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Secretary FLOETE. Yes. That is permanent law. You see, it was passed in the 81st Congress, I believe. We give an enlisted man 1,080 square feet, and then it graduates up to a general or the commanding officer of the post with 2,100 square feet. That was proportionate to his quarters allowance, which runs, in the case of an enlisted man with three or more dependents, from $96 up to a general with $171. So we are asking that the permanent law be reaffirmed this year, and we do not have to stay with the 1,080 for an enlisted man, or an average of 1,250 square feet, which has been in the authorization law.
Senator CAPEHART. Under S. 1501, of course, the Army would enter into contracts with architects to design these houses and you would advertise and award the contracts to the private builders to build them.
Secretary FLOETE. That is correct.
Senator CAPEHART. Award them to the lowest bidder if he was a responsible man; and he would proceed to build them and complete them in every respect and turn them over to the service to handle them. They would then assume the payment of the mortgages and take over the ownership of all of the stock in the respective projects, and make the mortgage payments out of the proceeds of the rent or quarters allowance, whichever you care to call that. We would limit the number of units that can be built in any 1 year, and of course we would write into the act a lot of safeguards, not only from the standpoint of the Defense Establishment, but from the standpoint of existing Wherry housing, and safeguards in respect to not overbuilding in a section where there was plenty of public housing and plenty of private housing at the moment. Such safeguards as you yourselves would be naturally as much interested in as we are.
This legislation is not very complicated. It is quite simple. If we can make up our minds that we need the houses for the boys, I think we can very easily write the legislation and get started.
Secretary FLOETE. I think these figures here prove we should do something about it, because in the last 3 years the United States paid on this quarters allowance alone $1,133 million in 1952, and $1,322 million in 1953.
Senator CAPEHART. What period is that for?
Secretary FLOETE. These are different fiscal years. For 1952 we paid $1,133 million.
Senator CAPEHART. $1,133 million!
Senator CAPEHART. On an average of $100 rent per month that would amount to how many units?
Secretary FLOETE. It would be about 90,000 units. In the next years it was slightly more. It was $1,322 million in 1953.
Senator CAPEHART. In 3 years' time we could build-
Secretary FLOETE. That is right. For the 3 years we have paid out a total of $3,750 million and we do not have the houses.
Senator CAPEHART. If we had permitted you to build 90,000 units under this law in 3 years you would have sufficient housing to make up for the deficit you brought out in your chart?
Secretary FLOETE. That is correct.
STATEMENT OF H. R. NORTHUP, EXECUTIVE VICE PRESIDENT, NATIONAL RETAIL
LUMBER DEALERS ASSOCIATION
Mr. Chairman and members of the committee, I appreciate this opportunity to present to the committee the views of the members of the National Retail Lumber Dealers Association on Senate bill S. 1800 pending before your committee.
This bill would provide for the continuation of certain programs of the Housing and Home Finance Agency. Mortgage insurance authorization
S. 1800 would increase the authorization for FHA mortgage insurance by $4 billion. This additional authorization is necessary to assure continuation of the FHA programs and should be approved. Home repair and modernization program
One very important provision of S. 1800 is section 2 which would extend the FHA title I home repair and modernization program for 5 years to July 1, 1960.
This program has, over the last 20 years, provided a means of financing home repair for over 18 million homeowners. In 1954, over 112 million borrowers used property improvement loans insured by FHA.
The title I program has had the effect of lowering and stabilizing financing charges on property-improvement loans and has stimulated interest of lending institutions in this type of loan.
Many families have found it necessary to expand their living quarters because of an increase in the size of their families or for other reasons. Others have used the program to prevent deterioration of their property.
The title I program is a necessary adjunct to the urban renewal program for neighborhood conservation and improvement provided for in the Housing Act of 1954.
Lumber and building material dealers have a vital interest in the title I program. The repair and modernization business is a major source of revenue to dealers which would not be available without adequate financing of major improvements.
We, therefore, urge the continuation of this program.
In your consideration of the continuation of the title I program, we suggest that thought be given to certain amendments which, in our opinion, would improve the program.
The President's Advisory Committee on Government Housing Policies and Programs recommended that “Title I of the National Housing Act should be amended to permit the insurance of class 1 (a) loans to finance the modernization and repair of existing structures up to a maximum amount of $3,000 and up to a maximum term of 5 years and 32 days."
The basis for this recommendation was that the present statutory limitation of $2,500 is not sufficient in terms of today's prices to finance home modernization operations while the present 3-year maximum term requires a debt service on larger loans that is beyond the ability of many families to carry.
Last year the Congress amended the law to make title I available to new house owners only after a 6 months occupancy. We believe that your committee might find it advisable to reexamine this provision to determine (1) whether it accomplishes the purpose for which it was intended, and (2) whether it is unnecessarily discriminatory against new homeowners who, by reason of this restriction, are forced to finance home improvements through other more costly channels.
This program has been in effect for 20 years and has become an accepted method of financing home repairs, as much as the mortgage insurance and guaranty programs of FHA and VA are now accepted by most lenders. We believe that it would provide more stability to the program and to home modernization if the title I program were made permanent instead of a periodical renewal of the program by legislation.
We do not want to be misunderstood in making these recommendations. Of primary importance is the extension of the title I program. Our suggestions for amendments would however, we believe, improve the program. Public housing
In the past, an authorization for public housing has been on the statute books and the issue of the number of units to be approved has risen each year under appropriation bills for the Public Housing Administration.
Because the authorization existed, we are confident that many Senators and Representatives supported the appropriations for a limited number of publichousing units only because they felt there was a moral obligation of the Government to provide such funds.
Your committee, however, has a much greater problem to consider in connection with S. 1800. It is no longer a question of a moral obligation to provide funds for an authorized program. You, as a legislative committee, must decide whether or not additional authorizations should be granted to continue this program.
Without such authorizations the program ends. A thorough study of the public housing program will, we are confident, convince your committee that a continuation of the program cannot be justified. Such a study will reveal that public housing is not serving the purpose for which it was intended; that it is more costly than anticipated by Congress; and that it is political housing.
Without reiterating the arguments against public housing made in the past, we want to emphasize that your committee has a much greater responsibility than Appropriations Committees have had in the past. You must decide whether socialistic housing is to remain part of our Government policy or whether the program is to be terminated as an unsuccessful experiment.
This association and its members urge your committee to permit the publichousing program to terminate. Military housing
Senator Capehart's bill, S. 1501, would create a substitute for the present Wherry Act housing program for servicemen.
We agree that adequate housing for military personnel is an important morale factor and is an added incentive to make the military service a career.
We question, however, the method of providing this housing as proposed in S. 1501.
To require FHA to insure the mortgages on homes declared to be necessary by a branch of the military service without giving FHA any, discretion or authority to make an independent determination as to the impact of such housing on other housing in the community; make an inspection of the property, and provide other functions necessary to protect the Agency and the Government is, we believe, unsound.
It also strikes us as being unnecessary for one agency of the Government to insure mortgages which another branch of the Government will assume, following construction of the housing.
In any legislative program for military housing such housing should be limited to those installations which, insofar as it can be predetermined, are permanent installations.
Senator SPARKMAN. The committee will stand in recess until 10 o'clock tomorrow morning.
(Whereupon, at 12:10 p. m., the subcommittee recessed until 10 a. m., the following day, Wednesday, May 18, 1955.)
Secretary FLOETE. They presently get just about the same allowance if they have three dependents.
Senator CAPEHART. What does the lowest of these 4 grades receive if he is married and has 1 dependent, or 1 child, in addition to his wife? Does anybody know?
Senator SPARKMAN. $51.30 with 1 dependent.
Sentaor SPARKMAN. With 2 he gets $77.10. Does the Government pay all of that, or does he pay too!
Senator CAPEHART. It is part of his compensation at the moment.
Senator SPARKMAN. They call it a class Q allotment, do they not? It is a special allotment for them, is it not?
Secretary DOUGLAS. A special temporary allowance for dependents. I cannot give you the right description.
Senator SPARKMAN. I think I have a table here, if that is correct. It might be well to put that in. For enlisted men, at least for the Navy seaman recruit, with 1 dependent it is $51.30. An apprentice with 2 dependents $77.10. I think it would be well if that table is placed in the record, if you will.
Secretary FLOETE. Yes, sir. We will do that.
Senator LEHMAN. I think it is a fair statement that everybody agrees and is convinced it is in the national interest to encourage reenlistment, and one of the very greatest factors that will encourage it will come from having adequate housing. I do not think there is any difference of opinion on the part of the members on that.
It is only a question of the best method we should follow. It seems to me the cost of this plan under S. 1501 would be very materially reduced under direct appropriations, if we are talking about the 3 percent Government loan rate as compared to a 4 percent mortgage. But in addition to that as I read the bill there is an additional half of 1 percent insurance. Of course that has to be taken into account when you compute the cost of the occupancy of the building.
Then I think there are certain other defects in the bill as it stands now. Possibly they could be corrected. One is that there is a very
. distinct division of authority and responsibility which is included in this bill. In other words, the Defense Department and the services would have the authority to finance and make awards and set down conditions, whereas the FHA would be compelled to insure these mortgages without any real authority or power to interfere in the construction of these buildings. I think that would be a very bad thing.
Then there is another matter, whicŃ I have mentioned. That is, if I understand the bill correctly, bids are taken on a competitive basis. The bid is awarded to the lowest responsible bidder. That is, of course, done at present. Then if the building gets constructed, mortgages in the face amount of the bid are issued.
I am very much afraid of the possibility of windfalls and inflated prices. It is $2 million on the basis of the record. There is no requirement that he file a certificate of cost. I think he is entitled to a reasonable profit for the work to be done. That is, of course, a recognition of the free-enterprise system, but it is perfectly possible that the bid of $2 million, on which $2 million of mortgages have been issued, results in costs in the construction of these buildings of only a million and a half.
Recognizing that he is entitled to a reasonable amount, he, the builder, is certainly not entitled to an unlimited profit. Senator Capehart suggested that this could be taken care of through renegotiation. I do not know whether that would be a source of discouragement to the builder, but assuming it could be done and the Government would receive a certain amount of that $2 million back, the mortgage would still be outstanding in the full amount of $2 million and the savings would not be applied to the reduction of the mortgages. The mortgage
Senator CAPEHART. Will the Senator yield? The mortgage will always be the exact amount that the Government paid for building the project. Period. It would be no more and no less. The contracts would be awarded to the lowest responsible bidder. You would have exactly the same situation that you have described under direct appropriations. You might award a contract for $2 million under a direct appropriation to the lowest bidder and yet he would build it for $1,500,000. If he did he would make $500,000 profit.
Senator LEHMAN. There would be no mortgages outstanding under those circumstances. It would be based on the actual cost.
Senator CAPEHART. What is the difference between owing $2 million on a mortgage, or simply paying out $2 million in cash now? There is no difference.
Senator LEHMAN. Let me explain how this affects the occupant of the building. His rental would necessarily be based on the cost of operating the home plus the debt service, including amortization. Senator CAPEHART. That is right.
Senator LEHMAN. If you are paying a debt service based on a $2 million mortgage, when the cost of the building was only $1,500,000, then you inevitably require a higher rental or cost from this man against which his allowances are charged than would otherwise be the
Senator CAPEHART. You can take care of it by putting it under the Renegotiation Act. They are not at the moment, but you can write it in. A witness yesterday, representing the Real Estate Board, said it was his best judgment if you did that you would not get contractors to bid on Government projects like buildings, roads, streets, highways, and so forth.
Senator LEHMAN. I do not know whether you could compel renegotiation. I suppose you could. I do not know. But assuming you could, the fact remains that on a $1,500,000 project you would have a mortgage of $2 million outstanding, on which you would have to require debt service including amortigation, which must be borne by the soldiers regardless of who occupies
the building. Senator CAPEHART. No. You could very easily do it. If you bring them under renegotiation and renegotiate it and, let us say, get back $200,000, meaning the Government gets it back, then they immediately apply $200,000 on the mortgage which reduces it to $1,800,000 and the payments are based on $1,800,000.
Senator LEHMAN. The cost of that could be.
Senator CAPEHART. Yes. It is very simple to do it if you want to do it.
Senator LEHMAN. It is a defect, in my opinion, in the bill that is now before us.
Senator CAPEHART. It is no greater defect than the direct appropriation route because you have exactly the same situation under a