It is my general understanding that there is some doubt as to whether the Veterans' Administration has legislative authority to establish such standards in connection with its guaranty of GI loans.

Presumably, it is therefore intended to impose reasonable construction standards in connection with secondary market purchases of these loans, so that lenders who desire assurance of this outlet for their GI mortgage loans would voluntarily require these reasonable construction standards., This seems an altogether sound and essential safeguard in connection with a Government-sponsored secondary market operation.

This title of the bill would provide for carrying out this Government-sponsored secondary market operation through a new corporation established in the Housing and Home Finance Agency, and would provide for the liquidation of the Federal National Mortgage Association. In part, I assume that this provision grew out of various indications of a desire on the part of the Congress to liquidate the Federal National Mortgage Association and to discontinue this type of operation in the Reconstruction Finance Corporation.

I believe that it is sound policy to centralize in the housing agency, rather than to disperse among various other agencies of the Government, general supervision of those functions and activities which involve governmental aids for the provision of urban housing.

At the same time, I have recognized that this particular operation is a matter of considerable importance to the current operations of the home-building industry. The result would be that if Ì, as the Administrator, were charged with the responsibility for carrying out this program, I would desire to make such arrangements for its administration as would assure the continuation, without interruption, of the present secondary market facilities for FHA-insured mortgage loans. At the same time, it would be essential that immediate provision be made to permit the purchase of GI guaranteed loans where necessary. It therefore seems to me that it would be desirable for us to undertake to carry out this operation initially at least by utilizing the present experience and facilities of the Reconstruction Finance Corporation on a reimbursable basis. This would avoid any unnecessary interruption in present activities or undue delay in undertaking newly authorized secondary market operations in connection with GI guaranteed home loans.

Next, as to Title III-Housing Research.

Title III of the pending bill would authorize the Housing and Home Finance Administrator to undertake a program of technical housing research aimed primarily at cooperating with and assisting the housing industry in achieving improved methods of production and consequently in achieving reduced costs.

In my judgment, such a program would present one of the most promising avenues toward progress on the core of the housing problem-the fact that today, as in the past, new houses even of minimum standards cost too much for too large a segment of American families. It follows equally that progress in bringing the costs of housing down to within the reach of a much wider percentage of the population is essential to achieving and sustaining the high rate of housing production which the Nation's housing needs require.

In appraising the need for a technical research program of this kind, I believe we must keep clearly in mind the nature of the hous

ing industry-the fact that it is comprised of tens of thousands of builders, subcontractors, architects, materials distributors and materials producers. These tens of thousands of firms generally specialize on individual links in the complex chain of housing production. The one common characteristic of most of them is that they constitute small business institutions without sufficient individaul resources to undertake independent programs of technical research.

I am not saying that there has not been progress and improvement in housing production methods. Clearly there has been progress, but it has been scattered and sporadic and it has not been sufficient to accomplish the over-all reduction in housing costs which is the real need. The reason for this is that no single firm or group of firms has had either the resources or a sufficiently broad stake in the industry as a whole to undertake the kind of broad-scale technical research needed to modernize and improve the whole process of house production. As a result, the housing industry has been at a disadvantage technically in comparison with other basic American industries which contain many large firms with ample resources to undertake intensive research programs and to accomplish the technical advances and expanding productivity that have become the hallmark of American industrial progress in the eyes of the world.

Because of these circumstances, there is increasing agreement that if real progress in reducing housing costs through technical advances is to be achieved, the Federal Government must take the leadership in the necessary technical research.

I am thoroughly convinced that a coordinated program of technical research to develop better and more economical construction methods, to encourage the use of new materials, and to achieve efficiency and economy in all phases of the housing industry offers perhaps the greatest possibilities for the progressive reduction of housing costs and expansion of the private housing market.

This title does not contemplate the duplication of research activities now going forward publicly and privately. Rather, it is intended, in cooperation with industry, to map out the needs, to supplement the research going on elsewhere, to fill in the gaps, and to coordinate and integrate these activities and disseminate the practical results of that research.

The title also provides that in carrying out the program, the Administrator shall utilize to the fullest extent feasible the available facilities of other Federal agencies. To facilitate close coordination, provision is also made for the Secretary of Commerce to be represented on the National Housing Council in the Housing and Home Finance Agency. This is desirable since that Department has important facilities in the National Bureau of Standards.

I believe that such a program, at a relatively modest cost to the Federal Government, would pay dividends many times over in the form of a progressive lowering of housing costs and a progressive broadening of the housing industry's effective market. The actual cost of the program would be determined by the Congress through the regular appropriation process.

Next, Title IV-Rental Housing Aids for Families of Moderate Income and Veterans.

Mortgage investment aids; veterans' cooperatives; yield insurance.

Title IV of the pending bill provides additional measures of Federal assistance to encourage private construction and financing of rental housing for families of moderate and lower income and to assist cooperative groups seeking the benefits of home ownership through this device. These measures involve further refinement and adaptation of the tested principle of Federal Housing Administration insurance and, as in the case with all other Federal Housing Administration insurance, contemplate a self-sustaining program supported by appropriate insurance premiums.

Building on the Federal Housing Administration's experience in insuring rental housing projects under sections 207 and 608 of the National Housing Act, the bill would authorize insurance of 40-year mortgages at a maximum interest rate of 4 percent to finance new rental housing for families of moderate income. These mortgages would cover up to 90 percent of the value of the completed projects.

This title of the bill would make the same terms available to housing cooperatives that are made available to rental housing sponsors and, in the case of cooperatives comprised primarily of veterans of World War II, the insured mortgage could cover up to 95 percent of the value of the project.

The members of the committee are aware, I know, of the growing interest in housing cooperatives, particularly among veterans, as a means of achieving the benefits of home ownership at lower costs than would otherwise be attainable. Cooperative associations have already demonstrated their effectiveness in some fields, notably in the case of farm cooperatives.

I believe that this objective merits encouragement and assistance from the Federal Government. Such assistance should, of course, involve appropriate safeguards assuring soundness in the planning and execution of these projects. In my judgment, these safeguards would be adequately met in this Title of the bill by surrounding the projects with the usual Federal Housing Administration inspection of the construction. Furthermore, the Federal Housing Administration should furnish necessary technical advice and assistance in the planning and development of the projects.

To assure that adequate financing will be available for any cooperative housing project under this proposal, and particularly during its developmental phase, the title makes clear that any Federal agency authorized to provide a secondary market for mortgages insured by the Federal Housing Administration under Titles II or VI of the National Housing Act may also provide a secondary market for mortgages insured on cooperative projects.

Title IV of the bill would also establish a new form of Federal Housing Administration insurance covering debt-free equity investments in newly constructed, moderate-rental housing by private institutions. This yield insurance plan, which has been under study both in and out of Government for several years, is designed to appeal to investing institutions interested primarily in long-term security of principal and the assurance of a moderate but secure return on that principal. The plan would seek to help in overcoming the shortage of long-term equity capital for rental housing.

Under this proposal, the Federal Housing Administration would, in effect, guarantee investors utilizing the plan a minimum return of

234 percent of their outstanding investment plus a minimum annual amortization of 2 percent of their original investment. This insurance would be available until 90 percent of the original investment has been amortized. Initial rent schedules would be set at a level contemplating an annual return of not less than 312 percent of the outstanding investment, after all expenses and the usual reserves. If, because of efficient operations or unusually favorable vacancy experience, the annual earnings exceeded this rate, the plan provides that the investor could credit as excess earnings, for the purpose of his insurance contract, 50 percent of the earnings above 32 percent level, or such higher level as may have been fixed in the insurance contract, until the earnings for any one year reached a maximum of 5 percent. The balance of the excess earnings would be applied to accelerated amortization of the investment.

There can, of course, be no assurance in advance of the extent to which financial institutions will participate in any new program of this nature. Some of the most active FHA-insured lenders originally opposed the Federal Housing Administration program. There are a variety of institutions, including life insurance companies, trust and endowment funds and savings institutions to whom this plan should be attractive. Certainly the plan should be viewed as experimental. However, in my opinion, it is soundly conceived, and Î am confident that, after actual experience in operation, the plan would in all probability produce an important additional volume of urgently needed rental housing at moderate rents and would also contribute to increased stability in the rental housing field.

Next, Title V-Slum Clearance and Urban Redevelopment.

The clearance and rebuilding of slums and blighted areas which has been accomplished up to the present time with Federal aid has been done in connection with public housing. As a continuing approach this would have two disadvantages. It would tend to limit the amount of slum clearance and redevelopment to the size of the public housing program. It would have the effect of requiring the land in these areas to be redeveloped solely for low-rent public housing, even though the most suitable use of such land may be for other

purposes.

It has seemed to me, however, that this presents a much broader and more important question. It poses the question as to whether sufficient progress in the rebuilding of slums and blighted urban areas does not depend upon making it possible to reuse the land, not just for low-rent public housing, but for a variety of purposes-for privately financed housing for middle- and upper-income families, for parks, for commercial uses, or for whatever purpose the locality itself officially determines to be the best use of that land in relationship to local needs. It poses the question as to whether the private building of housing should continue to be forced progressively to outlying areas, while cities continue to decay at their cores.

This is the heart of the problem, and the continuing inability to overcome it has resulted in the increasing concern of city officials, civic-minded citizens, the home-building industry, and others interested in the elimination of slums and the development. of financially sound and attractive urban communities.

From either the economic or the social standpoint, I believe we must make a start in solving this problem. We cannot avoid it, be

cause it must be apparent that the longer we neglect it, the larger and the more costly it will eventually become. In the long run, it seems to me that it would be far less costly to begin to attack it now, rather than at some later date.

The problem is essentially a fiscal one. Characteristically, the cost of acquiring slum areas, clearing them, and preparing the land for redevelopment greatly exceeds the reuse value of the land. Since the reuse value is the price that a developer would pay for the land in order to develop it for appropriate use, this title of the bill proposes a means of bridging the gap between the two.

I believe that there is a rather general agreement that a combination of Federal and local fiscal aid is necessary to make any substantial dent in this special problem area. The fiscal aid provided must be sufficient to cover the difference between the costs of assembling and clearing a slum or blighted area and preparing the land for redevelopment, and the returns which it will then yield when sold for that purpose. That, it seems to me, is the fundamental fact that must be squarely met in any method developed to make possible the clearance and redevelopment of these areas.

The Federal assistance contemplated by this bill takes two forms: loans to cover the initial cost of projects and capital grants to help bring the price of the land down to its value for redevelopment. The Government would be authorized to make loans to the locality to finance initially the cost of acquiring the land in a slum or blighted area, clearing it and preparing it for redevelopment. After the land in such an area was assembled, cleared, and made ready for redevelopment, then, in accordance with a redevelopment plan for that area approved by the governing body of the locality, the land therein would be sold or leased for the purposes determined by the locality to be the most suitable uses for the land, according to its own needs.

The land sold or leased would be made available at its reuse value, and the proceeds received from the sale or lease of the land would repay a portion of the loan. The difference between the total cost of the project and the proceeds received from the sale or lease of the land would represent the loss involved in making the land in these areas available for redevelopment. This loss would be shared by the Federal Government and the local community on a two-to-one basis. The Federal Government's portion would be paid in the form of capital grants and the locality's portion would be paid through the local grants-in-aid required by the bill. The amount of the Federal capital grants can never be more than two-thirds of this write-down, and the remaining one-third must be made up through local grantsin-aid.

Under this bill, a project includes only the assembly of the land, and its clearance and preparation for redevelopment. The actual rebuilding of this particular area is subsequent to this operation, and none of the Federal aid provided by this Title of the bill would be available. for this rebuilding.

The Federal aid contemplated under this title of the bill is directed solely toward the purpose of helping to bring the price of the assembled and cleared land in these areas down to the point where it is feasible to redevelop the area in accordance with the use of the land best suited to the needs of the locality.