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rate of 3 percent per annum and a term of 60 years could result in an average gross rent (that is, including all utilities and services) of approximately $69 per month.

Assuming, on the average, roughly a range of 20 percent upward and downward from the national cost average between the lowest-cost areas and the highest-cost areas, this would mean a possible range of achievable gross rents of from about $55 per month in low-cost areas to about $83 per month in high-cost areas.

With the same assumptions of a $9,000 average capital cost and operating expenses of not more than an average of $25 per month, but with an average interest rate of 2 percent per annum, the estimated average gross rent would be approximately $63 per month, with a possible range in achievable rents of from about $50 per month in low-cost areas to about $75 per month in high-cost areas. It is appreciated, of course, that as construction costs decline from the present abnormally high levels, the range of achievable rents under such a plan should also be progressively lowered.

Your committee also would require estimates as to the cost of such a plan. These costs would also depend upon the average rate of interest on the loans under the terms prescribed by the Congress as applicable to such loans. Table II, which is enclosed herewith, summarizes the estimated maximum first-year cost to the Federal Government, assuming loans of $500,000,000 were made for constructing an estimated 55,000 dwelling units at an average cost of $9,000 per unit.

As indicated in table II, the estimated maximum Federal cost for a $500,000,000 direct loan program for the first year would be $10,000,000 if the rate of interest averaged 2 percent per annum, and $5,000,000 if the interest rate averaged 3 percent per annum. This represents the estimated costs of administrative overhead, including supervision of project development, loan servicing, and supervision of project management.

The estimated maximum cost in each succeeding year should progressively decline. Regardless of the interest rate with respect to the loans, the net interest cost to the Federal Government would decline continuously as the principal amount of the loan was reduced. After the first 3 years, supervision of project development would no longer be necessary. While there is the possibility of losses in later years, the lower rents achievable and the supervision and review of the development, management, and operation of the projects should help to keep these relatively small.

It is unlikely that the maximum cost would actually be incurred in later years of the program. Because of the requirement that rents must be equal to at least 20 percent of the family income up to the maximum rent whenever such income rose, rental payments to the projects would increase and interest payments on the Government's loan would likewise rise, thus reducing the net cost to the Government. Family incomes could be expected to be high enough to require tenants to pay more than the minimum rate in many cases for the following reasons:

1. The initial tenant families would probably have varying incomes within the middle-income range and some of them would pay more than the minimum rent from the start.

2. Average family income tends to rise and, over a 60-year period, the average money income (even if no increase in real income is assumed) would, in all probability, be considerably higher than at the time the project is opened.

3. Since most of the families admitted to initial occupancy would be young families, particularly veterans' families, it can be expected that their incomes would tend to increase at a rate more rapid than that prevailing among the population generally.

A

It is believed that, if after consideration of this matter the Congress should decide to adopt a policy of making direct Government loans at a specially advantageous rate of interest to housing cooperatives and nonprofit housing corporations as a means of producing and making available housing for families of moderate income who cannot afford to pay the rents for dwellings in new privately financed rental housing, the program should be viewed as somewhat experimental in nature, and the size of the program determined on such a basis. relatively small authorization, with discretion in the President to increase it, if actual experience proves that the objectives are being met in accord with the principles outlined herein, would accomplish this. An initial authorization for $500,000,000 in loans, with authority given to the President to increase this authorization to $1,000,000,000 would provide for from 110,000 to 120,000 units if average capital costs of $8,000 to $9,000 per dwelling unit were attained. This authorization could, of course, be increased if actual operating experience demonstrates that the program is accomplishing successfully the desired objectives.

To assist your committee in its consideration of this matter, we have prepared and enclosed a draft of a bill incorporating the principles discussed in this report. I have been authorized by the Director of the Bureau of the Budget to advise that there is no objection to the presentation of this report for consideration by your committee.

Sincerely yours,

RAYMOND M. FOLEY, Administrator.

Estimated average monthly gross rent achievable under a nonprofit housing association assuming (a) 100 percent direct loans for 60 years at various interest rates; (b) operating expenses of PHA projects; (c) 41⁄2-room unit with total cost of $9,0001

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1 The figure of $9,000 for the total cost of a 41⁄2-room unit does not represent a determination that such a figure would be an achievable average cost. For each $1,000 by which actual capital costs were increased or decreased above or below the $9,000 figure, the estimated monthly rent per unit should be increased or decreased as follows: $5.43 in the case of 4 percent financing, $4.70 in the case of 3 percent financing, and $4.04 in the case of 2 percent financing.

2 These figures for estimated operating expenses represent a Nation-wide average based on actual operting experience on low-rent public-housing projects assisted under the United States Housing Act. They represent what is achievable with minimum services and efficient operation, and reflect the benefits of tenant maintenance which has been achieved in this program.

3 Figures are for all utilities including gas and electricity.. This low figure is due in part to the fact that wholesale rates are generally available for such projects.

• Consists of $7.75 current expenses and $3.25 reserve for replacement. On PHA-assisted projects the amortization periods are between 55 and 60 years.

5 This low figure is due in part to the fact that PHA-assisted projects are generally of fireproof construction, and, in part, to a Nation-wide effort on the part of PHA with the insurance companies to secure the most favorable rates.

6 The vacancy reserve of 5 percent of estimated rent is conservative. FHA generally allows about 7 percent. PHA, because of the extremely low rents, generally allows about a 3 percent reserve, although in actual experience the loss has run about one-quarter of 1 percent.

Source: Housing and Home Finance Agency, Office of the Administrator, Division of Housing Data and Analysis.

Maximum first-year cost of $500,000,000 program of direct Federal loans

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2 Difference between $20,000,000 (4 percent on $500,000,000 loans to borrowers) and $12,500,000 (21⁄2 percent on $500,000,000 supplied by Treasury for loan funds).

Difference between $15,000,000 (3 percent on $500,000,000 loans to borrowers) and $12,500,000 (21⁄2 percent on $500,000,000 supplied by Treasury for loan funds).

Source: Housing and Home Finance Agency, Office of the Administrator D vision of Housing Data and Analysis.

A BILL To provide Federal aid to nonprofit corporations to assist such corporations in providing housing for families of moderate income

Be it enacted by the Senate and the House of Representatives of the United States of America in Congress assembled, That this Act may be cited as the "Housing Loan Act of 1949".

PURPOSE

SEC. 2. The purpose of this Act is to provide a means whereby housing of sound standards of design, construction, livability, and size for adequate family life, in well planned, integrated residential neighborhoods, can be produced and made available for families of moderate income, who cannot afford to pay the rents at which comparable dwellings in new privately financed rental housing are currently being made available in their locality, by encouraging and assisting nonprofit cooperative ownership housing corporations and nonprofit corporations organized to provide housing, and by making financial assistance available to such corporations for housing which is of such design and construction as will promote economies, both in construction and in operation and maintenance, which will be fully reflected in reduced rents. The provisions of this Act relating to encouraging and assisting nonprofit cooperative ownership housing corporations shall be administered in a manner which will encourage and assist the association of persons into such cooperatives who (by reason of their like interests, associations together in other fields, or otherwise) will contribute to the sound integral character and success of such cooperatives, provided necessary leadership therein, involve democratic voting principles, and avoid any speculative use of such cooperatives.

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HOUSING LOAN ADMINISTRATION

SEC. 3. There is hereby established in the Office of the Housing and Home Finance Administrator a division to be known as the Housing Loan Administration. The Administrator shall appoint a Director to administer the provisions of this Act under his direction and supervision, and the basic rate of compensation of such position shall be the same as the basic rate of compensation established for the heads of the constituent agencies of the Housing and Home Finance Agency.

LOANS

SEC. 4. (a) To effectuate the purpose of this Act, the Administrator, upon application by an eligible borrower and subject to the terms and conditions of this Act, may make a loan (including advances during the development of the housing project) to such borrower to finance the development cost of a housing project to be undertaken by such borrower.

(b) Any loan hereunder shall not exceed the development cost of the housing project; shall bear interest at the rate of 4 per centum per annum to the extent earned, as hereinafter provided, but in no event less than 2 per centum per annum, shall be secured in such manner and shall be repaid within such period, not exceeding the estimated period of the useful life of the project and not exceeding 60 years in any event, as shall be deemed advisable by the Administrator

(c) To obtain funds for loans hereunder, the Administrator, on and after July 1, 1949, may, with the approval of the President, issue and have outstanding at any one time notes and obligations for purchase by the Secretary of the Treasury in an amount not to exceed $500,000,000, except that with the approval of the President such aggregate amount may be increased to not to exceed $1,000,000,000. (d) Notes or other obligations issued by the Administrator under this Act shall be in such forms and denominations, have such maturities, and be subject to such terms and conditions as may be prescribed by the Administrator, with the approval of the Secretary of the Treasury. Such notes or other obligations shall bear interest at a rate determined by the Secretary of the Treasury, taking into consideration the current average rate on outstanding marketable obligations of the United States as of the last day of the month preceding the issuance of such notes or other obligations. The Secretary of the Treasury is authorized and directed to purchase any notes and other obligations of the Administrator issued under this Act and for such purpose is authorized to use as a public debt transaction the proceeds from the sale of any securities issued under the Second Liberty Bond Act, as amended, and the purpose for which securities may be issued under such Act, as amended, are extended to include any purchases of such notes and other obligations. The Secretary of the Treasury may at any time sell any of the notes or other obligations acquired by him under this section. All purchases, sales, and redemptions by the Secretary of the Treasury of such notes or other obligations shall be treated as public debt transactions of the United States.

REQUIREMENTS FOR HOUSING PROJECTS

SEC. 5. In making any loan hereunder, the Administrator shall require that(a) The location and physical planning of the housing project will afford reasonable assurance as to the stability of the neighborhood, and that the dwellings in the housing project will meet sound standards of design, construction, livability, and size for adequate family life;

(b) The housing project will not be of elaborate or extravagant design or construction, and that such design and construction, and the proposed methods of construction and of operation and maintenance are such as will promote such economies as may be achieved through the nonprofit character of the borrower; increased efficiency in production through the use of new or improved materials and techniques and methods of construction, or otherwise; increased efficiency and economy in operation and management through improved techniques, minimum operating services, occupant maintenance, or otherwise; and that all such economies that are achieved will be reflected in reduced rents;

(c) The reduction in operating expenses made possible by the lower rate of interest and longer amortization period with respect to loans hereunder will be fully reflected in further reduced rents;

(d) The estimated rents (on a per-room basis) for the dwellings in the housing project (plus an allowance for the reduction in operating expenses made possible by the rate of interest and amortization period with respect to the loan hereunder, and an allowance for any reduction in operating expenses made possible by any special concessions not generally available for new privately financed rental housing currently being made available in the locality which, under applicable laws, have been or are to be made available with respect to such housing project or with respect to the borrower) are substantially below the level of rents at which comparable dwellings in new privately financed rental housing are currently being made available in the locality; and

(e) The housing project will meet a need for housing for families of moderate income in the locality which is not otherwise being met.

CONDITIONS OF LOAN CONTRACTS

SEC. 6. The Commissioner shall issue such regulations and retain such rights as will assure that any housing project developed or acquired with the aid of loans pursuant to this Act, will serve families of moderate income as contemplated by this Act and otherwise accomplish the purposes hereof. Every contract for a loan to be made hereunder shall provide that—

(a) The borrower shall establish such maximum income limits for the admission of families to the housing project as will restrict admission to families of moderate income who cannot afford to pay the rents at which comparable dwellings in new privately financed rental housing are currently being made available in their locality, and that such maximum income limits, and all revisions thereof, shall be subject to the prior approval of the Administrator;

(b) The borrower shall limit the families accepted for occupancy of the dwellings in the housing project to families whose annual income at the time of acceptance does not exceed five times the annual rent (including the value or cost to them of water, electricity, gas, other heating and cooking fuels, and other utilities) of the dwellings to be occupied by such families;

(c) The borrower shall establish an initial schedule of rents, and shall thereafter maintain a schedule of rents, for the dwellings in the housing project, which schedule shall consist of (1) the minimum rents (which shall be the lowest rents which can be achieved after allowance for operating expenses), and (2) the maximum rents (which shall be the lowest rents which can be achieved after allowance for operating expenses, plus an additional interest payment of 2 per centum on the average balance of the loan outstanding during the project fiscal year, as defined by the Administrator, and plus an amount equal to 1 per centum on the average balance of the loan outstanding during the project fiscal year), and that such initial schedule of rents, and all revisions thereof, shall be subject to the prior approval of the Administrator;

(d) The borrower shall require each family occupying a dwelling in the housing project to pay an annual rent equal to whichever one of the following is the greater: (1) Twelve times the minimum rent per month, or (2) 20 per centum of such family's annual income up to but not exceeding, in any event, twelve times the maximum rent per month;

(e) The borrower shall obtain an annual certification of the income of each family residing in the housing project, and shall annually make adjustments in the rents as may be required by changed family incomes;

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(f) After the close of each project fiscal year, the borrower shall apply any difference between the gross income for such year and the operating expenses for such year toward the payment of additional interest up to an amount equal to 2 per centum on the average balance of the loan outstanding during such operating year. If the additional interest so paid amounts to the full 2 per centum, 75 per centum of any balance remaining thereafter shall be applied to advance amortization of the principal of the loan hereunder;

(g) The borrower will, at the request of the Administrator, proceed with diligence to refinance the balance of the loan if refinancing from sources other than the Federal Government becomes possible on terms that will permit the borrower to retain substantially the same schedule of rents; and

(h) The borrower shall comply with such other terms and conditions as the Administrator finds, prior to the execution of the loan contract, are necessary or desirable to carry out the purposes of this Act.

ADMINISTRATIVE PROVISIONS

SEC. 7. (a) In the performance of, and with respect to, the functions, powers, and duties vested in him by this Act, the Administrator notwithstanding the provisions of any other law, shall

(1) prepare annually and submit a budget program as provided for wholly owned Government corporations by the Government Corporation Control Act, as amended;

(2) maintain an integral set of accounts which shall be audited annually by the General Accounting Office in accordance with the principles and procedures applicable to commercial transactions as provided by the Government Corporation Control Act, as amended, and no other audit shall be required: Provided, That such financial transactions of the Administrator as the making of loans hereunder, and vouchers approved by the Administrator in connection with such financial transactions shall be final and conclusive upon all officers of the Government; and

(3) make an annual report to the President, for transmission to the Congress, to be submitted as soon as practicable following the close of the year for which such report is made.

(b) Funds made available to the Administrator pursuant to the provisions of this Act shall be deposited in a checking account or accounts with the Treasurer of the United States. Receipts and assets obtained or held by the Administrator in connection with the performance of his functions under this Act shall be available for any of the purposes of this Act (except for loans hereunder) and all funds available for carrying out the functions of the Administrator under this Act shall be available in such amounts as may from year to year be authorized by the Congress for the administrative expenses of the Administrator in carrying out such functions. There are hereby authorized to be appropriated, out of any moneys in the Treasury not otherwise appropriated, such sums as may be necessary for administrative expenses in carrying out the purposes of this Act, and such sums as may be necessary to meet payments on notes or other obligations issued by the Administrator pursuant to section 4 hereof.

GENERAL POWERS AND PROVISIONS

SEC. 8. (a) In the performance of, and with respect to, the functions, powers, and duties vested in him by this Act, the Administrator, notwithstanding the provisions of any other law, may

(1) Sue and be sued;

(2) Foreclose on any property or commence any action to protect or enforce any right conferred upon him by any law, contract, or other agreement, and bid for and purchase at any foreclosure or any other sale any project or part thereof in connection with which he has made a loan pursuant to this Act;

(3) Notwithstanding any other provisions of law relating to the acquisition, handling, or disposal of real and other property by the United States, the Administrator shall have power to pay all expenses or charges in connection with, and to deal with, complete, reconstruct, rent, renovate, modernize, insure, manage, make contracts for the management of, or establish suitable agencies for the management of, or sell for cash or credit or lease in his discretion, in whole or in part, any project acquired pursuant to this Act, and to pursue to final collection by way of compromise or otherwise all claims acquired by, or assigned or transferred to, him in connection with the acquisition or disposal of any housing project pursuant to this Act: Provided,

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