ing, as the Federal Housing Bureau is doing, by mortgages and other methods of securing the money.

Mr. STERN. I am not speaking against providing houses for people of higher income, if they can secure them without subsidy. Senator WAGNER. You and I agree on that proposition.

Mr. STERN. Yes; and I think we are considering an issue which we ought to minimize in its possibilities.

The CHAIRMAN. I am afraid I am responsible for bringing up this question by illustration of what happened yesterday.

Senator WAGNER. No; there are some who contend that is the way to do it, then let the slum dwellers go into the homes that the betterto-do people lived in before.

Mr. STERN. That is a lovely theory if it would work, but I do not see how it can.

To touch on the Federal Housing Administration further, Mr. Chairman, they have issued a great many statements in which they claim that low-rent housing can be provided through their insurance loans. They have not succeeded in doing anything of any consequence, and this recent statement seems to be an attempt to justify the previous claims on a fallacious basis. I think I have covered that point sufficiently, and I just wanted to emphasize it.

The CHAIRMAN. Certainly their records to date indicate that they have completely failed in their effort to provide housing for the underprivileged classes at reasonable rentals; isn't that true?

Mr. STERN. Yes, very definitely. I mentioned in the beginning that there were two possible alternatives, one being the possibility of reducing building costs and land value. Do not misunderstand me, I think everything should be done in that direction that is possible, but we should not wait for some Utopia to arrive.

The provision of rent subsidies has been proposed by others, and it has been used in one or two European countries in the way of relief payments, but that, in this country, we are not in a position to consider.

In my estimation we have, with our present relief load an inadequate administration of relief, and I think this burden has not yet been properly adjusted. It is not practical to consider that form of subsidy. Therefore the most logical basis of subsidy is that provided by this bill, which as I understand it, allows for either an outright grant in the beginning or over a period of years.

That allows the greatest control, as well as the prospect of bringing in outside capital, which I want to emphasize very definitely.

I was talking with some investment bankers recently, and they are very much in favor of using this legislation, if it is passed, to bring in a great deal of private capital, into the field of real low-rent housing.

It is difficult now to find securities that private capital be invested where they are not already appreciated and where the interest rate is very nominal. This bill should really be of a great value from an investor's point of view.

Senator WAGNER. A banker testified yesterday he thought it would be a field where private money would invest.

Mr. STERN. Maybe I ought not to take up too much time in this

matter.

Senator WAGNER. No; I think we want you to give us your views. Mr. STERN. In the first place, the limitations which should be made here are these, in the opinion of this investment banker:

They should carry an interest rate in conformity with prevailing interest rates on secure obligation. It should be the object of this financing to assimilate the interest grade on high-grade municipal bonds.

There should be proper protective features in bond indentures to guard the investor against mismanagement. In this connection it should be pointed out that the availability of F. H. A. insurance offers a strong protection.

There must be assurance of nonpartisan, efficient management of projects following their construction. The selection of the members of the Board of the United States Housing Authority-other than the Secretary of the Interior who is ex officio a member-as well as the caliber of the members of the board of the Municipal Housing Authority, will determine to a large extent the attitude of investment bankers and investors toward the securities which may be issued against such projects.

From the standpoint of the security of the bonds which may be issued against large-scale housing projects, it should be pointed out that a grant up to 45 percent offers a cushion much larger than the equity usually existent under ordinary real-estate financing.

In this connection it should be noted that bond issues on such large scale low-rent housing can contain indenture provisions requiring the individual projects to set rent scales at a point sufficient to cover interest and sinking-fund requirement. Such a provision does not operate to reduce the available tenancy. As a matter of fact, one feature of important investment strength in such a bond lies in the large group of people who are anxious to obtain the contemplated accommodations at the available rentals.

At the present time the assembly of funds for ordinary real-estate financing is limited by the relatively high degree of risk involved in any such securities.

The passage of the proposed bill and the attendant development of security issues on large scale housing projects should over a period of time indicate the opportunity in this market for safe investment. As that opportunity is realized, it should have the effect of permitting the reduction of the size of the subsidy without limiting the security behind such investments.

In other words, as these authorities show their capacity, and they work out their management problems, there is no reason why bond issues cannot be made in the future on a smaller basis of subsidy than the maximum provided by this bill. I think this is a very important factor to be considered.

I would like to emphasize another that seems to me to be an important factor in regard to this legislation. That is the possibility of further demonstration in the way of the development of real estate in this country. We have had a few examples scattered over the country, I will admit, indicating the possibilities of these community housing projects showing the difficulties of accumulation of land. the problem of securing large amounts of private capital invested in this type of property. This has not been seriously considered as the accepted method of real-estate development.

The real-estate fraternity, in my judgment, can learn a great deal from large-scale housing projects. The small house on a lot, disassociated from other buildings, is something we have to learn the weakness of.

In other countries, in Holland particularly, the low-rent type of house has had a definite influence on the methods used by private interests without any governmental backing at all. I believe, as I can point out from our project in Chicago which we have operated for the last 6 years that within a limited area we have had a real influence on the thinking of real-estate interests as to this type of community project.

We have got to squeeze out the speculative interest in real estate to a greater degree. Real estate has got to have a different interpretation in this country if we are ever going to secure investment capital that is going to expect a steady and long-term secured investment.

I think the real-estate interests by their lack of conscientiousness and in thinking only of the immediate speculative value of their development, could take a real lesson from what has been already accomplished to a limited degree in this country. The Government, in my estimation, is the only agency possible to take this leadership.

In bringing into these projects private capital, this legislation should provide a real demonstration for private interests where there is no governmental capital or subsidy involved. As previously mentioned, the F. H. A. has been unable to picture this demonstration with the present adverse conditions.

One can argue that we have always had, and we will continue to have the poor. But to permit the continued deterioration of buildings and lands, as well as disintegration of people living in the slum areas means, I would like to point out, means complete neglect of a tremendous tax levy that is being levied against the rest of urban communities.

This type of disinterest is not going to get us anywhere in any procedure that is reasonably sound to solve the problem involved. The minimum amount of capital provided through the Wagner bill will subsidize only a small proportion of those living in the deteriorated areas. To this extent the bill is practical, rather than setting an unachievable objective.

We have heard so much talk about the millions of houses that are necessary to be replaced, and I have been one of those who has written on the subject, and we have heard about the billions of dollars required. If we are going to begin to correct these conditions we have got to develop practical mechanisms established in this country-governmental agencies that are responsible-before we can get very far.

Senator WAGNER. Mr. Stern, have you studied the European housing?

Mr. STERN. Not in the last couple of years, but I have been over there a number of times.

Senator WAGNER. You know enough about it to know they are far ahead of us?

Mr. STERN. Tremendously. I know that in England, Scandinavian countries, Holland, and elsewhere they are far ahead of us.

Of course, there are those who will say if you are going to subsidize one group of families we must subsidize all of them. I will admit that those who live in these projects will be subsidized to a greater extent than those unfortunate people in other poor quarters. These quarters will serve largely as demonstrations as mentioned above. In my opinion, under well-conceived and operated administration, which we are so much in need of, the projects should bring private capital in, and will bring new capital into a stabilized realestate market. Still new quarters to the extent we are able to finance them through this legislation, will provide improvement in our present conditions.

At present, I would like to point out, our relief structure provides an annual subsidy of a very substantial amount to those on relief. While these rent payments do not provide those who live in the houses with decent living conditions, we are subsidizing in this regard sometimes the worst element in our whole real-estate fraternity, and those who ought not be given the money to maintain the miserable quarters in which they permit people to live.

While, of course, we cannot solve all or even a large part of the unemployment problem or the economic maladjustments through this bill with its present financial provisions, or even if it was a hundred times what it now provides, still if it is adequately administered it will unquestionably have a large effect in stimulating employment and production in the heavy industries, which is the only real hope of overcoming unemployment still prevailing in this country.

I would like to mention what in my estimation are the practical advantages in this separate housing authority which is proposed in the bill.

The Public Works Administration has made a valiant effort to get some jobs under way, and they have run into all types of barriers and red tape. The P. W. A. housing division has been buried in a large organization where the Secretary of the Interior is already overburdened with responsibilities of the administration of a large department. I strongly urge a separate authority. A separate board should bring this program into the limelight, in a sense, and put emphasis on low-rent housing.

This board will pass upon, as I understand its functions, policies of a financial nature as well as administration, and on the problem of decentralization.

I believe there is reason, at this point in our country, that there be a separate entity, and not buried, as I said, in one department where the Secretary is already overburdened. If at a later date it would seem advantageous to bring the authority into a department when we have methods worked out, where we have experience, that, I should think, could always be done.

There are other phases of this type of housing that can be combined in such a separate authority for the time being, or as time goes on, which I would like to mention. The real property inventory is an essential factor in knowing housing conditions in this country. This has been in the Department of Commerce.

The Resettlement Housing activities could be combined in time, as that is a temporary agency. It might be placed under such a board as this in this bill.

The other point I would like to mention, and this is my final point, I have followed this housing program of this administration, as well as the previous administration, very carefully. My primary interest has been in housing for the lower income group but on a nonpartisan basis.

The housing program of this Administration has had fine objectives, but has had, unfortunately, either an involved or incompetent administration. At this point I would like to mention for the record that I plan to vote for President Roosevelt in the coming election. I still maintain what I have just said. There has also been a great deal of competition between the different housing agencies. As the chairman has pointed out, the F. H. A., the P. W. A., the Resettlement Housing Administration, the R. F. C., and the home-loan bank have all shot out in their different directions trying to encompass the whole field of housing.

I think this bill should eliminate a considerable part of that existing competition which, unfortunately, prevails to even too great a degree today.

I think the President has got to take a hand in this situation. It is an administrative problem as well as a legislative one. I think he should recognize what the facts are, what the problem is, and, it seems to me, to take a firm position.

After all, we are all brothers at heart, and we would like to work together in harmony, but we have different ideas of what should be done and what we would like to have, and we cannot usually have harmony. Even in this administration it cannot always have harmony. I think the President has got to show the kind of courage he has many times shown before. He should not allow himself to be duped by any friends he may have now running one or the other of the agencies, but recognize what the problem is, what the logical methods are for obtaining an objective, and in a businesslike way set up agencies here and encourage competent local agencies to attempt to get housing for the low-income group upon a firm administrative basis that will give us in this country opportunity to view this work, view its possibilities, and bring us closer to a solution of this problem.

The CHAIRMAN. Thank you, Mr. Davis.

STATEMENT OF J. DAVID STERN, PUBLISHER, PHILADELPHIA RECORD AND NEW YORK EVENING POST

The CHAIRMAN. Your full name is J. David Stern?

Mr. STERN. Yes, sir.

The CHAIRMAN. You are publisher of the Philadelphia Record and the New York Evening Post?

Mr. STERN. That is correct.

The CHAIRMAN. Where is your residence?

Mr. STERN. Haddonfield, N. J.

The CHAIRMAN. The committee will be pleased to have your views on this purported legislation.

Mr. STERN. How do I like the Wagner bill?

Fine.

Let's have a half dozen Wagner housing bills all put in operation at the same time to make an adequate start toward rehousing Amer