to what would be paid out in capital grants for an equivalent program. But, while the capital grant could be varied from year to year according to budgetary considerations or the state of the economy, the annual contributions, once contracted for, are a fixed charge which cannot be varied on the initiative of the Government. A serious element of budget rigidity is thus created.

Actually, the whole plan is a subtle means of disguising the full cost of the program. The actual cost of additional public housing is concealed, because the Congress is asked to authorize not the cost but simply the carrying charges on the cost. The actual cost of the annual contribution is also concealed because a substantial amount of the cost is hidden in an incalculable loss of revenue through tax exemption.

The straightforward way of handling public housing financing would be through capital grants, which is the way in which all other subsidies for construction operations are handled.

Consideration should be given to placing this program on the same basis as that now provided for subsidies for urban redevelopment—an outright Federal grant representing two-thirds of the total required expenditure, to be paralleled with a local payment of the other one-third. If this were accomplished, the Federal outlay would still be proportionately very generous, but it would be one that would restore to the Congress much closer control and would prevent the accumulation of future trouble in terms of fixed and invariable obligations.

Mr. CLARKE. Although the Mortgage Bankers Association includes but few savings and loan institutions, and consequently is not ordinarily concerned with their special problems, we nevertheless fully endorse the provisions of title VI of the bill that gives these institutions better protection against arbitrary action by Government officials and makes possible their broader coverage of the mortgage market. We can only wish that the same attitude of confidence could be manifested in this legislation to those institutions that more generally deal in insured and guaranteed mortgages.

In concluding my testimony, I ask for greater confidence in these institutions-the insurance companies, the banks, and the mortgage companies that, over a 20-year period, have made the insured mortgage system a vital feature of the private mortgage-lending structure of the country.

All but a small fraction of the 3.4 million mortgages financed with FHA mortgages since 1934 have been financed by the institutions I have mentioned. Of the total amount of this activity, only 193,200, or 6 percent, have ever found their way into FNMA, and this mainly during periods or in respect to programs when interest rates were set below marketable levels.

The mortgage lending institutions of the country have well demonstrated their desire to work with the Government in improving housing conditions. They have a great record with insured, guaranteed, and conventional loans. They will keep up this record, provided their freedom to perform is not arbitrarily hampered. In the main, this bill enlarges the area of potential performance.

I have endeavored to point out the sections of the bill that do this, as well as to indicate those sections that appear to us to be in conflict with this objective. We urge your reconsideration of the conflicting sections, to the end that, relying on a "strong, free, competitive economy," we may look forward to even greater progress in the improvement of the housing conditions of our people in years ahead than has been achieved during the troubled period through which we have passed.

I will be glad to answer questions.

The CHAIRMAN. You have some gentlemen with you?

Mr. CLARKE. That is right. I have Mr. Massey, who will talk about section 213.

Mr. MASSEY. Mr. Chairman, my name is Maurice R. Massey, of Philadelphia. I am president of the Peoples Bond & Mortgage Co. in that city. Our firm has been active in the past several years in financing section 213 cooperative housing projects, and I appear before your committee this morning as a member of the board of governors of the mortgage bankers associations, to support the enactment of section 119 of the bill that you have up for consideration.

In connection with that section of the bill, we have one suggestion: Section 213 of the National Housing Act, if amended as recommended by the President's Advisory Committee, and as provided for in your bill, will provide, in our opinion, a very effective mortgage financing device for all types of housing, including new housing in renewal areas and new housing for minority groups.

However, one particular amendment, not mentioned in either the committee's report or in the bill, itself, is vitally necessary in connection with section 213 management-type projects.

The need for this amendment arises not from the legislation itself, but from present FHA administrative requirements.

In section 213 management-type projects involving either elevator buildings or garden-type multifamily developments, the FHA requires that a commitment may not be issued pursuant to an approved certificate of eligibility until 90 percent of the cooperators have been obtained and their required subscription prices have been fully paid. This administrative requirement causes delays costly to the project and provides a major barrier to the early start of construction of many very desirable projects. If the FHA continues this administrative procedure, it is too costly for sponsoring groups to engage in further section 213 projects, and the legislation becomes a useless tool in providing needed and moderately priced housing.

It is recommended that section 213 be amended to provide for the issuance of a commitment to the sponsoring group in the same manner and provisions as are permitted under section 207, in order that construction could be commenced and sales programs entered into during construction or upon completion of the project. The mortgage could be finally insured up to the eligible maximum provisions of section 213 when sales were completed and equity deposits fully paid.

I should like to invite your attention, Mr. Chairman, to a project in Detroit which we are directly sponsoring, and which will illustrate what I am talking about.

In collaboration with several Detroit institutions and firms, we are sponsoring an elevator-type building called River House, at a very fine location in downtown Detroit. We are impressed with this project because of its location, the character of design that we have, the type of accommodations that will be offered to the public will result in carrying charges of $22 per room per month, as against the equivalent accommodations in competitive buildings at nearby locations which run as high as $50 per room per month.

The final sponsorship of this project, aside from our own, includes such companies as Westinghouse, Kelvinator, Briggs, Detroit Steel Products, the Warren-Webster Co., the J. L. Hudson Co., of Detroit,

a number of firms and institutions that have banded together to use section 213 as a device to supply moderately priced housing accommodations.

The CHAIRMAN. Is there any tax exemption on this to enable you to get this lower figure?

Mr. MASSEY. No, sir; no real-estate-tax exemption, and no Federal income-tax exemption.

The CHAIRMAN. None whatever?

Mr. MASSEY. No, sir.

The CHAIRMAN. This is a co-op?

Mr. MASSEY. Yes, sir.

The CHAIRMAN. You are building them, and then you are going to sell the units?

Mr. MASSEY. Yes, sir.

To point up what I am talking about, we build an exhibition building on this site and construct models so that the public can see them and inspect them. We initiated our advertising and opened our sales program on November 1. On November 14, we had 463 sales. By sales, I mean we had interviewed 463 applicants, taken $100 deposits from them, and begun to process their application through the FHA. As of November 14, we also had 107 cancellations for a net sales total of 356. One month later, on December 13, we had 586 sales, 201 cancellations, and 385 net sales.

On January 20, we had 642 sales-this contemplates a 448-unit elevator building-by that time we had had 261 cancellations, leaving a net sales total of 381.

On March 5, we had 691 sales, our cancellations at that point had reached 322; we had a net sales total of 369.

Happily enough, however, now, after several months hard work, and costly work, we have attained our 90-percent quota and we are ready to close the mortgage and begin construction.

The New York Life Insurance Co. has taken a permanent mortgage and a local bank, in collaboration with the Philadelphia bank, is taking the interim financing. But I want to point out if this project had been allowed to go ahead under section 207, with an 80-percent mortgage, if you please, instead of a 90-percent mortgage, with all the sponsoring groups' fees deferred until such time as sales were achieved, then we could have started construction before Christmas. So we, therefore, recommend the following amendment to section 213. We believe if adopted, section 213 could be wisely used in financing multifamily developments in all types of areas.

Following section 119, we suggest an amendment to section 213: Section 213 of said act, as amended, is hereby amended by adding to the end thereof the following subparagraph (h): "The provisions of this section may be extended at the discretion of the Commissioner to an insured mortgage transaction initially insured under the provisions of section 207 where such project was originally intended, at the time of the application for mortgage insurance, to be a cooperative housing project as defined in section 213 (a) (1) and (2).” The CHAIRMAN. Thank you, sir. We will certainly give consideration to that.

Mr. CLAPKE. Now, Mr. Rouse.

The CHAIRMAN. All right, Mr. Rouse.

Mr. ROUSE. My name is James W. Rouse. I am president of James W. Rouse & Co., of Baltimore, and I am here as a member of the board of governors of the Mortgage Bankers Association.

I have handed in a statement to the committee, and I would like to just talk for a couple of minutes.

The CHAIRMAN. Without objection, your statement will be placed in the record, as written, as well as everything you say as a witness. (The prepared statement of Mr. Rouse follows:)

STATEMENT OF JAMES W. ROUSE, BALTIMORE, MD., THE MORTGAGE BANKERS ASSOCIATION OF AMERICA

Mr. Chairman and members of the committee, I am grateful for the opportunity to appear before your committee and to testify to the enthusiastic support of the Mortgage Bankers Association of America for the slum clearance and urban renewal provisions of the Housing Act of 1954. Mr. W. A. Clarke, president of MBA has testified on the other sections of the bill. My comments are limited to title IV.

The MBA has supported the redevelopment program of the Housing Act of 1949 from its inception and is in full accord with the principles on which that program is based. We are encouraged by the operation of the program to date and are anxious to see our cities take advantage of the experience which has been developed in the past few years and move ahead on a broad front against slums and blight.

We can wipe out slums in American cities. We can build the vast sprawling squalid stretches of our cities into fine, clean neighborhoods where people will want to live and raise families. We can stop the spread of blight into our middleaged residential areas.

We can do these things if we will lift our sights from piecemeal thrusts at our worst slum pockets to a well-planned, carefully organized total campaign against slums along the whole front from the first signs of blight to the last states of urban rot.

Title IV of the Housing Act of 1954 is designed for such a campaign. If and when it is enacted into law it will unfold an enormous potential for effective action in towns and cities throughout the country.

The approach to slum elimination in the past has been largely surgical. We have selected a certain number of our worst slum blocks, acquired the properties, demolished the structures and redeveloped the cleared land. This process has been important. We have not only cleared some of our worst slums, we have also learned a lot about the techniques of land assembly, relocation and redevelopment planning. We have built an important structure of enabling legislation in the States and cities and established redevelopment commissions with trained staffs and an accumulation of experience in urban redevelopment. In the 4 or 5 years this process has been in operation, we have also become aware of certain clear limitations on the "surgery project" approach to slum elimination. We have learned that it is slow and expensive. If we moved at 5 times the demolition rate of the past 3 years, it would take over 40 years to eliminate one-half the 10 million dwelling units said to be substandard in 1950 and it would cost us $500 million per year to do it. This is far too slow and much too expensive. We have also learned that in many instances it creates new slums almost as fast as it clears the old ones. In the absence of effective preventive programs, it crowds the former slum dwellers into other deteriorating areas and spawns new slums. It simply fans the fire further into the forest. Thoughtful observers of the redevelopment program are not dismayed by these experiences. On the contrary, they are tremendously encouraged at the huge potential which the redevelopment program has revealed and they are eager to remove its limitations, accelerate its pace, reduce its cost and enlarge its effectiveness.

During the same period in which we have been cutting our teeth in redevelopment, there has been emerging in our cities an important new effort at slum elimination aimed at rehabilitating existing structures and conserving decent neighborhoods. This rehabilitation-conservation idea is new and growing. So great is the pressure in our cities for solution to the slum problem that the limited programs in rehabilitation which have been launched in some cities have 44750-54-pt. 1- -22

been seized upon by others and lifted high as beacons of hope for effective action in slum prevention and slum elimination.

There is tremendous opportunity in this effort. Responsible organized, it can prevent slums before they start; rehabilitate structures worth saving; remove blighting forces and regenerate good neighborhoods out of deteriorating areas not yet beyond recall.

But this effort is new and highly developmental. We are still learning the requirements or effective municipal organizations, still wrestling with enabling legislation, still pushing back the frontiers of its potential. No city in the United States has yet put together a truly effective rehabilitation-conservation program. None is even abreast of the composite knowledge and experience that has been accumulated in the past few years.

It is clear to all who study the experiences to date in urban redevelopment. rehabilitation, and conservation that they must not be operated as separate programs but should be merged as essential components of an overall program for urban renewal. There is no sharp line in a city up to which all structures should be demolished and beyond which none shall be. Salvagable structures should not be destroyed simply because they are in a demolition area. We cannot afford that kind of waste. Nor does it make sense to attempt the rehabilitation of unfit structures simply because they are in an area marked for rehabilitation. The purpose of a slum-elimination program should be to eliminate slums and blighting influences from the entire city to make the city into a community of healthy neighborhoods. To achieve that purpose there must first be a comprehensive plan for the community and for each of its potential neighborhoods. Within those neighborhoods all unfit and nonsalvagable structures should be demolished; adverse nonconforming uses condemned; congestion relieved; parks and playgrounds provided; public utilities installed, street and traffic patterns planned to protect the neighborhood and, under a vigorous program of law enforcement, all structures should be rehabilitated to an acceptable minimum standard of health safety and sanitation.

Title IV is designed to assist, promote and require that kind of slum-elimination program. It broadens the grant and loans provision of title I of the Housing Act of 1949, shifts the emphasis from demolition projects done to the regeneration of neighborhoods and the renewal of our cities. It permits the communities to obtain grants for public improvements which can so strengthen defined urban renewal areas as to make rehabilitation effective and in many instances avoid wholesale demolition.

Furthermore title IV faces the business of slum cure realistically and says that the Federal Government has no business spending money on slum clearance unless there is some reasonable assurance that the Federal grant will achieve the purpose intended. Federal assistance in the slum-clearance field is intended to help cities help themselves eliminate slums. A city that is unwilling to set up a comprehensive program for slum prevention and slum elimination is simply chasing its slums from one part of the city to another. The Federal Government cannot afford to encourage or participate in that kind of waste. Therefore a "workable program for effectively dealing with urban slums and blight" is made a precondition to Federal assistance including grants under title IV, grants for Public Housing and FHA insurance under section 220.

Title IV encourages a comprehensive approach to slum elimination by providing vastly broadened financial assistance for that purpose. Furthermore it requires that such a comprehensive program be developed as a precondition to eligibility. Then it goes an important step further and sets up an Urban Renewal Service to help the cities meet the conditions which the title IV program establishes. These programs of redevelopment and rehabilitation are new and growing. It is tremendously important to have a facility for communicating the various experiences in urban renewal from city to city and to thus assist in progressive improvement of the effectiveness of the program. The Urban Renewal Service will fill this need.

In this connection, the importance of the $5 million fund provided in section 414 merits special attention. This is a small fund as Federal finances go but it can be enormously useful. The timing in the urban renewal program is such that this fund, by accelerating the development and testing of new techniques in slum elimination, can ignite fires around the country that will light the way for hundreds of cities in the years ahead. It will tremendously speed up this entire program in its critical early years.

Title IV marks a great step forward in the battle against slums. It will find support in the cities throughout the country, among planners, builders, bankers,