Housing Amendments of 1949

title I guarantees on financing of low-priced homes in the outlying areas and his recommendations for amendments to title I generally carry out the recommendations that we have advocated for some years.

Under the class 3 provisions of title I, which was the only avenue that was open for the construction of housing for the low income group, there were many inherent problems that made it impossible to build these homes. While the problem of properly housing this group of our citizens is studied, one of the most important factors that has to be taken into consideration is that the housing should be adequate and it should not be too small in size.

Under present provisions of class 3 the maximum loan that can be insured by FHA is $4,500. For the lower income family with little to invest as a down payment, this means that the house may not cost more than $4,800, including land; after taking into consideration the land costs in a good many areas it would leave $4,500 or less with which to build the home. The size of home that could be built under these ceilings, we feel, would be inadequate. In our area the type of home that I will discuss shortly will cost approximately $8.50 a square foot, including the land, and with a $4,500 limitation on the loan you would only get slightly in excess of 500 square feet of house. that would make an awfully small house, gentlemen.

The cost of homes in Oklahoma City is about average for the country, and with a $4,500 limitation in the mortgage a home cannot be built to meet the minimum requirements of even a small family, unless the prospective home owner can meet at least a $1,500 down payment.

In our industry we do not believe in building or promoting homes containing less than 700 square feet because it will prove to be unsatisfactory to the home owner and is uneconomical from his standpoint, especially where he may be required to resell the house for any particular reason.

The second problem that exists under class 3 is the fact that there is a hesitancy upon the part of the lending institutions to finance this type of a loan. Their disinterest arises from the fact that the cost of servicing such small loans is unprofitable. Also, the type of homes that could be built within this price range would be poor collateral. There is also another matter that made the lending institutions hesitant about being interested in these loans. While they are always interested in placing loans upon any type of properties where the collateral seemed adequate, they always had to keep in mind the fact that they needed to have some secondary market open whereby they could dispose of some of their loans in case conditions made it imperative that this be done; and since there was no secondary market open for this type of financing, this constituted another problem.

As a result, we were never able to get anything done under class 3, title I guaranties. I was chairman of a committee appointed by the State Lumbermen's Association to confer with banks, building and loan institutions, and other mortgage companies to try to see if there wasn't some way to get this type of construction started in the State of Oklahoma, but for the reasons stated above we were never able to get anything done.

Under the provisions of the bill you have under consideration a good many of the problems outlined above have been taken into

consideration. One of the main factors that has held us up, however, . is not corrected. As the bill is now drawn, the maximum loan cannot exceed $4,750. We feel that this is wholly inadequate. This limitation should be raised to $5,700 so that the families in this lower priced group can be given a house that will meet their requirements, make them feel proud of it and will be a real home. If the limitations are raised to this amount, a nice home with approximately 700 square feet of floor area can be built, provided it is constructed in outlying areas or in the smaller communities.

In Oklahoma City at the present time we are interested in many projects wherein homes of approximately this size are being built under FHA title II requirements, which means paved streets and all utilities, which means the houses have to sell for more than the amount set out above.

I have brought along with me today; plans on one project out of the many that we are interested in, so that you may see the type of home we have in mind that could be built within the above price limitation. The cost of this house, built on suburban ground, yet modern in every respect, using septic tanks instead of city sewer, together with a drilled well with pump and pressure tank, with the construction of the house meeting all of the requirements of FHA under title II-the house, together with land, could be built, with some minor changes, for $6,000. If the Congress will accept our recommendation, this home can be purchased with a down payment as low as $300.

These homes have two nice size bedrooms, living room and kitchendinette or a kitchen and dinette-living room and an attached garage. These homes are of dry-wall construction, standard materials and structural requirements to meet FHA title II standards, insulated, hardwood flooring, plumbing, and adequate heating facilities. Under title II these homes sell in Oklahoma City, including all costs, for around $7,500. Under title I, because of the difference in land costs, site requirements, the elimination of frills, increase in the productivity of labor and the general lowering of construction costs, we anticipate that we can construct these homes to sell for around $6,000.

You can see from the pictures that these are very nice homes and the type that anyone would be proud to own.

The committee may wonder whether a $5,700 limitation on the mortgage might become a floor and the builders would tend to press up to this figure, but I can assure you that the housing market is getting highly competitive, and in those areas where a home of this size can be built for less it will certainly be done. Even if you give us the $5,700 limitation I can assure you that the market will force us to build a house of this size for less than $6,000 if it can be done. If the committee accepts our recommendation, which we sincerely hope it will, the provisions of the bill placing a $4,250 limitation on the builder's loan should be raised to $5,200. This would maintain a generally accepted spread between the builder's loan and the home owner's loan. Also, gentlemen, it would bring about a mass production of this low-cost house.

If the Congress changes the proposed section 8, title I financing along the lines we have recommended, I am sure that money will begin to flow into this market and builders will carry the program through.

As pointed out earlier, this is the field where little has been done. There is an urgent need for more housing in rural communities and this will tend to open a broad field. There is a tremendous market in this field and if this type of program is adopted we will be able to meet the requirements of the very low-income groups and the housing needs in small communities.

I really believe that we can even give public housing a run for its money. According to my calculations, even if you use a full subsidy on public housing you are going to have to charge the tenants, on the average, better than $30 a month. These homes will sell for around $37 a month payment and it may not be too far off before we can build it below that figure.

Under the terms of the amortization schedule as set out by the Federal Housing Administration, the average loan payment upon a $5,700 loan will be approximately $32.11 per month. Since a large percent of all the houses built under the provisions of section 8 would be in those areas where the tax burden would be small, the sum needed to defray insurance and taxes would be approximately $5 per month, making an over-all monthly payment of approximately $37. This brings home ownership for these people down to a basis which they can afford to pay and by comparison I am sure that there are not any facilities available anywhere that will be new that would be of the size and the class that we are presenting here to you today for anywhere near this amount of monthly rental, and, looking to the future, it is doubtful that they would be able to secure any better facilities than this for rentals at a lower figure.

We do not believe that direct financing by the Government is good nor do we believe that FNMA should be used as an indirect method of direct financing. We do believe, however, that FNMA should be set up as a "back-stop" in the event currency gets tight and the lending institutions are required to liquidate some of their paper.

One of the present difficulties, under title I, class 3 construction, is that loans made on this type of FHA guarantee, the bank is always stuck with the paper in the event they want to liquidate some of their holdings. If the financial institutions could be assured that there was always a market available in the event of economic strain, they would be encouraged to extend credit to this type of housing. I want to congratulate the chairman for suggesting that these loans should be eligible for purchase by the FNMA and I hope that this feature of the bill will be enacted.

It may be that in some areas where the climatic conditions are more severe, especially in those areas where people are wedded to the idea of a basement, this home cannot be constructed for $6,000; however, we do not recommend that Congress increase the amount of mortgage for FHA guaranty beyond $5,700 because in some areas the problem can be solved by a larger down payment. The difference in the down payment would probably only be the difference between $300 and $800.

On page 11 of the bill I note the $6,650 limitations on mortgages acceptable for insurance on urban dwellings. The reasons for our recommendations for an increase in title I, section 8 limitations has equal application to this proposed amendment to title II.

As I have pointed out, even the minimum home which we are constructing in Oklahoma City is built to sell for $7,500. The $6,650 limitation for single-family urban dwellings is too restrictive, even in

our case. We recommend that those be increased to allow for the construction of at least an $8,000 house. This would permit a spread of approximately $2,000 between title I and title II. This is approx-. imately the spread that is allowed for in the present language, namely, $4,750 for rural housing as against $6,650 for urban housing. In many areas, of course, the urban dwellings will be built for less than $8,000, but I would like to again point out that it is false economy to squeeze the mortgage limitation down so far that you produce inadequate housing.

If the members of the committee have any questions, I should be pleased to answer them.

Mr. MONRONEY. Do you have any figures as to what that $6,000 house could be built for in various areas around the country?

Mr. BRODERSON. You mean country-wide? In other words, across the United States.

Mr. MONRONEY. Yes.

Mr. BRODERSON. No, sir; I do not.

Mr. MONRONEY. I think FHA has weighted construction averages which I thought might be applied to that in a subsequent statement. Mr. Multer was interested in that in regard to the New York area. He wondered if that could be put in the record.

Mr. BRODERSON. Of course these costs will vary in different sections of the country, based upon labor costs and other things that have to be taken into consideration, but I think in a good many areas of the country, so far as the costs we have, they would be applicable.

Mr. MONRONEY. The $6,000 figure would be generally an average? Mr. BRODERSON. Yes.

Mr. KUNKEL. It would be a mean average, I think. Oklahoma is about a mean average on climatic conditions. It would probably range 5,000 to 7,000 across the country.

The CHAIRMAN. Mr. Broderson, I may say that your district is very fortunate in having a very able and conscientious representative here, Mr. Monroney, who looks after the interests of that district with his usual ability and industry.

Mr. BRODERSON. Thank you, sir. We are very proud of Congressman Monroney and are glad he is here representing us.

Mr. COLE. I want to say that he has come forward with a very practical proposal which I think the committee could and will consider very seriously.

Mr. BRODERSON. Thank you, sir.

Mr. COLE. I think you have done a very good job.

Mr. MONRONEY. I think the very important part of Mr. Broderson's testimony is the fact that it is designed to try and get us housing in the suburban areas which we cannot reach under the normal FHA title but could reach under this extension of title I.

I know that in my own district, and in a great many others, I think, the FHA neighborhood standards under title II forestall any housing development in smaller communities, and yet that is where some of the most urgent housing needs are at the present time.

The CHAIRMAN. What are cost trends at the present time, down or up?

Mr. BRODERSON. Insofar as materials are concerned, they have been down. Insofar as cost of labor, and one thing and another, they have been practically stationary, except that the trend is this: that