We are certainly in accord with the housing for elderly persons. We sincerely hope it will succeed. In fact, I am thinking of putting an application in at once.

Mr. RAINS. But it wouldn't hurt to put the prohibition in on the others?

Mr. PATTON. That is my suggestion, Mr. Rains. If the bill is passed, there might properly be a prohibition that it could not be converted overnight or rented transiently. That is the only objection we can find, and we certainly would like to see that safeguard incorporated into the act.

Mr. WOLCOTT. The prohibitions in the 1954 act would not apply to the housing for elderly people.

Mr. RAINS. Do you mean onbase military housing or are you talking about offbase military housing?

Mr. WOLCOTT. I assume there are never any onbase.
Mr. RAINS. I shouldn't think so.

But suppose the military closes
up a base and leaves all that there, what about that?
Mr. WOLCOTT. There should be a prohibition there, too.
Mr. PATTON. That is what we are worried about.

Mr. RYAN. Mr. Rains, there is an illustration of that in Florida, where such a thing happened. A base was deactivated. A gardentype apartment development, adjoining that base, is now serving as a motor court and motel.

Mr. RAINS. I can see no reason why, since it is FHA guaranteed, all of this we are talking about, that it should be a threat to a private enterprise like a hotel industry.

I like your statement. As you say, once they pay off the mortgage, then they can do as they please.

So speaking for myself, I would have no objection to putting in the prohibition against these other FHA programs.

Mr. WOLCOTT. It is conveivable that these onbase properties controlled by the military or the Defense Department could be rented unless there is a prohibition in the act, by the Department of Defense itself, I presume, and surely the rental in those would be predicated on a tax-free situation.

On page 9 of your statement, you speak of one hotel with 1,800 rooms which enjoys complete immunity from Federal income tax. Mr. PATTON. That is the YMCA, in Chicago, sir.

Mr. WOLCOTT. That was built on a Government development? Mr. PATTON. No, but it is a tax-free competitor of hotels. That has no tie-in with the Federal housing program.

Mr. WOLCOTT. It is not a Government-sponsored project?

Mr. PATTON. No.

Mr. WOLCOTT. And it isn't a 608 or an FHA project?
Mr. PATTON. No, it is not. It is a community project.
Mr. WOLCOTT. You couldn't reach that very well.

Mr. PATTON. No, I am afraid not.

Mrs. SULLIVAN. Mr. Chairman.

Mr. BROWN. Mrs. Sullivan.

Mrs. SULLIVAN. To go back to one phase of this military housing, and transient rentals, what about these boys who go on Reserve training, this is one of the complaints that has come to me. Some of them wanted to take their families with them. They were not allowed to rent space in the military housing unless they would take it for the

full month, and they were not allowed to rent it for just the time they would be there.

Is that still forbidden?

Mr. RAINS. Are you talking about Wherry housing or title VIII housing?

Mrs. SULLIVAN. I don't know. It is housing on the base.

Mr. RAINS. I think you would be talking about the strictly military housing on the base.

Mrs. SULLIVAN. It probably would not come under what we are talking about at this time, but it would come under the military housing section of the bill. We would have to make some provision in the military housing about it.

Mrs. SULLIVAN. In other words, these Reserves wouldn't be able to afford to take the family, children, and so forth, and stay in a hotel. It happened in several instances called to my attention, and I just referred it to the military because I didn't know what could be done about it.

Mr. RAINS. It would be strictly a military problem, of course.

Of course you run into the proposition that they don't have sufficient housing for the men. That is why the military is complaining so bitterly about not having enough housing. General LeMay says they don't even have enough housing to provide housing for the men and families of the men who fly the bombers for the Strategic Air Command. So naturally there wouldn't be enough for Reserve officers on duty for a short while.

Mrs. SULLIVAN. This happened 3 years ago. The housing was available but they could not rent it for a week or 2 weeks. It had to be rented on a monthly basis.

Mr. RAINS. I would bring that up in connection with the military housing legislation.

Mrs. SULLIVAN. That is all.

Mr. BROWN. Are there other questions?

Mr. BETTS. I want to commend you for your

remarks on your fourth point, as to whether or not we are reaching the saturation point in all types of building.

You have correctly pointed out that we are being urged all the time to expand every phase of housing activities, and I think your warnings are timely, and I hope will have a sobering effect.

Mr. PATTON. Thank you, Mr. Betts.

Mr. BROWN. Are there any other questions?

Mr. WOLCOTT. Might I clear this up?

Did you say the occupancy ratio in hotels was 72 percent?

Mr. PATTON. I said the national average for the year 1955 was 72 percent. That is the national average.

Mr. BROWN. Thank you very much, gentlemen.

We will now recess, to reconvene at 2 o'clock.

I notice we have a very outstanding gentleman from my State, Mr. George West, who will testify this afternoon. I am sorry that I cannot be here at the beginning, but I hope I will be able to be here before Mr. West is through.

We will now recess until 2 o'clock.

(Whereupon, at 12:33 p. m., the committeee recessed, to reconvene at 2 p. m., of the same day.)

AFTERNOON SESSION

The committee reconvened at 2 p. m., Hon. Albert Rains presiding. Present: Messrs. Rains, Brown, Fountain; Mrs. Griffiths; Messrs. Wolcott, Talle, McDonough, and Betts.

Mr. RAINS. The committee will be in order.

We have three witnesses listed here together: Mr. Vieser, Mr. Norman Carpenter, and Mr. Camp.

Mr. VIESER. We are ready, sir.

Mr. RAINS. We are delighted to have you gentlemen.

You may proceed in any manner that you see fit.

Do you have a statement you wish to read, first?

Mr. VIESER. Yes; I do, Mr. Chairman. The statement may seem bulky but part of it is charts, which I will not read, and we will try to summarize some portion toward the end to aid in the time schedule. Mr. RAINS. Very well; proceed.

STATEMENT OF MILFORD A. VIESER, FINANCIAL VICE PRESIDENT, THE MUTUAL BENEFIT LIFE INSURANCE CO., ACCOMPANIED BY NORMAN CARPENTER, SECOND VICE PRESIDENT, METROPOLITAN LIFE INSURANCE CO.; AND EHNEY A. CAMP, JR., VICE PRESIDENT AND TREASURER, LIBERTY NATIONAL LIFE INSURANCE CO.

Mr. VIESER. I am Milford A. Vieser, financial vice president of the Mutual Benefit Life Insurance Co. My associates joining me in presenting this statement are Norman Carpenter, second vice president of the Metropolitan Life Insurance Co., and Ehney A. Camp, Jr., vice president and treasurer of the Liberty National Life Insurance Co. We are here today as representatives of the American Life Convention and the Life Insurance Association of America, two associations of life-insurance companies with a combined membership of 253 companies, holding 98 percent of the assets of all United States legal reserve companies.

The life-insurance companies have a keen interest in the subject matter of your hearing because they provide an important source of real-estate mortgage credit in this country. Last year the life-insurance companies made $6 billion of nonfarm mortgage loans, the largest amount they have ever made in a single year. Of this total, $2.8 billion were Government insured or guaranteed residential mortgage loans and about $2 billion were uninsured residential loans. The remaining $1.2 billion were business and industial mortgage loans. During the decade 1946-55, inclusive, the life-insurance companies made $38.1 billion of nonfarm mortgage loans. At little over $9 billion of this total were FHA loans, $7.7 billion were VA loans and $21.4 billion were conventional. In the conventional category about 60 percent were residential loans. Throughout the 10-year period, therefore, the life-insurance companies made approximately $29 billion of residential mortgage loans. Of the total of $56.8 billion of FHA and VA mortgage loans made by all lenders in the period 1946-55, the life-insurance companies made about 29 percent.

Before presenting our views on the specific bills before your committee, we would like to discuss two basic questions as follows: (1)

Has the residential mortgage market been obtaining a fair share of the capital funds accumulated in our national economy and (2) is there economic justification for discounts on Government insured and guaranteed mortgages? Our recommendations on the legislative proposals before you will be more easily understood against the background of this general discussion.

BASIC QUESTIONS OF HOUSING AND MORTGAGE LENDING POLICY

The first question-has the residential mortgage market been obtaining a fair share of the capital funds accumulated in our national economy-is pertinent because much of the legislation under consideration, such as that concerning the functioning of FNMA, is aimed at expanding through Government action the flow of funds into residential mortgage financing.

The discussion of housing goals and the adequacy of residential mortgage financing has usually suffered because it has not been placed in the broad framework of real capital formation and financing in our national economy as a whole. Despite the unprecedented strides already made in housing construction in this country in the past decade, we would all like to see a further rapid improvement in the housing of our people. The advocates of a sharp expansion in the volume of residential construction and a much greater supply of residential mortgage credit seem to overlook the fact, however, that housing is but a part-a highly important part to be sure-of the total real capital formation needed in this country. The balanced expansion of our country also depends, of course, upon the growth of our industrial plant and equipment, our business and commercial facilities, our public utilities, our roads and other public works, and many other necessary forms of real capital formation. The growth of these forms of real capital is important because they create more jobs, support rising payrolls, and thus enable more people to buy homes and to pay for them. We do not have limitless productive resources in this country, so that from the viewpoint of physical capacity to produce there are restrictions placed on housing construction at any particular time, although through investment of savings the country's capacity to produce has expanded enormously in the past decade.

Much of the discussion about housing goals and residential mortgage financing has also suffered because of a failure to appreciate that the real capital formation of the country, including housing, must be financed out of saving or noncommercial bank sources if the country is to avoid further price inflation. In a period such as the past decade, in which our national resources of labor and equipment have been and now are so fully employed, the injection of commercial blank-created money into the economy is bound to have inflationary consequences.

What has been the picture in recent years regarding the sources and uses of capital funds in this country? We have prepared two charts to show this picture. The supporting data are taken from Government publications and show the net increase in both the sources and uses of funds. As you will see in chart No. 1, the total uses to which capital funds were put in the United States in 1955 amounted to $44.6 billion. Of this total, the net increase in residential mortgage debt amounted to $13.6 billion. This one use alone exceeded the increase in corporate security issues, State and local government secu

rity issues, and Federal debt combined. Turning to the sources which provided the funds for these uses, I call your attention to the fact that the funds derived from savings and other noncommercial bank sources amounted to $41.7 billion, and accordingly fell short of meeting the total demand by nearly $3 billion. The balance of $2.9 billion was supplied by the commercial banking system through the creation of bank deposits.

Chart No. 2 provides similar data for the period 1950-55. It also shows the substantial part of capital funds which has gone each year into the expansion of residential mortgage debt. It should be noted also how in each of these years the supply of savings and funds from noncommercial bank sources has fallen short of the total demand for capital funds, and commercial bank credit has had to be expanded to meet the demand. It is, of course, necessary to have some increase over the years in the volume of commercial bank credit in order to accommodate the growth in our economy. But one has only to look at what has happened to prices in the postwar period to realize that we have been relying too heavily on commercial bank creation of money and not enough on saving. We have, in other words, been trying to extract more in real product from the economy than it has been able to produce.

The resulting rise in prices has been particularly severe in the residential construction field. Chart No. 3 shows the steady upward movement in the Bureau of Labor Statistics index of wholesale prices of building materials which has risen 81 percent in the period 1946-55. In the past 18 months alone it has risen steadily by more than 8 percent. Chart No. 4 shows the rise of 61 percent which has occurred in the Boeckh index of residential construction costs since 1946.

Chart No. 5, based on data compiled by the United States Department of Labor, shows the rise of nearly 96 percent which has taken place since 1946 in the average estimated per unit construction cost of privately owned houses. This chart, as well as the one which follows, cannot be used as an exact measure of the increase in residential construction costs because it does not take account of improvement in the quality of housing, but in the light of chart No. 3 it is safe to say that it is indicative of cost trends. Chart No. 6 shows the increase of 97 percent since 1946 in the average principal amount of VA-guaranteed home loans closed, and also the rise of 97 percent since 1946 in the average amount for each dwelling unit of FHA home mortgage insurance written. To some degree this rise reflects the liberalization of loan-to-value ratios in FHA loans.

These charts indicate clearly that there are limits to the volume of real output which we can extract from our economy at any one time. During the past several years we have been engaged in a tremendous home-building program. It has also been vital that our industrial plant and equipment be enlarged and modernized. And of course we have steadily enlarged the output of consumer goods. The accomplishments of the postwar period have been remarkable; but there are at any one time physical limits to our real output. In an effort to push the economy beyond those limits, credit has been made available in too great a volume and on too easy terms, and inflation has inevitably followed. General inflation has been serious enough, but the rise in housing prices has been particularly severe. Since 1946 the Consumers Price Index has risen 37 percent, and the