Hon. GLEN H. TAYLOR,

NATIONAL HOUSING AGENCY,

OFFICE OF THE ADMINISTRATOR, Washington 25, D. C., March 27, 1947.

United States Senate, Washington, D. C.

MY DEAR SENATOR TAYLOR: The purpose of this letter is to reply to the questions in your letter of March 17.

Questions 1, 2, and 3:

These questions request information as to rental housing starts and completions during 1946 and permit issuances to date during 1947.

On the basis of the data available to us, we estimate that, out of approximately 670,000 permanent new dwelling units started in 1946, some 143,000 were rental units. Of approximately 453,800 such units completed during 1946, it is estimated that 80,000 were offered for rent.

No exact data are available às to their distribution by rental ranges, but an approximation based on incomplete information follows:

In addition to the foregoing, some 64,500 private conversions and 220,200 publicly financed units under the temporary re-use program were started last year. About 45,300 conversions and 114,800 temporary re-use units were completed. Substantially all of the temporary re-use units were offered for rent at $40 per month or less, including utilities.

During the first 2 months of 1947, Federal permits were issued for 17,445 rental units, including 3,336 conversions. The break-down of proposed rents for these units follows:

These questions request our views as to the probable effect of the Taft-EllenderWagner bill, in its present form, on the amount of rental housing to be produced and the rents at which it might be made available during the balance of 1947 and 1948.

Let me make it clear initially that my support of the bill, and specifically of its rental housing features, is not predicated primarily on its merits as an "emergency" measure. While we all recognize that there is a current housing shortage, and that certain emergency measures (especially with respect to necessary reconversion adjustments in building materials production) have been and continue to be necessary, I believe that there is a real danger in addressing ourselves exclusively to immediate problems and to measures designed for immediate effect. The bill, I think, is constructively addressed to a long-range view of the problems. After the National Housing Act was passed in 1934, it was more than a year before any significant number of builders and lenders began to take advantage 1 Estimates on permanent starts and completions are derived from building permit reports and sample surveys by the Bureau of Labor Statistics. The local building permit records (which in turn are the basic source of the BLS figures) do not provide information either as to proposed tenure or as to rents or sales prices. It has been necessary, therefore, to develop estimates of the number of rental units by analysis of available data as to type of structure. Rent ranges have been estimated in the main from records of priority authorizations.

of the mortgage insurance made available with respect to new construction under the provisions of title II. After the title VI amendments to the National Housing Act were approved on March 28, 1941, it took nearly a year before builders began to take full advantage of the more liberal mortgage insurance provisions. Similarly, after the enactment of the United States Housing Act it was considerably more than a year before large-scale construction was actually under way. However, the aids to rental housing contained in S. 866 are not greatly different from those in the widely discussed S. 1592, which was before the Congress last year, and it is probable that builders, lenders, and municipalities are better acquainted with them than they were with the provisions of the earlier legislation at the time it was adopted. Accordingly, there may be a more rapid response to the passage of the present bill than was had in the case of these earlier pieces of housing legislation.

It is proper to note, before suggesting what the volume of rental housing construction may be in 1947 and 1948, that S. 866 does not give and apparently is not intended to give to the Government any direct control over the volume of residential construction. The level of construction achieved depends primarily on the condition of the economy and the activities of private enterprise and local government. The bill would put the Federal Government in a position to aid and encourage the achievement of a higher and more stable level of residential building.

Assuming generally good economic conditions, a continued improvement in the supply of building materials and labor with some accompanying downward adjustment in costs which would enable the industry to meet its goal of 900,000 to 1,000,000 new starts in 1947, it would seem reasonable to expect that 20 to 25 percent of these starts might be rental units, without the aids provided in S. 866. If S. 866 is passed now, it should be possible to start about 25,000 public housing units during the year which could not be built otherwise.

Given sustained good business conditions throughout 1948, but without the Taft-Ellender-Wagner bill and the present financial resources under title VI, the industry would do well to hold up to the level indicated above for 1947. With the additional stimulus which would come if S. 866 is enacted, the production of rental housing should be substantially increased, depending on the time of passage and the speed of application. I must point out, however, that the situation simply does not warrant predictions as to the volume of construction in future periods. There are many uncertainties, especially with respect to the vital matter of excessively high costs. Various estimates are made, some running as high as 400,000 rental units, including both public and private, in 1948. But I should not feel justified, in view of the many doubtful factors and of the critical elements of the situation which are by nature not within our control, in identifying a figure as a forecast on the part of NHA.

It should be recognized, of course, that an unfavorable turn in business, a significant rise in costs, continued material shortages, extensive managementlabor troubles, or other unsettling influences which could bring about a decline in total home-building activity, would have their impact upon rental housing volume as well and perhaps especially in this sector because of the large investments involved.

Question 7: If the Taft bill is enacted at once and appropriations are granted, how long, in your opinion, would it take for large-scale public and private rental housing to get under way?

As I indicated above, previous experience with major legislation of this sort suggests that the full advantages of the bill in encouragement of private rental housing construction will not begin to be immediately realized. The Federal Public Housing Authority advises me that, in their opinion, deferred public projects (i. e., projects on which some substantial part of the preliminary work and planning have already been done) could be under construction in 4 or 5 months. Newly authorized projects could be put under construction in 9 or 10 months.

Question 8: Do you agree with the proposal for financing cooperative housing contained in the Taft bill?

In general, I do. You will find my comment on this matter at page 28 of the mimeographed material prepared for the committee, a copy of which is attached for your convenience.

Question 9: How do you justify a 90-percent mortgage for individually owned homes in planned communities made possible through group action when you support a 95-percent mortgage for individual homes in scattered lots?

I assume that by "individually owned homes through group action" you are referring to a situation in which legal title to the land and buildings comprising the home is not owned by the individual, but is vested in a cooperative association, and where the interest of the individual is limited to ownership of stock or membership in such association and a proprietary lease which is subject to a blanket mortgage given by the association.

I think that such a distinction is appropriate because of the fundamental difference in the background of available experience. With respect to individually owned homes, we now have had extensive experience on a 90-percent mortgageloan basis under FHA's existing title II small-home program. It is on the basis of this extensive experience and practical study that we have concluded that a 95-percent mortgage on this type of home is now in order. I have publicly stated that in my opinion mutual ownership projects present very large possibilities for contribution to the solution of the housing program. But they have not yet been given sufficient trial and testing to develop the best methods of setting them up, the type of charter provisions best suited to the purpose, and, particularly, the best protective measures in the interest of the participants themselves. I believe that this developmental experience will be most constructively gained if the equity requirement is maintained on the same basis as rental projects under the present FHA program, at least during the development of the required experience. Such a procedure will, I believe, promote wider interest and participation by lending institutions throughout the country. A procedure of adequate testing is also desirable from the point of view of those participating in such cooperative ventures because of the risks they assume of loss resulting from default in payments by the other participating members-a risk that is not present in connection with individual home financing. Finally, there is clearly an element of special financial risk involved in that the individual occupant's personal interest is attached to the association rather than to his own home as in the case of singlefamily financing. The importance of this element can best be tested by experi

ence.

Question 10: What is there in the Taft-Ellender-Wagner bill that will provide rental housing for the income group slightly above the public housing group?

The bill, in its present form, does not provide directly for aids to rental housing production for the income group slightly above the public-housing group. As you know, the theory of the 20-percent-gap provision in the bill is to assure the establishment and maintenance of a policy under which subsidized public housing will not be provided at any income level which, under the prevailing conditions, could be served by private enterprise. I am aware that this provision is regarded by some as working an inequitable hardship on those whose incomes fall within the 20 percent gap. On the other hand, resistance to the extension of Federal aid to low-cost housing has centered primarily around the fear of competition between subsidized public housing and the operations of private enterprise. The proponents of this provision take the view that it is necessary as a means of eliminating this fear and thus making it possible for the Federal Government to aid in meeting the most acute portion of the need.

Moreover, it must be remembered that it is the policy and purpose of the bill to seek an adequate and stable volume of production of good housing at progressively reduced costs. To the extent that this objective is realized, the accommodations available to families in the income level immediately above those served by public housing will gradually be improved, both in quality and in price.

Question 11: Do you agree with the opinion that an emergency no longer exists, and that the housing crisis will be substantially alleviated in the coming year?

On the contrary, I have made it clear that in my opinion a housing emergency still exists. There are large numbers of families still without a home, although they have a roof of some kind over their heads. It still requires extraordinary efforts by both public and private agencies to find even temporary accommodations for families with children who have been evicted from their homes.

At the start of this year it is estimated that some 2,200,000 married couples in nonfarm areas were sharing houses with other families. There were in addition some 300,000 married couples living in hotels, commercial rooming houses, and similar places. Even if the building industry achieves its goal of completing 1,000,000 new units this year, and there is a sufficient volume of conversions to take care of those married couples living in hotels and commercial rooming houses

who may desire family accommodations, we will still end the year with 1,700,000 doubled families in nonfarm areas if these estimates are correct.

The surveys made by the Bureau of the Census for the National Housing Agency last summer and fall all showed that substantial numbers of veterans in each community are still living under conditions which they considered to be intolerable. Most of these veterans are either doubled up with other families or are living in hotels or rented rooms. In many cities a third or more of married veterans were living in rented rooms or had doubled up. Some of them were willing to live under such conditions until they could find what they wanted at a price they felt they could afford, but others were urgently in need of more space and better accommodations.

As long as such a condition exists there is an emergency need for housing. I do believe that this condition will be further alleviated during 1947 by reducing the numbers of families living under such conditions. However, the needs of the remaining families will still be just as acute, although the number of such families will be smaller at the end of the year.

Question 12: How fast do you feel that the present doubling up of families can be relieved in the coming year if the present Taft bill is passed?

It is very difficult to estimate the extent to which the present doubling up of families can be relieved in the coming year. I have already indicated that the effect of passage of the proposed Taft-Ellender-Wagner bill can hardly be significant in terms of accommodations completed during 1947. Consequently, passage of the bill would have little effect on relieving doubled-up families during this year. However, its effect in 1948 should be substantial, and as I have pointed out a large unsatisfied demand for rental housing and for sales housing in the lower price brackets will continue to exist until that time.

Sincerely yours,

RAYMOND M. FOLEY, Administrator.

We will recess now to reconvene at 2 o'clock this afternoon, when the witnesses will be Mr. Fahey, Mr. Myer, and Mr. Brannan. (Whereupon, at 12:30, a recess was taken to 2 p. m.)

AFTERNOON SESSION

The committee reconvened at 2 p. m., upon the expiration of the

recess.

Senator Buck (presiding). The committee will come to order.

We are fortunate to have with us this afternoon Mr. Fahey, Commissioner of the Federal Home Loan Bank Administration, as the first witness.

Mr. Fahey, we will be glad to hear from you at this time.

STATEMENT OF JOHN H. FAHEY, COMMISSIONER, FEDERAL HOME LOAN BANK ADMINISTRATION, WASHINGTON, D. C., AND HAROLD LEE, GOVERNOR, FEDERAL HOME LOAN BANK SYSTEM Mr. FAHEY. Mr. Chairman and members of the committee, I am pleased to be here with you this afternoon. The clerk has, I believe, handed copies of my statement to the members of the committee. Senator Buck. Yes; we have copies of your statement.

Mr. FAHEY. In the first place, of course, many of the provisions of this bill were contained in S. 1592 passed by the Senate in the last Congress. I had an opportunity to appear before your committee on that bill and stated reasons why I thought that many of its provisions should be adopted, so it is wholly unnecessary for me to refer to those. Section 501 of the present bill would amend section 5 (c) of the Home Owners' Loan Act of 1933, as amended, which deals with the powers and functions of Federal savings and loan associations. In

addition to the provision authorizing such associations to invest their funds in or upon GI and FHA insured or guaranteed loans, which is similar to provisions contained in S. 1592, Seventy-ninth Congress, it would authorize these associations to invest in obligations of the Federal Savings and Loan Insurance Corporation. This provision would aid the operations of the Federal Savings and Loan Insurance Corporation and its enactment would be desirable in the public interest.

In connection with these provisions of the bill as to the statutory authority under which Federal savings and loan associations operate, I would suggest that section 501 of the bill be amended by the addition of a further provision to authorize such associatons to make loans for property alteration, repair, or improvement, or for home equipment up to a limit of $2,500 without the necessity for taking a lien or obtaining Federal insurance or guaranty. This could be accomplished by the following amendment to the bill:

Page 19, line 2, after the period and before the quotation mark, insert the following:

"Without regard to any other provision of this subsection, any such association, upon the approval of the Board or the Federal Home Loan Bank Administration by regulations or otherwise, may lend or invest its funds in or upon loans for property alteration, repair, or improvement, or for home equipment: Provided, That no such loan shall be made hereunder in excess of $2,500 except in conformity to the other provisions of this subsection."

As I am sure you gentlemen realize, one of the most promising sources of additional housing accommodations is the modernization and repair of existing houses, and the alteration of properties to provide needed additional space for growing families, or for a greater number of families.

There are millions of well-built excellent small homes in this country, and it has been the usual plan of families who own such homes, when the opportunity was afforded, to add another bedroom or two or a bathroom, and that provides for families increasing in numbers, and also in the case of multiple housing additions also afford an opportunity for providing accommodations for more families. There are very valuable opportunities at present in making loans available freely for home expansion, improvement, and repair.

Now, when it comes to the smaller loans in the case of the Federal associations, chartered by the United States Government, many of the competing lending institutions such as State-chartered banks and trust companies and the commercial banks of all types, mutual savings banks, and State-chartered savings and loan associations have had latitude to make such loans without going through the process of making a new mortgage to cover them.

Similar authority was omitted from the legislation providing for the organization of these Federal associations, and it should be corrected. To make new mortgages in order to make loans of this character is a time-consuming process. Oftentimes they have to search title again and aside from the element of delay there are too many an

noyances.

The operation ought to be simplified when it comes to the smaller loans-those up to $500 or $600 for a roof and things of that sort. Borrowers object to a lot of red tape and it is a very real handicap.

Senator MCCARTHY. Is it your suggestion that loans should be made without taking a mortgage on the premises?