Senator FULBRIGHT. If he wants to pay this rent through welfare so far as the total cost to the Government, you do not make any saving that way.

Senator TAFT. I think it will cost much more if you say that it covers everybody with an income of $1,000. You would have to take care of all 6,000,000 families on that basis.

The CHAIRMAN. This has been very helpful. We have 20 minutes left, and I would like to leave it this way, if I could, to let you and Senator Taft each take 10 minutes, if you will be willing to do it, to sum up the different points of view by the record as brought out there, any and new points you may have.

Let Senator Taft speak first.

Senator TAFT. My theory is that we have an interest in seeing that the lowest income group gets housing, and that under the present system and for many years they have not gotten decent housing. We have the same interest there that we have in providing free medical care, as every city does, in providing relief, which every city does, for food, if food is necessary.

In housing we have a much worse problem, because a much larger proportion of the people cannot get decent housing under the present system. The margin is so wide that I can be wrong in all of my figures, and still you have more than enough basis for taking care of some 500,000 families.

The CHAIRMAN. Housing is basic.

Senator TAFT. As to the difference between automobiles, incidentally, that was suggested, people do not have to have automobiles. They can get along without them. Many families do. But everybody must have a roof.

These 5 or 6 million families living in slums, most of them do not have automobiles. A few probably do, but most of them do not. They do not have to have them, but they have to have a roof.

The question is how are you going to see that they get a roof when they have not got enough income to pay certainly for a new house and, in my opinion, not for any decent second-hand house.

It is not like you have in relief, we will say, or low-income medical care, unable to pay for medical care, where you have around 15 percent. You probably have 25 percent in housing who cannot pay for decent housing, and I do not see any reason to think that with all of these efforts of course this housing code thing that is dependent upon what thousands of cities do and do not do throughout the United States-I do not see that the housing code business in any way meets the problem.

It simply says:

You cannot keep cheap poor housing, and you cannot retain it and rent it to people for what they can afford to pay. You must have expensive housing.

All housing we will say must rent therefore for around $40 or $35 or $30. That means that anybody who gets less than $1,400 cannot afford that house. He has to go on relief.

Well, if all of the families under $1,400 are going to have to get sub-. sidies, this thing will cost 10 times what it is proposed to cost.

The answer to that is that this is partial. I agree that it is partial. It is not doing the whole thing. We hope that conditions in costs and all may change so that when we get through, we will not have to

do the whole job. I do not think we have to do the whole 5 or 6 million. I think the hand-me-down theory works to a certain extent. While some of this housing is substandard, we can leave it alone and get on. But the trouble is to take the edge off the bottom, to stop this constant re-creation of slums by this hand-me-down theory, and from the relief standpoint also we could not see that through the possible promise of 500,000, we will say, 2 million families going to be able to draw relief, perhaps if you do not change your policy, anybody is going to build houses to take care of them. It does not pay. It would be idiotic to do that, so I do not think that is the remedy.

On the other hand, of course, as I say, so far as the slum clearance thing, apart from public housing, is concerned, and the sale of that property to private housers, we have it in this bill, but it will not reduce the cost of private housing to any extent that I can see. It is a very minor element.

The CHAIRMAN. Before Mr. Deckman proceeds, may I read excerpts from a letter from the president of the Chemical Bank & Trust Co. of New York, recommending that we incorporate in this bill of Senator Taft, an amendment to section 5136 of the revised statutes.

I believe there is general agreement on the proposition that the development of low-rent housing projects under the contemplated program should be financed, to the greatest extent possible, through a sale of local agency bonds to the public rather than to the Federal Government. If this is so, it is clear that it is important to do whatever can reasonably be done to broaden and strengthen the potential market for such bonds. It is equally clear that the greater the market for such bonds, all other things being equal, the lower the interest rate which such bonds will carry, and that whatever can be done to minimize the interest cost of the program will reduce the over-all cost of the program to the Government.

I feel very strongly-and I know that my views in this respect are shared by many who have considered the problem, including people within the Government as well as people engaged in the banking and underwriting fields throughout the country--that the market for local public agency bonds would be materially improved if banks, generally, were permitted to invest without limit and to underwrite or deal in such bonds. As you probably know, this is not the case—

Senator TAFT. What kind of banks?

The CHAIRMAN. I assume national banks. This is from the Chemical Bank & Trust Co. But the point is that he recommends this amendment to allow the banks to buy these bonds, and he says that they have a credit rating that is comparable. He says that the Treasury last year opposed such an amendment, and he thinks it is merely the form of the amendment. He recommends an amendment to be incorporated in this bill.

Senator TAFT. I do not have any strong views on it. We had it in for a while last year, but there was a violent objection. I do not think it is just a technical question. There was a violent objection from the

The CHAIRMAN. From the Treasury?

Senator TAFT. From the investment bankers generally. They claimed that under the Banking Act of 1933 this was not just a question of investment, but a question of marketing, and that the banks were supposed to get out of the field of marketing securities. They are only permitted to market Government securities.

The question is that they say this is so much like a Government security that it ought to be included along with Government securities. I think that is the fight, as I remember it.

The CHAIRMAN. To invest and to underwrite, and deal in such bonds.

Senator TAFT. The investment people are opposed to it. They want to keep the banks out of the investment field. The committee can do as they like so far as I am concerned. We put it in last year at the request of the banks thinking we might give a little wider market for the metropolitan housing bonds, but we finally took it out. The CHAIRMAN. I will put it in the record. (The letter referred to is as follows:)

Hon. CHARLES W. TOBEY,

CHEMICAL BANK & TRUST CO.,

New York, April 4, 1947.

Chairman, Senate Banking and Currency Committee,

Senate Office Building, Washington, D. C.

MY DEAR SENATOR TOBEY: I understand that your committee is about to begin consideration of S. 866 (the proposed National Housing Commission Act) which is the successor bill to S. 1592, Seventy-ninth Congress. I am writing to recommend for consideration by your committee the incorporation in the present bill of an amendment to section 5136 of the Revised Statutes which I believe would represent a material contribution toward the objective of providing the most economical available means for financing whatever low-rent public housing program may be approved by the present Congress.

I believe there is general agreement on the proposition that the development of low-rent housing projects under the contemplated program should be financed, to the greatest extent possible, through a sale cf local agency bonds to the public rather than to the Federal Government. If this is so, it is clear that it is important to do whatever can reasonably be done to broaden and strengthen the potential market for such bonds. It is equally clear that the greater the market for such bonds, all other things being equal, the lower the interest rate which such bonds will carry, and that whatever can be done to minimize the interest cost of the program will reduce the over-all cost of the program to the Government. I feel very strongly-and I know that my views in this respect are shared by many who have considered the problem, including people within the Government as well as people engaged in the banking and underwriting fields throughout the country-that the market for local public agency bonds would be materially improved if banks, generally, were permitted to invest without limit and to underwrite or deal in such bonds. As you probably know, this is not the case under the existing banking laws. S. 1592 as originally introduced in the Senate last year contained an amendment to section 5136 of the Revised Statutes which would have given the banks the requisite authority. That amendment was deleted from the bill as reported by the Senate committee to which it was referred but I think a brief review of the history of that amendment will shed considerable light on the matter under consideration.

It is my understanding that the reason for the deletion of the banking amendment from S. 1592 was that the amendment, in its then existing form, was objected to by the Treasury Department. It is my understanding, further, that the Treasury's objection was not to the substance of the amendment but to the form. Section 5136 as it now exists permits banks to invest without limit and to underwrite and deal in various specified obligations which are of the highest grade because they are, in effect, fully backed by governmental credit. Under the amendments to the United States Housing Act of 1937 which would be made by S. 866 (as well as under the similar amendments which were provided for in S. 1592 in the Seventy-ninth Congress) local public agency bonds may have a credit rating comparable in all respects to the obligations which are now within the scope of section 5136. It is my understanding that the Treasury did not have last year, and does not now have, any objection to including among the securities covered by section 5136 any local public agency bonds which are such that their service is assured by the Government's obligation to pay annual contributions in respect of a particular project. I think that the Department's sole objection to the banking amendment in its original form was that it was so broadly expressed

that it might conceivably open the door to particular issues of local bonds which did not in fact have the benefit of full coverage by pledged annual contributions. I submit herewith a draft of amendment to section 5136 of the Revised Statutes which, if my understanding of the position taken by the Treasury Department is correct, should fully meet the objection previously raised to the proposed amendment of that section which was originally incorporated in S. 1592. The purpose of the changes incorporated in this revision is to make it perfectly clear that only those bonds would be entitled to the benefits of the amendment which are fully secured as to both principal and interest by a pledge of annual contributions contracted for by the Federal Public Housing Authority under the provisions of the United States Housing Act of 1937, as amended.

As I have indicated above, I believe that the incorporation of an amendment of this type in the pending bill would materially aid in the financing of the lowrent housing program on the most economical basis possible. I hope that, after consideration, your committee will see fit to include such an amendment in the bill which is now before you.

Respectfully yours,

WM. G. LAEMMEL, Vice President.

PROPOSED AMENDMENT FOR SECTION 5136 OF REVISED STATUTES (in CONNECTION WITH S. 866, NATIONAL HOUSING COMMISSION ACT)

(b) The last sentence of paragraph Seventh of section 5136 of the Revised Statutes, as amended, is amended by inserting before the colon, after the words "obligations of national mortgage associations,' a comma and the following: "or such obligations of any local public agency (as defined in the United States Housing Act of 1937, as amended, or the National Housing Commission Act) as are secured by a pledge of annual contributions under an annual-contributions contract between such local public agency and the Federal agency carrying out the functions, powers, and duties under either of said Acts: Provided, That such contrat shall contain the covenant by such Federal agency which is authorized by subsection (b) of section 22 of the United States Housing Act of 1937, as amended, or subsection (b) of section 806 of the National Housing Commission Act, as the case may be, and that the maximum sum and the maximum period specified in such contract pursuant to said subsection 22 (b) or said subsection 806 (b) shall not be less than the annut amount and the period for payment which are requisite to provide for the payment when due of all installments of principal and interest on such obligations."

Mr. DECKMAN. The purpose of both of our plans is the same. We differ as to the philosophy. The group that I represent does not feel that it is the problem of the Federal Government to clear up the slums of the individual cities, and house the people in those cities, and that is the basis of our disagreement.

The plan which I offer, one of the housing code to make all housing meet minimum requirements, is certainly one to stop the recurrence of slums, and I think it is sound.

I disagree with the Senator when he says that private enterprise has had the tools to do this job. They have not had the tools of low interest rates, long-term amortization and the accessibility to clear the slums through local public agencies.

If they are given these tools, their rents will be the equal rent or less of the so-called economic rent of public housing, which is the basis of this argument that private enterprise cannot meet the rents. The theory that 500,000 houses will clear up this situation is false in my opinion; because, first, there it only scratches the surface of taking care of these people, and the people who are left are not being taken care of by public housing, and they must be taken care of at the present time in either public welfare or substandard housing.

If we clear up those substandard houses and we pour in new houses at the top level, which are economic to build, naturally the rents will be driven down, and as I pointed out, before today, the average median rent of the country is only $27.88. If the buildings were remodeled and cleaned up, 10 percent or 15 percent on that rent would still make a very nominal rent.

The public housers it must be remembered do not intend to house these people of this very lowest group, and they so state, as I pointed out before in this book, The Housing for the United States, by the National Association of Housing Officials, who are the people who are continually agitating for this. On page 19 they stated:

The rents in public housing have been set at levels that represent the rentpaying ability of families forced to live in substandard housing but who are assumed to be otherwise self-sufficient; it is the responsibility of welfare agencies to assume that families needing general assistance will be able to pay such rents. The other 5,500,000 people left over after these 500,000 units are built, that they have been talking about, are still going to have to be taken care of somehow. Under the system that is proposed here, we build 500,000 houses. We let these slums continue to deteriorate. Then they have to come back in a year or two and get enough for another 500,000, and the agitation goes on continuously until, as I pointed out, we house the whole lower third on tax-exempt subsizided projects, which are an enormous drain on the Treasury, and if we take out a third of our land from taxation, our whole financial structure will collapse, and in my judgment, and those that I represent, we feel that this is a danger that cannot be entered into.

In view of the fact that we have spent $800,000,000 for 155,000 units, and the slum situation was not at all cleared up, the performance has been very, very poor on the part of public housing in doing the job; why, we see no reason that this 500,000 units is going to accomplish anything, and the demand will be for more and more.

Mr. Nathan Strauss, in his book "The seven wonders of housing, states that it is the proposed program to house the lower third, and then when that is housed, the upper middle third will also request housing, and we go on like that.

I cannot conceive of the Federal Government embarking on a program of this type and going into something when it is admitted that the cost here is going to run upwards to $7,000,000,000 for this bill over the period of the life of it, and that that only scratches the surface, a minor surface. And if it continues on and on it will go up to something like $150,000,000,000, if this lower 6,000,000 people are housed, or 10,000,000, or whatever it is. That is your ultimate cost and the ultimate answer to this.

To substantiate again my contention that the low income groups are not housed, and that the cost of this scheme is tremendous as against our plan of this, the only cost is the write-down that will be given for the land, and then the cities, out of their taxes, due to increased taxes, will pay it off, and the public welfare will take care of the people who cannot afford to pay rent, which is not going to happen in any event, why, I want to ask Mr. Rufus Lusk to analyze the tendency towards public housing and also the cost.