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The labor movement has believed in this concept for many years. Already many union pension funds are heavily invested in mortgages. We have gone a step further to encourage investment in mortgages, with establishment of the AFL-CIO Mortgage Investment Trust. This enables union pension funds to be invested in the trust, which in turn buys mortgages, thus relieving individual unions of the problems of servicing mortgages or of the need for a mortgage banker.

Mr. Chairman, I would ask that a recent article which I wrote describing the entire AFL-CIO Mortgage Trust operations, be included in the record as part of my testimony.

Whatever the outcome on interest rates, there will be continual attempts to blame American labor for the scandalous cost of housing. I trust I have sufficiently proven that it is not labor that is to blame. American construction unions have pioneered in the pre-fab housing field and have pioneered in the use of new building products and methods. They will continue to do so. The attempts to run rough-shod over the contract practices and rights of construction workers are generally not motivated by a desire to pass along to the homebuyer or the consumer a less costly package, but rather to weaken the unions and to absorb any savings in profits.

The culprit in the housing crisis is clearly high interest rates. Any steps that can bring the cost of money to a more reasonable level will be met with deep gratitude by millions of hard working low and middle-income Americans, who desperately need housing. And lower money costs will also be welcomed by additional tens of thousands of workers who cut the timber, finish the lumber, make the materials, the appliances and myriad other items used in home building. As workers and as consumers, the AFL-CIO has a great stake in home building. We can no longer watch as decent housing is sacrificed on the alter of tight money and sky-high interest rates.

MIT: A UNION INVESTMENT THAT PAYS OFF, IN MORE WAYS THAN ONE (By John Evans, Director, AFL-CIO Department of Urban Affairs)

The AFL-CIO Mortgage Investment Trust is tackling a share of the nation's housing problem and in the process is providing a practical and secure union and pension fund investment program. It also offers a means to build unionism, create union jobs and aid union contractors caught in the tight money squeeze. Simply put, the Mortgage Investment Trust (MIT) provides a unique opportunity for unions and pension funds at every level to serve the national interest as well as their own interest. If a union or a pension fund would like to use its money helpfully, creatively, securely and profitably then MIT merits consideration because it puts money into a badly shortchanged sector of America-the money market for housing. At the same time it is providing a better rate of yield on invested union monies and at a higher degree of security than many pension funds now realize.

MIT has been existence for nearly five years, but it was the passage of the 1968 Federal Housing Act that dramatically put the MIT program in focus as an opportunity to serve the nation's low and moderate income families. The Trust is now expanding its operations and has at this writing federally insured construction loans working in five major cities with projects in the planning stage in as many more.

On this basis of wider operations, its board of directors has been greatly expanded. AFL-CIO Pres. George Meany is chairman of the 11-member board of trustees. The other trustees are: Lane Kirkland, AFL-CIO secretarytreasurer; Joseph A. Beirne, CWA president; Paul Hall, SIU president; Joseph D. Keenan, IBEW secretary; Herman D. Kenin, Musicians president; S. Frank Raftery, Painters president; David Sullivan, Service Employes president; Harry Van Arsdale, Jr., New York City Central Labor Council president; Martin J. Ward, Plumbers & Pipefitters secretary-treasurer; Peter Fosco, Laborers president. None receive remuneration for this work.

To bring the housing difficulties closer to home, if you've tried to buy a low or moderately priced home recently, or if your son or daughter is just getting married and looking for a modest home or apartment to rent, you are undoubtedly aware of the current housing problem. But the elderly-including our members and those who live in the substandard inner city areas could testify that the situation has become a crisis.

The housing crunch is the worst in 20 years and there are several reasons why. Basically, the supply of housing has not kept pace with population increases or the current steep climb of marriages by the "war babies" of a quarter of a century ago a trend expected to continue well into the foreseeable future. Then add the migration of thousands of families into the urban "inner-city" and matters get to the emergency state.

Important factors shrinking the supply of housing are the current tight money situation, with interest rates at a 100-year record high, and high land costs. The day of the $10-15,000 home is pretty well gone. The average price for a new home in the nation is over $20,500 in the current market, and the typical wage and salary earner is already priced out of it. Buyers can't buy; builders can't build; suppliers can't supply; and lenders won't loan money to the housing industrynot for low- and middle-income housing, anyway. High rise office buildings, motels and shopping centers keep going up, but housing production keeps going down. The net impact is reflected in runaway prices on new and old homes, drastically reduced vacancy rates accompanied by high rental rates, and a sharp drop in housing construction to below the 1950 level. The crunch is keenly felt throughout the trade union movement.

Because of seasonal housing construction patterns, unemployment in this industry is always high-averaging 11.1% between 1960 an 1968. There are also many jobs involved in the unionized housing supply firms, which are hit by curtailed production. Secondly, trade unionists and members of their families are home buyers or would like to be. Third, American trade unionists have long sought a clean and decent home for all Americans including the public or private low and moderate cost housing programs.

In its present shape, the housing industry is providing neither full employment in housing construction and supply, nor an adequate number of new homes at prices working people can afford to pay, nor the public housing nor the subsidized private housing necessary for thousands of people trapped in substandard and dilapidated shelters.

This situation has not developed within the last week or last year. The Housing Act of 1949 set forth a national housing goal: "Realization as soon as feasible... of a decent home and suitable living environment for every American family."

We are little closer to that goal now, than in 1949. We still need 26 million new housing units over the next 10 years; 1969 saw only half the annual rate needed actually achieved.

Tight money is a principal reason for the lag. Current tight money policy comes at a time when America needs more homes in the next 30 years than have been built since the birth of the nation.

Mindful of this crisis the AFL-CIO organized the Mortgage Investment Trust as a service to the nation and to its member organizations. The first step was to register the program with the U.S. Securities and Exchange Commission. (SEC prospectus is available upon request at the Trust Office, 815 16th St., N.W., Washington, D.C. 20006.)

The AFL-CIO underwrites the major portion of the operational expense, which because of this contribution is less than 1.5% of gross income. Now the AFL-CIO, in the face of an increasingly grave national housing crisis is stepping up its efforts to let union organizations and pension funds throughout the country know about the Mortgage Investment Trust.

Many unions ask, "Why go to the effort of disturbing our present investment program? Our local bank or an insurance company handles all that."

"We should also ask if our investments are helping achieve our national and our union goals? Are they completely secure? Are any of our funds finding their way into funding non-union ventures instead of assisting union contractors? Are our funds achieving a comparable yield to that of the AFL-CIO's Mortgage Investment Trust? Current yield is estimated to be about 8% for new participants. Backed by mortgages insured by the federal government's FHA, the Trust portfolio has a high degree of security-just as good as the full faith and credit of the government of the United States if these mortgages are held to maturity. If they are sold before maturity they are naturally subject to the FHA market prices.

The desire to see union control exercised over union money has proven to be an attractive feature for some contemplating participation in the MIT. Some $20 billion in union pension and welfare funds is currently invested through banks, insurance companies, and other financial institutions, and only about 5 or 6

percent of the total is invested in mortgages. In many such cases the unions have little control over the investment of their own money. It is sometimes used to defeat the purposes of unionism, when, for example, loans, which may actually represent union funds, are made to nonunion contractors and anti-union firms. MIT poses no such problem or threat. Wherever its money is invested, there is prior approval by the local building trades jurisdiction.

While it may require initiative and persistance to change, present investment patterns, it seems unfortunate that housing is not being built, that union workers are not being employed, when collectively, union pension and welfare funds could be used as financing sources. Is there another current investment program which will return a reasonable, secure yield, afford direct control over use of our own money and help solve a national problem, too? Similar opportunities do not readily come to mind.

An alternative to withdrawing funds already invested elsewhere, is to allot a percentage of each month's new available funds to MIT. Existing investments are left undisturbed-if that is a factor-while the new MIT participation grows each month. One international and one local have announced their plans to inaugurate this schedule, and the method may be suited to others not now participating in the program.

Any affiliated AFL-CIO union local, central body, district council or international-or any qualified labor-management pension, welfare or retirement fund can participate in the Trust simply by making a check payable to it. Certificates are issued in units of $500 each with a minimum investment of $1,000. The $500 certificate unit is actually sold to new participants at a discount based upon the quarterly market value of the Trust's entire portfolio. With the FHA's regrettable raise in interest rates new participants can probably expect yields of about 8 percent. Income is distributed twice a year after June 30 and December 31. In the final analysis yields are dependent upon the money market and the Trust's actual procedures and operations are conducted according to the material set forth on the Trust's SEC prospectus.

Are the participants locked in? No. Funds can be withdrawn upon 60 days notice and are not tied to individual mortgages. Although the Trust as a whole owns the specific mortgages and construction loans, funds received from a locality may be earmarked for use in the locality if they total a significant amount of the money required to build a proposed project.

The Trust's expanded and renewed operations began in 1969. The last two calendar quarters have seen almost $3 million of new participation. Several million more has been pledged. One international, the Painters, has now announced its intention of contributing a fixed percentage of their new assets each month. Operating Engineers Local No. 77 of Greater Washington has done the same. Several hundred million dollars is the immediate goal. A realistic goal of $1 billion is achievable over a period of time.

When that kind of participation has been secured, the trade union movement will not only have built an investment program of security with reasonable yields for its participants, but will have become a major force in providing financing for urgently needed government insured or guaranteed housing, in the achievement of long-range union employment goals, in returning the benefits of union investment to union investors, and in playing a leadership role in the building of the "second America."

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In the next 30 years America's population is expected to grow by at least 80 million-equal to adding the present populations of England and France to the United States. And the overwhelming majority of these people will live in urban areas. Yet millions of Americans today are ill-housed and major portions of central cities are dilapidated or decaying areas.

The Housing Act of 1949 established a national housing goal of "a decent home and a suitable environment for every American family." But the government did not place major emphasis on meeting the nation's housing needs and for many low- and moderate-income families that goal was not fulfilled.

Nineteen years later, Congress adopted the Housing and Urban Development Act of 1968, to speed up the building and rehabilitation of housing through federal assistance and a variety of incentives to business. The Act's 10-year goal of 26 million additional dwelling units, including at least 6 million subsidized units for low- and moderate-income families, can be met only if there is a national commitment backed by effective government policies to achieve it.

But today, more than a year after the 1968 Act was adopted, there is little evidence of such government policies and measures. The clear-cut evidence, in terms of actual construction, is to the contrary.

To achieve 26 million additional dwelling units in 10 years an average yearly rate of 2.6 million-the number of housing starts in 1969, should be moving up sharply from the 1.5 million units in 1968 toward 2 million. But the government's restrictive monetary and fiscal policies and the highest interest rates in

NATHANIEL GOLDFINGER is director of the AFL-CIO Department of Research

100 years are causing a sharp decline of residential construction rather than a sharp increase.

Between the winter months of 1968-69 and the past few months, the yearly rate of housing starts has dropped from 1.7 million dwelling units to 1.4 million. Housing starts are headed down, not up. Unemployment among construction workers is increasing. The soaring trend of interest rates is pricing an increasing percentage of families out of the market for single family homes and new apartments. Skyrocketing interest rates have increased costs to home builders, prices and monthly payments to home buyers and rents to those who seek new apartments.

The economics department of the National Association of Home Builders reports that monthly payments on principal and interest on a 25-year mortgage with 20 percent down payment rose from $139.80 for a $25,000 house purchased in June 1968 to $156.96 for a similar home bought in mid-August 1969, as the result of soaring money costs. This is a rise of $17.16, or over 12 percent to be paid each and every month for 25 years.

While the Secretary of the Department of Housing and Urban Development speaks in general terms of the need to increase home building, the Federal Reserve, the Treasury Department and the White House are embarked on a severely restrictive economic policy that tightens the money supply, shoots interest rates upward and hits residential construction. The Administration's talk and actions have been in opposite directions.

America is actually moving backward in home building, while there is considerable talk of moving forward.

Some of this talk about moving ahead, towards

meeting the nation's urgently needed housing goal, centers around the Department of Housing and Urban Development's "Operation Breakthrough."

If we are to believe at least part of the sales pitch that surrounds it, "Operation Breakthrough" is soon going to result in a reduction, or considerably slower rise, in the price of residences, monthly payments on homes and rents on apartments. Such an objective is certainly a worthy one.

National attention has been focused on an effort to cut the costs of construction-material and labor costs through radical changes in the technology and management of residential construction as a key to solving the housing problem. However, even if one or more radical technological breakthroughs are achieved in experimental stages in the next year or two, it would probably take another 5 to 10 years before these breakthroughs could be tested sufficiently through experience and consumer response.

There is an obvious time lag between radical technological changes in experimentation and significantly widespread application. If any radical technological breakthroughs are achieved, they will have little impact on America's ability to meet the 10-year housing goal established by congressional legislation in 1968.

What the present effort may actually achieve, after stripping it of the sales pitch, is much more mundane than the "breakthrough" title implies. If reasonably successful, it should be able to accelerate the continuing trend of the past 25 years towards pre-fab components, pre-fab units and modules-all of which would step up the trend toward reducing the on-site labor component of the price. It should be able to increase the use of new materials, such as plastics. It should help to attract some large firms into the business and improve the managerial efficiency of residential construction.

All of these would result in some cost reductions, if and it is a big if in the light of actual experience -if there is a large and expanding volume of construction. In fact, a large volume of home building would by itself provide some cost savings and unless a steady expansion of volume operations can be achieved, even the feasible aspects of this effort will remain largely unrealized.

However, we are told by the news media that labor costs are the chief problem in residential construction. Many people believe this myth and they also believe that trade unions are the major impediment to reduced housing costs, although only about 20 percent or less of residences are union built.

Following through on these views. public attention has been focused on a need to reduce on-site construction activities, particularly the on-site labor cost. by moving many of these building activities from the construction site to the factory. And the aim is to prevent such savings on on-site labor from being offset by increased costs of producing and transporting materials from the factories through the stepped-up use of new and less expensive materials.

But Dr. Michael Sumichrast, chief economist of the National Association of Home Builders, recently supplied the Joint Economic Committee of Congress with details on the costs of a single-family residence and the figures tell a vastly different story.

Dr. Sumichrast's figures show that between 1949 and 1969, on-site labor costs fell sharply from 33 percent of the price of a home to 18 percent-indicating a considerable shift to pre-fab factory operations and a rise in on-site productivity, as well as sharp increases in other costs.

While this shift from on-site labor to factory and materials activities was taking place, the cost of materials increased only slightly, from 36 percent of the price of a home to 38 percent. In those 20 years, the cost of the structure-everything excluding land, financing and profit-fell from 70 percent of the price in 1949 to 56 percent of the price in 1969:

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Source: Bureau of Labor Statistics and National Association of Home Builders Economic Department. Congressional Record, October 29, 1969, pg. E9113.

The focus of attention therefore is on only 56 percent of the price of a single-family home-and on those costs. which have been either sharply declining or relatively stable components of the price. But there is little if any attention given to the sharply rising components of the price-land costs and financing costs which, in combination, rose from 16 percent of the price of a home in 1949 to 31 percent in 1969.

As an example, based on these figures, the on-site labor cost of a $20,000 house is $3,600. Let us assume that this cost is reduced 20 percent through the increased use of pre-fab, which brings the on-site labor cost down to $2,880. If the cost of materials can be held the same, despite the shift to pre-fab, and if land and interest rate costs and profits were all stable. the 20 percent cost-saving would reduce the price of the $20,000 house to $19,280. That is a saving, but hardly a "breakthrough."

Moreover, to the home buyer or renter, the actual saving in monthly payments or rent is much smaller than even that small amount. On this aspect of the issue, the report of the Kaiser Committee on Urban Housing, issued in December 1968, sheds some light. And the Kaiser Committee's cost breakdowns are reasonably close to those of the National Association of Home Builders. According to the Kaiser Committee's report, the on-site labor cost is 19 percent of the price of a single-family home and 22 percent of the price of an elevator apartment unit, while the

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