Mr. RICHARDS. That is correct. Mr. RAINS. Well, as you know, I have a little worry in my mind this morning as to a situation down in the State of Alabama which I want you to enlighten me on. Why is it, if there is an increased demand for FHA commitments, that there is a moratorium in effect on FHA commitments in the cities of Birmingham and Montgomery, Ala.? Mr. RICHARDS. I think you have reference more to the 608 commitments of the rental housing program. Mr. RAINS. That is right. Mr. RICHARDS. The State of Alabama has been extremely active in the rental housing program and, as a result, we believe that the saturation point is being reached in the higher rental range. That is not unusual in Montgomery or in Birmingham. As a matter of fact in most areas of the country, since the early part of this year, we have been carefully analyzing the demand-current demand and probable demand-for rental units in these higher rental ranges, and likewise the sales market in the higher sales ranges. There has been evident, for some time, a softening of demand or market for higher-priced rental units and higher-priced sales units. In addition to the units that are already on the market, there are a very large volume of units which have been committed and which are either under construction or to be started. We have not put a moratorium on rentals or sales housing in any area, but we have placed rental and sales ceilings in connection with proposed projects. Therefore, you may say that we have a moratorium on units in the higher rental ranges many areas of the country. in Mr. RAINS. Throughout the State I am getting the complaint-and I do not know whether it is correct or not that even those veterans who seek FHA commitments or nonveterans, for that matter-on private homes are being denied. Mr. RICHARDS. I do not think that is correct. This ceiling only applies to operative builders that are building for the sale and rental market. However, I will be glad to look into it. Mr. RAINS. Does that situation exist in any other section of the country? Mr. RICHARDS. Oh, yes; definitely. However, I will be glad to look into the Alabama situation for you. Mr. RAINS. Is it your idea, then, that the increased authorization which you request here will be used for the construction of rental property for the lower-income group? Mr. RICHARDS. Almost entirely for the lower ranges at least in the areas in which the demand for the higher rentals has been met. Mr. SMITH. Will the gentleman yield? Mr. RAINS. Yes. Mr. SMITH. I wonder what the range of rents is in those housing units? Mr. RICHARDS. Congressman, we have insured mortgages under section 608-the rental-housing program-providing for rents as low as $31.50 a month, and the highest would be something over $100 per month. Now, the average would possibly run around $80 a month. But we have a considerable volume below that figure and a considerable volume above it. Mr. SMITH. That covers what size houses? Mr. RICHARDS. They run from efficiency units, one bedroom, up to three bedrooms. So they would be from an efficiency or one-bedroom unit up to a six-room dwelling. Mr. SMITH. What is the average profit, gross profit, made on those rentals? Mr. RICHARDS. We set rents on all rental projects on a basis that will yield a 61⁄2-percent net return on the cost of the project. Mr. SMITH. Gross return? Mr. RICHARDS. Net return. Mr. RAINS. Mr. Richards, what do you think of the cooperativehousing-insurance feature of this bill? Mr. RICHARDS. The cooperative provisions here are changed some from the cooperative provisions that were in the Housing Act of 1948, and they were also taken out of section 207 and put into a new section 213. I believe that there should be an effective means of producing housing for those interested in cooperating as a group, and I think it is drawn in such a way as to give sufficient latitude so that it will be an effective means of producing considerable housing. As Mr. Foley indicated, it is a new type of approach and there is much to be done in the way of educating the lenders and also working with those who want to go into it. I think we have made considerable progress in the last year, since the Housing Act of 1948. As I see the provisions of this bill, I think we can make further progress. Mr. RAINS. As I understand it, the Housing Administration did not request that. Now do I understand you to say that you do not oppose it? Mr. RICHARDS. Are you talking about section 213? Mr. RAINS. Yes. Mr. FOLEY. We favor that, sir. Mr. RAINS. You favor 213? Mr. FOLEY. Yes. Mr. RICHARDS. That, in effect, is a rewrite of the present law. Mr. RAINS. Let me ask you about the other section. Maybe it is title III. Mr. FOLEY. As I indicated previously, we have filed a detailed report on that and we will enter into considerable discussion with relation to title III when we come to it. Mr. RAINS. All right. That is all, Mr. Chairman. Mr. KUNKEL. May I ask a question? Mr. KUNKEL. Mr. Richards, these cooperatives have no taxexemption feature, do they? Mr. RICHARDS. Not unless they come under a State statute that would offer such an exemption. Mr. KUNKEL. I mean, if they are tax-exempt, it is a tax exemption granted by the State? Mr. RICHARDS. That is right. (The matter referred to is as follows:) FEDERAL HOUSING ADMINISTRATION, Hon. BRENT SPENCE, Chairman, Banking and Currency Committee, House of Representatives, Washington, D. C. DEAR CONGRESSMAN SPENCE: In response to an inquiry from Congressman John C. Kunkel during the hearings on H. R. 5631, I indicated that I would submit to the committee such information as I was able to obtain with respect to possible tax exemptions provided by State law in favor of cooperative ownership housing corporations. I am herewith attaching a memorandum from my general counsel which I hope will supply the information desired. Very truly yours, FRANKLIN D. RICHARDS, Commissioner. NATIONAL HOUSING AGENCY, FEDERAL HOUSING ADMINISTRATION, OFFICE OF THE GENERAL COUNSEL, To: Mr. Franklin D. Richards. Subject: Inquiry of the House Banking and Currency Committee concerning possible tax exemptions available to cooperative ownership housing corporations (hearings on H. R. 5631). While I have made no exhaustive study of the various State laws relating to cooperatives, I know of no State which grants tax exemptions to cooperative housing associations as such. Some cooperative housing associations may qualify for incorporation under a limited-dividend housing law, a public-housing law, or in some cases an urbanredevelopment law and become entitled to various forms and degres of partial tax exemption or State assistance under the provisions of such laws. It is my understanding that a large veterans' cooperative housing association was recently incorporated as a limited-dividend housing corporation under the New York public-housing law and by virtue of its low-rental schedule and State supervision, was able to secure a partial tax exemption under that law. Bulletin No. 858, issued by the Bureau of Labor Statistics on Organization and Management of Cooperative and Mutual Housing Associations at page 20 lists 13 States having such limited-dividend housing laws. The States there listed are: Arkansas, California, Delaware, Florida, Illinois, Kansas, Massachusetts, New Jersey, New York, Ohio, Pennsylvania, South Carolina, and Texas. At page 37 of the same bulletin under the heading "Tax Status of Cooperative Housing Associations," it is stated, "As long as the net earnings of a cooperative housing association are disbursed as a rent refund, rather than as interest or dividend to stockholders, the effect of this distribution is to reduce both the taxable income and reserves held by the association and the cost of housing for the members." It is also pointed out, however, that this would be true in any corporation, whether cooperative or otherwise; however, the usual corporation is in business to pay its earnings not to its customers but, rather, to its stockholders. Earnings not refunded, but held as reserves or paid out as a dividend to stockholders, are subject to taxation. B. C. BOVARD, General Counsel. Mr. KUNKEL. I was interested in another point which you just raised. You stated that the high-priced houses were becoming rather hard to sell and have been for some time in the past, and that the moderate-priced houses are not so easy to sell now, and, therefore, that you were concentrating on lower-priced housing units. I have not had time to lately, but up until 4 months ago, I tried to keep up through contact with home-loan agencies as to how things have been going. I find that up to that time old houses had dropped in value my research was rather limited, of course-but I found that while old houses had dropped about 20 percent, new construction in that same period has gone up from somewhere between 9 and 15 percent. Would you say that was substantially correct for the period up to about 6 months ago? Mr. RICHARDS. Let me first say that during the period of extreme shortage, that the existing construction which you referred to which you say is 8 or 10 years old, or any house already built, was generally selling well above the current replacement cost at that time. So that as new construction came on the market and the inventory increased and there was competition, naturally the amount that was requested in the way of a sales price that was above replacement cost would diminish as competition came into the market. So it is easy to understand why the sale price on that type of property would drop considerably. Mr. KUNKEL. Well, that is a normal reaction. I understand that. Mr. RICHARDS. Now, the reference to the increase in the cost of construction during the past 6 months Mr. KUNKEL. No, I meant up to the past 6 months. I have not had an opportunity to check what has happened in the last 6 months. Mr. RICHARDS. There has been generally a decrease during the past 6 months. Prior to about September of last year, from 1940, through the control period, and particularly after the control period, there was an increase in construction costs. Mr. KUNKEL. Just a minute. There was an increase in construction costs during the year 1948? Mr. RICHARDS. There was, generally speaking, throughout the country, through the first half of the year. Mr. PATMAN. Mr. Kunkel, would you yield for a question to the chairman, please? Mr. KUNKEL. Yes. Mr. PATMAN. Mr. Chairman, what is your program; are we going to continue this afternoon? The CHAIRMAN. Dr. Smith says he objects to sitting while the House is in session. Mr. SMITH. No. Let me explain it to you. The CHAIRMAN. Well, we cannot sit anyhow. Mr. PATMAN. I do not think we should. The CHAIRMAN. There is legislation on the floor in which we are interested. Mr. Foley and Mr. Richards will be able to come back. I understand Mr. Foley has to be before the Senate committee tomorrow, but he will be back Wednesday. We have some witnesses for tomorrow and we will meet tomorrow at 10 o'clock to continue the hearings. Mr. Richards, I believe you have the authority to make the insurance premium, for instance, from one-half of 1 percent to 1%1⁄2 percent. You have always made it the minimum, have you not? Mr. RICHARDS. The maximum is 1 percent, Mr. Chairman. Mr. RICHARDS. Yes, sir. The CHAIRMAN. Have you ever made it 1 percent? Mr. RICHARDS. No; it has never been 1 percent. The CHAIRMAN. It has always been one-half of 1 percent? 94397-495 Mr. RICHARDS. Well, we had certain sections of the act lower than one-half of 1 percent at one time, and I think at one time we went to three-quarters of 1 percent. The CHAIRMAN. Has your income exceeded your losses in each year? Mr. RICHARDS. It has since 1939. From 1934 until 1938, until we got the agency established, we were spending more money than we were taking in. But since that time, since 1939, we have always had a greater income than we had expense. The CHAIRMAN. Has your income increased each year? Mr. RICHARDS. Yes; it has, and this last year, the reserve, over and above our operating expense, was the greatest we have ever had. Mr. KUNKEL. What was it? The CHAIRMAN. A statement ought to be put in the record as to your income and expenses year by year. Mr. RICHARDS. We will be glad to furnish that, year by year, from the time we commenced operations. (The information referred to is as follows:) The following is a statement showing the income from fees, premiums, and interest on investments, by the fiscal years, from the beginning of FHA operations through the close of the fiscal year ended June 30, 1949, together with the administrative expenses of operation. As a result of the insuring operations from inception to May 31, 1949, operating reserves after payment of all expenses and losses amounted to $164,809,763, contributed capital $47,933,083, or a total of operating reserves and capital $212,742,846. Mr. KUNKEL. May I ask a question, Mr. Chairman? The CHAIRMAN. Mr. Kunkel. Mr. KUNKEL. What was your net income this last year? Mr. RICHARDS. Our net income after payment of all expenses was approximately $48,000,000. Mr. KUNKEL. What do you do with your net income? Mr. RICHARDS. That goes into our operating reserves. Mr. KUNKEL. What is your operating reserve now? Mr. RICHARDS. After this fiscal year,our operating reserves and capital would approximate $200,000,000. Mr. SMITH. Which States grant tax exemptions to occupants of cooperative housing? Mr. RICHARDS. I am not sure of that, Congressman. I think New York State has such a provision. Mr. SMITH. Does that pertain to both veterans and nonveterans? Mr. RICHARDS. I think so. I will be glad to see what we can find out on that and furnish you with the data. Mr. SMITH. Why should those people have tax exemptions? |