The CHAIRMAN. Our next witness is Mr. George C. Martin of the National Association of Home Builders. We are happy to welcome you again. Please identify your associates.

STATEMENT OF MR. GEORGE C. MARTIN ON BEHALF OF THE NATIONAL ASSOCIATION OF HOME BUILDERS, ACCOMPANIED BY CARL A. S. COAN, JR., LEGISLATIVE COUNSEL; NATHANIEL H. ROGG, EXECUTIVE VICE PRESIDENT; AND MICHAEL SUMICHRAST, CHIEF ECONOMIST

Mr. MARTIN. Mr. Chairman, and members of the committee, I am George Martin, the president of the National Association of Home Builders, and I speak to you today as a representative of our trade association which represents 72,000 builders/members throughout the country.

I have with me Mike Sumichrast, our chief economist, Dr. Nat Rogg, our executive vice president, and Carl Coan, our legislative counsel. We appreciate the opportunity to appear today, and present our views on the administration's housing proposals as embodied in the President's message of September 19 and the legislative proposals forwarded to the Congress this week.

I must say however that while we appreciate the opportunity to appear, we regret that what is before the subcommittee today does little to meet the housing needs of the American people, especially those of low and moderate income.

In my appearance before you on July 23 I spoke at some length on the housing situation then confronting us as a result of escalating mortgage interest rates and the tight availability of mortgage money at any price. I also presented our views on the major bills pending before the subcommittee, including S. 2182, which would consolidate and simplify the various HUD housing programs and S. 1743 and S. 1744, different apprpaches to consolidating and simplifying the various HUD urban development programs.

I would like to reiterate our support for most of the provisions of S. 2182 and S. 1744. These two bills basically embrace the provisions of S. 3248 passed by the Senate in March 1972 which we thought was a very good bill and regret that it never became law.

We urge this subcommittee to move quickly to approve legislation along the basic lines of last year's Senate approved bill.

If anything the housing situation is worse than it was on July 23. Mortgage money become considerably tighter and even more expensive.

Housing starts in August were at their lowest level since October 1971 and building permits for August were at their lowest level since February 1971. Both have been on a downward trend since the first of the year and seem headed down even further for the next several months to come.

This deterioration was not unexpected but it is nevertheless unwelcome and we believe unnecessary. We predicted it earlier this year.

The principal cause has been the administration's and the Federal Reserve Board's principal reliance on monetary policy to stem in

flation. Housing, of course, is hardest hit when such heavy reliance is placed on high interest rates and tight money to slow down general inflationary patterns.

With the prime rate at 10 percent at most banks, mortgage interest rates according to a survey made by us in the early part of September have reached a median level of 9.2 percent. All indications are that these rates have gone higher since that survey.

The results of this survey and other information compiled by our economics department on the present housing situation are set out in our Housing Starts Bulletin of September 19, 1973, a copy of which is attached. I might comment, that when Mr. Burns testified before the House Banking Committee, he said that there was an overbuilding situation because housing sales had slowed down in the last 2 or 3 months. He didn't see any connection between the 92percent interest rates and the slowdown of purchases in the last 2 or 3 months. [Laughter.]

We had hoped of course that the President's message would recognize the seriousness of the present housing situation and propose significant tools to deal with it. Unfortunately it fell far short. The $2.5 billion in forward commitments to be made available to S. & L.'s by the Home Loan Bank System and the reinstitution of the GNMA tandem plan for new unsubsidized FHA and VA mortgages are, of course, welcome. However, the $2.5 billion in advance commitments will only make money available at rates in excess of 91⁄2 pèrcent to the ultimate borrower and if the tandem plan had not been originally suspended in June, it probably would have been operating at a $3 billion annual level at this time anyway.

There was no indication of any effort to bring down the cost of mortgage money, the real culprit in today's slowed-down housing market.

With respect to housing the low and moderate income the President's proposals are little short of disastrous. They have completely abandoned the low- and moderate-income families in the proposals that have been brought forward by the administration.

After suspending the present subsidy programs, the administration promised that a full-scale review would be undertaken and new proposals to meet this need where justified would be forthcoming. The review has been completed and it seems to have done little other than to justify the preconceptions articulated by administraton spokesmen at the time of the suspension in January.

They have asked for all sorts of information, reports, documentation, and they seem to take the reports that disagree with their views and put them over on one side and anything that agrees with their views, they take as gospel. After an expense of millions of taxpayers' dollars, all that the low and moderate income have to console them is the hope that 2 or 3 years in the future some type of housing allowance program may be instituted on a gradual basis to help them obtain decent housing.

In the interim they are to be consoled with 200,000 units, while the national housing goals call for an annual production in excess of 600,000 units a year.

Before I get into some of the particulars of the President's message and the bill he has sent to the Congress I would like to touch on two

areas of immediate concern. The first of these is the necessity to take early action to relieve the present mortgage money crisis.

Secretary Lynn, in his statement 2 days ago, called for early action on legislation to increase the FHA mortgage limits and to adjust the downpayment requirements for FHA mortgages. We fully agree with this proposal.

The FHA mortgage limits have not been raised in almost 4 years, during which time we have experienced a severe inflation throughout our economy. With interest rates at levels in excess of 9 percent there is absolutely no mortgage money available in those States with 8 percent and similar usury limits.

Since most of these States, however, do exempt from their usury limit FHA and VA mortgages, it is important that the FHA mortgage limits reflect today's cost levels.

We also believe it would be helpful if adjustments were made in the maximum mortgage limits for the FNMA and Federal Home Loan Mortgage Corp. conventional, secondary markets These two important institutions have been circumscribed in their ability to assist effectively the conventional mortgage market because of outmoded mortgage limits. Legislation making these important adjustments should be acted on expeditiously by the Congress.

Beyond these relatively technical adjustments, however, we believe that it is crucial that the Congress pay early attention to the need to alleviate the present mortgage crisis and provide through legislation the mechanisms that will help prevent the recurrence of future crises. There is no one single way of dealing with these crises but we believe that through a combination of legislative and administrative actions it is possible to prevent them from recurring in the future.

At our board of directors' meeting in New Orleans last week our board adopted two resolutions dealing with the present situation. The first of these sets out a many faceted program which we believe should be put into effect. The second reaffirmed the housing goals adopted by the Congress in 1968 and called upon the Federal Government to act quickly to deal with the present problems. Copies of these resolutions are attached to my statement.

I commend to you the program set out in these resolutions. There is no question that if the past is any indication of the future we will ultimately come out of the present crisis but the toll will be great in lost efficiency in the housing industry and increased costs to the housing consumer. We cannot allow such a basic need as housing our people to be subject to the vicissitudes of a boom-or-bust policy.

Second, it is important that we get on with the job as has been pointed out by other witnesses before this committee, of providing decent housing for the Nation's low- and moderate-income families. For 9 months now this effort has been on the shelf while present programs have been studied. This study has now been completed. and we find a further study proposed. We also find to our dismay that the administration has asked the Congress to find and declare that the present Federal subsidized housing programs have not made an adequate contribution toward meeting the Nation's housing goals and that they are wasteful and inequitable and that they have otherwise been useless.

It is then proposed that the Congress find that a yet untried and still to be studied method is a better approach and that in the meantime we are to abandon any approach. This is disgraceful. Despite the approximately 2 million families who have obtained decent housing under these programs over the past 4 or 5 years the Nation is now asked to abandon any effort in place of a possibility. The Congress is further asked to revert to what has not worked in the pastmaximum reliance on the existing housing stock and the disciplines and economies of the free housing market. It is further asked to abandon the 10-year housing goal enacted in 1968, as well as the goal of eliminating all substandard housing. It is even asked to authorize HUD to spend money to determine the definition of safe and sanitary housing.

After being in business for 39 years, then I think we are in bad trouble if HUD does not know at this time what safe and sanitary housing is. If the Government is now to abandon its efforts to provide good housing for those who cannot otherwise afford it, as well as its efforts to eliminate substandard housing, then we are in even a sorrier

state.

While there may be better and more efficient ways of meeting the housing needs of the low and moderate income than those presently available, it is important that we proceed full speed with the programs now at hand until those better and more efficient programs are developed and fully funded.

This is especially true today when the highest mortgage interest rates in our history have priced such a large segment of our population out of the housing market.

Therefore, as our board of directors in another resolution adopted in New Orleans stated, we reaffirm our support of these programs, urge HUD to release all impounded funds, and urge the Congress to provide sufficient additional funds to keep these programs operating at a level consistent with the national housing goals until such better programs are in being, and I have attached a copy of that resolution to my statement.

I would like to turn now to the basic premise behind the administration's proposal to abandon the present housing subsidy programs, that the present major emphasis on production of housing for the low and moderate income is wrong and wasteful and that we should instead rely on the existing housing stock.

If we should abandon our present production orientation for low and moderate income, we would be the only Nation in the western world without a significant production element in its program to help house those who cannot afford adequate housing on their own.

Beyond that, however, we would be placing our reliance on an illusory foundation. I have testified in the past about this. This is a chart that shows homeowner vacancy rates in 1973 as compared to 1960. There are actually less vacant houses available right now than there were in 1960, 13 years after 1960, when the population is estimated to have increased by over 30 million.

There are slightly more vacant rental units available to move into now than there were in 1960, but the vacancy rate is considerably lower.

Senator PROXMIRE. Do you have a table that reflects that, too, in addition to the chart?

Mr. MARTIN. Yes, sir, we can give you additional support information on that. Of the rental housing that is available, 44 percent of the units available and vacant were built before 1939, and 50 percent of these rental units that are so-called available have only one bedroom or no bedrooms at all.

So to say we are going to turn the public loose with a check in their hand to meet their housing needs in the public market, is a sham.