I don't insist that we have to take as a given, that all of the new housing must be for the poor, or that all the poor must be housed in new housing. Hopefully the trickle-down theory will work better in the future than it has worked in the past, but what we know is, you do not make an impact on housing scarcity by having nonhousing production programs.

It is a perfectly obvious truism, and it is true today, it was true yesterday, and it will be true tomorrow.

Senator PROXMIRE. I think the Secretary of HUD conceded this. He indicated that this was not designed to increase the housing stock.

Mr. SCHEUER. It is perfectly obvious that it is not, but if he assumes it will not increase the housing supply, then he would have to assume it will push up prices for the existing housing.

In other words, have you more dollars chasing the same amount of shelter. If it is not going to increase supply, then when you increase demand with a stable level of supply, you are going to drive up prices. It is perfectly clear as a demand/supply situation that my college freshman economics stand me in good stead for today.

Second in the President's program were some programs for subsidized housing, including the approval of an additional 200,000 subsidized units, of which 150,000 are for new construction.

We are pleased that there is a partial relief of the suspension of the 236 program and that the President lifted the January 5 suspension with respect to the section 23 program, but it is perfectly obvious that the number of units allowed to flow through the pipeline fall far short of the current need and we have no assurance whatever of subsidized construction beyond fiscal year 1974.

The administration's program would release less than one-third of all the moneys that were impounded under sections 235 and 236 and rent supplements. No new applications will be accepted and only those will be approved which were filed and substantially processed before January 5 of this year.

That means the pipeline is, for all intents and purposes, closed down.

We hope that you here in the Senate and your colleagues in the House will simply dig your heels in on this one and draw a line in the dust.

The Federal district court in Washington has held that the President does not have the constitutional power to impound and decline to spend funds under sections 325 and 236 and rent supplements. We hope that this decision will be upheld, and to clarify the records we urge the Congress to reassert itself flatly in demanding that the Secretary cease any suspension of these Federal housing assistance programs, or withhold any funds for such programs pursuant to the contract authority of funds appropriated or made available by the Congress.

We support strongly the bills S. 2169 and S. 2179 and also S. 2182 with amendments.

These bills provide for the direct Federal financing for housing for those with low and moderate incomes. A program of lower interest rates would reduce the subsidies and the Federal costs involved.

I believe these are investments, rather than nonreturnable costs, and they should be properly excluded from the budget.

This action was recently taken by a budget exclusion in a similar case involving the Export-Import Bank so that the same practice could well be followed on Federal loans for low- and moderate-income housing.

To accomplish this, the amendment properly provides that the moneys borrowed from the Treasury and used for secured loans for housing should not be treated as expenditures for budget purposes and should be exempt from any limitations on annual expenditures or net lending since they are not costs. They are investments.

We support the President's goal of improving the operation of present public housing and we look forward to proposed equitable solutions to the problem.

We are pleased that the $60 million in section 312 rehabilitation loans for the current fiscal year will be made available.

In July, we expressed our views on the Better Communities Act, and we are against it. We far prefer the excellent programs that you Senators and your counterparts in the House have produced.

We do have a strong history of supporting equal opportunities for all Americans seeking housing. We do not support the administration's apparent belief that we can continue to improve the quality of life for Americans with virtually no housing programs for a period of several years. We urge this committee to act diligently and promptly to reinstate our existing programs and to pass the very excellent proposals which you have pending now to avoid the disastrous social and economic consequences of the no-program approach.

We deplore the rhetoric and the principle that assumes that promises are acceptable substitutes for action.

Senator PROXMIRE. Thank you.

I think that is a fine statement, and I appreciate your support of my proposal for direct financing, direct loans. I think that would save money. GAO indicates that they have documented the fact that it saves billions of dollars. I would like to ask you about this, to really hit what really is the thesis behind the administration's position. I think it is an honest position philosophically. But I think it is wrong. The thesis is that subsidized housing does not increase the existing stock.

Secretary Lynn argued we would have just as many houses without it as we have with it. This replaces the houses you would otherwise have, he argues, and it does so with shoddy, wasteful, inflationary kinds of housing.

He would argue, I think, that the guts of the housing problem are inflation. That inflation is responsible for the high interest rates and for the high cost of housing, and inflation therefore is responsible for pricing the low- and moderate-income people out of the market very largely.

How can you meet that fundamental position? I ask you, because I think you are one of the ablest in this area. You were a fine Congressman, and I know you are a real expert in the housing area.

Mr. SCHEUER. You are very kind, Senator. I just do not believe it is true that subsidized housing programs replace housing that otherwise would have been built.

What you are doing when you give assistance to a developer-and it is really not to the developer, because it is all being passed on to the

people who live in that housing-by means of a writedown on the land in urban renewal housing, you are reducing the cost of the major element in housing costs; namely, land price. By a direct loan program at subsidized interest rates, you are reducing the chief cost of shelternamely, debt service and by a combination of these aids, but particularly the subsidized interest rate, what you are doing is giving the developer the ability to penetrate a market which, without that assistance, he simply would have no hope of meeting.

None of that cost of the direct loan of the subsidized interest rate sticks to the developers' ribs or fingers.

It is passed on to the people who enjoy that housing through very much cheaper rents than the developer would have to charge if he had only market interest rate housing.

So you are penetrating a whole different market. It is, to use a comparable analogy, without assistance, the developer could produce Cadillacs and he could not produce Fords, Chevrolets, and Plymouths. With your subisidy, he can produce Fords, Chevrolets, and Plymouths and reach a segment of the public who are not in the market for Cadillacs, Oldsmobiles, and Lincoln Continentals.

Senator PROXMIRE. This is a question that ought to be posed. The hand-me-down theory as was suggested by one mayor, or trickle down, as I think I would prefer, seems to me to be at the heart of the administration's proposal.

Now, apart from the general merits of this issue, how about the moral obligation the Government has to provide housing for the poor by virtue of the fact that Government programs, urban renewal, highway programs, any number of other programs have destroyed so much housing that the poor occupied. We calculated up to a few years. ago that urban renewal had destroyed 20 times as much housing as was constructed.

We have a new provision now in the urban renewal law, but that is all moot anyway. There's a great deal of housing destroyed by highways.

We have a situation that, for the next 2%1⁄2 years, we will have no housing programs for the poor- and moderate-income people at all, and the Government has engaged in this bulldozing action of destroying literally hundreds of thousands of homes.

Don't you think we have an obligation there?

Mr. SCHEUER. I do, indeed. When I was 5 or 6 years old, my older brother, Dick-I was one of five kids-I asked my older brother, Dick, "What is a 'hand-me-down'?" He was the oldest of the five-"A 'hand-me-down' is something that I will never have to wear, and it is something you will be wearing for the rest of your life."

I do not believe that it is a given, that the poor should necessarily live in hand-me-down houses. I do not believe it is a given, that the poor have any abstract moral right to be provided new housing. I do feel that we, by Government intervention, chuck a poor family, or a moderately circumstanced family out of their housing, then Government, which by its own action has displaced these people, has an obligation to give them at least equivalent housing in return, at least equivalent relocation housing.

Now, that does not necessarily have to be new housing. It can be section 23 leased housing, rehabilitated housing, or new housing, but

it seems to me the perfectly clear moral challenge facing the Government, when Government action replaces people, is that Government action should rehouse them.

Again, I do not feel that there is any particular morality involved in a mandate to rehouse all of the poor in new housing. And I think that to some extent when you have a vast flow of moderate-income housing, of various tools producing an interesting variety of housing, in a mobile society where people are upwardly mobile, some of the people who originally were in that housing would be moving up and people with less moderate circumstances will be moving in. So that a family, where there were about two or three wage-earners, and that was poor is now living in modern housing, and that is great.

So, to some extent that trickle-down principle does work. It works in everything, and it has worked in housing.

But I believe the one thing we must have is a large, massive program of housing production with a variety of housing tools for a variety of housing types and there should be some housing aimed for the benefits of our poor, not necessarily, as I say, new housing. I am very much in favor of the section 23 leased housing, where you can acquire a lot of square footage, or a lot of cubic footage in an older single-family home for a poor family, particularly where there are a large number of kids, and I think the section 23 lease program should be expanded.

We have got to use rehabilitation more efficiently, not only because we cannot afford to supply all new housing at the present cost of housing, but because in many neighborhoods it is sounder and healthier for that neighborhood to preserve its quality and character by preserving the housing stock rather than have block after block demolished.

We found out that the bulldozer does not always create healthy, new communities. So, from the point of view of the quality of our cities, a great deal more rehabilitation, I think, is in order. But the main thing is to rehabilitate our existing housing supply and to create an adequate flow of new housing under a variety of programs. This is going to cost money. There is no way of doing it with mirrors, and I simply feel we have got to get away from the principle that we can turn this vast and complicated mechanism on and off like a spigot on a sewer in terms of controlling the economy.

Senator BROCK. No questions.

The CHAIRMAN. Thank you very much. It is always good to have you with us.

Mr. SCHEUER. Thank you, Senator.

[Complete statement of Mr. Scheuer follows:]

Statement by

James H. Scheuer

President of the National Housing Conference

before the

Subcommittee on Housing and Urban Affairs of the Senate

Committee on Banking, Housing and Urban Affairs

October 3, 1973

I appreciate the opportunity to appear before you to present the views of the National Housing Conference on the Administration's proposed housing pro

grams.

The National Housing Conference is a non-partisan, national citizens' organization which since 1931 has been active in support of sound and forward looking legislation providing decent housing in suitable environments for all Americans. The Conference welcomes any improvement to our existing programs which would enable us to meet our goals. We have testified before this Committee many times over the years and most recently last July. We have proposed and supported many reforms.

While we felt that the Administration had undertaken a formidable task in reevaluating almost 40 years of housing programs in 6 months, we had optimistically hoped that they might come up with some fresh thinking which would enable us to get on with the job more effectively.

In a few words, however, we feel

the Administration has given us too little, too late.

Our programs were suspended last January with a promise for better programs. Nine months later we are presented with a renewed promise for better programs, a slight thawing of the freeze and a clear indication that the Federal government wants out of the housing business.

and these

Meanwhile the disastrous effects of the moratorium continue have been clearly spelled out in our testimony earlier this year; the housing