gram is needed to reverse the process of persistent deterioration in the existing low and moderate income housing sector. Such a program will have to provide the financial means for upgrading substandard, but reclaimable units. It will have to ensure that adequate revenues become available to cover operating expenses, including the costs of maintenance necessary to sustain the upgraded buildings in habitable condition. Finally, no household must be required to pay a greater percentage of its income to obtain decent housing than it can reasonably afford.

To achieve the two latter features, a program of government housing allowance subsidies will be required. The concept involved in such an approach has already been accepted in both the public housing programs and the FHA rent supplement program, in which no tenant may be charged rent in excess of 25 percent of his income." Alternatively or additionally, relief may be obtained by reducing the cost side of the equation through such devices as property tax relief or more efficient systems for building maintenance and operations. In appropriate instances, consolidation of property ownership, cooperatives, and increased home ownership could also lower costs.

The development and implementation of a comprehensive housing subsidy program along these lines will require time, study, and experimentation.8 The first major step toward such a program could, however, be taken now and at a minimum cost; that step would be new federal legislation designed to take full advantage of the financial leveraging power of the FHA guaranty mechanism in

(h) (3) (Supp. V, 1965-69), has been further limited by administrative action. See HUD News, No. 70-145 (March 10, 1970). The allocation of funds, even to substantial rehabilitation, has also been reduced by HUD. SECOND ANNUAL REPORT ON NATIONAL HOUSING GOALS, H.R. Doc. No. 292, 91st Cong., 2d Sess. 25 (1970). The Public Housing Programs also are predominantly for new construction. Housing Act of 1937 § 1, 42 U.S.C. § 1401 (Supp. V, 1965-69), amending 42 U.S.C. § 1401 (1964). It is, however, encouraging to note that a program reflecting many of the principles discussed in this article is included in the housing legislation recently proposed by the House Banking and Currency Committee. See H.R. 9688, 92d Cong., 1st Sess. § 203 (1971). The bill is the result of an extensive review of the federal housing programs and policies by the Subcommittee on Housing of the House Banking and Currency Committee, which culminated in a report that also acknowledges the importance of the principles discussed in this article. See SUBCOMM. ON HOUSING, HOUSE COMM. ON BANKING AND CURRENCY, 92d CONG., 1ST SESS., HOUSING AND THE URBAN ENVIRONMENT 15-18 (Comm. Print 1971). Nonetheless, the program in the proposed legislation is unfortunately restricted by a requirement of owner Occupancy which, in the authors' judgment, will severely and unnecessarily limit its effectiveness.

7. Housing and Urban Development Act of 1969 § 213 (a), 42 U.S.C. § 1402 (1) (Supp. V, 1965-69), amending 42 U.S.C. § 1402 (1) (1964).

8. See sections 504 and 505 of the Housing and Urban Development Act of 1970, Pub. L. No. 91-609, 84 Stat. 1786-87, which authorized funds for an experimental housing allowance program and demonstrations with respect to abandoned properties. The National Housing and Economic Development Law Project is currently studying alternative mechanisms for the administration of housing allowances. The Project is located at the Earl Warren Legal Institute, University of California, Berkeley.

order to refinance existing housing indebtedness over longer term periods, so as to provide the necessary capital for basic housing repairs and improvements. This article explores the feasibility and general utility of such an approach.

The general impossibility of securing loans from institutional lenders for the purchase or renovation of inner-city low income housing has been widely acknowledged. This unavailability has created a pattern of short-term financing at very high interest rates and, consequently, relatively high monthly debt servicing costs. Resources needed for repairs, maintenance, and operations are absorbed by these high debt service payments.

If this pattern could be broken and replaced with FHA guaranteed long-term loans at prime interest rates, the net result would be an influx of private capital to finance modest, but critical repairs and improvements. Thus, a typical $66 per month loan payment which is now required on a $3,000, five year, 10 percent mortgage, would be able to support a principal of $5,230 if the debt were refinanced with a term of ten years and at an interest rate of 8 1/2 percent. Thus $2,230 could be made available for repairs and improvements of the housing unit without increasing monthly debt service payments. The property owner would be legally required to use the additional principal for that purpose. The longer term period would be based on projections as to the number of years for which the specific property will be lived in and therefore be rent producing and able to support a mortgage. The key to this plan would be FHA repayment guarantees to overcome the present long-standing unwillingness of private lending institutions to provide refinancing and improvement loans at low interest rates.

The additional capital of $2,000 to $5,000 per unit which might be made available by this technique would be sufficient to effect marked improvements with respect to habitability of the unit. Such improvements might include: repainting walls; refinishing or resurfacing floors; replacing broken window glass and repairing sashes; repairing and partially replacing wiring, heating, and plumbing systems; installing garbage chutes to avoid sanitation problems; correcting dangerous stairway conditions; providing good doors and strong locks needed for adequate security (a major concern in the areas involved); repairing or providing fire escapes; providing adequate interior lighting in common areas; repairing roofs, spouts, and gutters; exterior repainting; and thorough clean-up.

The proposed refinancing would maintain the property owner's current level of monthly debt service costs. Although he would pay debt service for a longer period of time, that apparent cost increase will be offset by an increase in the value of the property, lower maintenance costs, higher occupancy rates, better tenant relations, and

9. See NAT'L COMM'N ON URBAN PROBLEMS, BUILDING THE AMERICAN CITY, H.R. Doc. No. 34, 91st Cong., 1st Sess. 100-03 (1968); Grigsby, ch. III, at 50-57; RAPKIN, THE REAL ESTATE MARKET IN AN URBAN RENEWAL AREA, 44 (New York, New York City Planning Comm'n 1959); STERNLIEB 107-12.

tax benefits. Because of the present heavy rent burdens, low and moderate income tenants, bitterly resent and resist any program which causes further rent increases or dislocation. Since each landord's participation in the program will be voluntary and since there will be no increase in his debt service payments, a binding commitment must, therefore, be required from each participating landlord, as a condition of the FHA guaranty, that he not increase rentals as a result of the upgrading.

The costs of the proposed program to the federal government would be nominal when compared either to the benefits to be derived or the costs of other federal housing efforts in the inner city.10 A subsidy would not normally be involved, and administration costs, small when compared to urban renewal, public housing, interest rate subsidy programs, or even normal FHA-assisted housing programs, could be covered by processing fees. Future bad experience with the guarantees can be avoided or minimized by establishing amortization periods for the new loans on the basis of careful projections of the time for which specific properties will, in fact, be lived in and therefore rent-producing. The Government's principal input would be the provision of FHA guarantees, plus, perhaps, manpower training assistance to permit the greatest possible exploitation of the training and job-creating opportunities such a program would offer. The benefits obtainable through the utilization of FHA guarantees in low income areas would be substantial. In the buildings reached, living conditions would be quickly and substantially improved without prohibitive costs to the property owners, the tenants or the federal government. While the unavailability of complete statistical data on existing mortgage terms, especially in "red-lined" areas, makes it impossible to predict how many housing units would be restored by this approach,11 the outreach of the program could be considerable. Both rental and owner occupied housing could be made eligible and the program could be made available to new purchasers, including nonprofit corporations, cooperatives, and condominiums.

This proposal is not offered as a panacea, but only as a first step toward interim relief. It is not intended as a long-term solution to

10. The average interest reduction payment for a 235 home and a 236 rental unit is now estimated to be about $850 and $1,100 per year respectively in San Francisco. The average subsidy for rent supplement units is about $1300, because the subsidy is greater. The public housing program subsidizes the entire production cost of each unit. If the housing is built on urban renewal land, then there should be added to the costs, any write-down on the urban renewal land as well as a proper portion of the administrative costs of the urban renewal project itself.

11. The Bureau of the Census is currently making a survey of residential finance which may provide some of the needed information. U.S. Dep't of Commerce News, New Information About Residential Finances to be Obtained in Census Survey, No. CB71-24 (Feb. 1971).

the housing problem nor as a substitute for existing programs and efforts. The repaired and improved buildings will not meet the standards of those produced under present, more heavily subsidized, federal rehabilitation programs. They will not last for the 30 to 40 years that rehabilitated buildings are intended to serve. While the program will indirectly tend to increase the supply of housing available, it is clearly not a solution to the problem of overcrowding. The program does not offer an easy remedy for the complex social problems that beset communities where deteriorated housing is located, although it may contribute to their resolution. It does not stipulate that plans for the betterment of whole neighborhoods be made a condition to eligibility. Improvements made by one or two property owners under the program may, however, stimulate or compel others in the neighborhood to follow suit.

Two additional considerations are worth noting. First, recent state legislation12 and court decisions13 concerning landlord-tenant relations are seeking a balance of power between the parties by moving away from principles developed in agrarian feudal England toward a structure more consonant with the demands of crowded, modernday American cities. Most significant for purposes of the proposed program is the recent emergence of the legal doctrine of implied warranty of habitability. In the leading case in this area, Javins v. First National Realty Corp.,14 the Court of Appeals for the District of Columbia held that in every residential tenancy the landlord warrants to the tenant that the apartment will be maintained in a habitable condition. The standard of habitability is determined by local health and safety codes. The warranty is non-waivable and can be enforced by rent withholding, actions for damages or specific performance.

While the law can impose upon landlords obligations to maintain residential properties in habitable condition, no benefits to either party will result unless the landlord has the economic means to fulfill this obligation. Property owners without the financial capability to meet such obligations may decide to abandon their buildings, thus intensifying the present housing crisis. This proposed program will enable the landlord to meet his habitability obligations.

Second, an important collateral purpose of the program is to increase employment opportunities for low income people and contract opportunities for minority businesses.15 The repairs and improvements financed under the program will, necessarily, be performed in neighborhoods where low income people reside. Many of the jobs

12. MASS. GEN. LAWS ANN., ch. 111, §§ 127F, 127H (Supp. 1970); MICH COMP. LAWS ANN. §§ 125.530, 125.534 (Supp. 1970).

13. See, e.g., Javins v. First Nat'l Realty Corp., 428 F.2d 1071 (D.C. Cir.), cert. denied, 400 U.S. 925 (1970); McQueen v. Druker, 317 F. Supp. 1122 (D. Mass. 1970), aff'd, 438 F.2d 781 (1st Cir. 1971); Lemle v. Breeden, 462 P.2d 470 (Hawaii 1969); Pines v. Perssion, 14 Wis. 2d 590, 111 N.W.2d 409 (1961). 14. 428 F.2d 1071 (D.C. Cir.), cert. denied, 400 U.S. 925 (1970).

15. See Housing and Urban Development Act of 1968 § 3, 12 U.S.C. § 1701u (Supp. V, 1965-69).

created will not require highly skilled workmen; for those jobs that do, federally-financed training programs could be made available. Since home repair and improvement work is not a field dominated by strong construction unions, union-created barriers to expanded job opportunities should be less of an obstacle than in new construction or standard rehabilitation. Finally, individual contracts would be on a small enough scale to permit participation by many minority contractors who have neither the resources nor the bonding capacity to undertake large construction. The program would thus avoid serious difficulties that have limited the participation of minority contractors in other federal housing and development programs.

If adopted, the proposed program could provide significant improvement in the living conditions of many American families who otherwise will continue to live in substandard housing. It could do much to stem the tide of rapid deterioration now threatening the most valuable of all housing resources, the existing stock. It would put landlords in a position to respond in a constructive manner to reasonable tenant demands for improved housing, as required by emerging legal doctrine. Perhaps most importantly, the proposed program provides an opportunity to demonstrate to the people for whom "the national housing goal has not become a reality,"1 "16 that the country is capable of providing direct, meaningful, immediate, and effective support and relief at a time when action is desperately needed.

The Refinancing Mechanism

The proposed program attempts to actuate federal guaranty powers to induce private institutional lenders to refinance existing shortterm, high interest loans on deteriorated properties in order to make money available for their repair and improvement. It takes, as its starting point, the market realities of inner-city slum housing. Studies of the mortgage situation in New York and Newark by Professor George Sternlieb have shown that property owners in deteriorated neighborhoods typically carry short-term loans at high interest rates.1 Underlying this phenomenon is the well-known unwillingness of institutional lenders to make loans on properties in low income, "red-lined" neighborhoods and FHA's unwillingness to insure such loans under its existing programs.18 This pattern is probably repeated in other cities throughout the nation.

16. Id. § 2, 12 U.S.C. § 1701t (Supp. V, 1965-69).

17. STERNLIEB 107-19; STERNLIEB, THE URBAN HOUSING DILEMMA: THE DYNAMICS OF NEW YORK CITY'S RENT-CONTROLLED HOUSING 581-648 (preliminary draft 1970).

18. See note 9 supra.