HOUSING TRENDS SEASONALLY ADJUSTED ANNUAL RATES U.S. HOUSING STARTS - PRIVATE, INCLUDING FARM * Through December 1962, 10,000 reporting places, from 1962 through 1966 based on 12,000 reporting places, from January 1967 based on 13,000 reporting places. Through December 1962, 10,000 reporting places, from 1962 through 1966 based on 12,000 reporting places, from January 1967 based on 13,000 reporting places. SOURCES Bureau of the Census, FHA and VA. NAHB-Economics Department Mr. STASTNY. The President's wage-price freeze, and his actions 1 week previously to the freeze when he decided to take the measures which are holding the FHA-VA interest rate at 7 percent, brought about salutary results in the housing field. At the time that the interest rate hold was considered permits had dropped off precipitously. There were pressures in the mortgage market which we felt were brought about by artificial causes. There was the threat of an increased cost of money and a serious drop in production of housing. We think that the action in holding that rate at 7 percent and the action subsequently on the wage-price freeze, as well as the demonstration of his and his entire administration's determination to deal forcefully with the inflation which has been ravaging the economy, have already developed proofs of the wisdom of those acts. The cost of money has firmed up. FNMA auctions in recent weeks have shown that the cost of money has stopped going in the wrong direction, which is up, and have firmed up. Long-term bond rates have taken a healthier trend in the past few weeks in response, we think, to the wage-price hold. The provision of a 90-day period during which the increases in the cost of some of the materials which we use to build houses are stopped is a good one because, in our opinion, the cost of some of these materials has risen too fast with too little reason-lumber being one example. We think that by and large the action has been a good one, and yet there have been some negative effects. There are many inequities that exist in the 90-day freeze and its application. For example, the FHA increase in standards for insulation which has added about $100 in cost per housing unit cannot be reflected by a price increase. This is one of the inequities. The decision to disallow the inclusion of real estate tax increases and maintenance increases in rents has caused, we hope, a temporary inequity. We trust that in phase II these problems will be ironed out and the economy will have had a chance to adjust itself. Senator GAMBRELL. Do you think that a restriction on interest rates ought to be included in the things over which controls are imposed in phase II? Should there be a restriction on interest rates in phase II of the economic control? Mr. STASTNY. We don't see how this can be accomplished except to the extent that interest rates are being supported by the GNMAFNMA tandem plan. Senator GAMBRELL. I notice you suggest that possibly there be some flexibility or opportunity for a differential between what the Government will support for mortgages in different sectors of the country based on the local cost situations. Do you think that in such instances that that might have the effect of supporting or subsidizing higher and higher costs in the building industry? Mr. STASTNY. No; we don't think so, Senator. In Senator Cranston's statement in the introduction of his bill he listed five or six States in which the average cost of an FHA home exceeded $26,000, includ ing my home State of Illinois-and I know for a fact that the costs there are far greater than the costs in many areas of the country. Yet, by and large, houses and apartments which are financed under the FHA programs are in the moderate-priced category. We don't think that this would have an inflationary effect. We are simply trying, in the emergency legislation which we have requested, to continue to help to maintain a high rate of production nd to cure some of the inequities. We are trying to eliminate what ve think is a frustration of the intention of the administration's acion in deciding to support the FHA-VA rates. Senator GAMBRELL. Well, I don't have any more questions, Mr. Stastny. We appreciate your comments, and will be happy to have our full statement for the record and such other comments as your rganization would care to submit as long as the record is open. We ppreciate your appearance today and will be happy to hear from 'ou at any time. Mr. STASTNY. Thank you very much, sir. Senator GAMBRELL. Our next witness will be Mr. David MacFadyen, f ABT Associates, Cambridge, Mass. We might also ask at this time if Mr. Robert Piper, of the Amerian Institute of Architects, might come forward at the same time, as understand the testimony of these two gentlemen is to be directed to he same subject. Mr. MacFadyen, are you and Mr. Piper acquainted? Mr. MACFADYEN. No, we are not. Senator GAMBRELL. All right, Mr. MacFadyen. You are with ABT Associates, a private consultant firm in Cambridge, Mass.? Mr. MACFADYEN. Yes, Mr. Chairman. STATEMENT OF DAVID J. MacFADYEN, ABT ASSOCIATES, I am David MacFadyen of ABT Associates, a private consulting rm in Cambridge, Mass. We are adding our voice to the growing support of Senate bill S. 859, because the proposed National Institute of Building Sciences NIBS) provides a long overdue mechanism to facilitate urgently eeded innovations in the building industry-available, and I emhasize that word, technical solutions that not only will reduce costs ubstantially, but also will increase safety and quality. Over 2 years ago, the Engineering Committee on Urban Technology f the National Academy of Sciences pinpointed this need as follows: Although there are significant research opportunities that will bring forward ew technology for urban improvement, the primary opportunity resides in the fective application of available technology to the most urgent urban developent needs. In our cities, however, the situation has, if anything, worsened. The ast store of technical knowledge that we have accumulated in aeropace, defense, atomic energy, community development, and other secors is essentially blocked from effective application to the growing roblems of urban development. To use an analogy, in the building dustry today we are attacking a mammoth mending job with needle nd thread when there is a sewing machine in the next room. Why is it then, that costly, outmoded techniques continue to be aplied in urban areas of the most technically sophisticated country in he world? And what can NIBS do to change all this? I hope to anver these questions in this short presentation. At ABT Associates, we are deeply involved in the study of innovaon in the building industry and, in fact, have produced such innoations. Based on our experience, there are three general problem areas at NIBS could reduce significantly: 66-138 0-71-pt. 2—35 (1) Unnecessary barriers to the innovation process. (2) Lack of a recognized, definitive technical source. (3) Concentration on empirical testing programs, rather than on product and process analysis. I shall cover these areas briefly and show NIBS can provide a cure in each case. BARRIERS AND CONSTRAINTS The types of barriers that exist in the building industry are generally well known. One must satisfy the often competing interests of financial institutions, industrial associations, civic action groups, the design professions, government, and labor. And, of course, the struc ture of the building industry itself is a barrier. What all this comes down to is a costly and unnecessary maze of codes and redtape-applied inconsistently on a regional basis through which a given innovation or change in the traditional way of doing things must wind before receiving a green light. Let me give you an example of this problem from my own experience: For the past 20 months, I have worked with an interdisciplinary team of engineers, businessmen, and scientists in an attempt to transfer advanced aerospace technology to problems in urban construction and planning. This team, under contract to NASA, is composed of five professionals from Abt Associates, five professors from the MIT Urban Systems Lab, an independent technical marketing organization, and housing consultant James Simpson, who is retired Director of the Office of Building Technology at HUD. We have found some extremely effective solutions for urban housing problems using NASA technology, but are frustrated again and again in our attempts to apply them in the building industry. We are on a treadmill of institutional, legal, and code acceptance, buffeted between the demands of labor, competing interest groups, designers, engineers, and Government agencies. And the problems don't stop with us. The manufacturers that are enlisted to adapt these new technical solutions from aerospace are usually eminently familiar with the proposed technology, but they are often unfamiliar with the building industry. The glut of required approvals, and the time and difficulty involved in obtaining these ap provals let alone the added costs are forcing such manufacturers to abandon worthwhile projects at an increasing rate. Now the advantage of a compatible framework and technical information source for manufacturers is obvious; it could go a long way toward removing these barriers. NIBS would perform this role. Moreover, NIBS will benefit the entire building industry by setting and unifying realistic codes and regulations on a nationwide basis. But let me put this in terms of the "bottom line". What, for example, would the savings be if we merely removed artificial barriers that pre vent the application of cost-effective methods and materials? Reliable estimates put the savings for housing alone at from 10 to 20 percen of the total cost of construction. And this is available without expendi tures for research and applications engineering. Even if we take the lower figure-10 percent-the removal of barriers to innovation will result in an annual savings of roughly billion for the total economy of this country-no bagatelle, to say least. the |