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Senator PROXMIRE. It makes a difference to me. I hope we have them on top. We need them anyhow.

The CHAIRMAN. It will suit me fine. I do believe the time has come to give full recognition to the mobile home. After all, there are many million Americans who live in mobile homes today.

Mr. BROWNSTEIN. Well, there were 410,000 units produced last year, Senator.

The CHAIRMAN. Units, yes.

Mr. BROWNSTEIN. I agree with you that they are a very acceptable form of shelter and they ought to be recognized. Senator Proxmire's question was should they be taken into account in the goals, and my reservation there is that it may be that they ought to be on top of that figure because the goals probably are understated.

Senator PROXMIRE. I would feel a lot better with some kind of quality evaluation of these homes, the 410,000. I just wonder how many of these would fit our standards.

The CHAIRMAN. Well, the FHA is supposed to set those standards.

Senator PROXMIRE. Right. You did not mean to imply that 410,000 had been insured by FHĂ!

Mr. BROWNSTEIN. There have been none insured by FHA. It was just authorized

Senator PROXMIRE. We do not know, then, if they have not been, whether they meet the FHA standards or not.

Mr. BROWNSTEIN. As the chairman says, FHA, I know, is working on the standards that will be applicable to them.

The CHAIRMAN. You said something about them being used by American families. They are not only being used; they are essential for many, many American families to be able to have a place to call home.

Senator BENNETT. Mr. Chairman, yesterday the Secretary of HUD told us that they have authorized a number of contracts for a variety of new approaches, some of which may be called mobile homes when we are through with them, maybe factory-built. The basic definition of a mobile home is a home that is hauled to its site on wheels. Not necessarily, but maybe it can be hauled off again, but they are hauled to their site on wheels. They are modular homes.

You noticed yesterday that some of these homes that are being considered in this experimental program are going to be built of metal, as mobile homes have been built. So I do not think we can say that we are going to have a goal of so many homes that are constructed by the old contractual method on the site and so many homes that are going to be hauled on wheels. I think we have a goal of so many homes. The longer we go, the wider the variety of homes and their methods of construction, we will find.

The CHAIRMAN. I agree with you, and the more different ways of building adequate homes that we have, the better.

Senator BENNETT. If we do not break through the high costs of the typical traditional—what Secretary Romney called "stick construction”—we are never going to solve this housing problem, because the cost of material and labor are pricing prospective purchasers out of the market just as effectively as the cost of mortgage money. There is no question about it.

The CHAIRMAN. Thank you very much. We appreciate your testimony.

(The full prepared statement of Mr. Brownstein follows:)



Mr. Chairman and members of the committee:

I am pleased to have the opportunity again to testify before your committee. Today I am appearing as the spokesman for the Council of Housing Producers. This is a group of 15 of the largest housing producers in the industry.

While 1969 certainly was anything but a banner year for the housing industry, actually the Council of Housing Producers went counter to the industry trend and increased their production over 1968 from 30,003 units to 41,729 units, and increase of more than 30 percent. This represents 3 percent of the total housing starts last year.

But the total starts of slightly under 142 million units falls far short of what was needed to meet our housing goal of 26 million units by 1979. And the January starts figure of 1,166,000 coupled with the substantial drop in building permits certainly leaves little room for optimism in the near term trend of meeting housing demands.

There were high hopes and aspirations accompanying the passage of the 1968 Housing and Urban Development Act of making a reality out of the promise made nearly 20 years earlier of providing a decent home in a suitable living environment for all Americans. It was hailed as the Magna Carta of housing since it provided what were hoped to be the tools for eliminating substandard housing in this nation. And for the first time it quantified production goals in clear and unambiguous terms—it would be the aim of this government to see that in the next decade 26 million dwelling units would be provided. Recognizing the inability of many families to compete in the open market for adequate shelter, six million units would be needed involving some form of subsidy.

The theory of the subsidy was very simple—to bring the shelter cost within reach of the income level being served ; to create an effective demand out of a demonstrated need. This was to be achieved through the traditional public housing channel, the fledgling rent supplement program which had survived strong opposition and at last was making some headway, and through new and bold interest subsidy programs involving rental and cooperative housing under section 236 and home ownership for low income families under section 235.

This landmark legislation came into being with widespread bipartisan congressional support because it was recognized that during a great period of national prosperity, time had stood still for many, particularly in urban areas.

But to produce the housing needed for the affluent as well as the deprived is the challenge now facing the industry. The provision of adequate dwelling units traditionally has presented sticky problems. And inflation has added a dimension of adversity of giant proportions.

Let's look at some of the facts and some of the problems other than financing which will be dealt with later.

Land prices have increased at an annual rate of about 10 percent. The wage rate of construction workers went up about 15 percent in the past year.

The cost of materials increased during the past year by about 412 percent.

Overall construction costs rose more in the last 12 months than at any time in the last 24 years.

The home priced at $25,000 a year ago is selling today for $27,500, an increase of 10 percent.

And aside from the cost problems, housing is suffering disproportionately.

Though our gross national product has increased 236 percent since 1950, housing's share of the GNP has actually declined from 6.7 percent to 342 percent, by nearly one-half. Housing pr ction has declined not only in relative, but in absolute terms.

In 1950, the peak year for housing in the post-war era, there were 12.9 dwelling units produced for each one thousand people in our population. In 1969 we were building at about one-half that rate_6.2 units per thousand.

Once the world's leader in housing production, today the United States has fallen behind Japan, Russia and Western Europe. While the quality of our housing is superior, and home ownership more common than in most other countries, the fact remains that our production is not keeping pace with demand.

The development of publicly assisted housing is closely associated with the weakening general production picture. In 1969—the first year of the ten year program—the Department of Housing and Urban Development reports that only 175,000 publicly assisted units were produced. The original goal for 1969 was 300,000. There are several factors accounting for the wide variance between the goal and the performance, the principal ones being the increased costs, mortgage credit shortage, inadequacy of the funding of the subsidized programs and the lateness of the appropriations.

What are the prospects for meeting the goals, recognizing that the publicly assisted goal alone will call for an annual rate of construction 10 times greater than in the last decade?

To begin with and allowing for adequate community facilities, open space, commercial property, and so forth, the achievement of the goals will mean an additional land need of 6 million acres for development and $500 billion of mortgage funds.

Housing production on this scale means overcoming the constraints of an insufficient supply of trained labor, an inadequate flow of mortgage financing, and lack of sites, especially to house low income families.

It means also modifying such institutional impediments as local zoning and building codes and inflexibility and delays at all Government levels.

Attaining a production level of this magnitude raises qualitative as well as quantitative questions. We have to learn how to produce in a way that goes beyond a concern only for volume. By this I mean land use and design—the balanced development of inner city and suburbs, equal access for all of our citizens, improved management of low income projects, increased entrepreneurial opportunities for minority businessmen, provision for employment opportunities for residents, and involvement of users in the production process.

And, to repeat, it means some reasonably even and assured flow of mortgage credit. As I said earlier, the financing of 26 million units will require $500 billion of mortgage credit and this is on the basis of a conservative estimate of the average mortgage amount per dwelling unit being under $19,500.

Regardless of whether you look at the problem of supplying mortgage credit from either the standpoint of long or short term perspective, the outlook is anything but bright.

The view that inflation is inevitable has gotten so firmly implanted in the minds of consumers of credit as well as suppliers that it has created a psychology which for some time caused the investment community to ignore the economic fact that a slowdown was actually occurring. But that there in fact has been a slowdown is now clear. In the last quarter of 1969, the following occurred:

Retail sales have been virtually flat for the past several months and surveys have shown that consumer buying plans have weakened further. The Commerce Department reported that in January consumer spending showed only a 1 percent gain over January 1969 which was less than the price increases which occurred during that time;

Industrial production has passed its peak; Unemployment has increased ; Personal income during the latter part of 1969 rose at an annual rate of about 112 percent compared with 9% in 1968; and

In terms of real GNP there was no gain compared with nearly a 5 percent increase in 1968 and an even higher rate early in 1969.

There certainly is nothing to suggest a resurgence in economic activity in the months ahead. But the strong and sustained price pressures give way grudg. ingly and because they are so deeply entrenched there undoubtedly will be maintained monetary and fiscal restraint until there is some distinct indication that disinflation has indeed set in. This is always a delicate timing mechanism with the danger ever present of an excessive delay bringing about an over-correction and bringing on a recession.

This condition has inflicted its severest pain on the housing industry. Had it not ben for the herculean effort of the Federal Home Loan Bank Board and FNMA we would be faced with an even more dire housing problem th:an now exists. And unfortunately there is little immediate relief in sight, although the responsible officials have said that easing in the money supply may be in order. Even if an easing in monetary policy should occur it will have little immediate effect in reducing the strain on financing housing.

When one considers the time lag betwen the flow of savings, mortgage commitments and actual advances, you have to conclude that at best there may be some improvement by mid-1970. And this will happen only if there is an improved savings flow to the thrift institutions which traditionally have supported the mortgage market.

Viewing the long range problem does not present a much brighter hue. Capital demands are going to continue strong in the face of increasing population, technological advances, and greater affluence of our society, plus the governmental commitment to do something about poverty, sub-standard housing and improved living conditions for all Americans, including guaranteed minimum income. There is a grave doubt, in my judgment, that capital sources can or will keep pace with demand, and unless measures are taken to bring about a contrary result housing will continue to suffer disproportionately.

What these measures must be are, of course, the critical factors. But clearly there msut be a reassessment of priorities and housing is going to have to be accorded some special treatment. For too long the credit needs of the housing industry have been on a catch as catch can basis with all other credit users. The position has been that housing takes its place in the capital market along with all other competitors, and if this caused stringency it would likely be for only a temporary period. Accepting the premise of more periods of capital shortage than abundance in the decade ahead, we no longer can permit housing to fend for itself if we are to achieve the housing goals and even come close to meeting the Nation's housing needs.

To begin with, there must be a way of attracting funds to those institutions which are the heavy suppliers of mortgage credit. Some suggest this be done by the creation of a tax incentive to the saver whose savings find their way into the mortgage market. Bills have been introduced which would do this. The exemption from taxation of the interest earned, up to some specified amount, on saivngs which are channeled into mortgages would not only create an incentive to save but it would also tend to bring the saiyngs to where it would do the most good from the standpoint of providing housing.

As an alternative, the FHLBB and FNMA could be authorized to issue large denomination securities, tax exempt in whole or in part, the proceeds of which are reloaned to institutions originating mortgages at some reasonable specified amount above the borrowing rate. This would tap a different source of investment capital, avoid the disintermediation problem, and could be very effective in attracting additional sources of mortgage credit.

A third possibility would be making the interest income from blocks of newly originated home mortgages acquired by investors exempt or partially exempt from taxation. In order to asssure that the low- and moderate-income families derive the benefit of the mortgage supply, it would be well to fix a ceiling on the maximum mortgage amount.

It should be recognized also that the loss of revenue from taxation would be largely offset by the increase in the GNP and the resultant tax receipts brought about by the production of the residential construction which would be stimulated through any of these measures.

The chairman's bill S. 2958 deals with another critical area and we would recommend its approval. This would authorize FNMA to provide a market for conventional mortgages. With the difficulty thrift institutions have been experiencing in obtaining and holding savings, it is essential that a backup source be provided for the marketing of conventional mortgages. Another strong argument in favor of this type of facilitiy, is that as FHA becomes more involved in the programs aimed at treating social ills, it is clear that all mortgage activity which can be channeled to the private market will take some of the strain off FHA's limited resources. There has frequently been the problem of FHA being authorized to spend enough of its funds to handle the myriad of functions it is asked to perform. It becomes essential from time to time to establish priorities and clearly in a climate such as faces our nation today the socially oriented programs cannot be allowed to flounder. The logical answer to this dilemma is a smoothly functioning and operating secondary market for conventional mortgages.

There is also before your committee the chairman's bill, S. 3442. Among other things, the bill would create a dual interest rate limitation on FHA insured and VA guaranteed mortgages. A ceiling would be set as at present under which discounts could continue to be charged by the mortgagee. There would be an added authorization for a free interest rate conditioned upon no discounts being charged.

The discount mechanism has always created difficulties when they have gotten beyond the range of reasonable tolerance. Not only have they been onerous on the builders, but they have been particularly burdensome on the sellers of existing homes who often have seen what they thought to be their equity virtually eliminated by a substantial discount in addition to the commission and other expenses of sale. The control of discounts has been a perplexing matter to the congress as well as to the administering agencies. Twice legislation was enacted directing the agencies to control discounts, but the legislation was repealed since instead of the hoped for result, it effectively shut off the flow of mortgage credit.

The bill would authorize the dual system on a trial basis, in effect, and require an evaluation by the secretary and the administrator and a joint report to the congress.

We believe there is merit in giving the system a trial. There are two things which we would suggest :

One, clearly the interest subsidy programs would have to operate under the fixed ceiling, but in view of the tandem plan operation, this should cause no great difficulty, and, secondly, in the case of mortgage rates clearly out of line the administering agency should raise a question and withhold approval until a satisfactory explanation is received or rate adjustment is made.

The bill would direct the Secretary of HUD and the VA Administrator to control closing costs. Certainly we are in accord with the view that such costs should be held to a minimum. The agencies now have regulations and procedures requiring that such costs be reviewed for reasonableness and approve only those customary in the area. To the degree these can be strengthened effectively without shutting off credit to the programs is certainly worth review.

We support the Advisory Commission on Housing proposed in the bill. Such a Commission should focus attention on the Nation's housing needs and be a strong force in helping channel the resources necesasry to meet the housing goals.

We are also pleased to support the provisions in the bill which may stimulate additional savings and mortgage activity for savings and loan associations. These associations which have so strongly supported the Home Building Industry will require additional authorizations in order to remain competitive and to continue providing the bulwark for satisfying home purchase needs as they have in the past.

We also favor the provision which would authorize national banks to make 90 percent, 30-year term mortgage loans.

We were also asked to comment on Senator Proxmire's Bill S. 3503 which he introduced on behalf of himself and 16 other Members to provide mortgage financing at reduced interest rates for middle-income families. The bill would authorize the FHLBB to issue certificates aggregating no more than $3 billion annually to be advanced at an interest rate of 6 percent to 644 percent. The certificate would be saleable through the Federal Reserve System. Such advances are required to be reloaned to families having a gross annual income of no more than $10,000 to acquire homes appraised at no more than $25,000 at an annual interest rate of no more than 612 percent. Assuming an average mortgage amount of $20,000, this would permit up to 150,000 families to achieve home ownership annually who probably would be unable to do so otherwise. We believe there is much merit in this type of proposal.

Thank you for the opportunity of presenting this statement on behalf of the council.

The CHAIRMAN. Next is Mr. Charles P. Landt, chairman of the Subcommittee on Mortgage Finance, Realtors' Washington Committee of the National Association of Real Estate Boards, and accompanying him will be our old friend, Mr. John C. Williamson.

We are glad to have both of you gentlemen before us. We have a copy of your statement. You may proceed as you see fit.

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