urban vulnerability can be reduced and the Nation's security enhanced through the administration of the

housing programs. If, as a result of further study, deficiencies in this respect appear, recommendations for amendment will be made to the Congress.

In closing, may I state that the reduction of the Nation's vulnerability to attack, particularly the vulnerability arising from excessive concentration in big cities, is regarded as a serious and urgent problem by the President and his defense advisers. The. inclusion of section 803 in the bill is in accordance with the administration program.

If the chairman or members of the committee have any questions, I shall be happy to answer them to the best of my ability.

Senator BENNETT. You say on page 3 that specific measures to be taken under this bill in the interests of national security are now being studied by a staff group. Do those studies include considerations which might lead to recommendations to the VA and the FHA for actual changes in their building specifications for individual structures, or are they just studies concerned with communitywide problems?

General PAUL. No; it could include protective construction, Mr. Chairman.

Senator BENNETT. I have no other questions.

Senator SPARKMAN. As I understand it, it is more or less in a study stage yet?

General PAUL. That is correct, Senator Sparkman.

Senator SPARKMAN. Thank you.

Senator BENNETT. Thank you very much, General. We appreciate your coming and we welcome your testimony.

General PAUL. Thank you, sir.

STATEMENT OF VAL PETERSON, ADMINISTRATOR, READ BY RALPH SPEAR, DEPUTY ASSISTANT ADMINISTRATOR FOR PLANNING, FEDERAL CIVIL DEFENSE ADMINISTRATION

Senator BENNETT. You may proceed, Mr. Spear.

Mr. SPEAR. My name is Ralph Spear, Deputy Assistant Administrator for Planning of the Federal Civil Defense Administration. I have a statement prepared by Mr. Peterson in anticipation that he would be here this morning. A conflicting meeting of the National Security Council made him unable to be here, and he asked if I would present this statement for him.

Senator BENNETT. Is there anything in the testimony that is different or unusual from the testimony we have already heard and particularly the testimony we have heard from General Paul?

Mr. SPEAR. This is somewhat more limited in that it deals only with section 803 of the act and it brings out the importance of this kind of development to us in Civil Defense. A successful effort to reduce urban vulnerability will, of course, reduce the operating requirements of Civil Defense. It is a preventive measure designed to save lives, to protect property, and therefore reduces the burden on us. Senator SPARKMAN. As I understand it, you limit your statement to section 803, and you endorse it as a means of studying, surveying, and developing plans that would provide adequate defense? Mr. SPEAR. Yes.

Senator BENNETT. You may proceed.

Mr. SPEAR. Here is Governor Peterson's statement.

I should like to register with your committee my support of section 803 of S. 2938, the Housing Act of 1954. As Federal Civil Defense Administrator, I have the responsibility of planning and developing, to quote the language of the law, "activities and measures designed or undertaken to minimize the effects upon the civilian population caused, or which would be caused, by an attack upon the United States."

I can assure you that in the light of knowledge of the effects of modern weapons of mass destruction, such an assignment is a staggering one. Without some reduction of the magnitude of the problem, the civil defense task of burying the dead, caring for the injured, caring for the homeless, putting out the fires, et cetera, is tremendous. I have become increasingly convinced during my past year in this position that we must place more and more emphasis on measure to prevent damage and to prevent casualties.

A little over a year ago the Federal Civil Defense Administration, the Department of Defense, and the National Security Resources Board received the reports of Project East River, a comprehensive undertaking designed to recommend the best combination of nonmilitary measures required for the defense of the country. It is significant, I think, that in his letter of transmittal, Maj. Gen. Otto L. Nelson, Jr., retired, vice president of the New York Life Insurance Co. and director of Project East River, listed as the first requirement "development of a national program for reduction of target vulnerability." Responsibility for the development and coordination of such a program rests with the Office of Defense Mobilization.

We in Civil Defense are, of course, vitally interested in it. A successful effort in this direction would constitute a major step toward the prevention of casualties and damage.

Project East River also recommended continuing improvement in the effectiveness of our air defense and the development of a permanent civil-defense system, capable of minimizing the loss of life and the destruction of property. You will recall that in both his State of the Union message and his Budget Message, President Eisenhower indicated that definite and substantial steps are being taken to improve our military air defense.

We in the Federal Civil Defense Administration are pursuing to the best of our ability the goal of building an effective civil-defense program. It is important that the development of a national program for the reduction of urban vulnerability at least keep pace with these efforts.

In its recommendations with respect to this program, Project East River called for an effort designed to reduce population densities in the central areas of our target cities, to improve the strength and design of structures to make them more blast resistant, and to reduce the combustibility of our buildings. Project East River recognized at the outset that any effort along this line must be a reasonable one which reasonable men in business and industry can support. Any attempt to eliminate vulnerability by drastic measures would weaken our economic strength and would be bound to fail.

It is my hope that section 803 of the bill which you now have under consideration will call attention to the important purpose to be served for our country's security by reducing our urban vulnerability and

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