fire, earthquake, hurricanes and such contingencies, as is the very much younger generation, he should be given a better mortgage.

The mortgage should also provide such system of allowing the person who is to retire within 10 years from now to be purchasing the property while he or she is still gainfully employed and allowing the rents obtained from such a property to reduce the principal. The present mortgage pattern of the Federal Housing Administration sets up no procedure for the reduction of the amount of monthly payments due to the fact that the mortgage has been reduced.

We have received probably 10,000 letters from people who want to have such a system worked out. While this would call for a complete new system of accounting on the part of the Federal Housing Administration, we know very definitely that there are a great many people in the United States who are very thrifty and would like to have some sort of an insured mortgage worked out whereby for the several years prior to retirement they can purchase their future living unit, rent it out, pay a little each month over and above the rent so that when the day comes for them to retire, the amount of money they must pay each month will be of a less amount.

For example, let us take a house that has the $6,300 mortgage on it. The total carrying charges in our area would be around $40 per month. Such accommodations are renting by the year for $60 per month. Assume that the buyer pays an additional $20 per month on the carrying charges of the house. At the end of 5 years, to amortize the mortgage out in the balance of the 40 years at 44 percent, his monthly payment would drop to $36 from $40. If he paid for 7 years, the monthly carrying charges would be reduced from $40 to $29.50. If he paid for 10 years the monthly carrying charges would be 70 cents per day. This is one feature which we cannot urge too strongly, and we do trust that the professional staff of your committee and the Accounting Division of the Federal Housing Administration can work out a declining monthly balance payment to be available to retired people.

While this presentation has been based on retired people, it should be very definitely remembered that any community of three or four hundred people who are all retired is not a desirable condition. There should be some younger blood in the community. Therefore, we feel that the legislation should set forth a policy that while this section is set up primarily for, it is not limited to, those people who are retired and are receiving a fixed income from investments, pensions, annuities and/or social security benefits.

Any project such as outlined above calls for considerable attention and thought about recreation facilities-activities that will occupy the mindpossibly part-time work on income producing hobbies-adult educational programs.

The reduction of the tremendous pressures being built up for increases under both social security and retirement benefits in private industry, resulting from a changed economy can be accomplished if, through FHA underwriting, sufficient mortgage moneys can be made available for a developer undertaking a retirement village. It can then be shown that adequate housing can be provided for retiring people at a price they can presently afford.

When a disgruntled citizen who says he cannot survive on the $130 to $140 per month can be directed to places in the country where he can live on that amount-and in a new house or apartment-you have eliminated a part of his reasons for complaint, and he can face the declining years still retaining that basic requirement of good citizenship, namely, he is paying his own way.

STATEMENT OF H. B. FOSTER, MANAGER, BRICK AND TILE SERVICE, INC., GREENSBORO, N. C.

My name is H. B. Foster. I serve as general manager of an association of North Carolina clay-products manufacturers known as Brick and Tile Service, Inc., with headquarters in Greensboro, N. C.

Since North Carolina produces approximately one-twelfth of all the brick in the United States, and since a large part of this production goes into residential construction, we naturally have a big interest in housing and are closely associated with the home-building industry. Because of this close association we have made a few observations which we hope are worthy of consideration in connection with the proposed changes in the terms of financing homes.

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First, I should like to make it clear that these comments are not intended as criticism of the Wolcott bill. Rather, they are offered in a sincere effort to help this bill correct certain situations which already exist as the result of what might be termed the changing times.

Two notable changes have occurred in the housing field since the original governmental long-term mortgage insurance. First and most obvious is the great increase in total building cost and land values; second is the shift of construction volume from the individually tailored home to the mass-produced speculative house constructed to sell, too often on a let-the-buyer-beware basis.

Net result of these changes has been a drastic lowering of the sights on what constitutes low-cost housing. Formerly a man could build a home worthy of pride and worthy of the responsibility of a long-term mortgage at a price considered by the FHA commitment schedule to be low-cost housing: i. e., in the minimum-downpayment bracket. Now he must accept whatever is offered him by the builder who caters to that price bracket unless he can find more cash for the higher downpayment of a more desirable house.

In our talks with speculative builders in the low-cost market we have developed the definite impression that the amount of cash required of the customer is the dominating force behind their planning. Some of these builders admit privately that they would like to incorporate more quality into the minimum house, but by so doing they would put the house in a bracket where the downpayment requirement would be proportionately much higher and too much of the added cost would have to be paid for in cash.

This brings up our major recommendation regarding the Wolcott bill. Though this bill generally reduces all downpayment, with which we take no issue, we do not think that the percentage of downpayment should jump drastically at $8,000, so that for every thousand dollars above that figure the buyer must have 5 times as much cash as for each thousand below that arbitrary line of demarcation. Certainly no one can expect much of a home below $8,000 at today's prices. Yet unless the formula is changed thousands will be built and sold to those who would assume the mortgage responsibility of a more desirable home but cannot pay down the 25 percent cash required for that extra desirability. In short, people will continue to be forced to buy below their needs, their tastes, and their future earning power because of this arbitrary quintupling of the downpayment percentage at $8,000.

Of course, the answer in your mind right now may well be that any such customer should not let his tastes exceed his pocketbook. Certainly that would be true in talking about purchasing an automobile or a television set which is subject to trading in a year or two. But a home sold on 20-to-30-year Government-guaranteed mortgage is a bad risk if the purchaser is dissatisfied to the extent that he regards his long-term agreement as a temporary expedient to be bettered as soon as possible. And I'll assure you that many purchasers of the cracker boxes built since World War II do not delude themselves into thinking that they now live in the home they expect their grandchildren to visit.

Therefore, it is recommended that the minimum down payment percentagewhatever is finally agreed upon-not be limited to $8,000 but continue to a more reasonable value such as perhaps $12,000 or even $15,000 which is still far from the luxury class at current prices. This should encourage a better quality of housing * * * which is a better investment for the purchaser; a better asset for the communities involved; and a far better mortgage risk for the Government than the future slums now being created for those who are short on cash but may be long on credit reliability.

Some of the foregoing relates to our second thought concerning the proposed change in length of mortgage life to 30 years, or more.

I recall quite well the sound arguments which brought about the then radical long-term mortgage of 25 years. General tenor of them was that a house is still a house after 25 years, so why expect the purchaser to pay it off in a fraction of that time.

I wonder if the same argument could be applied to some of the houses built in the last 7 or 8 years. Are they good mortgage risks for 30 years?

In order to preclude the ridiculousness of a 30-year mortgage on a 10-year structure I suggest that the maximum mortgage life be reserved for those homes which have a reasonable chance to outlive the mortgage, based upon ample consideration for the construction methods and materials used. This means a

different set of construction criteria more stringent than present FHA minimum property requirements for structures qualifying for maximum amortization time.

In summary, the time for stimulating housing of just any kind has passed Slight modifications to the bill under consideration can foster better housing conditions by encouraging quality of construction, and can better protect the public liability represented by long-term mortgage insurance.

STATEMENT OF EFREM A. KAHN, JAMAICA, N. Y.

Mr. Chairman and members of the committee, it is a privilege and an honor to appear before you today to discuss certain portions of H. R. 7839 before you for consideration, particularly those sections which deal with cooperative housing, generally known as section 213 of the proposed Housing Act of 1954.

I wish to state that I have been actively identified with the 213 cooperative program since its inception and, together with my associates, have completed during the last 2 years over 4,000 multiple-dwelling units under said program in the county of Queen, city of New York, aggregating insured loans in excess of $35 million.

I also happen to be the chairman of the labor-management group of the electrical industry of the city of New York, which group has sponsored and is now in the process of completing a 2,000-unit multiple-family project in the county of Queens under the limited-dividend corporate laws of the State of New York.

Presently I am engaged as a builder-sponsor in processing a 213 project to be located in Queens County on approximately 140 acres, which site has been assembled over a period of the last 14 months and which project it is anticipated will accommodate approximately 2,700 families of the middle-income group. It is also anticipated in connection with this project that the FHA-insured loans will approximate $27 million.

The proposed legislation, particularly in regard to increases in maximum insurable loans, as provided in section 119 of the proposed amendments amending section 213, is a step forward and commendable and no doubt will encourage the initiation of cooperative projects. The 213 program is a worthwhile endeavor in that the much-needed housing accommodations for the middle-income group is furnished at less cost than any other comparable FHA program except public housing. The increased maximum insurable mortgage limits, if granted, would nake possible for the middle-income group to acquire their dwelling accommodations at a cost within their means.

The proposed bill authorizes the President to establish, pursuant to section 201, the greater maximum amount as provided in the proposed amendment. This is not satisfactory as this discretionary power would create a serious problem in the planning of any large-scale cooperative project. It is essential for the proper planning and financing of such a project to have determined in advance the amount of the FHA-insured loan. It would be to the advantage of the program that the maximum insurable loans be established in the present proposed bill without the necessity of obtaining the authorization of an increase from the President.

Section 119 of the proposed act, dealing with cooperative housing, provides that the insurable loan shall be based on the estimated value of the property or project instead of, as formerly provided, on the replacement cost.

Insofar as this change pertains to section 213, cooperative housing, I believe it to be inpracticable, unless there is a definite provision that replacement cost and valuation are one and the same. Under the existing criteria used by the FHA in determining value under section 207 (if the same basis of computation is to be used under section 213), there is a difference between valuation and replacement costs. This comes about because, in addition to the replacement cost analysis, a criteria based on capitalization is used. As all cooperative housing under section 213 is erected on a nonprofit basis, it would be impossible to create value under the existing tables of capitalization. For the same reason value could not be based on comparability. It seems to me that the only basis of computation, to determine the maximum insurable loan, is by replacement cost as provided in the exiting law since a nonprofit cooperative corporation does not lend itself to basing mortgages on a valuation basis as there is no profit motive.

In the proposed amendment allowing for increases for veteran membership, there is eliminated increases based on the percentage of veteran membership.

The proposed amendment permits the increase only if 65 percent of the members are veterans. By reason of the elimination of the pro rata increase based on the percentage of veterans, I beieve the requirement should be lowered from 65 percent to 50 percent. In the New York area, particularly Queens County, I have confirmed that it is becoming increasingly difficult to obtain the required percentage of veterans in order to obtain the maximum insurable loan.

To further strengthen cooperative housing I would recommend that section 213 be further amended so as to permit the sponsor-builder to file an application for a cooperative housing project and have same processed so that a commitment could be issued without the necessity of first obtaining applications and approval of the purchasers of 90 percent of the number of units contained in the project. This would eliminate the necessity of selling the stock in the cooperative corporation prior to the initial loan closing. It would greatly speed up the building processes if a builder-sponsor were able to receive a commitment prior to the sale of the apartments. The project could then be erected and the sale of the apartments could take place during construction. The payments received for the sale of the stock would be held in escrow until the project was completed, and, upon completion, said funds would be paid over to the builder-sponsor as reimbursement for equity capital advanced by him out of his own funds on behalf of the cooperative corporation. Upon completion of the project and reimbursement to the builder-sponsor the stock purchased by the cooperators would be issued. This would afford a greater protection to the cooperators for any moneys that may have been paid for their stock by reason of the fact that until the project was completed all funds paid by the cooperators would be held in

escrow.

I also wish to respectfully recommend that in connection with title III, Federal National Mortgage Association, some provision should be made so as to permit FNMA to issue prior commitments in connection with 213 cooperative housing projects where mortgage loans to be guaranteed by the FHA are not readily obtainable from private lending institutions.

STATEMENT OF WILLIAM L. RAFSKY, HOUSING CORDINATOR, CITY OF
PHILADELPHIA, PA.

The economic soundness and civic vitality of Philadelphia depend upon renewing the city's physical plant, particularly housing. The social and human cost, together with the sapping of economic strength brought about by substandard housing are, I am sure, well known to the members of this committee. The President's Advisory Committee on Government Housing Policies and Programs summarized the direct financial burden of slums to a number of cities throughout the country, including Philadelphia.1

The hidden costs, particularly to human beings, are far more devastating, even though they cannot be fully measured by the dollar sign. Indicative of the high price of inferior housing is the fact that in 1953, 65.3 percent of all police arrests were of individuals who resided in Philadelphia's officially certified blighted areas, which contain only 25.3 percent of the city's population. (See table 1 attached.) Similar statistics on juvenile arrests reveal that unless our slums are removed, significant numbers of our future juveniles from these areas are doomed to a life of crime. Despite the fact that the cause of crime is usually far more complex than physical environment, it would be ostrichlike to ignore the fact that in the third largest city in the country, arrests of juveniles residing in deteriorated neighborhoods were 46.4 percent of the total, as compared to the area's juvenile population of 25.2 percent of the entire city (table 1). Similarly, our losses of life and property by fire, our health, and our welfare problems are concentrated in districts where substandard housing predominates. From the longer range point of view, Philadelphia's survival depends upon the solution to this problem.

Recognizing the seriousness of the situation, we determined to do everything we could locally to eliminate our rundown residential areas and to provide decent shelter for all. The city already has an extensive program underway :

1 A Report to the President of the United States, the President's Advisory Committee on Government Housing Policies and Programs, December 1953. Appendix 2-Report of the Subcommittee on Urban Development, Rehabilitation and Conservation, exhibit 4, Notes on the Cost of Slums to Local Governments, pp. 151–154.

An

(1) The Philadelphia City Planning Commission maintains high standards which private builders must follow in developing unused land.. The Commission makes every possible effort to prevent future slums from arising in Philadelphia. (2) Operating under the authority of the State statute, and with Federal funds provided under title I of the Housing Act of 1949, the Philadelphia Redevelopment Authority has demolished 761 substandard dwelling units. additional 1,320 such units will be razed in 1954. By the end of this year, 1,003 new dwelling units will have been constructed as a result of the work of the authority. Plans which have already been approved will in the next few years greatly increase this total, including some 12,000 units for one redevelopment area alone, the Eastwick project in southwest Philadelphia.

(3) Although not as great in emphasis, the rehabilitation of existing houses has also been part of the redevelopment authority's program.2

(4) The Philadelphia Housing Authority has completed 4,648 number of lowrent dwelling units since the inception of the Federal program in 1937. By the end of 1954 the total of such units will be 9,157. It now manages 9,336 dwellings constructed under the various Federal programs. Project planning work is continuing with the aid of city funds in anticipation of the resumption of the Federal public-housing program.

Nor is the city relying on previous accomplishments and existing levels of programs in its fight against blight. Within the past few months additional programs have been launched and plans made for an all-out comprehensive attack on the problem.

1. A new position, housing coordinator, has been created directly under the mayor to bring together the various agencies now working in the field in order to supply a unity of purpose and an effective pooling of resources. It was felt that the good work of the different agencies, both city and State, was piecemeal and uncoordinated.

2. A new housing code, bringing up to date the existing law adopted in 1915, is now pending in the city council and its adoption is expected shortly. It will substantially increase minimum housing standards, eliminating, for example, all outside toilets. In addition, revision of our health, fire, plumbing, and building codes are all underway.

3. Our zoning ordinance of 1933 is being overhauled. One of its primary objectives is to prevent the type of building activity which tends to downgrade residential areas.

4. Even prior to the introduction of the present legislation, the city started to draft experimental programs applying our entire enforcement machinery to achieve slum clearing, rehabilitation, and conservation. Within the next few weeks we plan to select pilot neighborhoods in which these procedures will be tested. The overall program will be developed with the aid of private groups, both civic and private, including the real estate board and the Home Builders' Association.

5. Our commission on human relations is developing a program aimed at providing decent shelter for all groups in the city regardless of race, creed, or color. It is particularly concerned in its preliminary operation in finding out what factors have produced a concentration of minority groups in blighted neighborhoods. In short, we are marshaling the full force of local government to meet a critical situation.

As a city which is the center of a vast economic area, we believe that the Commonwealth of Pennsylvania also has an important responsibility in meeting our housing needs. For that reason, a legislative program calling for the State's participation and assistance in the housing field will be submitted to the next session of the legislature in January of 1955, as well as to the candidates who are seeking State office this year.

Yet in spite of all this concerted activity and these plans to cope realistically with the major problem, we know from both experience and careful review that the city of Philadelphia, like most large urban centers in the country, cannot do the job itself. We just do not have the financial capacity even to make a dent in correcting bad housing because of the heavy fiscal burden we must assume in carrying out the necessary municipal functions affecting safety, health, and welfare, and because our authority to levy taxes is hemmed in by

2 For details on Philadelphia's rehabilitation activity, see A Report to the President of the United States, op. cit., exhibit 2, Slum Prevention Through Conservation and Rehabilitation, Jack M. Siegel and C. William Brooks.