Mr. GOLDSBOROUGH. You are talking about the guaranteed loan, just simply betting on the future?

Mr. ECCLES. That is right. The borrower, however, as a result of that type of loan did not get the benefit of a greatly reduced cost. The point I am trying to make is, the cost of this financing is less than half the cost of similar financing, and I do not know how you can get the cost less than is proposed here unless the Government itself either makes a subsidy of some kind or itself goes into the business of doing all the lending. So far as private institutions are concerned, it is not possible for them to attract public funds and go to the expense of handling those funds and loaning the money and making the collections, at less than the return provided in this proposal.

Mr. TRANSUE. Mr. Chairman.

The CHAIRMAN. Just a moment.

Mr. TRANSUE. Yes, sir.

The CHAIRMAN. Governor, I do not think there is any difference as to the view that it is desirable to lower interest rates on loans for home_construction wherever it is possible to do it. We all agree to that, but that is not the chief purpose of this bill. If we had a situation that presented no problem except high interest rates that would be a thing to which we might very well concern ourselves with, which we might attempt to deal with, but we are trying to stimulate activity not with the regard to interest rates to be paid, but we want to get business going and that is the purpose of this bill, not to hamstring the activity of this kind but to try to stimulate it, so we want to be sure we do not put an interest rate in here that will defeat the purposes of the bill and I hope, and we have every reason to believe, we will have a constructive administration of this law that will administer it with a view of protecting the public on interest rates. If we make the matter of interest rates the paramount thing we might not be able to accomplish the real purposes of this legislation.

Mr. GOLDSBOROUGH. On the other hand, unless the interest rates are kept carefully in mind all you will be doing is making a sucker of the buyer. That will be the ultimate result and the property will ultimately be unloaded to sharks and I say the interest rates will be a vital factor.

Mr. FISH. If you do not lower the interest rates, what is the use of legislation at all? You can go to the banks right now and borrow for 5 and 54.

Mr. ECCLES. This bill does not just cover the question of interest rate. A reduction of a half of 1 percent is proposed. That is done by regulation. The insurance cost is lowered on mortgages on homes under $6,000, making a total reduction from 6% to 5%. On the larger homes the reduction is from 64 to 51⁄2.

This bill also makes very important amendments. It makes possible the loaning of from $16,000 to $200,000 on individual rental properties, with the loans not in excess of $1,000 a room, or on a group of houses built and leased one at a time. It also expands the limited-dividend section, making possible mass production. The question of cost is not merely the question of financing cost. That is of course a factor and as I said a moment ago, the financing cost is less than half of the cost of similar financing in the twenties. We had $8,000,000,000 worth of bonds used to finance apartment and real

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estate operations in the twenties, and we know they paid 7 percent and some of them 8 percent, and there was offered 5, 10, 15, or 20 points commission for the underwriting and distribution of them so that the borrower paid in nearly all of your real-estate developments very high rates.

Now, the elements of cost are important and little consideration has been given to them, and I do not see that much can possibly be done by legislation, but there is certainly something we must recognize and that is the high labor costs in the building trades, which are as high in many instances, if not higher, than they were at the time the interest rate was 8 and 10 percent.

Mr. MCKEOUGH. Does that include material, also, Governor?

Mr. ECCLES. I was just going to say material went up in many cases to the '29 level. However, materials are coming down. So, the question of reducing costs here does not purely revolve around the question of interest rate. It is not practical or possible to uphold monopolistic material prices where production has been greatly reduced and the price remains the same, or where employment has been greatly reduced and the high wage rate is also maintained. There are two great elements of cost, of course, and I cannot see how we can expect to have a deflated interest structure and an inflated price structure. They just do not go together.

Mr. FISH. Everything you have said we all know is true, but nevertheless everything you have said shows the necessity for a low rate of interest if you are going to get prospective home owners in possession of their own homes. One thing you left out was high taxes. In view of high taxes and the high cost of labor and interest rates it is essential to have a lower interest rate if we are going to have building, and that is the primary object of the bill.

Mr. ECCLES. Interest rates cannot be made arbitrarily.
Mr. FISH. Certainly not.

Mr. ECCLES. As I explained I think before you came in, baby bonds yield from 2 to 2.9 percent with certain tax-free features, and they are of course attracting the savings, the funds which institutions loan on building. If they have to pay 3 or 31⁄2 percent, as many of them do22 percent is the usual payment of savings institutions in a great many sections of the country-it is not easy to get the interest rate down to 3 or 31⁄2 percent. The farmers were given a 31⁄2-percent rate but everyone recognizes there is a subsidy in that rate. Every one recognizes the market does not furnish that rate. There is a Government subsidy in that rate.

As I said a moment ago, we are trying to get away from the idea of Government subsidies. A great many people feel the time has come when the Nation ought to stand on its own, and when you do that you have the practical problem to deal with, and as I said, I think this question of cost is important and the rate is certainly as low as it is possible to go.

Mr. FISH. What does the Governor think of amending State laws to grant an exemption of $2,000 on low-price buildings? I want to get the Governor's impression.

Mr. PATMAN. What can Congress do about State laws?

Mr. FISH. I asked his views on it. It would help very much if he backed it, because his voice carries over the Nation.

Mr. PATMAN. There is not anything Congress can do.

The CHAIRMAN. There are some States that have had the good sense to deal with that problem. They have done it in Alabama and New York.

Mr. PATMAN. But we cannot do it here.

Mr. ECCLES. Anything that is done to reduce taxes on new home. construction might tend to encourage construction. What the situation may be in the various States with reference to the possibility and practicability of doing it, is, of course, a matter that would have to be decided upon in the States. There are some costs that are important. The various costs of title examination, in many cases, are altogether too high and unjust, and the appraisal costs are often higher than they should be, and there are instances where commissions are paid for the securing of the loan or the making of the loan, just a flat commission. It seems to me that the Federal Housing Administration by regulation should prohibit commissions of that sort being paid. That would tend to reduce the cost. I am for anything that can reduce the cost.

Mr. TRANSUE. Will this program raise the cost of materials that go into these houses and raise the cost of labor that goes into these houses?

Mr. ECCLES. What was that?

Mr. TRANSUE. Will this program raise the cost of materials that go in the houses and also raise the cost of labor for construction of those houses?

Mr. ECCLES. Well, I do not think so.

Mr. TRANSUE. Why not?

Mr. ECCLES. Well, for the very reason that you have tremendous idle capacity today. I think the experience that labor and possibly business people have had during the past year will teach, if it teaches anything, that when costs go beyond what the people can afford to pay, and are able to pay, they lose their business for materials and they lose their jobs. Building activity started to turn down in direct relationship to the increased cost of labor and material.

Mr. TRANSUE. And where there is demand for both labor and material they both go up?

Mr. ECCLES. If you get a demand beyond ability to supply the goods, or promote monopoly in either field, they can put up costs. Mr. TRANSUE. Were these costs affected recently by monopolies? Mr. ECCLES. Well, while every one had been talking and expecting inflation, we had had a great degree of stability in price levels for a period of about 3 years, up until early last fall, a year ago. The amount of forward buying was very great commencing at that time, because there was a fear that prices would be higher. The desire of people to make improvements, and of business institutions to carry out expansion or modernization of their plants or other facilities that they had neglected to do for a period of 3 or 4 years, tended without question to create a very large demand over a very short period of time and there was a huge accumulation of orders that could not be filled. The strikes that developed during that period also added to the feeling of uncertainty as to the ability of various institutions to fill orders, and that tended to further cause the placing of orders.

Mr. TRANSUE. Now you have said our economy began to get out of balance last spring because of low wages being paid unorganized labor and low prices being paid for farm products.

Now, how will this program tend to raise either one?

Mr. ECCLES. I did not say our economy got out of balance last spring. It began the fall before last spring, through the changes of prices that tended to create a de-equilibrium in the economy. Farm prices went down and other prices went up.

Mr. TRANSUE. Is that true now?

Is it true our economy is out of balance because of the low prices to farmers and low wages to unorganized workers?

Mr. ECCLES. Well, I think so. I think that either those on the up side or high-price side should be brought down or the others brought up, possibly some of both.

Mr. TRANSUE. How will this help those two groups?

Mr. ECCLES. Well, to the extent it creates more business activity and more employment-it helps everybody.

Mr. TRANSUE. But it will first help the organized workers in the building trades and the material men in the building business. Is that not correct?

Mr. ECCLES. Well, it will help the railroads very materially and it will help the employment all the way down the line. Every time there is a skilled worker employed, that creates employment for the unskilled workers throughout the various activities of industry. There is not anything like building to increase activity throughout the whole economy.

Mr. LUCE. Mr. Chairman.

The CHAIRMAN. Go ahead, Mr. Luce.

Mr. LUCE. Would you include in your reasons for the present situation the fact the President promised increases in prices up to two-fifths, and has largely carried out his promise?

Mr. ECCLES. Well, you had a very uneven increase in prices. The prices were in no sense a balanced increase. If they had been the situation would be very different than it is today. It is the unbalanced increase of prices-with steel prices today at 120 percent of 1929 prices and cotton at 7 cents. You cannot simply consider an average of prices, taking the entire index, because certain monopolistic prices may be held very high and other prices have gone very low, and you have a condition of stagnation because one group is unable to exchange its goods and services for the goods and services of another group. Mr. LUCE. I simply wanted to bring out the fact the President promised the increase in price which has taken place.

Mr. ECCLES. I do not think it has taken place in certain fields.
Mr. LUCE. Then, he has failed in his purpose.

Mr. ECCLES. There is not a uniform increase in price.

Mr. LUCE. Has he not therefore failed in his purpose and his promise?

Mr. ECCLES. As to an effort to bring about increases in prices, it involves the whole economic field and where you have a high tariff and protected manufactured goods you have agriculture depending upon a world market. You certainly cannot get a balance unless you do something to help agriculture. You have got to either bring one up or the other down.

Mr. LUCE. True enough, but his economic advisors must have failed to take into account those things.

Mr. ECCLES. I do not know that.

Mr. BARRY. Governor, this bill is designed to stimulate business and not as a relief measure, and as it now is drafted it applies mainly

to homes of $6,000 and less. The county I come from has a population of 1,250,000 people. About 85 or 90 percent of the county consists of one family homes and the majority, by far the big majority of these one-family homes, are worth more than $6,000.

Now people who can afford homes of $6,000 and more earn from $3,000 to $5,000 and up. Do you not think some inducement should be made to that very substantial market in order to stimulate industry? Do you not think instead of jumping from 10 to 20 percent that those who buy homes in excess of $6,000 should be given advantage of the 10 percent and then gradually scaled, to attract that market?

Mr. ECCLES. I do not think so for this reason. People who can afford to pay more than $6,000 for a home ought to be able to pay a down payment of 20 percent. Otherwise you have the question whether or not they can afford better than a $6,000 home. Secondly, the market for more expensive homes is very limited. The risk is very much greater, and there is a greater risk on a loan on a $10,000 home with a 20 percent down payment than there would be on a $5,000 home with a 10 percent down payment.

Mr. BARRY. Now after all, those that can afford a $6,000 home are in the lower-income brackets?

Mr. ECCLES. They are over 75 percent of the people of the United States.

Mr. BARRY. Talking about the country; yes. This is not a relief measure. This is a measure to stimulate business.

Mr. ECCLES. Yes; that is right.

Mr. BARRY. In New York City the average civil-service employee, and there are hundreds and thousands of them, do not happen to have too much cash on hand. It is the opinion of the newspapers that Queens County has had more building than any other county in the country, and their contentions is you are not going to offer any attraction to this market. I disagree with you. I think the man that earns more is a more reliable risk than the man who earns less. Mr. ECCLES. Well, I do not know that I can say any more. I feel that an 80-percent loan on a home that exceeds $6,000, or these large apartment operations, is about as great a risk as could be assumed. There is also the factor that the shortage today throughout the country is not in the higher-priced homes. We find that among the higherpriced homes and also the higher-priced apartments, that is those apartments going for the largest rentals, there is still a surplus, that the shortage exists in the case of properties covering the ability of the average family to rent.

Mr. BARRY. I think the average home is $8,000 to $10,000 in Queens County, for example. Do you think it is unreasonable to expect 10 percent on the first $6,000 and 20 percent on the remaining $4,000?

Mr. ECCLES. As I say, the difficulty about it is that there is a surplus and not a shortage of your higher-prices homes. They are still selling at a great deal less than they can be built for. There is very little demand throughout the country for credit on that type of structure, and so long as you have a surplus of properties for rent or for sale in that class, it would seem to me that is not a problem that needs to be given very much consideration at this time.

Mr. BARRY. Are you aware of the fact that only a small percentage of the homes in New York City can be built for $6,000?