Mr. KLUTZNICK. That is right. Senator HICKENLOOPER. What we are interested in is giving them an opportunity to raise their standard of income and eventually acquire a home for themselves. Mr. KLUTZNICK. I agree with you entirely about that, but this housing is not intended for that class. It is only intended to reach the very low income group. Senator TAFT. What is the average rental per room on that 194,000 units? Mr. KLUTZNICK. Senator, I have a complete chart on rentals that I would like to discuss, if it is agreeable with you, when we go into that matter. I can refer to it now, if you wish. Roughly, it is $5 or $6 a month, including utilities. Senator TAFT. That is near enough. That is what I was wondering. Mr. KLUTZNICK. $5 or $6 per room, including utilities. Senator TAFT. So a four-room unit would be about $20 a month or $240 a year. Multiply it by about four-around a thousand dollarsfor a man with an income of about $960. Mr. KLUTZNICK. Of course, if you take national averages-there is considerable variation-I would say $5 or $6 a room. We must bear in mind that there are areas where the dwellings rent for as low as $3 a room, and in Puerto Rico land and utility projects rent for $1.50 a month. Senator TAFT. You mean no house at all? Mr. KLUTZNICK. No house at all. I think we have a better breakdown on that by areas which will illustrate what happened during the war as well, but generally speaking, your conclusiou is correct. Senator BUTLER. These units are all built by private funds? Mr. KLUTZNICK. They were built under the United States Housing Act, and under the terms of that act 90 percent of the financing was authorized to be direct Federal loans. But by developing a market for local authority bonds we have succeeded in reaching a point now where 36 percent of the permanent financing of the housing comes from private sources. We hope, if the financing amendments in this bill are adopted, that 100 percent financing will be done with private funds. Senator TAFT. But this is done with private funds based on the security of the Federal subsidy which is going to be paid. Mr. KLUTZNICK. Oh, yes; there is no question about that. Mr. KLUTZNICK. The annual contributions provide a security for housing authority bonds rather than a guaranty. Senator HICKENLOOPER. A rose by any other name Mr. KLUTZNICK. It is a different name and it is a different rose. Does that answer the questions with respect to those charts? Now, the total cost of the program under the United States Housing Act is estimated at $895,000,000, as shown by chart 4. There you see the break-down related to the different types of units provided. That portion which was developed originally and mainly prior to the defense and war program absorbed $576,000,000 of this total, while those projects developed primarily under war conditions absorbed $319,000,000 of the total. In later portions of this statement when we refer to specific provisions of the bill, the unit costs will be detailed so the committee may have an understanding of the variations in different geographical centers. (See charts 4 and 5 which follow Mr. Klutznick's statement.) The next chart, chart 5, covers what I think is the largest area of misunderstanding about this whole program. As I stated earlier, there is a widespread impression amongst a number of people-and Í think our different operations during the war have contributed to this misunderstanding to a large extent that the slum clearance and low-rent housing program is federally directed, owned, supervised, and controlled. Now this chart spells out the role of the local government, the local housing authority, and the FPHA, and it shows the degree of participation by each. You will note before you can actually have a development of this kind, the State must adopt enabling legislation. The city government must create a local housing authority. The city government must approve the project. Local taxing bodies must provide contributions through partial tax exemption. They have the choice to make contributions by direct appropriations, but thus far the program has been locally supported through partial tax exemption. The local housing authority must make a report annually to the city government. Now the local housing authority in turn, which is a creature of the State and of the city government, must survey the need for lowrent housing. It has to borrow capital funds from private investors and FPHA. It purchases or condemns project sites. It secures elimination of substandard dwellings as required by the act. prepares plans through private architects. It constructs through private contractors, and it owns and manages the projects. Senator TAFT. Except in Ohio. It Mr. KLUTZNICK. That is right, and may I say I am just as mournful about that as you are. The CHAIRMAN. What is the matter in Ohio? Mr. KLUTZNICK. The Senator from Ohio is not on the Ohio Supreme Court, Senator Wagner. The Supreme Court of Ohio denied tax exemption to these projects in Ohio. This resulted in a breach of their obligations by the Ohio housing authorities, since tax exemption was to furnish the local contribution required by the United States Housing Act. As a consequence, FPHA had to take over the Ohio projects in order to assure that their low-rent character would be maintained in accordance with the United States Housing Act. The FPHA has this function: It reviews local actions as to (1) conformity with the Federal statute; (2) conformity with minimum physical standards which we adopt because the act requires that the housing be standard; (3) restriction to low-income families, and (4) financial soundness, which does not mean economic soundness, but that the project will carry itself under the terms of the act with a subsidy. The FPHA further furnishes technical advice, but now only upon request. It loans a portion of the capital funds, and it pays an annual contribution to aid in achieving low rents, as appropriated annually by Congress. Those are the respective roles which, I think, demonstrate quite clearly that the Federal function is only one part of the transaction. Senator BUCK. In the second heading, under "Local housing authority," you say, "Borrows capital funds from private investors and FPHA." Mr.KLUTZNICK. That is under the present act. The local authorities have been seeking to avoid loans from the Federal Government, but under the terms of the United States Housing Act as it presently exists this has not been possible. If these amendments are adopted and made law, we hope to exclude FPHA from that lending function henceforth. Senator BUCK. It wouldn't be because you couldn't get the funds? Mr. KLUTZNICK. It is because under the present law the security is not adequate to secure 100 percent private funds. Senator BUCK. How are you going to correct that? Mr. KLUTZNICK. I think, when I come to the financing amendments in the bill, I can illustrate that quite clearly. Senator BUCK. You are not in this bill proposing to increase the amount of money which the FPHA has to loan for that purpose? Mr. KLUTZNICK. That is correct. Senator Buck. You are simply going on and do it as a revolving fund? Mr. KLUTZNICK. That is correct; to be used only in case of financial stringency. If.I may take up chart 6, that will conclude my introduction. A question that is most commonly asked is, What resources are there available to do this job if this bill is adopted? This chart illustrates that 40 States, with a total population of 120,000,000, have low-rent housing laws. We have included Ohio in the hope that some day there may be a new decision by the supreme court of that State based on amendatory State legislation. Senator TAFT. Ohio can qualify if they put up cash? Mr. KLUTZNICK. They can qualify if they put up cash as the local contribution. This chart also illustrates the distribution of local housing authorities. In cities of over 500,000 population there are 14 local housing authorities. In cities of 100,000 to 500,000, there are 63. In cities between 50,000 and 100,000 population, there are 59 active authorities. In cities of 10,000 to 50,000, there are 198. And in cities under 10,000 there are 114. The total number of authorities for the cities is 448, and in addition there are 368 rural housing authorities. Those are the public body resources available to undertake this job. This widespread State and local interest will be reflected later in our testimony when we refer to some of the plans that these local bodies have been making and preparing for execution in the postwar era. Now, I think, with this introduction, if it pleases the committee, tomorrow I can address myself directly to the bill. Senator BUCK. I have just one question on this chart. Does that mean that there are 448 cities that have local housing authorities? Mr. KLUTZNICK. Yes. There are a number of those cities that were unable to qualify for the program before the war came along, but they have local housing authorities that are competent to act, once funds and resources are made available. The CHAIRMAN. I remember a good deal about that. We are going to recess now until tomorrow morning at 10:30 o'clock, when Mr. Klutznick will continue, then we are to have Dr. Francis J. Brown, American Council on Education, and Dr. Caroline Ware, American Association of University Women. So I hope we may have a fine attendance tomorrow morning at 10:30. (Whereupon, at 4 p. m., an adjournment was taken until 10:30 a. m. Thursday, November 29, 1945.) GENERAL HOUSING ACT OF 1945 THURSDAY, NOVEMBER 29, 1945 UNITED STATES SENATE, COMMITTEE ON BANKING AND CURRENCY, Washington, D. C. The committee met at 10:30 a. m., pursuant to adjournment on November 28, 1945, in room 301, Senate Office Building, Senator Robert F. Wagner (chairman) presiding. Present: Senators Wagner, Taylor, Mitchell, Carville, Taft, Butler, Buck, and Hickenlooper. The CHAIRMAN. The committee will come to order. Mr. Klutznick, will you proceed? STATEMENT OF PHILIP M. KLUTZNICK, COMMISSIONER, FEDERAL PUBLIC HOUSING AUTHORITY—Resumed Mr. KLUTZNICK. When we adjourned last night, we had just finished with the introduction to the aided program in which we had pointed out the distinction between the war housing program and the aided program under the Wagner-Steagall Act. This morning I should like to address myself to that portion of S. 1592 which you, Mr. Chairman, have indicated you would like to have us testify to. That is title VII, a portion of title VIII, and title IX. Reference to title VII begins on page 76 of the bill. LOCAL DETERMINATION OF NEED; TENANCY ONLY BY LOW-INCOME FAMILIES: SECTION 701 Title VII is appropriately entitled "Aid to Localities for Low-Rent Housing," which is the program we were discussing yesterday. The first subtitle is "Local Determination of Need; Tenancy Only by LowIncome Families." The intent of section 701, to which we first allude, is to make certain that the type of program we are talking about is, first, determined as to need in the locality rather than superimposed on the locality, and secondly, that its function is limited to serving the need of low-income families who cannot be served by private enterprise. Now, this section undertakes to accomplish that objective by writing into the law a provision-a new subsection 6, to be added to section 15 of the United States Housing Act--that the local public agency, in order to become eligible for Federal aid, shall determine the need for the housing and that it shall base that determination on the fact (1) that there is a need for such low-rent housing which cannot be met by private enterprise, and (2) that a gap of at least 20 percent has been left between the upper rental limits for admission to this low-income housing and the lowest level of rentals at which private enterprise is providing an additional supply of decent accommodations either in existing or new construction. Finally, in recognition that there should be local initiative and responsibility for public housing, this section makes it incumbent upon the locality to have any specific project approved by the governing body of that locality. Thus a democratic procedure is assured under which the locally elected representatives will pass upon proposed public housing in a way which usually affords an opportunity to all who wish to be heard. I should like to illustrate by chart 7 how this 20-percent gap would work. If I may direct your attention to this chart for a moment, I should like first to tell you that this chart does not come out of the thin air. It is actually a composite of 10 communities of approximately the same size, having about 50,000 families in their environs, and is based upon postwar applications which we have heretofore received. In this composite picture at the left, you will notice the complete circle encompasses some 50,000 families. These communities determined, as disclosed by their applications, that of those 50,000 families, 36,000 were living in standard housing and required no consideration whatsoever, so far as Government assistance is concerned. They further determined that there existed in their community some 14,000 dwellings that were of the substandard, or slum, or blighted type. So your attention is directed to the part of the pie on this chart which refers to those 14,000 families. (See chart 7 which follows Mr. Klutznick's statement.) Now, applying the principles of the proposed law to this particular picture, we find these communities concluding that of these 14,000 families living in substandard housing, 700 families could afford standard private housing. The communities had concluded on the basis of their consideration of building costs, rental costs, and living costs in their community, that housing at $40 a month or above was being amply provided by private enterprise in that community. When I say $40, I want to emphasize that this $40 is not the measure of rent as we customarily refer to it in the case of a free standing house, but is gross rent which includes utilities, that is heat, light, and all the other things that are incidental to housing cost. Taking $40 as the lowest rent at which a substantial additional supply of standard private housing is available, the communities adopted a gap of 20 percent, so that $32 was set as the upper rental limit of public housing. That leaves the "no man's land" in which it is hoped private enterprise will venture. You will note on the chart that there are 1,300 families which fall right into the gap. They will get decent housing only if private enterprise provides it for them. Beyond that the local authorities concluded in this case-based on our 3-year "shelf of projects" under the Executive order-that while there are 12,000 families in their community below the present gap, they would recommend only 1,400 additional publicly assisted houses for a 3-year program. The net result is that if additional funds are made available and this community program is approved, public housing will not only stay out of competition with private enterprise, but will also leave the way free for private enterprise to move into a lower-priced field which it is not now serving. You would not only have this noncompetitive gap available for private enterprise to move into, but there is practically the whole area of the 12,000 families below the gap for |