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pay, or 2.6 percent ($2,600,000 on $100,000,000 projects); (bb) low-interest subsidies would equal the difference between what the Government would have to pay for the money it borrows to finance the projects-i, e., 2.75 percent-and the interest which the projects could pay (0.9 percent) which is 1.85 percent ($1,800,000).

VI. Private funds, however, might be largely used to finance public housing.

(a) With Government grants to bring down the average cost of money the private capital market can be largely drawn upon to help finance public projects.

(b) This can be done through: (1) The sale of bonds, and by (2) loans by insurance companies and other agencies.

(c) A concrete example is the pending demonstration proposal for financing the Queensbridge project of the New York City Housing Authority-45 percent by Government grant and 55 percent by private capital: (1) Total cost of project----

$15, 000, 000.00 (2) Federal grant (45 percent of cost).

16,500,000.00 (3) Three and one-half percent issue of Housing Authority

bonds secured by mortgage insured by F. H. A. to be marketed by a syndicate headed by Lehman Bros. (this offer has been made).

8,500,000.00 (4) Cost of land (per square foot)-

1. 10 (5) Rent per room per month, approximately.

8. 00 1 Requested.

If this bond issue should be successful, future issues could probably be marketed with a 3-percent coupon or less and somewhat lower expenses, so that a reduction in the rent of between 50 cents and $1 a room could be made in future projects financed in this way.

(d) It should be emphasized that this ratio of Government grant to private capital (45 to 55) does not permit rentals to get below $8, which is too high to meet the bulk of the need.

VII. If private funds are to be used for public housing, with rentals at $6 per room per month, the ratio of Government to private funds would have to be roughtly half and half—i. e., 52 (grants) to 48 (private funds).

(a) Assuming the typical urban conditions listed under Point V-a-1 the following division of Government grant and private borrowing is indicated on projects costing $100,000,000 : 1. Government grant.---

$52, 000, 000 2. Loan from private sources, at 3-percent interest.

48,000,000 (b) The following is a summary of the financial operating figures of $100,000,000 projects financed in this way (000,000's omitted): (1) Net income available for interest and amortization payments, 1.98 percent of $100 (see point V-a-4-(d))--

1. 14 (2) Interest on $18, at 3 percent.--

1. 44 (3) Amortization on $18, at 1.08 percent--

.52 (4) Total interest and amortization charges.

1. 96 (c) This loan-grant ratio would remain the same no matter how the costs of land, construction, and maintenance might vary, provided that rents were adjusted to meet these changes in costs: (1) For example, if land costs were reduced from $1.50, as assumed above (point V-d-1) to 50 cents, rents couid be reduced from $6 to $5.77, but if the costs were financed on a grant-and-loan basis the ratio would still be 52 to 48.

VIII. The proportion of private capital that can be drawn into public housing, however, will increase as the interest rate on loans is lowered.

(a) Because the net income of projects can service a larger private loan.

(0) The interest rate on low-rental housing bonds can be made to approxi. mate that of prime Government obligations through (1) insurance by Feneral, State, or city governments of mortgages on the projects of the authorities or, more simply, (2) by Government guarantees of interest and principal of such bonds as meet high standards of safety-a promising next step in housing finance which should be incorporated into legislation : (a) If conservatively administered such guarantees would seldom, if ever, require expenditures by the guaranteeing government.

IX. Low-rental public housing furnishes a self-liquidating investment of maximum safety and security.

(a) The demand for decent low-rental houses so far exceeds the supply that the vacancy ratio will approach zero for many years to come.

(6) Rents can be adjusted to meet the ups and downs of operating expense, making an effective guarantee of income.

(c) Loans can be secured by mortgages on projects.

X. The Federal Government should make substantial sums available over a period of years to responsible local agencies for projects that meet high technical and social standards, and should step into actual control of land acquisition, construction, or operation only when defaults occur on Federal obligations or standards are not fulfilled.

(a) Grave doubt exists as to the power of the Federal Government under the Constitution to condemn land for housing or to own and operate houses.

(6) On general principles housing is essentially a local affair about which local agencies are far better informed and which they are far better equipped to handle.

(c) Experience (New York City Housing Authority, etc.) has amply demonstrated that untold delays and confusion and duplication follow Federal Government control over local public-housing projects.

(d) In a period when the Federal Government must of necessity become increasingly dominant in economic affairs it is of even greater importance than ever to provide for the maximum amount of local autonomy.

(e) On the other hand, a broad program of Federal subsidies is aboslutely essential to stimulate local action and to maintain high and Nation-wide standards.

(f) Ample precedent exists for Federal grants on a large scale for useful local public works.

(1) The following such disbursements, made by the Federal Government in the fiscal year 1934 alone are examples : (a) Public highways, including Federal-aid advances to States. $267, 882, 000 (b) Rivers and harbors improvements--

72, 450,000 XI. The question of whether Federal subsidies should take the form of Government grants or nominal interest loans is highly technical and should be delegated to the Federal agency dealing with public housing.

(a) The following is a brief summary of some of the more obvious advantages and disadvantages of each form of subsidy :

(1) Financing through 100 percent Government loan:

(a) Advantages: (1) The entire outlay is eventually repaid; (2) the Government gets a small income each year-0.9 percent; and (3) the Government gets an asset to offset the liability incurred in raising the money.

(b) Disadvantages: (1) Almost twice as much cash must be raised at the start-with proportionate ill-effects in debt or tax increases; (2) if this money is raised by long-term Government borrowing the difference between 0.9 percent and the interest paid by the Government, say, 278, must be met in cash each year—which would be about 2 percent or $2,000,000 on $100,000,000.

(2) Financing partly by Government grants and partly by private funds :

(a) Advantages:(1) The Government has only about one-half as much money to lay out at the start-with proportionately less taxes and additions to Government debt; (2) no cash payments are required in subsequent years; and (3) public housing agencies are enabled to tap the private capital market directly.

(b) Disadvantages: (1) None of the money ever comes back to the Government-except indirectly through increased taxes. (See point XV.) (2) No assets are created on the books of the Government to offset the expenditures.

XII. Public agencies are now in existence and being set up through which a national public housing program can be undertaken in cooperation with the Federal Government.

(a) Local public housing "authorities” are rapidly being authorized in State laws and organized cities and States.

(b) These are municipal or State government agencies empowered :

(1) To purchase or obtain by condemnation existing slum properties; (2) to demolish existing tenements; (3) to construct new sanitary fireproof dwellings ; (4) to operate the properties and rent rooms to the public; (5) to finance these operations.

(c) At present the following 20 States and the District of Columbia have passed such laws: Alabama, California, Colorado, Delaware, Illinois, Kentucky, Maryland, Massachusetts, Michigan, Minnesota, Nebraska, New Jersey, New

York, North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina, Tennessee, West Virginia.

(d) The following are among the authorities or commissions which have been organized to date : Los Angeles, Calif.; District of Columbia ; East St. Louis, Ill.; St. Clair, Ill. ; Covington, Ky. ; Lexington, Ky.; Maryland State; Detroit, Mich. ; New Jersey State; Amsterdam, N. Y.; Buffalo, N. Y.; Lackawanna, N. Y.; New York City, N. Y.; Port Jervis, N. J.; Schnectady, N. Y.; Syracuse, N. Y. ; Yonkers, N. Y.; Cincinnati, Ohio.; Cleveland, Ohio; Columbus, Ohio ; Dayton, Ohio; Toledo, Ohio; Warren, Ohio; Youngstown, Ohio; Columbia, S. C.; Memphis, Tenn. ; Milwaukee, Wis.

(e) A strong Federal program of research, standards and financial assistance to local public housing authorities would greatly stimulate their further organization so that many large cities would be prepared to carry out this development within the next year.

XIII. The extent of Federal low-rental housing financing should be governed by the number of competent local public housing agencies and the volume of their projects which fulfill Federal standards.

(a) This would mean relatively small Federal commitments during the year 1936, but substantially increasing thereafter with the growth of local authorities and their activities.

XIV. A comprehensive slum clearance and rebuilding program is not only essential for the health, welfare, and morals of the American people, but it would be a marked stimulant to economic recovery and employment-where it is needed most.

(a) As an example the following figures show the social and economic consequences of rebuilding the 13 districts in New York City which have been designated by the New York City Housing Authority as slums:

(1) Total area, square miles.

9. 2 (2) Total number of blocks.

1, 700 (3) Number of building trades workers given 6 months' employment

720,000 (4) Total cost of operations.

$2, 120, 000, 000 (5) Wages to these workers_

$827,000,000 (6) Increased business for materials and equipment industries, $1, 132, 400,000 (7) Increased business for local retail trade, landlords, and service companies_

$827,000,000 (b) In addition the direct purchases of materials and equipment for housing projects would in turn stimulate a wide range of raw material, producers' goods and transportation industries, and retail trade as well, with consequent increases in employment, the precise measure of which it is impossible to take.

(c) The long-range magnitude of a comprehensive low-rental housing program is indicated by the estimated cost of rebuilding the slum areas of the 93 urban centers of over 100,000 population, $67,500,000,000.

XV. Even outright grants of Federal funds will bring a substantial return to the Federal Government in increased revenues.

(a) As shown above every dollar put into housing construction starts a beneficent circle of economic and trade activity which

(b) Increases the taxes received by the Government.

XVI. Public low-rental housing does not compete with private initiative and operation in the real-estate field.

(a) As has been pointed out above, private capital cannot and will not furnish new dwellings for the great majority of American families who cannot afford to pay more than an average of $5 to $6 per room per month.

(b) Nor does public housing, when built, compete with existing properties.

(1) Limits can and should be placed upon the income of applicants and tenants-i. e., only those accepted and retained whose income is below a certain figure; (a) this will prevent occupants of more expensive houses from moving into the public projects.

(2) If new public housing construction should be correlated with slum clearance there would not even be competition with existing tenement properties; (a) the balance between the demand for and the supply of $6 per room per month accommodations would not be disturbed and yet (b) the slum buildings would be increasingly eliminated.

XVII. Public low-rental housing, financed by a combination of public funds and private capital, is one of the great developments in American economic life calling for decisive action in the 1936 session of Congress.

The CHAIRMAN. The next witness is Mr. Stern.



The CHAIRMAN. Will you state your full name for the record ?
Mr. STERN. Alfred K. Stern.
The CHAIRMAN. What is your residence?
Mr. STERN. Highland Park, Ill.

The CHAIRMAN. You are chairman of the Illinois State Housing Board ?

Mr. STERN. That is right.
The CHAIRMAN. How long have you held that position?
Mr. STERN. For about 3 years.
The CHAIRMAN. We will be glad to have your views.

Mr. STERN. Mr. Chairman, and members of the committee, I have been interested in housing, as the name has been currently used, for a good many years, about 10 years.

I first want to give you a few of my connections, so that you will understand why I am here. In addition to being chairman of the Illinois State Housing Board, I am president of the Michigan Boulevard Garden Apartments, which is a housing corporation in which Negroes live in Chicago, at moderate rentals; I am vice president of the National Association of Housing Officials; and I am interested not in an amateurish fashion in the housing subject but in a professional sense and practical way.

I have carefully studied the housing bill known as S. 4424, and I think it is an excellently drafted, remarkably well thought-through bill. I think we can be very proud, those of us interested in this work, to get behind a bill of this type. It has not been rushed out it has been carefully thought out, and, as I said before, one of the best drafted pieces of legislation it has been my privilege to back in the housing field.

I am not going to discuss the social aspects, or the statistical factors that people bring to bear on this question, but rather the financial and business aspects.

The Michigan Boulevard Garden Apartment is a project Mr, Julius Rosenwald financed 7 years ago. It has operated through this depression and we think it has shown as good a record from a business point of view as one could expect. It has shown the limitations, as well as the advantages, of low-rent housing.

We have shown during the 6 years of operation an average of a little less than 3 percent net return on the total capital invested, and the rents have not been low, but as much as the traffic would bear. This is a business undertaking. I am mentioning this to show the limitations of private capital in this field without a subsidy, both on the basis of the return on the investment and the possible rentals that can be secured.

Some of the alternatives to this would be, in my assumption, a substantial reduction in building cost and land values, and provision of a subsidy to be paid in the form of relief payments to tenants, which has been mentioned, or outright grants in lump sums over a a period of years, as provided by this bill.

To take the first point, the matter of the reduction of building costs and land values, there is practically no immediate prospect, in my opinion, of any substantial reduction in building costs or land values, if you want to give people a decent place to live that will last over a reasonable period of time.

There has been a recent statement by the Federal Housing Administration that they are going to be able to produce a $1,200 house, but I personally think that is a preposterous statement for a reasonable governmental agency to make.

The CHAIRMAN. I do not think they have made it before this committee.

Mr. STERN. No, Mr. Chairman, it was stated publicly, and has not been denied. It has been published in the papers generally.

The CHAIRMAN. I think we would all like to know how they are going to do it, don't you?

Mr. STERN. Very definitely. They can only build paper houses, that will blow away in a couple of years.

The CHAIRMAN. Senator Wagner, I might say, that somebody called me from the Federal Housing Administration yesterday; that is, the branch that finances the building of houses, presided over by Mr. McDonald. He wanted me to go over to Virginia, across the Potomac River, to visit some homes that have been built, the suggestion being that they had succeeded in stimulating private building by insuring loans made through that department of the Federal Housing Administration.

Mr. STERN. They have talked a lot and written a great deal about low-cost housing projects.

The CHAIRMAN. I am not speaking about housing under Mr. Ickes’ administration.

Mr. STERN. I know; I am talking about the F. H. A. as well.

The CHAIRMAN. There are so many agencies in existence that we must be careful to keep them separated.

Senator WAGNER. You cannot build houses for the low-income group, but that would be more for the five or six thousand dollar homes.

· Mr. STERN. That is correct, but they propose that they can build a house for $1,200, and I think it is a preposterous statement.

I have studied the prefabricated field only very recently, as I am interested in a company that has studied the possibility of prefabricated houses. That field so far has been purely experimental; while it may well be the hope for the future, they have not anything they can point to with any assurance with which they meet the present need.

We have heard a great deal about the automobile age of housing, but we have not been able to develop it, because, unfortunately, this is even a more complicated problem we are dealing with than the production and distribution of the automobile.

Senator WAGNER. I do not suppose that anybody who had discussed housing would suggest that the Government subsidy should be given in any way except to the low-income group, and private industry cannot supply houses that will house them decently, and it is that element that we suggest the Government subsidy for. When it comes to the others, the Government may stimulate build

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