Mr. MONRONEY. Ordinarily in the development of a large-scale apartment, the going rate of builders' profits and the services generally figure at about 10 percent, do they not? Mr. WESTBROOK. That is right, but there is a great deal more that goes into it, Mr. Monroney; as you know the cost of selling and financing, the so-called closing charges, and the speculative profit that is drawn out of the project by reason of the increased value of included land-those things run the cost up amazingly, 33% to 40 percent. Take this rental housing project that I mentioned a moment ago for example. It is going to rent for $45 a month. Those apartments are going to rent for $45 a month. Well, the landlord is making $10 a month or more, because he is also paying off the project. That is $10 a month, $120 a year, which runs into a great deal of money. Mr. MONRONEY. That is profit above amortization and other costs? Mr. WESTBROOK. That is right. Mr. TALLE. In connection with the building of the projects which you mentioned as of 1941, constructed under the Lanham Act, on a cost-plus fixed fee, was there a good deal of subcontracting from the ground up, so that Mr. WESTBROOK. It was not 10 percent. It was cost-plus fixed fee, and the fee got smaller as the costs went higher. I suppose the profit was around 4 or 5 percent, or something like that. I doubt if it was more than 5 percent on the average, but there was subcontracting, a great deal of it, and, of course, that pyramids. Mr. TALLE. That is the point I wanted to get at. That multiplies the cost. Mr. WESTBROOK. That adds to the cost, that is right. That is why I think if these could be built on a competitive basis they could be built for 25 percent less than they cost. Also the planning; the planning is tremendously important. You just cannot go out in 2 or 3 weeks' time and develop very good plans for a $2,000,000 or $3,000,000 housing project. Mr. MONRONEY. Would you have authority to buy enough land to develop it for not only residential but shopping areas, and so forth? Mr. WESTBROOK. Yes, it needs to be a complete community, Mr. Monroney, in order to get the best economies. Mr. MCKINNON. Who would operate these things? Mr. WESTBROOK. The people who own the, the people who buy them, in other words. We set up this sort of a device, which I think is very good, and I hope that if this bill passes, the FHA will do the same thing, if it has the responsibility. We require three public directors and three directors representing the Government because the Government holds the mortgage on the property, along with three directors among the people who live there. The public directors we have been able to get have been very outstanding. Believe it or not, the most helpful director we were able to get in Dallas was the president of the Dallas Real Estate Board. Another was a president of one of the largest banks in Dallas. Those people are willing to do that sort of thing once they are convinced these projects are sound, from a financial standpoint, and from a civic and social standpoint. They do not have any juvenile delin 94397-49- -9 quency in Dallas or Dayton or any of these other projects. If you belong to the Dallas Park project, you have to show your membership card, and you have credit in any retail store in Dallas right now. Mr. TALLE. They probably do not have any adult delinquency either. Mr. WESTBROOK. Right. They have not lost a dime on their collections, ever. Mr. MONRONEY. Can they sell their equities, when they transfer to some other town, for example? Mr. WESTBROOK. They can sell that lease just as they can sell a share of stock in General Motors, and there is a market for it. It is right there. All they have to do is let it be known. There are always a lot of people who want to get in. If a fellow has to move, he notifies the management that he wants to move and they have a list of people there who are ready to buy, and there is a market. He gets more out of it than he put into it. Mr. MONRONEY. That is all done on the side, though. It does not involve the corporation. Mr. WESTBROOK. It does not involve the corporation. They just say, "Here are some people who want to buy into that place. You go ahead and make your own deal with them if you want to and whatever you can get out of it is yours." Just as though you were going to sell your house. Mr. MCKINNON. There is going to be some promotion of this thing? These people are not going to get together without some promotion. Mr. WESTBROOK. You have put your finger right on it, Mr. McKinnon. That is why many of us felt that there should be a separate constituent agency, because the individual veteran who wants to go in with some other individuals does not know how to develop these large projects. The result is that FHA has turned them down, mortgage investors will not buy the mortgages, and they are stuck. But if they are helped, as we helped them back in 1941 and 1942, to get these things organized and properly set up, with the right kind of protective criteria, then FHA will insure them. Of course, FHA will write the criteria themselves, under this bill. So if they get this assistance and it does, as you say, have to be in the nature of promotion or at least education-it will work. Mr. MCKINNON. You cannot put a thing like this together without considerable promotional cost. Now, whether the Government pays for that promotional cost, or whether the individuals get together into the corporations set up and issue either stock or an interestif you are going to have as much promotional cost on a deal like this as you will have savings through the block purchase, I do not see the advantage of it. Mr. WESTBROOK. No, I think the assurance people need to have is that it is going to be under Government sponsorship, and no one is going to exploit them. If they feel that it is under Government sponsorship and that there is going to be continuing Government supervision, they will go into it. I have had a lot of experience in talking to these folks and they are very anxious so go into these things. But they quite properly feel, for example, that Westbrook isn't in this business for his health, he is out to make some money. But if the Government comes along and says that these criteria have been met, the people have confidence in it and go into it. The actual preliminary costs needed are architects the development costs that a private builder has to make before he can get a commitment from FHA, and it is not a very large item, Mr. McKinnon. Mr. MCKINNON. My experience indicates otherwise. Mr. WESTBROOK. Well, I am speaking only from my own experience with these projects that have been built and which are now working. I have not gone out and tried to do this thing with a lot of people because nobody pays me for it and I cannot do it without being paid for it. Mr. O'HARA. Mr. Westbrook, I am very much interested in the probable cost. It is your calculation that under this plan homes with three bedrooms might be furnished at a cost of $40 a month? Mr. WESTBROOK. I would say it could be done at around $45 a month. Mr. MONRONEY. I thought you said one bedroom at $40. Mr. WESTBROOK. These two-bedroom concrete duplexes which are being built in this area would cost about $35 a month under mutual home ownership and I think you could add another $5 a month and get another bedroom, or another $10. Mr. O'HARA. Would that cost apply in the city of Chicago where the costs of construction are higher? Mr. WESTBROOK. No; in the city of Chicago I think you would have to go outside the municipality to reach those costs. Mr. MONRONEY. For the purposes of the record, the committee staff says that the Dayton project cost to the Government, completed in June 1942, was $4,735 per unit, and the Dallas project, completed in April 1942, had a cost of $3,240 per unit. Mr. WESTBROOK. Yes, sir. Mr. MONRONEY. I think we would have to consider considerably more than that at this time, would we not? Mr. WESTBROOK. Yes; except that costs in 1941 and 1942, notwithstanding the fact that war inflation had started, were still far lower than they are today. Mr. MONRONEY. Yes, sir. Mr. WESTBROOK. But I think you could probably duplicate the Dallas project and the Dayton project under this plan with competitive bids, at 25 percent more. I do not mean monthly cost, but 25 percent more original cost. That is just a guess. But building costs are coming down, and you get much more competition now than you had a few months ago. Mr. MONRONEY. Could we assume a figure, perhaps? We understand generally what construction costs are, and I think under most FHA programs they run around $8,000 per family-sized unit. Mr. WESTBROOK. That is right, but, of course, the virtue of this plan is that you can, and you should, in high-cost areas, use multifamily dwellings. They are better anyhow. There is more privacy and you have better living conditions and you can cut the cost in a multifamily dwelling, as compared with an individual dwelling, by up to 33% percent. Mr. MONRONEY. What I would like for the purposes of the testimony later would be if we could have maybe a pay-out cost on maybe a $6,000 or $8,000 per unit figure at 4 percent for 40 years so we would know something of the target we are shooting at on the basis of monthly rents. Mr. WESTBROOK. I can give you that. We have to assume a theoretical local tax rate, but I can give you that very easily. Mr. MONRONEY. Yes, sir. Mr. WESTBROOK. In general it will run, in these projects that we have built, about seven-tenths of 1 percent per month, based on the original cost. That is pretty broad, but that is about what it will run and that includes reserves that are set up. Mr. MCKINNON. I would also like to see a break-down of where you are going to save the 25 or 33 percent in the mutual plan as compared to private enterprise. Mr. WESTBROOK. I can give you that very easily. This is private enterprise. This is not Government subsidy, Mr. McKinnon. Mr. MCKINNON. Well, it is not private. Mr. WESTBROOK. Yes; it is the most private thing I know, because the people privately own these places, and they do not own them when they rent them. Mr. PATMAN. A large part of that cost is due to the fact that in this 213 (a), cooperative housing or mutual home ownership housing, which you refer to, people will be able to buy at wholesale prices, whereas normally they pay retail prices for what they buy. A large part of the cost is there. A lot of money will be saved in buying at wholesale rather than retail. Is that not correct? Mr. MCKINNON. Mr. Patman, let me ask you a question there' If a man goes in and develops a hundred-unit tract, he can buy his materials as cheaply as a mutual home-ownership corporation. Mr. PATMAN. But does he pass those savings along? Mr. MCKINNON. I think so. I think in most cases they pass at least a part of those savings along. I am willing to be shown, and I would like to be shown, where you are going to save 35 or 33 percent, because you are not going to be able to buy materials any cheaper, your labor is going to cost you just as much, and the only place where you can save is on the speculation, and many of these builders of large tracts are not making more than 10 percent on their speculation. Mr. WESTBROOK. Well, a little group of veterans came to me and asked me to build some houses for them here in Silver Spring a couple of years ago. I built five houses-a small operation and I offered to buy them from them at what they cost them. The veterans' organizations to which they belonged made a report and said that they had saved more than a $1,000 a house. It was a small operation and yet they said they saved more than a $1,000 a house in that operation. I charged them about $500 a house for my services. It can be done. I have read the testimony of this man Levitt in New York. If you bring his type of construction down here, you are going to cut the price of houses tremendously. These houses that I spoke of, down at Norfolk, these concrete houses, are being built by a subsidiary of the International Business Economics Corporation, the Rockefeller interests. By using different techniques, good techniques, and in volume, they can do these things. You are quite right, Mr. McKinnon, that they are going to rent those houses, but they are going to make 33% percent or more every month out of the rental of them. That is all right, people ought to make money out of renting houses, but if you had a device which would save these people this money and give them the confidence of home ownership, and self respect that home ownership engenders, it seems as though that device ought to be made available. Particularly if it does not cost the Government any money. There is no subsidy. Mr. O'HARA. Mr. Westbrook, I would like to give to my constituents in Chicago the approximate rental cost of these apartments as would be calculated in the metropolitan Chicago area. I am tremendously interested in this plan. I think that our people in Chicago are tremendously interested in it. I do not want to mislead them. I want to tell them what you conservatively figure, under this plan, they could obtain rental properties for. Let us take a three-bedroom home for example. Mr. WESTBROOK. Mr. O'Hara, I am not specifically familiar with building costs in the Chicago area. Mr. O'HARA. That I appreciate, of course. Mr. WESTBROOK. But I do know they are very high, relatively speaking. Much higher than in most other metropolitan areas. I can give you what it would cost if they could get some estimators to tell you how much it would cost per unit. But I could not, without almost bidding on the job, tell you how much it would cost in the Chicago area. I can tell you how much it would cost per thousand dollars. Mr. O'HARA. The little homes that are being built are selling for $11,000 and $12,000, little bits of places. Mr. WESTBROOK. Yes; and a lot of them are not fit to live in. Mr. O'HARA. And the people cannot afford to buy them or rent them. Mr. WESTBROOK. That is right. Mr. O'HARA. Under this plan you think a great saving would be effected? Mr. WESTBROOK. Yes, sir; I think a saving would be effected, and I think in the metropolitan area the best answer is not the small individual house, it is the multifamily structure. Not the big elevator one, but the walk-up structure. The two-story walk-up multifamily structure. Mr. O'HARA. These houses are being sold in the present market for $11,000. There is a large spread between their actual cost and what they are sold for to the home buyers, is that it? Mr. WESTBROOK. I do not know, sir. I am not familiar with the situation in Chicago, but I do know that in general an individual house does cost 25 or 30 percent more than these people would have to pay. That might not be true in a specific instance, but in a general sense it would be true. Mr. PATMAN. Are there any other questions, gentlemen? If not, thank you very much, Mr. Westbrook. Your testimony has been very interesting and we appreciate it. Now, we have another witness, Mr. Kazan, of New York City. Is Mr. Kazan here? Mr. KAZAN. Yes, sir. Mr. PATMAN. I just wonder if we should start with you today, Mr. Kazan. About how long is your testimony? Mr. KAZAN. About 15 or 20 minutes. That depends on how many questions are asked. Mr. PATMAN. Well, suppose you begin. We will hear you. |