dividends on his money at all); (3) be content with dividends in an amount so limited as to be inconsistent with the speculative nature of rental housing projects; (4) forego normal methods of tax savings which might increase the attractiveness of his investment; and (5) in effect, leave his substantial cash investment in the project until complete amortization of the mortgage (or refinancing with an uninsured loan) thus completely reversing the centuries old concept of the respective right of mortgage and equity. All of these comments may be summed up by saying that section 220, as presently constituted, completely ignores the "facts of life" concerning investment in income-producing real estate. Unless FHA atitudes reflect understanding of these realities in its regulations and procedures, section 220 cannot be expected to function. How Insofar as the act itself is concerned, the cost certification provision, of course, runs counter to a builder-developer's normal and traditional motivation. ever, an allowance of 10 percent for builder's fee as a part of the actual cost of a project would go far to remedy this-at least to the extent of encouraging sufficient projects to make a start in atacking the huge problem of urban redevelopment. Mr. SMITH. Thank you very much for your time and attention to our views. I think you have the exhibits and appendix which were prepared. I think you will find the information in these supplemental pieces of great help to you in preparing your supplemental legislation for this year. Mr. BROWN. Mrs. Griffiths? Mrs. GRIFFITHS. No questions. Mr. HIESTAND. Mr. Smith, in regard to your proposal for divorcement of the Home Loan Bank Board, would you like to elaborate on that a little bit? I know that you are aware that a good many people feel that that should be separated and logically could be, and it would be good for the best interests of the country to do so. Mr. SMITH. Well, Mr. Hiestand, I think I tried to point out that this is a field in which I am certainly not very expert. I am aware that a great many people do have an opinion on this subject. I am aware also that there are others who have a diverse opinion. I think this is one of those items, again, which should be viewed as a part of a thoroughgoing complete study of all of the agencies within the Government which deal with housing, rather than simply to divorce the one at this particular time. I think there is an interdependence there among the agencies and responsibility should be vested in some central agency in the degree that Government is in housing. Beyond that, I don't think I could give you too much help. Mr. HIESTAND. Would you say it is the concensus of the group you represent that this should not be taken out at this time? Mr. SMITH. Based on the statement I have just made, certainly. We are not certain it is a good or bad idea. We just feel there has not been given enough complete study to the total problem of the housing agencies. We are inclined to the view-I believe our official position is currently we are inclined to the view that a strong central agency headed by a man of cabinet rank, conceivably, is necessary in housing. We are almost convinced of that but we certainly feel that there should be some sort of complete and thoroughgoing study of the whole matter, rather than to attack it in a sense, piecemeal. Mr. HIESTAND. I am much impressed, Mr. Smith, with your statement as a whole. I hope you don't mind a personal question or two. Your are a builder yourself, are you? Mr. SMITH. That is correct. Mr. HIESTAND. To what extent? Mr. SMITH. Do you mean number of units? Mr. HIESTAND. Yes. Mr. SMITH. My little organization built, last year, about 2,850 homes, all low-cost, in northern California. Mr. HIESTAND. Two thousand or more a year? Mr. SMITH. Yes. Mr. HIESTAND. May I ask a personal question? Why do they call you "Flat-Top"? Mr. SMITH. That has to do with the fact that I guess I am a bit Dutch and some years ago there was a tendency on the part of people in the lending fraternity and the FHA to insist that all housing have a pitched roof. I was inclined to dispute that, feeling that possibly the public might have some opinions of their own regarding the use and the advantages of modern architecture, and it took a little bit of doing, but we finally convinced all concerned that the public still knew what they wanted, and because of sort of sticking with it, being a bit Dutch, I have this tag on me now. If Mr. HIESTAND. Thank you. Mr. BROWN. Mr. Smith, we are very glad to have your testimony. Mr. DU LAURENCE. Mr. Chairman, my name is Henry du Laurence. I come from Cleveland, Ohio, and I represent the National Apartment Owners Association. Mr. VANIK. Mr. Chairman, if I could just interrupt a minute? I wanted the committee to be in order to hear this very important message by a fellow Clevelander. Mr. BROWN (presiding). The committee will be in order. You may proceed. STATEMENT OF HENRY DU LAURENCE, CHAIRMAN, LEGISLATIVE COMMITTEE, NATIONAL APARTMENT OWNERS ASSOCIATION, INC. Mr. DU LAURENCE. Mr. Chairman, I do not intend to read my entire statement. However, I wish the whole would be put into the record. Mr. BROWN. It may be inserted. Mr. DU LAURENCE. I come from Cleveland, Ohio, and represent the National Apartment Owners Association. This association, the largest rental association in the country, is very appreciative of the privilege of being able to come before this committee to give its views on the amendments proposed for the Federal Housing Act of 1954. The National Apartment Owners Association represents owners who rent property for dwelling purposes. They are the bulk of our membership. Membership emphasis is placed on owners of rentals whether small homes or apartments. As such, we believe we are closer to the housing situation than any of the other real-estate groups. We are the investor and the ultimate consumer of much which these other groups sell, build, or promote. We have asked to appear before this committee in the hope that the combined knowledge and experience of tens of thousands of owners may be helpful in answering some of the questions which will undoubtedly be raised during the consideration of the housing legislation by this committee. Large and small we operate housing. Housing is our business. In reviewing the legislation now before this committee for its consideration, we see that it is largely concerned with changing only a part of the 1954 housing bill, namely, provisions limiting the use of public housing. The 1954 bill, as written, included certain restrictive provisions that public housing be used as part of urban renewal providing for family relocation. It was part of a large, well-conceived housing program. Public housing was not a means to an end but a tool for urgently needed slum elimination and urban renewal. We believe that Congress acted very wisely indeed during the deliberations on the 1954 bill. We believe these limitations were constructive because they would promote and facilitate an urban renewal program which is recognized as one of our serious metropolitan problems. It is only with such provisions written specifically into the bill that we will be able to insure that public housing would be used for the greatest possible number of objectives which would include: (1) Provide the cities with relocation facilities to insure their ability to participate in a renewal program; (2) Provide the use of public housing for the people living on public relief and generally living in these renewal areas; (3) Provide the use of public housing for the lowest economic group of our people; (4) Give preference to veterans in the same economic classification. The urban renewal program has run into several serious obstacles. Some of the most difficult to overcome are the provisions: (1) That similar housing must be furnished the dislocated families before the program may proceed; (2) That no city can initiate a project on less than a 4-acre parcel of land. Individually, each of these provisions is excellent. Concurrently they make it exceedingly difficult to put a renewal plan into operation. First, because any family may decide that the living quarters offered were not similar or as good or as equal to the ones from which they are being relocated and refuse to move, and, secondly, one family refusing to move in any 4-acre plot of land can effectively stop any renewal program for that 4 acres unless it is offered living quarters which it considers acceptable. Because of the involved mechanics, redtape, and required detail, it is imperative that the largest possible area be processed at one time. This presents the further difficulty of evacuating simultaneously 500 to 1,000 or more families, many of whom may decide they are unable to find places to which to move. These families, if they take a negative attitude, would require local authorities to procure their housing for them. Quantity housing, if available, would simplify such a situation very materially. Contrariwise, if quantity housing is unavailable then evacuation of families may take a long time depend ing on each locality. Under such a situation we can very easily see that public housing, if it is made available to relocated citizens dispossessed from a renewal area, can be a very effective and helpful tool in an urban renewal program. For that reason, and in order to get this program off dead center, we believe public housing should be restricted to the use of the renewal programs in order to facilitate their activity. It is for this reason that we of the National Apartment Owners Association request that provisions restricting the use of public housing as a part of the urban renewal program as provided for by the Federal Housing Act of 1954 be kept in toto and not amended in any way whatsoever. Public housing authorities can cooperate or not, can accelerate or delay any local renewal program without any reservation or direction whatsoever. We believe that the urban renewal program in the 1954 Housing Act is good and that every available effort should be made to make it work. The restrictions set forth in the law are there because they are a required cog in the entire slum elimination machinery. Public housing a great national expense: Public housing is a great financial burden on the country not only because of its original cost but its continuing operating expenses. Consequently, great care must be used to restrict its use to: (1) Families of the lowest possible economic group; (2) Families on public subsistence; (3) Localities needing housing for their urban renewal programs. Public housing is also a great expense to local communities where it is located. Public housing generally does not pay local taxes, but pays a sum in lieu of taxes, or 10 percent of the shelter rent. Since these payments vary from one-seventh to one-third of normal real estate taxes paid by nonsubsidized citizens, it is obvious that only such people should be subsidized by both the Federal and local governments as really need it. The cost of maintaining a family in public housing varies, of course, from family to family, and from locality to locality. However, we can furnish some graphic approximate figures. Not too long ago the Louisville Chamber of Commerce made a comprehensive unbiased survey of the operation of public housing in its community. Because their findings are both complete and comparable, with minor variations, let us use these figures as examples. These are the findings for the average family based on a per capita comparison: From the Louisville Chamber of Commerce report, Public Housing in Louisville, January 1954: Cost to city per year per family. Cost to school board per year per family.. Cost to Federal Government per year per family---. Total cost of yearly subsidy, per family-- The loss of revenue to the State was not computed. $94. 20 82. 10 80.50 256.80 No insurance that public housing will be available for low-income groups: Public housing since its inception has been both endorsed and condoned on the theory that it was publicly subsidized housing for the lowest income group, presumably unable to properly support itself. But insufficient restrictions exist both in the Federal law, and many of the local laws, to prevent abuses of this high minded purpose. The Federal restrictions themselves are variable and subject to various interpretations. These variable interpretations have a tendency to encourage the raising of local restrictions to higher income levels than generally considered proper for public housing. Families may and do live in public housing that have an income of up to $4,200 per year. And even that is not the entire story. The law and administrative practice provide a type of net income as distinguished from actual earnings. They provide that certain deductions can be made before you finally determine the permitted net income for occupancy. These are various and include union dues, social security payments, pension contributions, specialized tools and clothing, certain medical deductions, working mother deductions, $100 for minor children, minors' earnings, etc. When you add all these deductions to the permitted net earnings, you find that a family could earn up to $5,000 per year and still be eligible to continue in public housing. However, let us use the $4,000 figure as permissive for public housing occupancy. Several questions immediately present themselves: 1. Is a family earning $4,000 really in the low income class or is it just average? 2. Can the State afford to subsidize a family in this economic class? 3. How many other families are there in this country which have the right to ask for the same subsidized treatment by our Government? 4. How many families would then be helping to support how many other families on a national basis? What is the economic rating of elegible families: 1. The family eligible to live in public housing and earning $4,000 per year is in the middle third of the national economic scale. Fortyfive percent of all American families earn this much or less. 2. The State cannot afford to subsidize a family in this category because most of this 45 percent group pay taxes directly or indirectly to support the Federal Government. This is even truer in urban areas where virtually no one is exempt from local taxes either by direct payments or indirectly through rent payments. 3. Under present public housing restrictions, no less than 10 million American families could be eligible for public housing on an economic basis. No less than 20 million families earn less than $4,000 per year. In a time of stress would they not have the right to ask for equal help and equal treatment? 4. If all these families insisted on their moral rights, then 30 million families would be helping to support 20 million families. The total cost per year would be stupendous, and over a period of time it would be more than any economy could bear without eventual bankruptcy. 5. There are now more than 311⁄2 million non farm families earning $2,500 or less per year. These should have the benefit of and first claim on public housing (Department of Commerce, Survey of Current Business, March 1955). And this computation should be made on actual earnings, not after numerous deductions. Limits should be cut down in public housing: Before any consideration is given to additional public housing, per se, the earning requirements should be cut down so as to insure that |