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units produced under subsidy programs. The new tandem plan for section 236 mortgages, and a similar plan for section 235, give builders and sponsors ready access to mortgage commitments free of excessive points, with FNMA borrowing capacity providing assured access to whatever funds ultimately must be raised. Thus, despite the general housing decline, we have been able to make good use of the subsidy authority provided by the Congress. For the first time, we have begun to achieve real volume production under the various subsidized housing programs.

In 1969, housing production under all subsidized programs rose by 1412 percent to an alltime record level of 223,600 units.

Here I would like to have you take a quick look at a chart that indicates the basic picture with respect to private, conventionally funded housing and the federally funded housing or subsidized housing (see p.116).

As you can see, subsidized housing production has become a much larger percentage of the total, particularly during the past year.

Now, many of these units are in rural areas, as we have coordinated the allocation of subsidy funds with the Farmers Home Administration. This calendar year, budget plans call for achieving at least a doubling of last year's alltime record by producing more than 450,000 units under HUD and Farmers Home Administration programs.

I hope that point is noted because that is a tremendous accomplishment we are seeking this year in the subsidized housing programs. I say, by the end of the next calendar year, we expect to have lower and moderate income housing up to the national goal level.

The 1969 experience clearly indicates the limits on the capacity of our Department, which has direct control primarily in the subsidized housing field. In the past, subsidized housing starts have represented less than 7 percent of the annual volume of all starts. Last year they were up almost to 15 percent. The other 85 percent is beyond our Department's immediate control and depends basically on policies mostly in the purview of the Treasury, the Council of Economic Advisers, the Federal Reserve Board, the Federal Home Loan Bank Board, the Bureau of the Budget, and others.

Mr. Chairman, I would just like to say this. In my opinion, we never could have put men on the moon when we did if we had had a committee running the space program. But that is what we have with respect to national policies relating to conventional financing of housing. You have all these other departments involved with their separate areas of responsibility and no one in a position to give direction to those separate activities, other than the President himself and of course this is just one of his many, many areas of responsibility. 3. These successes in the FHA-VA sector as a whole, and in the subsidized sector particularly, are only relative. The market as a whole, especially the broad middle sector, is being squeezed as never before. This underscores the need for an effective program that deals with the total housing situation, not just a segment of it.

LONG-RANGE ACTIONS TO BE TAKEN

Against this general background, let me now turn to a series of steps that I believe must be taken to meet the overall housing problem. Some of these are basically long range, though early action in several in

stances could have beneficial effects this year. I will leave the special problems of finance to the end.

1. Last week, I announced the full housing-system winners of our Operation Breakthrough competition, through which we hope, among other things, to reduce the cost of housing. I think a few points on this program are worth bringing to the committee's attention.

When we first announced Breakthrough last summer, we could not be sure of what might realistically be accomplished. I think it fair to say that the possibilities we now see surpass most initial expectations. Great interest has been demonstrated. The program has already shifted the industry's focus from construction to production and from two-dimensional to three-dimensional thinking. This has prepared the way for innovation and progress.

There is an opportunity for some immediate cost reduction. Even more important is the opportunity to make use of a broad range of labor skills and thereby help to overcome the labor shortages that drive up costs and impede expansion of housing production.

But we want more than just a breakthrough in production technology. Our objective is a total breakthrough not only in technology, but in land use and costs, management, financing, marketing, appearance, user satisfaction, and the overall environment.

Many of the organizations submitting Breakthrough proposals are consortiums, which have strong overall capability for the total housing business.

As a matter of fact, one of these consists of 23 major firms; another one of 17 major firms. On the other hand, one firm that was selected as a finalist is a one-man operator out in Missouri who has done a fabulous job in housing production, making use of more modern techniques. We believe he can expand more broadly on a national basis and make a major contribution. So we have small and large in it.

These team organizations have financial muscle and are prepared to use it to raise construction financing, and even to help obtain financing for ultimate sale of the units they produce.

As a matter of fact, the industrialized housing manufacturers have not had their housing slide off as much during the housing dip as the regular contractors.

Several States have moved to overcome barriers to volume and more economical housing production.

Several building trade unions have also taken constructive action. to facilitate improved housing production systems.

In short, I am more confident than ever that housing can again be produced in large volume, at high quality, with effective use of all types of labor, and at controlled costs that most Americans can afford. I intend to push ahead on this as hard and fast as I can. I hope we can break through code, zoning, and trade practice barriers using a voluntary approach with the authority we now have. But if it turns out that we cannot, we will have to develop alternative measures that will enable all American families to benefit from the free flow through interstate commerce of improved materials, technology, and financing techniques.

Mr. Chairman, yesterday the Supreme Court threw out a law in the State of Arizona that prohibits a cantaloup grower in the State of Arizona from shipping cantaloupes into California for processing.

If it is an undue burden on interstate commerce to prohibit a cantaloup grower from shipping into California for processing, it is certainly an undue burden to have all of these building restrictions to prevent the families of America from benefiting from the latest technology in providing housing. That is what I am talking about. If we can't get action on these restraints at the local and State level, then I submit it would be appropriate to ask Congress to eliminate these restraints which, in my opinion, are completely contrary to the interstate commerce clause and a lot more important than cantaloupes in the cost of living of the American family.

2. We do know that action is needed now to provide more effective ways of encouraging orderly urban growth. In the next 30 years, our population will increase by 100 million people. We cannot afford to continue haphazard and fragmented urban development. We need effective tools for encouraging metropolitan wide planning and action in general, and in particular for encouraging the assembly of large landsites, at reasonable cost, and in suitable locations. Efforts are also needed to encourage removal of barriers to the development of balanced community housing and other facilities. State involvement in land use controls and land development must be increased. Some States and European nations have provided lessons on which we should begin to draw.

Our Department has been working with the Urban Affairs Council to develop new approaches in the new communities field. The Council is meeting this week to consider this subject.

3. It is imperative to find ways to remove the present discouragement-and indeed to provide positive encouragement-for maintenance, repair, and rehabilitation of existing buildings and neighborhoods. In many metropolitan areas, the present housing supply is being destroyed or abandoned faster than it can be replaced. Last year's Tax Reform Act began to deal with this problem at the national level. But State and local effort is also necessary, because the present local property tax system penalizes the maintenance and improvement of housing and other property. We in the Department are studying these problems and this committee may also wish to do so.

4. Prompt action must be taken to increase substantially the supply of both skilled and unskilled construction labor. The exorbitant construction wage settlements reached over the past year reflect a basic shortage of qualified workers. This shortage will become even more acute as housing production expands to levels consistent with the 10-year goal.

Entry into apprenticeship programs and union membership must be made more open, especially to minority citizens. Training periods must be substantially shortened, particularly for housing workers. Manpower and vocational training for construction workers must be substantially increased. Some progress is being achieved in some cities but much more must be done, and quickly. The Cabinet Committee on Construction is about to submit specific recommendations to the President in this area.

5. We must insure the availability of construction materials at reasonable cost. Particular attention must be given to increasing the Nation's supply of softwood timber. Meeting our housing goals will

require perhaps as much as 50 percent more softwood timber by 1978. Some of this need will be filled through the development of reasonably priced lumber substitutes. HUD is working on this.

It might interest you to know, Mr. Chairman, that of those breakthrough proposals selected for negotiation of the contracts, six are of cement, five are of lumber, five are of metal, and four are of plastic in the basic structure. So we are giving a great deal of emphasis to substitutes for lumber in working to meet our housing goals.

But substitutes will not be enough. To meet the pressing need without damage to our woodlands environment, we must promptly improve the management of public and private timber resources. The National Forest Timber Conservation and Management Act, which proposes an accelerated management program for national forests, is a first step. I urge its enactment.

Certainly if it doesn't have adequate conservation and protection measures, it ought to have them.

6. So far, I have concentrated on the physical and financial aspects of our national housing problem. But the social aspects are just as important. And as I have frequently said: "Every American should have the opportunity to live within a reasonable distance of his job and daily activities."

To realize this goal, we must do two things: (a) we must greatly expand housing opportunities for low income families and particularly members of minority groups, which have frequently been limited by artificial barriers; and (b) we must make core cities more attractive to middle and upper income whites.

We have been giving urgent atention to the ways in which we and other departments administer existing programs, to make sure that our approach is consistent with these goals. We have also identified certain legislative measures which will eliminate artificial barriers to expanded housing opportunities for all Americans. We will shortly be recommending:

Elimination of the workable program requirement for the remaining kinds of subsidized housing to which it still applies;

Elimination of the local government resolution requirement for leased public housing; and

A new statutory provision prohibiting local legislative or administrative action discriminating against housing subsidized by the Federal Government.

These three steps do not meet the total need. But they are realistic measures which can help broaden the range of housing opportunities for families of low and moderate income, particularly minority group families.

7. Finally, I want to mention several other specific items in a legislative package we will be submitting in the next few weeks.

Our 1970 legislation involves an effort to consolidate and streamline the multitude of narrow and separate legislative authorities that now make up our overall housing program. We have combed all the existing housing legislation and managed to combine scores of narrow, single purpose authorities into several broad basic programs. We have retained significant special features of the many individual existing authorities-including their ability to serve a wide income

spectrum-but have standardized their common elements, such as the income limits of families eligible to participate, the percentage of income that assisted families will contribute to their housing expense, and the definition of income. In addition, we have replaced the existing rigid and inequitable dollar limitations on the cost of subsidized housing units with a flexible formula geared to the cost of producing moderate income housing in the many housing market areas throughout the country.

Our 1970 legislation will also include two extremely promising innovations in public housing. We intend to utilize the public housing program to produce increased opportunities for homeownership. We believe this can go a good distance towards reducing vandalism and other problems we are contending with.

Our program involves an immediate transfer of title to families capable of maintaining their own homes-with as much subsidy available to them to achieve homeownership as the Federal Government now pays for them as renters in public housing projects.

Finally, we will propose to make available for public housing, subject only to the limits contained in the statutory annual maximum authorized by the United States Housing Act of 1937, the full subsidy necessary to make up the difference between the rents actually collected with respect to specific public housing dwelling units and the operating costs attributable to these units. This legislation will be coming to the committee as soon as final clearances are obtained within the administration.

It has been in the hands of the other administrative agencies for clearance now, I think, about 5 weeks.

Our new housing legislative proposals will complement the new departmental organization now being implemented at HUD. Among other things, we now have all housing production programs grouped under a single assistant secretary for housing production and mortgage credit. Thus, we are in good shape organizationally to get maximum benefit from consolidating and streamlining present housing programs. Together, these steps should put us in better position to meet the critical housing and urban development needs of the coming decade.

SPECIAL PROBLEM OF FINANCE-10-YEAR NEED

I come now to the financial state of the housing sector and what can be done to improve it.

Let me first try to place some dimensions on the probable need for housing finance in this decade. These estimates will be spelled out in greater detail in the second annual report on the 10-year housing goal to be submitted soon.

A revised projection of the housing path needed to meet the 10-year goal, and estimates of the amount of funds needed to finance those new units, are shown in tables II and III. (See p. 122.)

This chart shows total private housing units started in FHA and VA.

This next chart shows subsidized housing production and the tremendous rise in such production we hope to accomplish next year. (The charts may be found at p. 116.)

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