ment is an excellent one. Last year all valuation approaches on the basis of replacement cost came in for a rather rough time because of the disclosures over the section 608 program. However, we don't believe that that should stand as an indictment of replacement cost. We believe that the FHA, by proper administration, could prevent any abuses in any of its programs where the valuation is based on replacement cost, and that is why we were pleased to note, in the bill, a provision changing the valuation approach on cooperatives from estimated value to replacement cost.

In estimated value the FHA endeavors to capitalize the income, the rental income, on a cooperative, and in so doing the cooperative ends up with a larger mortgage and a greater cash outlay and larger monthly assessments, and thereby denying the amenities which are peculiar to the co-op.

We believe that under replacement cost this co-op program, under section 213, will get off the ground. I am sure that you have heard testimony that since that change was put into the law last year many of the applications, or most of the applications for section 213 co-ops have been withdrawn or rejected.

Of course, we endorse the proposal to increase the insurance authorizations for FHA by an additional $4 billion, and in so doing we want to express our confidence in the basic structure of the Federal Housing Administration. We are aware of considerable studies that have been underway in the past several months, and many of these have been brought to the members' attention, that FHA should undergo some radical surgery to cure some imaginary ill.

We believe that the basic structure is sound, and we don't believe that the investigations last year revealed any serious ailment in the basic structure of FHA. Most of the troubles were the result of administration.

Now, with respect to the Wherry military-housing program, we note that the bill provides that the program would be extended only for 1 year to take care of commitments issued prior to June 30 of this year. We believe that is unfortunate. We would like to see the Wherry program extended. The Wherry program has many limitations, and we are aware of that, but it has produced 78,000 units for the military, and approximately 19,000 are in various processes of either construction or planning. To the extent that it has produced 78,000 units it has saved the Congress from appropriating approximately a billion dollars.

The Air Force is a major utilizer of the Wherry program, and we note that before the House Appropriations Committee, in February, the Under Secretary, or the Assistant Secretary for Air, stated that they were pleased with the Wherry program, and that it provided acceptable housing.

Again, let me say that we are aware of its limitations, but we believe that the Wherry program presents a sound framework for the utilization of private financing for military housing.

One more point with respect to FHA, and that is the section 226 program. Last year Congress approved a provision which required that the FHA appraisal be tendered the purchaser prior to sale. This was done in an attempt to protect the consumer, and, on the face of it that provision appears to be a reasonable one, but in its application it has an opposite effect.

For one thing, it has tended to influence, if not fix, the sales price of housing, and the FHA appraisal was never intended to be a price-fixing device. The FHA underwriting manual itself-and I cite the appropriate section in the statement-admits that the FHA appraisal could be less than the market price.

It has had a second effect, which is even more serious, and that is, it has denied to many people the advantages of the Housing Act of 1954, because here is how the FHA administers that section. They will let the purchaser and the seller agree to a stipulated amount, and only if the FHA appraisal is less than the stipulated amount will the purchaser be permitted to withdraw from the contract.

That is the way it is administered now. Prior to that change in the regulation the purchaser had to have the appraisal in hand before he was bound to a contract.

Imagine the chaos that resulted in the sale of particular existing housing. No seller wants to take his house off the market unless he has a binding contract, and here he was unable to obtain a binding contract with a purchaser until the FHA appraisal had been returned, which may be 6 to 7 weeks, and in some cases-last fall-2 to 3 months. Until the appraisal had actually been tendered the purchaser, and he had 7 days to look at it, could withdraw from the contract for any

reason.

Under the new regulation the seller and purchaser agree on a stipulated amount. Here is what happens. Every seller of a house wants to have a binding contract, and in order to be sure that the appraisal is not less than the stipulated amount he stipulates a low figure, but the FHA requires that that figure must be sufficient to support the mortgage requested in the application for insurance.

So here is what happens on a house that has a market price of $12,000. If it is subsequently appraised by the FHA at $12,000, the purchaser would be entitled to an insured mortgage of $10,350-that is, on an existing house. However, the seller in order to make sure of obtaining a binding sales contract, will estimate a low figure to avoid the chances of the FHA appraisal, a month or more later, being less than the estimate and thereby risk a nullification of the contract. Consequently, in the example, the seller retains the $12,000 sales price but estimates the appraisal to be $10,000 or $11,000, this then necessitates a lowering of the mortgage insurance requested in the application to $8,850 or $9,600.

The seller has no other choice. In the case of an existing house he is more than likely selling in order to purchase a larger home. He can't afford to enter into a sales contract which may not prove binding on the purchaser a month or two later. When the appraisal is returned with a higher FHA appraisal of $12,000 the purchaser is still bound to the lower mortgage insurance, and a resultant higher downpayment.

The section therefore operates to defeat the more liberal terms of the 1954 act.

We hope that the committee willl sriously consider the results of this section, that the disadvantages far outweigh its advantages, and approve its elimination from the bill.

With respect to the urban renewal sections of the bill, we endorse the recommendation made to increase the capital grants by an addi

tional $500 million. In so doing, we would like to propose an amendment, which is attached to our statement as an appendix.

We believe that the capital grant provisions of title I have done a commendable job in slum demolition and urban redevelopment. However, we think that we have a proposal that might ultimately result in a marked reduction in capital grant outlays and permit urban redevelopment by local governments, through the insurance of special assessment bonds.

In our proposal the Federal Government would insure the special assessment bonds, and would levy an appropriate premium. Now, these bonds would be assessed against the property owners, the value of whose property would be enhanced because of the urban redevelopment program, and the assessment would be payable over a period of 10 years. Special assessment bonds are very difficult to market, and we believe that with the Federal insurance they would be marketable and would ultimately be an effective substitute for the Federal cash outlay for title I. We think the proposal is a worthy one, and merits the serious consideration of this committee.

That winds up the first part of the presentation.

Now, I believe Mr. Wilcox wants to take up public housing.
Mr. WILCOX. Public housing:

Section 13 of the bill would continue the expansion of the public housing program beyond its present termination date of June 30, 1955, to June 30, 1958, and authorize the signing of subsidy contracts for 70,000 units in addition to the anticipated unused authorizations of 15,000 to 20,000 for the current fiscal year. In addition, section 13 would remove five of the limitations which Congress placed on public housing in the Housing Act of 1954.

We are in agreement with the objective sought by this committee, the provision of adequate housing for families of very low income who must be relocated from many of the slums of our large cities. However, we sincerely believe that public housing is the wrong approach and that it involves a concept which is alien to our traditions. To care for the needy, the destitute, and those who because of circumstances beyond their control are unsheltered or forced to live in slums is in the American tradition. But to assist only the higher income portion of these by making them the dependents of the Federal Government through supplanting private enterprise and making private initiative unnecessary is fundamentally wrong and self-defeating.

The pending public housing expansion of approximately 85,000 units is hailed as a tapering off of the program. It is said by some that the program is a small one and that those like ourselves, and many Members of the Congress who have always opposed public housing on principle ought not to become unduly exercised. However, we are convinced that any number of public housing units requested by the administration would never relax the pressure for more public housing by its proponents many of whom, in our opinion, are so ideologically involved in this subject that their goals bear no relation to need.

For example, when President Truman in 1952 requested 75,000 public housing units a year, little, if any, opposition was heard as to the insufficiency of this number. However, in 1954 when this Administration requested 35,000 unit per year, representatives of the National

Association of Housing and Redevelopment Officials came before this committee requesting 5 million units [p. 320, Hearings, House Banking and Currency Committee, on H. R. 7839, March 8, 1954]; the CIO requested 200,000 units per year for a period of 10 years [p. 290, 297, ibid.]; and the American Federation of Labor requested 200,000 units for a period of 3 years [p. 273, ibid.].

Then the Conference on Economic Progress, whose spokesman is Leon H. Keyserling, former President Truman's Chief Economic Adviser, decided early this year that 200,000 units a year, or the 350,000 it recommended in July 1954 (p. 27, Toward Full Employment and Full Production, Conference on Economic Progress, July 1954), was too modest. The conference's 1955 Blueprint for National Prosperity (p. 37, A National Prosperity Program for 1955, Conference on Economic Progress, February 1955) calls for 300,000 to 500,000 public housing units for 10 years, or 5 million more families to be added to the present 455,000 who are subsidized tenants of the Federal Government. Mr. Keyserling, however, makes no pretensions that public housing is designed wholly to assist the poor. In his article, Twenty Percent Ratio for Public Housing (p. 48, The Housing Yearbook, 1954, National Housing Conference), he visualizes a public housing program of decreasing Federal subsidy because of the wider range of higher income groups who would be brought within its reach.

Mr. Keyserling's 500,000 per year unit need was picked up by the National Housing Conference as its 1955 estimate of current and future need, according to its president, Ira S. Robbins, in his testimony before the Senate Banking and Currency Committee on May 19 (p. 495, Hearings, Senate Banking and Currency Committee on S. 1800, May 13, 1955).

So you see we are not here to oppose a so-called small public housing program. Our opposition is based on more fundamental grounds, because we see in these constantly increasing pressures for more and more public housing the basic drive for the ultimate socialization of family shelter in the United States.

Now as to some of our more detailed objections:

1. It is political and morally wrong to require the taxpaying public to subsidize the shelter of a privileged few. The Department of Commerce-Income Distribution in the United States, 1950-53, United States Department of Commerce, March 1955-reveals more than 14 million families and unattached individuals in the same income levels as the approximately 455,000 occupying public housing, median income of about $2,000 per year. The Federal income tax liability alone of this group is in excess of $2 billion per year, appendix D, a burden aggravated by more and more 40-year commitments for annual subsidies which come into being every time a new annual contributions contract for public housing is executed.

The Public Housing Administration is an attempt to rebut these facts recently said that only about 5 million families of this 14 million are from the group eligible for public housing.

That only underscores the special privilege nature of public housing, for it is still the 14 million families and unattached individuals whose tax liability is aggravated by the 40-year subsidy contracts for public housing to which they, as well as the rest of the people, are committed.

Public housing holds out the false hope to these more than 14 million families and individuals earning less than $4,000 per year that

they, too, are entitled to have a portion of their shelter costs subsidized by the Federal taxpayer. Unless the Congress is ready to appropriate annual subsidies over a 40-year period multiplied many times greater than the $87 million required for the coming fiscal year, then expansion of the program as provided in this bill is nothing more than the perpetuation of a costly special privilege.

2. Public housing is unnecessary because of the high volume of home construction since the close of World War II and the continuing marked reduction in the number of low-income persons since 1946. Since January 1946, and through April 1955, there have been 9,539,700 private nonfarm housing starts-Bureau of Labor Statistics, 1955in addition to hundreds of thousands of dwelling units which have been rehabilitated and modernized. For the last 4 years new housing starts have exceeded estimated net household formations.

This has served to raise the housing standards of all our people. In addition, significant changes have occurred in income distribution, further alleviating the circumstances in which many of our people found themselves in the 1930's when public housing was first conceived as a make-work welfare program. The argument for public housing then was social rather than political, the result of low and poorly distributed income aggravated by an average of almost 10 million unemployed-according to table D-16 of the Economic Report of the President for January 1955, unemployment averaged 9,580,000 during the 1930's and a desire on the part of the administration to put people to work quickly-testimony of then Housing Administrator Nathan Straus before the House Banking and Currency Committee on H. R. 10663, April 28, 1938, page 5, et seq.

Now, we have moved into a period in which, as a result of either the labor market itself or of unemployment and old-age insurance mechanisms set up by both Government and industry, family income is rising in both current and constant dollars despite very minor fluctuations. The argument that public housing is needed because a great number of our population are ill-housed as a result of poor income has no validity.

Appendixes E through H of this statement reveal the extent of the shift in the distribution of incomes. Note that in 1936, when this program was first conceived, 82 percent of the families and unattached individuals had incomes of less than $4,000 and nearly half of this group, 49 percent, had incomes of under $2,000 in 1950 dollars. The decline in the percentage of low-income groups in the 1936-53 period and the simultaneous increase in percentage of higher-income groups is another argument against the continuation of this 1937 public housing program.

Please note from appendix G that there has been a reduction of 5 million from 1950 to 1953 in the number of families and individuals with incomes, after taxes, of less than $4,000, more than 111⁄2 million per year. This shift in income distribution, which was accompanied by a shift from unemployment to largely fractional unemployment, has enabled nearly every family with a member able and willing to work to have a chance to earn a living. Of course, families without wage earners, families dependent on pensions and welfare payments, and those who are sick or incapacitated are still in a special position, but public housing does not take care of more than a token number of this latter group.