« PreviousContinue »
in metropolitan districts of over 500,000, the median cost per room was only $714, which supports the treatment that this bill proposes. (See chart 17 which follows Mr. Klutznick's statement.)
Mr. KLUTZNICK. It is thus evident that the justification for the higher limitations for larger cities is equally applicable to smaller cities in large metropolitan districts. Accordingly, this section would make these higher limitations applicable not only to any city which itself has a population over 500,000, but also to any municipalities with a lesser population when they are located in metropolitan districts (as defined by the Bureau of the Census) with a population exceeding
Now, the second thing that this bill does is to eliminate the dwellingunit limitation. Presently there is a limitation of $4,000, as I have indicated, on the per-unit cost in communities under 500,000, and $5,000 in communities having a population of over 500,000. That is not working well. The dollar limitation on the cost of the entire dwelling unit has seriously hampered the provision of housing for larger-sized families of low income. Yet, low-income families with numerous children are most in need of public housing. I should like to illustrate by chart 18 what the effect of that limitation has been. Chart 18 discloses the size of dwellings that have been provided under the program up to now, and against the size of dwellings provided is a study of the size of dwellings that were needed. The first line indicates the percentage of one-bedroom units that were provided against those needed. The second line indicates the percentage of twobedroom units, three-, four-, five-, and six-bedroom units that were needed. The number of dwellings needed of a one-bedroom type, based upon the study of the communities' low-income families, was 30 percent. Actually the local authorities provided 31 percent. The number of two-bedroom units that were needed was 32 percent of the total; actually they provided 47 percent. The number of threebedroom units needed was 24 percent, but actually only 19 percent were provided. The number of four-bedroom units needed was 9 percent; actually only 3 percent were provided. The number of five-bedroom units needed was 3 percent, and they provided none. The number of six-bedroom units needed was 2 percent, and they provided none. Chart 18 also shows that an average of 1.95 bedrooms was provided in low-rent-housing projects, as against a demonstrated need for units averaging 2.28 bedrooms.
(See chart 18 which follows Mr. Klutznick's statement.)
Mr. KLUTZNICK. You might ask why that was done. There were a number of considerations, but the motivating consideration was this: In order to get within the unit cost limitation of $4,000 or $5,000, it was necessary to distort the number of bedroom units that were provided. The local authorities couldn't provide the larger size units because their unit cost would then exceed the statutory limitations. As a result, only one-third as many four-bedroom units as were needed, were provided, and public-housing agencies were unable to provide any five- or six-bedroom units for the small percentage of families who have so many children that they need this much room.
Now, the most interesting part of this discussion is perhaps disclosed by chart 19. One would think it is economy to have the $4,000 or $5,000 limitation on the cost of the dwelling unit. It has worked exactly the other way. Forced to this particular distortion,
the local authorities have provided more housing for smaller families, rather than for larger families. Interestingly enough, the total development cost per person housed, as would be expected, decreases as the size of the unit increases. Our study of prewar development costs discloses that the average capital cost of housing per person in a one-bedroom unit was $2,050; in a two-bedroom unit it dropped to $1,516, because you house 30 persons on the average in a twobedroom unit. In a three-bedroom unit, it dropped to $1,104, because you house 4.8 persons on the average. And in a six-bedroom unit, if the local authorities had been able to provide it, $664 would be the cost per person housed.
(See chart 19 which follows Mr. Klutznick's statement.)
Mr. KLUTZNICK. These unit cost limitations have not been an economy. They have actually encouraged and brought about a more costly practice, if followed to the ultimate conclusion, and they have resulted in discrimination against the families that need the larger units; that is, the families with the largest number of children. And this bill would correct that. Section 703 would meet this problem by eliminating the cost limitation on the dwelling unit as a whole, while retaining room cost and other cost limitations. This would enable local public agencies to meet the needs of larger families by having a unit size distribution related to the family size distribution of low-income families living in substandard houses.
Finally, this provision of the bill would correct another difficulty which is the one exception dealing with the matter of costs, as affected by the new cost levels. In the present act we are compelled, in applying the cost limitations to dwelling facilities, to include the cost of construction and equipment and overhead. We have to make a determination as to what these costs are, early in the game before the final costs can be determined. The costs of construction and equipment can be determined fairly reasonably at the time of awarding the principal construction contracts. Overhead presents a very difficult problem because it covers a carrying charge which is determined by the length of construction, which is again determined by the kind of contractor you get, the kind of weather you have, how the materials come to the job, and how labor comes to the job. Of course, that likewise affects the rest of the local authority's administrative overhead. It is proposed in this provision to eliminate overhead from the computation of dwelling cost, and to limit the application of the cost limitations to construction costs and costs of equipment of the dwellings. That will make it easier for us to determine statutory compliance. It would avoid the necessity for making allowances (which has been the practice under the present language) for anticipated overhead. It would also allow some additional flexibility in meeting cost limitations, at a time when costs are high. It would give us a little more latitude, about $74 per room.
That brings me to the final aspect of this discussion. We have not asked and are not presently inclined to ask for an increase in the room cost limitations, even though costs have gone up very high. Our reasons are simply these: First, we believe that costs will tend to stabilize, and today's costs may not turn out to be an appropriate index. Secondly, as you saw from these charts, there was some latitude, because while the local authorities could have built up to room costs of $1,000 or $1,250, they actually built up to about $829, and
tried to economize. We believe we can get the same unit, perhaps, with stabilized costs, under this bill, particularly if we get this additional $74 per room by eliminating overhead. I am not too sanguine about that. It may be necessary for us to come back later and say to you that cost levels have reached such a height that these limitations cannot be met.
Senator MITCHELL. Mr. Klutznick, generally construction costs in Washington State are lower than the rest of the country; is that not true?
Mr. KLUTZNICK. Well, not the rest of the country. There are some parts of the South where costs are lower than in Washington State.
Senator MITCHELL. The housing authority there has told me that they are not larger and they think they will have difficulty building with the $1,200 limitation.
Mr. KLUTZNICK. I think today it is quite certain it will be difficult because no one can determine what the costs will be when we really get into this building program. On the other hand, the housing authority may not have considered that under this bill the limitation is on room costs, not on unit costs; and secondly, the elimination of the overhead item will give them some flexibility. We think the best that they could count on is about a 19-percent increase in costs on present-sized units. If costs stabilize higher than that, and they had no latitude under cost limits in the past, they won't be able to build. You are quite right.
Now, the only other thing that this section of the bill does is to provide for a $1,750 per room limitation for Alaska, which we consider to be absolutely necessary, owing to the type of construction that must be used in that climate and the very high construction costs that prevail there. The differential provided is approximately in the same ratio as was prescribed by Congress with respect to war-housing cost limits in Alaska.
The amendments relating to cost limits would not change the present basic limitations on costs which are now a part of the United States Housing Act. The following cost limits would be in effect after the adoption of the amendments in section 703:⚫
(1) That the cost for construction and equipment shall not exceed $1,000 per room, except that in any city or metropolitan district with a population over 500,000, the cost for construction and equipment shall not exceed $1,250 per room (and, in the case of Alaska, $1,750 per room) if such higher cost per room is justified by reason of higher costs of labor and materials and other construction costs;
(2) That the projects are not to be of elaborate or expensive design or material and that economy will be promoted both in construction and administration; and
(3) That the average construction cost of the dwelling units in any project is not greater than the average construction cost of dwelling units currently produced by private enterprise in the locality or metropolitan area concerned.
That completes my discussion of the cost limitations.
(There was no response.)
LOCAL ENLISTMENT OF PRIVATE CAPITAL: SECTION 704
Mr. KLUTZNICK. Now, we come to section 704, which is a very vital section. It concerns a subject that we discussed in a very limited way yesterday afternoon, namely the enlistment of 100 percent private borrowing for purposes of this program. The purpose of section 704 is to make that possible. It would limit Federal capital assistance for low-rent housing primarily to the support of interim financing necessary prior to the issuance and sale of definitive bonds to private investors. With these amendments, it is believed that local authorities can borrow from private lenders virtually all the capital funds needed to finanec projects and that they can do so at low-interest rates.
This statement is not made in the form of a hopeful objective but, rather, as a conclusion from the experience which we have had over a period of several years. Moreover, we have consulted with underwriters and bankers and have been reasonably assured by them that such private financing will be available at low interest rates if these financing amendments are adopted.
I think as a preliminary to discussing the amendments in the bill, I should like to indicate to you what has actually happened on the financing front under this program. As you know, the original Wagner-Steagall Act made it possible for the USHA to make Federal loans of 90 percent on the total development cost of a project. Local agencies are required to raise at least 10 percent of the total project cost from non-Federal sources. It has been very interesting to note that despite that provision the agency has tried to enlist as much private capital as possible, and has tried to use the Federal lending power as sparingly as possible.
There has been a long period of development in which we have tried to develop a bond, in collaboration with others, and the private investors, that could be attractive to private capital. It has been a difficult and time-consuming task to develop a market for the new form of security represented by the bonds of local public agencies issued to finance projects aided by annual contributions. But we have succeeded. There is now a willingness on the part of investors to assume an increasing percentage of the financing at low interest rates.
Chart 20 is a summary indication of what has actually happened. In the locally owned projects that have been permanently financed, Federal financing has been used only to the extent of 62 percent, not 90 percent. Federal financing represents $284,000,000, whereas nonFederal financing has been used to the extent of 36 percent, or $163,000,000, with respect to $458,000.000 of projects permanently financed. (See chart 20 which follows Mr. Klutznick's statement.)
Mr. KLUTZNICK. On temporary financing, which represents about $243,000,000 of projects, most of which are Public Law 671 projects, we were able to develop a program under which almost all temporary financing at a low interest rate about one-half of 1 percent on the average was met through private sources instead of using Federal financing with higher interest rates. These short-term notes are secured by an FPHA agreement to loan funds to the extent needed. Thus, even in the field of interim financing where it has always been contemplated that FPHA would advance the funds until the projects
were ready for definitive financing, a method has been devised which makes it generally unnecessary for FPHA to make temporary loan advances. By assuring the local authorities of FPHA's readiness to make loans for interim financing, the local authorities have been able to borrow the money from private investors at interest rates representing only a small percentage of what FPHA would be required to charge. Necessarily and naturally this has made for economy by reducing carrying charges during the construction period. The total financing involved with respect to all the projects is $906,000,000, 42 percent of which has been Federal and 43 percent non-Federal, and 15 percent not yet advanced.
Now, chart 21 is an interesting illustration of what has happened since 1940 in the field of non-Federal financing. It shows that as financing markets have become better acquainted with this type of security, local authorities have been able to sell more of their bonds and to secure more advantageous terms in each successive year. For this reason, a number of original bond issues sold in the early years of the program have been refinanced on better terms.
At the bottom, in green, is illustrated that non-Federal financing in 1940 represented only 15 percent of the loans made in that year. In 1941 it dropped to 13 percent. In 1942 it ascended to 42 percent. In 1943 it went to 69 percent. In 1944 it went to 70 percent. And in one refinancing in 1945 the local authority achieved 100 percent private financing. But that was the New York City Housing Authority, the largest housing authority in the Nation. It was an exception that could not be repeated elsewhere except with the assistance that we seek in this bill. Such financing is not generally available without these amendments, because there are certain provisions in the present law which make it impossible for local public agencies throughout the country to sell 100 percent of their bond issues to private capital at reasonable interest rates.
During that same period of time the average final maturities of non-Federal financing represented by the blue line have gone from 18 years, in 1940 and 1941, to 36 years in 1942, to 42 years in 1943 and 1944, and reached 46 years in the New York City refinancing this year. The average interest rate in non-Federal financing has dropped from 2.61 in 1940 to 1.78 in 1944, and was 1.61 on the New York issues this year. There has been a steady drop of interest rates. except for one shift of two one-hundredths of a point between 1942 and 1943.
(See chart 21 which follows Mr. Klutznick's statement.) The CHAIRMAN. That is a good record.
Mr. KLUTZNICK. We are proud of that, very proud of it.
Chart 22 will illustrate what has been our big problem, one of the things we are attempting to cure here. There has been a widespread disparity in non-Federal financing. Many authorities, especially in smaller communities, have been able to sell bonds representing only 10 percent of their total financing, while other authorities have sold varying percentages up to 85 percent. There have also been great disparities in the interest rates in sales of bonds sold under similar market conditions. There has been a tendency for these bonds to take on the color of the community in which the local authority was located. For example, New York City has a widely accepted credit, so consequently they get low rates. Podunk has a bad credit, so,