The 235 and 236 programs have, in fact, been extremely successful. They have provided homes for hundreds of thousands of families who otherwise would not have been able to achieve adequate housing at a cost they could afford. To date, almost 450,000 dwelling units, under each program, have been either constructed, placed under construction, or had subsidy funds reserved for them. This is an outstanding record, considering the programs have been in operation only a little over three and one-half years, and that almost as much housing has been produced for low and moderate income families under them over this period, as had been produced in the preceding 30 years. We prepared, just this week, a compilation of data on the 235 and 236 programs pointing out how well these programs have succeeded and I have attached a copy of that to this statement. I urge each of you to look at these data. (See attachment "B.") These data and all other indications point to the fact that the 235 and 236 programs have been an excellent means of providing low and moderate income housing. Where troubles have cropped up in connection with the 235 program, they have almost entirely been in connection with existing, substandard homes being bought at low prices, being given a cosmetic treatment and then being sold at inflated prices. This problem the Committee recognized in the 1970 Housing Act. This legislation has been continued and expanded in the Subcommittee's bill and we support it. Otherwise, however, we see little need for any drastic revisions in these programs. I should like now to move to our specific comments on those provisions of the Subcommittee's bill which we believe would seriously curtail housing production under the FHA and public housing programs. We believe it is absolutely essential that these provisions be dropped or sharply modified by this Committee before it reports out a housing bill this year. LOCAL GOVERNING BODY APPROVAL OF HOUSING UNDER THE INTEREST SUBSIDY PROGRAMS Probably the most deleterious provisions in this bill are those which would require that the governing body of the locality in which housing under the new 402 and 502 programs (or the present 235 and 236 programs which would be replaced by 402 and 502) is proposed to be located, first approve the development. Under these provisions, any subdivision of eight or more homes, or any multifamily project, would have to be specifically approved by the city council, even though that housing was being built in accord with local zoning, in conformity with the community's comprehensive plan, and otherwise in accord with the community's requirements for the construction of privately owned housing. The enactment of such requirements would drastically reduce the production of housing under these programs which, at this point, is being built at the rate of close to 400,000 units a year. Housing under these programs would be stigmatized and set aside, as different from the normal housing in the community and the approval process would bring to bear upon any proposal all the fears and concerns that we are all aware so often well up in a community when lower income housing is proposed. The undoubted result will be the denial of a great majority of the proposals for the construction of this housing. This will be especially true in suburban areas, the very place where it is so essential to provide much of this housing in order to get away from the ghetto concentrations of lower income and minority families that have been proven to be so socially disruptive. It would give a Federal sanction to the exclusionary zoning tactics of many communities, at the very time the Federal courts across the nation are ruling such tactics are in contravention of the Civil Rights Act of 1964, the Fair Housing Act of 1968 and, in fact, the Constitution. If we are going to be able to provide housing for citizens of all income levels, in all communities and near their places of employment, it is essential that these provisions be stricken. THREE-YEAR WARRANTY ON NEW FHA HOUSING In place of the present one-year warranty on new FHA one to four-family housing, the Subcommittee's bill would require a three-year warranty on new single-family as well as multifamily housing. To back up this expanded warranty, the bill would authorize HUD to require the builder to put up an escrow, or acquire a bond to cover the warranty. These new requirements would impose a substantial and costly burden on the FHA builder. The added cost would unnecessarily, but certainly, increase the price of the house. We find it difficult to understand this sharp increase in the warranty provision. The present one-year warranty on new FHA housing is working well, with no indication of a need to expand it to three years. A home is a complex mechanism and it is therefore not surprising to find that, after construction, certain components need adjusting in order to have that mechanism properly functioning. This is the basis for the one-year warranty which all FHA builders provide and the vast majority of all other builders provide. However, any difficulties that crop up almost always come up in the first few months of occupancy and, within a one-year period, there is little, if anything, which is not brought to light and therefore corrected. In light of this, a natural question might be, why the great concern of the longer term? It is because of the experience that builders have had in operating under the present one-year warranty as it is administered by many FHA offices. Although the warranty is limited at present, and as proposed, to conformance with plans and specifications, in many cases the builder finds himself acting in a maintenance capacity, rather than as a corrector of deficiencies that arise from his failure to conform to the plans and specifications. The problems and defects that arise because of the failure properly to maintain a home during the one-year period are the cause of a large percentage of the complaints the builder is called upon to satisfy. When such a maintenance complaint is made to the FHA office, the builder finds himself in a position of having to satisfy the complaint or finding it very difficult to deal with that FHA office in the future. The Subcommittee's proposal would seriously compound this problem. This type of maintenance service costs money and to require it for a three year period would significantly increase the cost. Even more costly, however, would be the requirement of an escrow or bond to back up the warranty. We know of no such bond now available, and, even if surety companies were willing to write one, there is no question that the cost would be quite high. If an escrow were required instead, the builder would find himself tieing up his working capital for a three year period. This would be especially harmful to the smaller builder, the great bulk of those building homes today, would most likely, after a couple of years of building homes under the FHA programs, have no working capital remaining. While we understand that these changes are aimed at giving greater protection to the consumer, the effect would be the exact opposite because of the necessary increase in the sales price. We do not believe that a threeyear warranty is necessay for the protection of the consumer in view of the 18-year successful operation of the present one-year warranty requirement. We are concerned about the consumer, since he is our customer and it is difficult to stay in business very long with dissatisfied customers. In fact, this morning in San Francisco I was scheduled to introduce Mrs. Virginia Knauer, the President's Consumer Adviser with whose staff we have been working, to a session of the Pacific Coast Builders Conference. In conjunction with that introduction, I was going to announce expanded efforts by the National Association of Home Builders to assure that all of its members provide the same high quality of construction that the great majority now do. We urge you not to make our efforts more difficult by imposing an unnecessary and costly three-year warranty requirement. MAXIMUM MORTGAGE AMOUNT The Subcommittee's bill would institute a new approach to maximum mortgage limits. Instead of a nationwide limit applicable in all communities, as we now have, the maximum mortgage amount in each community would be based on the cost of constructing a prototype in that comunity. The prototype would be a modest dwelling, adequate to house a family under the interest subsidy programs. Under the Subcommittee's bill the maximum mortgage amount could not exceed 180% of the prototype cost for a non-subsidized mortgage. While we really do not see the need for maximum mortgage limits, for nonsubsidized housing, we believe that the 200% figure recommended by HUD will permit a large percentage of the housing constructed in this country to qualify under the FHA mortgage insurance programs. This would not be pos sible at the 180% level. In fact, it would represent a step backwards in many parts of the country, where the result would be a decrease in the present $33,000 limit applicable to the FHA 203 program. This would be very unfortunate as many middle-income families, who now rely upon FHA financing to purchase a home, would be excluded. This result is demonstrated in a table we have attached to our statement setting out the FHA prototype cost and what 180% of that cost would be in representative communities around the country. (See attachment "C.") As can be seen from the table, five of the 15 cities would have a maximum mortgage amount less than the present $33,000 limit, while several others would be at or just above it. In many communities today, this $33,000 limit is inadequate since it does not reflect the effect of inflation over the past two and one-half years since the limit was raised in the 1970 Housing Act. NEW VS. EXISTING HOUSING One of the most disturbing aspects about the Subcommittee's bill is its shift in emphasis, under the Federal, low and moderate income housing programs, from new housing to existing housing. There is unquestionably a need to look to both types of housing under these programs, but there is also unquestionably a need to produce substantial numbers of units to serve the families who need this housing, in view of the decided lack of enough standard, lower cost existing housing. We support making full and appropriate use of our existing housing stock. We also support efforts to preserve this stock through rehabilitation and other means. However, we fail to see the reason for the significant shift of emphasis that is evident in the bill. This shift would be counter to the achievement of the goal of six million new or rehabilitated dwelling units for low and moderate income families set for the ten year period-1968-1978-in the 1968 Housing Act. Under the bill the amount of funds under the 235 program (and its replacement 402 program) that could be used for existing homes would be increased from 30% to 40%. Also, the bill would require HUD periodically to determine that no new or existing housing was otherwise available with regular FHA financing in a community before it could insure a mortgage under 402 homeownership program. Further, the bill would require that 50% of all leased public housing be in units at least one year old. To compound this, the bill would permit HUD to shift into the experimental housing allowance program any public housing funds available for leasing purposes other than the 30% required to go into leasing. Since there is no limit on the amount of public housing funds that could be used for leasing, HUD could theoretically use all of the remaining funds after the leasing quota had been met for housing allowances. It is doubtful that any new housing would be produced as a result of this shift of funds. These all add up to a sharp cutback in the amount of new housing units that can be expected to be produced under these very necessary programs. This is very hard to understand, since most of the troubles experienced by HUD with its housing assistance programs has been in connection with existing housing and not new. We strongly urge the Committee to resist such a shift. INCOME LIMITS Under the Subcommittee's bill, the maximum income limit for a family to qualify for assistance under the new 402 and 502 programs would be set at 80% of the median income in the area in which the family lived, replacing the present cumbersome and inadequate dual income limits. HUD had recommended the median. The present system, in many places, results in a significant gap between the income limit and the income a family needs to be able to afford adequate housing. Unfortunately, the 80% of median proposed by the Subcommittee would continue the present income gap problem. This is so because 80% of median in many places is equivalent to or lower than the present regular limit of 135% of public housing admission limits. This is demonstrated by a table, attached to our statement, showing the effect of this proposal in representative communities around the country. (See attachment "D".) 79-555-72- -19 As a minimum we urge the committee to raise the income limit level to the 90% of median which is contained in the Senate bill. This level will more realistically permit the great bulk of those families who need assistance under the housing programs to receive it. To do otherwise, will continue the present inequities which have led to much criticism of the 235 and 236 programs by those who are just above the income limit and find themselves unable to obtain the standard housing which lower income families are able to obtain. In this connection I believe it is very important to emphasize that a family only receives as much assistance as it needs, since it is required to pay a set percentage of its income toward its mortgage payment or rent. PUBLIC HOUSING In addition to the public housing amendments I have already mentioned, there are others which concern us. These would require that the annual contribution for operating subsidies only be available through the appropriations process; continue the present requirement that a family must move from public housing once it has reached a certain income limit, even though it is paying full market rent; replace the present prototype cost approach for public housing construction after only a year and a half of operation; and require the eviction of tenants who have fallen behind in rent payments, with a specific requirement that their property be removed from the premises of the project. Additionally, the present requirement that public housing projects only pay 10% of rents in lieu of real estate taxes would be in effect continued, thereby continuing the unfavorable reaction in many communities to these projects for their failure to carry their share of the tax burden. The result of these provisions and others would be to further burden down the public housing program with red tape and obstacles. This would be very unfortunate in view of the production record achieved under public housing in recent years, as a result of the several successful Turnkey programs which have permitted private enterprise to build and manage public housing free of many restraints which in the past bogged it down. STATE DEVELOPMENT AGENCIES The Subcommittee's bill would authorize HUD to provide loan guarantees and interest assistance grants to state development agencies for the purpose of assisting these agencies to acquire land, to construct low and moderate income housing, and to carry out other development activities. Such aid would put these state agencies in direct competition with private builders and seriously impair their ability to continue the excellent job they have been doing in recent years in constructing hundreds of thousands of low and moderate income housing units. We see absolutely no need for the Federal government to encourage the states to get into the land development and housing construction business. The states with their vast financial resources, and the interest assistance grants which would be available under this proposal, would drive many small builders out of business. We see no more reason for permitting this to occur than there is for providing Federal assistance to public bodies to go into competition with savings and loans, banks, department stores, grocery stores, manufacturers or any other segment of our priviate enterprise economy. Since the private home building industry has responded so well over the past three and one-half years in using Federal programs available for producing low and moderate income housing, there is even less reason. We strongly urge the Committee to strike this provision from the bill. NATIONAL INSTITUTE OF BUILDING STANDARDS The National Association of Home Builders has been one of the strongest supporters of the establishment of a National Institute of Building Standards, or "Sciences" as it has previously been titled. We believe that it is important that as much uniformity as possible be achieved in building codes and building standards without direct governmental intervention. This would be the direction of the Institute. However, we believe it is important that this Institute's board of directors be open to home builders as well as other interests so that its decisions truly reflect the needs of our industry as well as those of others. Yet this provision, as contained in the Subcommittee's bill, would require that representatives of consumers and practically all other interests, except the home building industry, be included on the board of directors. We strongly urge the Committee to correct this obvious oversight. CONCLUSION As can be seen from the many provisions of the Subcommittee's bill, which I have cited, there are serious troubles on the horizon for housing if they are enacted. However, I have only touched upon the major concerns that we have with the bill. There are many others. Some of these other provisions which concern us are: the proposal for a dual interest rate with no ceiling on FHA-VA interest rates; the reduction from twelve to eight units in the point at which Davis-Bacon prevailing wage provisions would apply; the requirement that FHA approve the selling price as well as the mortgage amount on a single family home; the requirement that the mortgagor explain in advance to his tenants the basis for a proposed rent increase; the expansion of the recission rights under the Interstate Land Sales Full Disclosure Act; limiting the maximum mortgage amount to $40,000 under the FNMA conventional secondary market; and permitting $10 million of housing subsidy contract authority to be used for post construction evaluation purposes. All of these will be harmful to housing production. Because of the limited time available to prepare for today's hearing, I should like to request permission to file with the Committee next week an addendum to our statement explaining our concern with these and the other provisions of the bill which I have not mentioned. It is extremely important that these many detrimental provisions of the bill be dropped or significantly modified. Unless this is accomplished, there will be a serious drop in the use of the FHA and public housing programs. This will come about not because of a desire to withdraw from the programs, but because they will become so costly to use and so burdened down with red tape or otherwise unusable that builders, real estate brokers and lenders will look to other means to produce, sell and finance housing. This is already occurring to an alarming extent, as FHA has become more and more difficult to deal with because of a lack of adequate personnel and a fantastic increase in paper work and other requirements. The effect of this will be felt most heavily on the lower income family who must rely upon the Federal programs, both subsidized and unsubsidized, to assist it in acquiring decent housing. Thank you for giving us this opportunity to appear before you. [Attachment "A"] NAHB RESOLUTION WASHINGTON, D.C., May 22, 1972. NATIONAL LEGISLATIVE COMMITTEE 1972 HOUSING ACT Whereas, housing legislation has been proposed which contains numerous harmful provisions which would : 1. Seriously impede housing production, especially for low and moderate income families. 2. Unnecessarily increase the cost of housing. 3. Remove the benefits of the FHA programs from the reach of substantial numbers of American families currently qualified for them. 4. Discourage private builders, as well as nonprofit and public bodies from using the FHA and public housing programs, and 5. Impair the achievement of the national housing goals, and Whereas, the impact of the above would be heaviest upon the consumer of housing and those American families who stand in the greatest need of decent and safe housing, and Whereas, these legislative provisions would cause a serious weakening of the private enterprise housing production system which has resulted in this nation being the best housed nation in the world with the highest percentage of home ownership. |