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Senator BANKHEAD. What do you mean by saying sales are good? Mr. CARSON. The volume is good. Sales are active. That was shown by the last survey made by the National Association of Real Estate Boards. All reports we can get from our areas show that.

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Senator BUCK. Are many reasonably large properties being sold, except in the case of settlement of estates?

Mr. CARSON. The next chart, I think, Senator, will give you some clue to the state of the present market. It is an index of Federal Home Loan Bank Board on the new mortgage loans for home purchases. This black line is the trend line, and these are the monthly fluctuations. With respect to sales generally, I do not think anyone in the business now would say that sales in these defense-rental areas are anything other than good. Every indication that we can get—

5,000

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NEW MORTGAGE LOANS FOR HOME PURCHASE MADE BY ALL BUILDING AND LOAN ASSOCIATIONS

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Senator BANKHEAD. That is due likely to the demand for houses in

defense areas. A surplus of people requires lots of houses.

Mr. CARSON. That is one of the causes. Some of it is caused by hedging. Some of it is caused by investment buying. Sales are generally good, and in fact, some people have been fearful about the situation becoming too active and inflationary in character.

Senator BUCK. You do not exercise any control over sales prices, do you? Mr. CARSON. No, sir.

Senator BUCK. That is regulated perhaps by rental price. Mr. CARSON. To my knowledge, there is no control on sales prices of real estate, Senator.

Senator Buck. It is indirectly regulated by the control you have

ever rents.

Mr. CARSON. That would be particularly true in the matter of apartment buildings. In my judgment rent control in that respect has had a stabilizing effect on values.

Mr. Long has called my attention to something I should have caught. It is that the 3-percent return, Senator, is not the rate of return on the owner's equity. It would be more than 3 percent. These properties on the average are mortgaged, so the 3 percent would be

Mr. NORTON E. LONG (Acting Chief, program and analysis branch). Only on the sale value.

Mr. CARSON. On the sale value not the owner's equity. Senator BARKLEY. Do you mean that you would not consider the mortgage as a part of the basis upon which the 3 percent is calculated? Mr. CARSON. In arriving at the owner's net income; yes, sir.

Senator BARKLEY. Let us suppose that a $100,000 building has a $50,000 mortgage on it. Your 3 percent is based upon the $100,000 or upon the $50,000?

Mr. CARSON. I did not get that question.

Senator BARKLEY. Is your 3 percent based upon the entire value of the property, $100,000, we will say, or is it based upon his equity, which would be only $50,000.

Mr. LONG. Senator, the misapprehension was, I think, that we failed to bring out that the net income is after the interest payment on the mortgage. So that the net income on the owner's equity would be much higher than 3 percent. I mean the mistake was that the inference was drawn that the net income was on the current sales value of the property. These properties are generally mortgaged, and that income is after the payment of interest on the mortgage on the property. So, in fact, if you figured it on the owner's equity you would get a higher return than 3 percent.

Senator BANKHEAD. What is your basis of separating the mortgage? How do you figure the amount of the mortgage?

Mr. LONG. The calculation on that is made up on the basis of interest and depreciation figures.

Mr. CARSON. This last chart is a very interesting one because it shows the reduction in the "overhang" of distressed properties owned by financial institutions. This trend shown here has been very substantial, and I know that from my own experience.

By way of summary, all the studies and surveys and information we can get disclose very effectively that rent control has not impaired the real-estate business or been a hardship upon business as a whole. Personally, one of the keen interests I have in this operation comes about from over 12 years' experience in handling foreclosed properties. Back in the twenties, mortgages were generally based on inflationary values and inflationary income statements. My experience was in Chicago. I do not know how high the percentage of mortgage-bond issues in Chicago that went in default was, but I would guess that it was pretty close to 90.

Effective control of inflationary rental trends, I believe, will go a long way toward preventing such a general collapse of our mortgage structure as took place in the early thirties, and should enable real estate to come out of this emergency in a much more stable condition than was true after the inflationary period which followed World War No. 1. In fact, I think that the business has more than a fair

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INCLUDES SAVINGS AND LOAN ASSOCIATIONS, MUTUAL SAVINGS BANKS, COMMERCIAL BANKS,
LIFE INSURANCE COMPANIES, AND HOME OWNERS' LOAN CORPORATION

SOURCE: Federal Home Lean Bank Administration

OFFICE OF PRICE ADMINISTRATION
RENT DEPARTMENT

opportunity to come out of the emergency in a stable and sound condition.

It is extremely important that effective rent control be maintained in this emergency if our efforts to maintain a stable economy are to succeed. This is true because rent makes up almost 20 percent of the cost of living. The relationship between rent and wages is therfore perfectly obvious, and we should keep in mind that a large portion of our people are living on fixed incomes and have not benefited by increased earnings. As heads of families are called into the service this number will increase. Rent increases to service families living on allotments and to thousands in the fixed-income group would be nothing short of tragic.

Rent control is playing another important role in this period by stabilizing tenancy in our crowded war-production centers. Skyrocketing rents and unwarranted evictions contribute to unsettled conditions, labor turn-over, absenteeism, and hardship to our service people and their families. This is attested to by letters we have received from many plant managers and officials of the Army and Navy.

Senator BANKHEAD (presiding). Well, I guess that is all for today. The committee will now recess until 10: 30 next Tuesday morning. (Thereupon, at 12:20 p. m. Friday, March 17, 1944, the committee recessed until 10:30 a. m. Tuesday, March 21, 1944.)

SUPPLEMENTARY MATERIAL SUBMITTED BY MR. IVAN D. CARSON, DEPUTY ADMINISTRATOR FOR RENT, OFFICE OF PRICE ADMINISTRATION

The Office of Price Administration has received a large number of letters from plant managers and officials of the Army and Navy and Marine Corps, showing that rent control has been effective in helping maintain peak production in war industries and has kept rents in crowded service centers within the reach of personnel, thereby helping to stabilize conditions and maintain good morale.

The following are illustrative of statements and letters received from war Industries and officials of military and naval establishments and other interested parties:

FROM WAR INDUSTRIES

B. B. Mangum, personnel director, Wright's Automatic Machinery Co., Durham, N. C.:

"This letter is written with reference to the rent-control program which has been in effect in this community for some time.

"We wish to take this opportunity to say that in our opinion the rent-control program has been of great benefit to all citizens, especially tenants in this city. As an employer of more than 1,000 essential war workers, we have first-hand knowledge that without this program the great number of skilled mechanics, which it was necessary for us to bring in from other communities, would have suffered considerably at the hand of unscrupulous landlords.

"We wish to commend you and the entire program for its effectiveness, and we hope that this program can be continued certainly during the entire period of this great emergency in our country."

Mason & Hanger Co.; Badger Ordnance Works, Baraboo, Wis.: "By control of rents you have, in a great measure, guaranteed a successful completion of this project.

"I want you to know that it is appreciated more than I can tell you." Bath Iron Works Corporation, Bath, Maine:

"With the city of Bath having recently been declared a 'critical area' in the matter of labor shortage, by the War Manpower Commission, we must, of course, rely more and more upon your office.

"Considering that our personnel is now approaching the 12,000 mark, in a city that has a normal population of but little more than 9,000, rent control is an all-important matter and, we are certain that, to date, you and your Office has assisted no end in keeping our employees on the job. All of which means production and has played a vital part in enabling us to maintain the terrific pace we now are setting in the construction of destroyers for the United States Navy. "Federal surveys had established, as you are well aware, that prior to the event of rent control here, rental charges had soared to exorbitant heights and this, in turn, brought about considerable unrest and discontent among certain of our employees, many of whom were holding key positions.

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