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ANSWERS TO QUESTION SUBMITTED BY SENATOR CRANSTON Question. Last fall the HUD Act of 1968 was amended to provide that lower income people residing in urban renewal areas should be given an opportunity to be employed in connection with projects under way. To what extent has this been implemented ?
Answer. Secretary Romney has placed responsibility for coordinating the implementation of Section 3 and related employment requirements found in the Housing and Urban Development Act of 1968 in the Assistant Secretary for Equal Opportunity, Mr. Samuel Simmons. Mr. Simmons also has central responsibility for HUD functions in enforcing the program against employment discrimination under Executive Order 11246 and is Chairman of the Task Force on Minority Construction Contracting created by the Office of Minority Business Enterprise (OMBE) in the Department of Commerce. That Office was established pursuant to Executive Order 11458 of March 5, 1969 "Prescribing arrangements for developing and coordinating a National Program for Minority Business Enterprise”. Mr. Simmons thus has a key role in coordinating both the employment and the business entrepreneurship provisions of Section 3.
During 1969, a number of discussions were held with both the staff of the Department of Labor and the Small Business Administration concerning the implementation of Section 3. Of particular importance in these discussions was the potential role of the Department of Labor in providing training assistance for construction employment. Department of Labor training programs had been used for this purpose only in a very limited manner in prior years.
Congress added a broad new dimension to Section 3 with the passage of the Housing and Urban Development Act of 1969. In addition to those programs to which it previously applied, the Section was made applicable to all HUD direct assistance programs.
There are numerous complex program adjustments affecting a number of agencies which must be made in forming the foundation for meaningful regulations under Section 3. In addition to regulations, detailed implementation of the policies Section 3 mandates will also be carried out under guidelines, interdepartmental agreements, and formal and informal interagency procedures. For this reason it should be emphasized that formal regulations will make up only a part of the total effort involved in implementing this section. Draft regulations are currently being processed however and we anticiapte this issuance in the near future. Senator PROXMIRE. Senator Percy?
. Senator PERCY. Secretary Romney, I am sorry to be late but Mayor Lindsey was appearing before the Nutrition and Human Needs Committee, and I was downstairs to hear his problems.
I still can't decide whether you or Secretary Finch has the second toughest job in the United States. I really feel that while he is structured and bound by congressional grants, you have more problems and some leeway to break through. I commend you on your first year in office.
You put a remarkable breath of fresh air in this whole area, and I discern reverberations from the cities and private industry that something is going to be done about housing.
I wonder if you could give me a figure of what income a family would require to date to purchase a conventional or Government insured house with a 30-year mortgage at going rates of interest? What income should that family have, approximately?
Secretary ROM NEY. A $25,900 home is pretty close to the median at the present time and that would take about a $12,000 to $14,000 income, I think, in that area.
Senator Percy. Twelve or 14, so when we consider that 80 percent of the families in the United States earn less than $12,000 a year, we pretty well, by these high interest costs and other type costs have excluded most Americans from being able to carry and build a conventional home today.
Secertary ROMNEY. I indicated in my testimony that only one out of five famiiles in the country could now buy a median priced new home. Five years ago, it was two out of five. So, we priced a fifth of the families out in the last 5 years.
Senator Percy. I think this is pretty much the explanation as to the disaster we face in the housing industry today.
Secretary ROMNEY. That is right.
Senator Percy. I have a series of things that I would appreciate a detailed answer to, and I think it might be best to just put them in the record.
How many 235 and 236 dwelling units are being built today at an annual rate? Of these, how many are being built in lower income areas of central cities? What assurance do we have if any of the present bills before us are enacted or the administration's package, that you mentioned, that money will go to build houses for those in need rather than just higher income, more luxury housing? What information is available on actual construction underway or planned to get underway in 1970 on these programs and present additions for 1971 ?
I think it might be easier to do most of that for the record.
right. Let me give you the overall figure here at the present time. Part of the housing production itself is the subsidized part. That is the only part our Department is in a position to directly influence.
Last year it was up 15 percent and that was a record year; 15 percent over 1968, I am talking calendar year there. This calendar year, instead of producing 223,000 units as we did last year, we expect to start or produce over 450,000. For 1971, we expect to be up to the national goal target with respect to low- and moderate-income families.
Let me comment on one other thing. I wonder if you want these homes in the poorest areas of the city? One of the real problems in our cities today is the extent to which the low- and moderate-income families are concentrated in the core cities. Really, the problem as we see it is to get the low- and moderate-income housing dispersed throughout the whole area.
You take the city of Chicago. My understanding is that 10 years ago the traffic pattern in the morning was that 70 percent of the people were coming into the city because the jobs were primarily in the city and only 30 percent were going out. But today it is about 50-50.
One of the real problems that we have is that the low- and moderateincome families don't have housing in the suburban areas where the jobs are located now. That is why we think one of the most urgent things is to handle this housing program so that families would have an opportunity to have a home within a reasonable distance from their job or daily activity.
So, we haven't been trying to concentrate this low- and moderateincome housing in the poorer areas in the city. We think the poorer
families or lower income families need the opportunity to have housing throughout the metropolitan area.
Senator PERCY. I agree with you. That is needed. The figures in Chicago are perfectly clear and bear out what you have said. There are 50,000 unfilled jobs in the suburban areas of Chicago today, and there are 50,000 unemployed people living inside the city in Chicago, most of whom are unskilled and haven't the proper education. So, we need lower income housing out in the outlying areas. But, I keep worrying about the fact that people are going to live in the city, that a great many of them are going to stay there, and that housing is going to get worse and worse.
I am not looking to build new homes in the city. What I am looking for is to see how much HUD is doing to stimulate the reluctance on the part of the contractors to get them into the rehabilitation business. This weekend I visited a number of areas that have had a remarkable rebirth through rehabilitation in Chicago.
They have taken old rundown dilapidated homes and gutted them. The homes are near transportation facilities and all the advantages of the city and, if you can start one such project, the idea starts to spread, and someone else does it and someone else does it.
I would like to see how much HUD is concentrating on that problem, too, because I think rehabilitation is cheaper than building units out in the suburbs.
Secretary ROMNEY. I took a man who knew most about this and put him in the Department to intensify rehabilitation. We are convinced that one problem is the fact that local communities are taxing property much more heavily than land. So, people who did modernize are penalized because their property assessments go up more rapidly really than the increased amount of money they put into their property to improve it.
This a deterrent that we think is very serious. Furthermore, in cities like New York, you have rent controls and things of that type that make it uneconomical for landlords to try to do anything about the property. So, there are various factors here. We have put a top group of people in the Department on this problem and we are increasing our rehabilitation efforts, but it is tougher than the new home aspects.
Senator PERCY. Well, I am very much interested in it and I appreciate the fact that you put the new emphasis on it and I would like to put my emphasis on it in following rehabilitation efforts very closely and doing whatever we can in the Congress.
Secretary Romney. I suggested that the committee might want to consider holding some hearings on the impact of rehabilitation because this is a serious problem. In many of our major cities the existing supply is disappearing faster than we can replace the structures.
Senator Percy. I believe Senator Paul Douglas' Commission put his finger on some of these problems.
In the Housing Act of 1968, Mr. Secretary, there was a requirement that HUD provide a means for low-income homeowners to be insured against loss of life, utility or loss of income. The reason for this is working on the homeownership committee, fear was a great thing.
What if I committed to that and I died, would I leave my widow with a home to be taken over if she couldn't meet the payments? We called in the insurance people. They felt they could meet the problem,
and I am not sure what happened on it. I think there was a 6-month requirement by law on this.
Secretary ROMNEY. Mr. Ross has been working on this program. Mr. Ross. Senator Percy, if you recall the life insurance industry did get together at our request and prepared a very solid report with recommendations and we are still working with that report to try to package recommendations.
I honestly couldn't give you a schedule of when we would be ready to submit recommendations but we are still working on the problem. It is a quite difficult one as you recognized in 1968 but we do have something to work with now.
Secretary ROMNEY. We would be glad to supplement this with a response by our insurance administrator, Mr. Bernstein, who is a very able fellow
Senator PERCY. Fine.
Senator PERCY. My time is up under the committee rules. I will submit for the record a number of other questions which I had which should be very helpful to me and I hope to the committee in following some of these programs.
Secretary ROMNEY. Very good.
ANSWERS TO QUESTIONS SUBMITTED BY SENATOR PERCY Question 1. What type of organization exists in Model Cities programs to assure that housing receives A-1 priority?
Answer. Most model cities have involved local housing and renewal authorities as well as private groups in planning the housing and physical development components of their Model Cities Program. In addition, all City Demonstration Agencies have planning or advisory committees that are concerned with problems of housing in model neighborhoods.
The Department of Housing and Urban Development for its part has set aside funds to facilitate the production of housing for families of low and moderate incomes in model neighborhoods. These set-asides in various HUD programs permit model cities agencies to accelerate production of housing in conjunction with the implementation of other model cities related programs in such fields as health, education, welfare and employment.
Question 2. What has happened to Neighborhood Development? How much money has been appropriated against the amount applied for!
Answer. The Neighborhood Development program authorized by the Housing Act of 1968 is an additional urban renewal mechanism. Under this authority, urban renewal activities can now also be carried out on the basis of annual work programs, and the funds available for such programs are derived from the total urban renewal appropriation.
As of June 30, 1969, approximately $310 million had been approved for the first action year activtiies in the first 35 cities authorized to engage in neighborhood development program undertakings. Through the end of February, 1970, an additional $170 million has been approved for neighborhood development programs. We anticipate that by the end of the current fiscal year, of the total of $1 billion Congress has made available for urban renewal, approximately one third will be utilized in neighborhood development program activities.
You may be interested in knowing that the overall demand for renewal funds continues high. The backlog of all urban renewal applications on hand January 1, 1970 totalled $2.7 billion. We expect this to rise to about $3.0 billion by the end of this fiscal year after utilizing all funds available.
Question 3. What must be done to hold land costs down to enable lowerincome housing to be built? I believe we should create an Urban Homestead Act to enable government to take over abandoned but salvageable single- or multifamily structures, rehabilitate such structures, and sell or rent them to lowcr. income families at subsidized rates. Do you support such a proposal?
Answer. The high cost of land suitable for lower income housing is one of the major problems that need to be overcome if we are to achieve the national housing goals and raise the levels of production to meet the needs of lower income families. This problem, of course, is compounded by a variety of interrelated factors. The scarcity of land suitable for lower income housing is frequently related to community attitudes as reflected in existing zoning patterns and local land use arrangements. The Department recognizes these problems and has taken a number of actions designed to bring about desirable changes. Under Operation Breakthrough, for example, the concept of market aggregation includes the objective of lowering land costs. The FHA Pilot CHOICE program, (abbreviation stands for Cost-effective Home Ownership in our Improved Contemporary Environment) which is designed to provide modestly priced homes for families of moderate incomes, seeks to reduce land costs through efficient and economical land development. The New Communities program under Title IV of the HUD Act of 1968 provides for the proportionate allocation of land for lower income housing in all new communities receiving Federal assistance under this program. The land set aside for this purpose must be reasonably priced in order to permit the construction of this type of housing.
While these efforts are important, they can be only partially successful without the cooperation of local governments. Local actions must include the elimination of restrictive zoning which prevents or severely limits the use of land for lower incme housing. As I stated in my testimony we are now perfecting for introduction to the Congress legislation which would prohibit local legislative or administrative action discriminating against housing subsidized by the Federal Government. We are also recommending to the Council of State Governments that they propose State legislation providing for State review of local zoning, a Statewide building code, and Statewide standards for factory produced housing which can pre-empt local codes.
Changes in tax policies could also aid substantially in lowering land costs. A restructuring of the tax system should promote the use of land for lower income housing by providing appropriate incentives for such land uses and by discouraging land speculation.
The second part of your question states that “we should create an Urban Homestead Act to enable government to take over abandoned salvageable single or multifamily structures, rehabilitate such structures, and sell or rent them to lower income families at subsidized rates.” This proposal is similar to what is being done now under the FHA 221 (h) and 235(j) programs. Under these programs, private nonprofit organizations acquire deteriorating or substandard structures for rehabilitation and subsequent resale to lower income purchasers at subsidized interest rates. Assistance is also provided under this Department's urban renewal and model cities programs to local governments in their efforts to solve the problems created by the abandonment and deterioration of structures in urban areas.
The great number of abandoned structures in several cities continue to present a major problem, however. Usually, abandoned structures are so heavily vandalized that it is questionable that many of them could be salvaged. Currently, this Department is placing major emphasis on the development of improved rehabilitation programs which will provide a more effective response to this problem than has been the case in the past. While we are not yet in a position to make final recommendations, it may well be that a greater Federal involvement is desirable.
Question 4. On pages 24–25 of your testimony, you mention the problem of usury laws. Lets look at a situation with which we are all familiar. The ceiling on FHA and VA backed loans here in the District has been raised to 812%. while Congress has established an 8% limit on interest in the city. Since all available credit can find a market outside the District at 81,2% or more, mortgage funds here are virtually unavailable. What would be your reaction to Fannie Mae charging up to 8 percent, and up to 12 points, and HUD subsidizing the additional points ?
Answer. There is a problem of equal treatment in the proposal you raise. Many jurisdictions had usury limits of 81%22% and above before the current period of tight money commenced and have subsequently raised their limits. The proposed subsidy would penalize these jurisdictions in favor of those with low usury laws.
While we recognize the difficulties created by the usury law for D.C. residents, we believe that the best solution would be to exempt FHA and VA loans