penditures during the first half of 1960, which will fall behind in the second half when the Treasury will again be in the market to refinance maturing issues.

To sum up I should say that, while we expect some moderate improvement in the housing-production picture in the months ahead, we are convinced that we will have real difficulty in producing as many as 1,200,000 units this year.

I certainly do not mean to imply that a volume of this size indicates an immediate and major crisis situation. At the same time, I canot emphasize too strongly my own conviction that production at this level is cause for neither satisfaction nor congratulations to the housing industry. Quite to the contrary, I think we are falling far short of what the industry should be doing in the way of providing housing, particularly for the large group of underhoused citizens who are in the moderate income group.

I firmly believe that we could build and sell a minimum of 200,000 units more this year if mortgage funds were available in reasonably supply and at reasonable prices. Certainly, an added volume of this size would place no great strain on the suppliers of material or our labor force. Actually, if our forecasts prove accurate, we will produce 200,000 less units this year than we built in 1950, when our population was 25 million fewer and when our gross national product was only $284 billion as compared with the over $500 billion expected this year. As a matter of fact, in the last 4 years over the past decade, the industry has produced more than the 1,200,000 units which we will be fortunate to build this year. Thus, the volume of new homes in 1960 at the most optimistic estimate will be a good 400,000 units less than the annual level for the next ten years found necessary by your subcommittee in its recent report on "A Study of Mortgage Credit."

It is our firm belief that so long as production continues at present levels we are sadly underproducing the housing which is sorely needed if this country is to make any improvement of consequence in American living standards. In point of fact, the production of 1.2 million homes a year is barely adequate to meet the requirements which arise from new family formations and the replacement of units that will be lost as a result of demolition and similar causes. short, we are barely holding our own and holding our own is simply not good enough for what should be a growth industry in an expanding American economy. If I may, I should like to emphasize to the committee certain of the basic reasons which seem to underlie the problems faced by the housing industry.

In

In the first place, if we examine the whole pattern of economic growth during the past 10 years it is hard to escape the conclusion that homebuilding has been used as a balance wheel for the rest of the economy. I have attached to my statement a chart which compares housing starts and the economy generally in the postwar period (attachment B). The chart highlights dramatically how much greater has been the fluctuation in homebuilding than in the economy as a whole. You will not on the chart that in each of the postwar recessions homebuilding seemed to lead us in and lead us out-an honor which we would be happy to do without, as you can well appreciate.

On the surface this would seem to be a good demonstration of a generally accepted economic theory that homebuilding is more volatile than the economy as a whole and that housing starts lead economic activity both on the downswing of a recession and the upswing of a boom. Yet it seems to us that this demonstration is a thoroughly misleading one. Throughout the postwar period the volume of homebuilding has been closely influenced by Government policy and by actions of the Federal Reserve. In fact, a very close correlation could be made between governmental actions and the reaction of homebuilding.

The net result of the balance wheel role which housing has filled has meant a great deal of up and down activity during the past several years.

Without dwelling at length on the point, I should like to remind the committee that any industry which shows such marked fluctuations and such an induced instability is laboring under severe and very real handicaps in its attempts to achieve production efficiency. Without a reasonable degree of stability-reasonable enough to allow builders to plan their operations for some time into the future-we can at best make only slow progress in the reduction of true housing costs. I know of no industry in America that has successfully improved its efficiency and reduced its costs which did not enjoy, during the process, a fair degree of stability in terms of its production and marketing levels.

ATTACHMENT A

HOUSING STARTS ACTIVITY

In recent months housing starts have fluctuated within a very narrow range, some 15 to 20 percent below the same period of last year. This continuing stability at a low rate probably reflects a lack of "zest" in the markets, both of mortgage money and sales. While the results so far this year are disappointing, the very fact that no decline has taken place since early this year is in itself somewhat encouraging, given the sidewise drift of the economy generally. The moderate recent easing in mortgage money supply-though not particularly in the cost of that money-permits some mild optimism for improvement in the months ahead. This, despite the unexpected drop in FHA new-home applications, is about the way the situation now sizes up. No great changes in either direction seem immediately in prospect, though moderate improvement may occur through the summer months.

Table A-1 shows housing starts monthly so far this year. Table A-2 shows the situation as of April 1960 for starts by type of financing and applications under FHA and VA.

TABLE A-1.—Housing starts-1960 compared with 1959

NOTE.-Percentages calculated prior to rounding of figures.

Sources: Bureau of the Census, Federal Housing Administration, Veterans' Administration.

APPENDIX II

STATEMENT OF THE NATIONAL ASSOCIATION OF HOME BUILDERS ON PERTINENT LEGISLATIVE PROPOSALS AFFECTING HOUSING

Central Mortgage Bank (S. 3541, H.R. 12153, H.R. 12216)

NAHB strongly favors enactment at the earliest possible date of the amendments to FNMA and other provisions in the companion bills introduced May 12, 1960, to create a more effective central mortgage reserve facility. The provisions we support are contained in S. 3541 and H.R. 12216; these supplant and replace earlier proposals, some of which are contained in title II, H.R. 12153, sections 201, 202.

Departmental status for housing (S. 3292, H.R. 12153)

NAHB favors a Cabinet post for housing and urban affairs. Accordingly we support the purpose of S. 3292 and title V of H.R. 12153, though not necessarily endorsing each of the specific provisions in these proposals. We favor the designation "Department of Housing and Urban Affairs" and the transfer of all Federal housing functions to the new Department. We believe "the problems of building and financing homes for the predicted population explosion of the decade just starting make essential a voice for home building at the highest governmental policy level" (1960 NAHB policy statement).

A national housing goal (S. 3379)

NAHB has no policy on this proposal in section 1 of S. 3379, introduced April 18 by Senator Sparkman. In the NAHB 1960 policy statement, however, we "urge a clear definition of current Government housing policy to the end that programs of the Government in this area can be better coordinated in the interests of housing for the American people." The proposal in S. 3379 would call for an annual Presidential message "including statements and recommendations concerning a residential construction goal" and a report by January 20 "indicating the minimum number of housing units which should be started" during the coming year or two years "in order to be consistent with the program of the President." The bill also requires the report to contain an indication of how existing law will be administered to achieve the goal and new legislation recommended as necessary in order to reach the specified number of units.

FHA-HHFA housing research (S. 3379)

NAHB welcomes the cooperation of all concerned with home building and home finance, including all segments of the Federal Government, in our efforts to improve the quality and lower the cost of homes to their buyers through constant research to obtain better construction materials and methods. We support enactment of sections 2 and 3 of S. 3379 which would authorize HHFA to undertake and carry out a research and study program and require FHA to encourage the use of new construction design and technology where it can reduce cost without sacrifice of quality. These efforts should effectively supplement our own program of working in cooperation with materials and equipment manufacturers and all others concerned, through our national housing center, our annual convention exposition, our research committee and institute, our research laboratory and our program of research houses built in various sections of the country to field test new methods and materials.

FHA insured loans for land development (H.R. 12153)

NAHB favors development of an FHA mortgage insurance program to finance land development similar to the proposals in title IV of H. R. 12153 introduced May 10 by Representative Rains. However, time has not permitted a policy position on the specific provisions of title IV of H.R. 12153 which would authorize FHA to insure up to a 5-year mortgage loan to cover the land and water lines, sewer lines, utility plants, pavements, buildings, curbs, gutters, and other improvements on the land when the FHA finds that it will aid in economically sound land development. The total single loan limit is $5 million, with a transfer of $10 million of FHA funds to a new land development insurance fund. There would also be a loan limit of 80 percent of the cost of the land plus cost of development, and not more than 90 percent of the loan could be dispersed in insured advances prior to completion.

Conventional mortgage secondary market (title III, H.R. 12153)

NAHB has no policy on the provisions of title III of H.R. 12153 introduced May 10 by Representative Rains, and creating a secondary market for conventional mortgages within the Federal Home Loan Bank System. However, we generally favor all sound means of improving the conventional mortgage market. The proposed "Home Mortgage Corporation Act" under title III of H.R. 12153 would create and charter a Home Mortgage Corporation operated under the Federal Home Loan Bank Board. The Corporation could issue capital stock to Federal home loan banks, borrow money and issue securities up to 10 times its capital, surplus and reserves, and would be exempt from Federal, State, and local taxes but its securities would be taxed. Federal home loan banks and Federal savings and loans could purchase stock, sell mortgages to the Corporation and thus provide liquidity in the conventional loan field.

Middle income housing (S. 1342; title II, H.R. 12152)

NAHB has adopted no policy on the proposals in S. 1342 and title II, H.R. 12152, which would establish an extensive Federal loan program for housing for sale or for rent by families having a moderate to lower income level. However, our belief in general has been that a complete and full use should be made of existing Federal insurance and guarantee programs supplementing and assisting private enterprise, with the single exception of public housing, before enlarging or expanding direct Federal control and intervention in home financing and construction. The provisions of S. 1342 would create a new "Federal Limited Profit Mortgage Corporation" to make loans for housing construction on a 50-year term and a subsidized rate of interest for families of moderate income who cannot buy or rent new housing financed otherwise. Funds would be obtained by issuance of securities which would be tax exempt. The provisions in title II, H.R. 12152 are similar and would authorize loans to nonprofit corporations for rental housing for low and middle income families displaced by urban renewal. The loans would be for 60 years and bear the same rate of interest as for REA loans (presently 2 percent).

Veterans programs (S. 3275; S. 3276, H.R. 7903; H.R. 9601 and related bills)

NAHB favors extension of World War II home loan guarantee program but has no policy on the direct loan program (S. 3276). In addition to an extension of the World War II guarantee program, we favor giving VA authority to set a flexible interest rate with a 6 percent ceiling comparable to that which has existed for years in FHA. Also, to counteract high discounts in the VA program, we recommend use of the NSLI fund to invest in long-term FNMA debentures to purchase VA mortgages for new construction.

International housing (S. 3282)

NAHB has no policy on this specific proposal to permit Federal savings and loans to invest limited funds from reserve in home financing institutions outside the United States. However, we favor generally actions to stimulate private enterprise and home ownership in foreign lands, particularly Latin America toward which this proposal seems to be directed.

Insurance of condominiums (S. 3502, H.R. 11914)

NAHB supports enactment at the earliest possible date of these companion bills which would permit FHA to insure individually owned units in a multifamily structure. This method of ownership is well known under civil law and well established in Latin American countries including parts of the United States including especially Puerto Rico where substantial conventional investment and construction under condominium ownership is currently underway. Passage of this amendment will add a useful authority to FHA, of great significance to Puerto Rico and possible widespread importance as a means of providing property ownership to lower income families in built-up urban centers. Community facilities (S. 467, S. 1955, S. 3498)

NAHB supports Federal and State aid to communities for water and sewerage installation, storm drainage, public parks, and recreation areas, but at a going rate rather than a subsidized rate of interest. We have no positions as between the specific bills before the committee but support their general purpose and an increase in the public facility loan program.