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COOPERATIVE HOUSING

TUESDAY, FEBRUARY 7, 1950

HOUSE OF REPRESENTATIVES,

COMMITTEE ON BANKING AND CURRENCY,

Washington, D. C.

The committee met, pursuant to adjournment, at 10 a. m., the Hon. Brent Spence (chairman) presiding.

Present: Messrs. Spence, Buchanan, Multer, Deane, O'Brien,. O'Hara, Gamble, Talle, Kilburn, Cole, Hull, and Mrs. Woodhouse. The CHAIRMAN. The committee will be in order.

Mr. Rodney M. Lockwood, president of the National Association of Home Builders, will be our first witness.

Mr. Lockwood, will you identify yourself?

STATEMENT OF RODNEY M. LOCKWOOD, PRESIDENT, NATIONAL ASSOCIATION OF HOME BUILDERS

Mr. LOCKWOOD. My name is Rodney M. Lockwood. I am president of the National Association of Home Builders and have been engaged in the business of building homes in Detroit, Mich., for a number of years.

For the sake of the record, I may say that the National Association. of Home Builders is comprised of the membership of 127 affiliated local builders' organizations in as many cities throughout the country. This membership, with a certain number of builder members. in areas where no local home-builder organizations exist, totals approximately 15,500 men. They build by far the largest part of the housing constructed in the urban areas of the Nation.

The members of our association in every State are the producers of the American home in volume-sometimes called the "merchant builder" but always the entrepreneur. By this method this industry produced over 1,000,000 new homes in 1949-an all-time record. This is enough to house a city of 333,000 people about the size of incorporated Birmingham, Ala.-every 30 days.

Stating it another way, on an average, enough housing was produced every day in 1949 to accommodate approximately 11,000 persons. This tremendous production, added to that of the other post-war years, means that accommodations for more than 13,000,000 Americans have been provided in more than 3,500,000 new homes and apartments since the end of the war.

The industry is not only proud of its record-breaking volume, which we hope to exceed in 1950, but it is particularly gratified by the success we have had in building units within the means of the middleand lower-income families. FHA figures show that of all the houses

financed through FHA's standard financing in 1948, more than onehalf were bought by families in the $2,000 to $4,000-income group. We are confident that when the information on 1949 is compiled it will show a still higher percentage of housing going to the lower- and -middle-income groups due to an increasing emphasis placed by the industry on low-cost housing in the year just passed.

That trend has accelerated during the current year 1950, which, incidentally, has started out at production levels even higher than the previous year. We understand that FHA applications alone for the first 4 weeks of January will show 90,000, which is by far a new high record.

This pattern of increasing production and lower prices follows, of course, a characteristic postwar pattern in almost every industry in this country. As the first pressure of excess demand is satisfied, the competitive forces within private enterprise naturally and without any Government compulsion seek the broadest market which exists at the lower levels and frequently extending into low-price brackets which even those familiar with the industry would regard as impossible or unlikely.

I want to dwell on this point at the start because critics of the private home building industry would not only ignore these facts but would have you draw conclusions from them, warped and twisted to fit their own purposes.

For example, it was stated to you as if it were a shameful indictment of the price of housing being built in our largest metropolitan areas which, generally speaking, constitute our highest cost areas— that in New York and Chicago, in the first half of 1949, less than half of housing produced was for persons making less than $4,800 a year.

The exact figures submitted by FHA for the record of the Senate Banking and Currency Committee shows that in the New York metropolitan area 47.7 percent of all section 203 new home construction insured by that agency went to persons having incomes of less than that figure, and of this 14.6 percent went to persons having incomes of less than $3,600.

New York is the highest cost area in the country, and this record is, we submit, something of which this industry is justly proud. That area, for example, has one of the most significant projects in the entire country-Levitt Town, selling for $7,990. You may be surprised also to learn-and I do not believe the advocates of this bill have even bothered to refer to it-that in the New York area many thousands of houses are being built to sell for $5,000 or less.

I should like to submit for the record two exhibits at this point. The first one shows the percentage of housing insured by the FHA, as related to the $2,400 to $4,800 income family in 17 major cities of the country.

I would like briefly to read down this list and then submit this for the record.

Mr. MULTER. Does that show a break-down between section 203 housing and section 608 housing?

Mr. LOCKWOOD. No. This refers to the 203 housing only.

Mr. MULTER. It eliminates 608 housing?

Mr. LOCKWOOD. It does not show 608 because they are not bought by families; they are merely rented. This shows the percentage of all of the 203 business which was bought by that middle one-third as defined by Mr. Foley, of the Housing and Finance Agency; so this is the section of housing bought under 203 financing for middleincome families.

Mr. MULTER. Does it show the cost per unit as well as the monthly gross carrying charge?

Mr. LOCKWOOD. There is another exhibit, which I will come to a little later, which does show the carrying charge per unit and which we will discuss when we come to it, if you do not mind.

(The information referred to is as follows :)

Percentage of families with net effective incomes of $2,400 to $4,800 purchasing new sec. 203 homes, January to June 1949, for selected insuring offices

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The CHAIRMAN. You may proceed with your statement.

Mr. LOCKWOOD. In the New York area 47.6 percent of the 203 housing was purchased by the middle-income families. To break this down, that is the lowest percentage in the whole list of cities. It runs up to 77.6 percent in Memphis and Los Angeles it is 69 percent of all the FHA financed housing under section 203 going to the middleincome families. In other words, in Los Angeles 69 percent of the housing goes to the middle one-third.

That seems to me to very clearly refute any contention that the middle-income family is not able to get housing, because they are getting more than their share, as these figures indicate.

Mr. BUCHANAN. Right at that point, do you care to estimate the projected building volume trends for 1950, just to give us some idea of what the industry is thinking about as far as this year is concerned?

Mr. LOCKWOOD. We are planning to build at least 1,000,000 housing units of all kinds, and the emphasis is, as it was so very strongly during 1949, still on the low-cost housing.

Mr. MULTER. Do you expect to exceed 1949 building?

Mr. LOCKWOOD. Given a continuance of the present healthy economic conditions, we certainly will exceed it and, I hope, by a substantial margin. Fortunately, the ineptness of the Public Housing Administration officials has been such that they have not built the first unit. It devolves on the private housing industry to build the housing which it was claimed the public housing was going to provide.

Mr. MULTER. At least the threat of serious competition from the public-housing law we passed last year has not yet developed?

Mr. LOCKWOOD. Not yet. Not until they demonstrate that they can build housing at reasonable prices and cost, which they have not done so far

The CHAIRMAN. I suggest you conclude your statement.

Mr. LOCKWOOD. The same thing holds true for every large city in the country. In Philadelphia, for example, 60.9 percent of new-home production under FHA for the first 6 months of 1949 went to persons with a net income under $4,800; in the Chicago area 49.9 percent; and in Denver, to which reference was made in testimony before you last week, 71.5 percent.

On a previous appearance before you last year I exhibited charts showing samples of low-cost houses being built all over the country. As I recall it, some of you gentlemen were inclined to challenge my statement that those were typical illustrations. I feel, therefore, in view of the barrage of controversial statements on this subject, that it would be well, before you take any action on this or any other housing bill, to obtain a first-hand knowledge of exactly what is being done by the private-building industry all over the country.

I suggest, therefore, that either your entire committee or a subcommittee, if you choose, make a tour with me of projects all over this Nation, both in the large metropolitan areas and in the smaller communities, so that you can see for yourselves in lumber, brick and mortar, and with the actual price tags attached, just what is on the market today and the kind of families who are buying these homes.

There is no question about it-there is a tremendous difference between what you can see on the actual market and the theoretical discussion of housing that reaches you.

This National Association, in February 1948, launched a Nationwide low-cost home program, popularly known as the economy home program. Early in 1949 the Housing and Home Finance Agency began to lend its cooperation and that of its constituent agencies. During these 2 years thousands of builders all over the Nation designed and built lower cost homes by the hundreds of thousands. The effect of this drive is yet to be fully reflected in the statistics which are always months behind the accomplished fact.

In the case of the veteran, FHA figures show that more than 76 percent of all veterans buying new homes under the veterans housing program combination FHA-VA insured loans have incomes of less then $4,000 and more than one-half-51.6 percent-have incomes of less than $3,500. The Federal Reserve Board, in its survey of consumer finances-June 1948-reported that the median price paid for new homes was between $7,500 and $8,500—or well within the ability of middle-income families to pay.

There are no Government figures, to our knowledge, available on the incomes of purchasers of non-FHA insured or non-VA guaranteed homes. We know that the bulk of such housing is built in the smaller communities of the country, and in the semirural areas where neither the FHA nor the VA are as active as they are in the metropolitan

areas.

Generally speaking, housing in such smaller towns and rural nonfarm areas is in a lower-price class than the metropolitan housing. Therefore, we believe that if a complete national count were taken of family incomes of those who have been housed by the industry during 1949, the national averages or medians would be even lower by a substantial margin than those we have quoted above. Despite emotional claims to the contrary, the private housing industry is, in fact, housing

all the middle-income group and a large part of the lower-income group. We will have more to say about this shortly.

Since our members produce such a substantial volume of the Nation's housing, we are well qualified to discuss the impact and the longrange significance on our industry, as well as upon the home-buying public with which we deal daily, of the proposals contained in H. R.

6618.

In opposing the cooperative housing proposals of H. R. 6618, we wish at the outset to make our position with respect to cooperatives perfectly clear.

We are not, and have never been, opposed to housing cooperatives as such. They are, after all, free individual enterprise in the fullest sense of the word. So long as they are groups of individuals acting cooperatively to do that which they would be privileged to do individually, we see nothing inherently undesirable in such a program being carried out.

However, such groups as a class should not be provided, directly or indirectly, with Government subsidies or special financing or tax exemptions available only to them and not freely available to all other citizens.

The basic argument for the cooperative housing proposal, as I understand the testimony made before you, is the claim that it will reduce rentals by 25 percent. Naturally, that is an objective with which no one can quarrel, but we are firmly convinced that in this measure it is attained at a cost which will vitally and adversely affect for years to come (1) the home-buying public, (2) the vast homebuilding industry, (3) the Federal Government, and (4) State and local governments. This is so because the claimed savings are effected not by reductions in cost but solely through

(a) the complete elimination of the private mortgage lender and the assumption of that function by a Government-controlled and Government-financed agency; and

(b) such tax exemptions as are available to cooperatives under Federal income-tax laws and local laws.

In this connection, it should be pointed out that this is a diversion of mortgage-lending activity through a Federal agency and to cooperatives partially exempt from State and local taxes. While the result may be to reduce the interest rate on the loan and the operating expenses of the cooperatives, it drys up the normal tax revenue of Government from these sources. It further means that private enterprise is placed at a competitive disadvantage to the extent that a Government corporation that does not pay corporation taxes assumes the lending function and cooperatives assume the function of building and operating housing. There will be a loss to the Government because neither will pay corporate taxes as would private enterprise which normally performs these functions.

We are firmly convinced that this is unwise legislation and should be rejected for the following reasons:

1. The Federal Government would become a mortgage lender. This is not a proper function for government. The device of a corporation controlled by the Administrator of the Housing and Home Finance Agency is a thinly disguised form of direct lending I think that the attempt to justify and explain this device as "private enterprise" is gobbledegook, if I may say so.

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