Page images
PDF
EPUB

After all, the interest is now, as you point out, 6.5 percent or more, probably going to be higher.

Mr. FULLERTON. Are you separating the apartment projects? And I'm not thinking of individual housing now. Are you saying that one project will be 1 percent and another 2 percent?

Senator PROXMIRE. No, no. That's just what we don't want.
Mr. FULLERTON. Right.

Senator PROXMIRE. We want an inter-mixture. We don't want to have "ghettoized" segregation by income.

Mr. FULLERTON. I would be unfair, I would perform a disservice professionally if I did not posit that this will not happen.

The poor, the 1 percent people. We're talking about a $95 spread in the rents in a $17,000 unit. $95 is about our maximum rent for a twobedroom, air-conditioned apartment. We are talking about this kind of a spread.

So you are talking about really bringing $300- and $400-rental people to live where the debt service need is only $17 or $18.

Senator PROXMIRE. You are taking the extremes. You are taking some people who don't need any subsidy at all and some people who can only do it if they get the

Mr. FULLERTON. Isn't that the intent of the bill?

Senator PROXMIRE (continuing). Subsidy down to the 1 percent.

The intent of the bill is to provide various gradations. I presume everybody in these projects will get some degree of subsidy. We hope some will get only 1 percent, some will get 2, some 3, some 4. Well, some will have to get the 5 percent to bring it down to 1.

Mr. GUNTHER. Would not the 3 percent presently existing 221(d) (3), complemented with rent supplement, produce the identical situation that we are talking about here?

Senator PROXMIRE. No, no, no. I think part of the problem is this: A member of the staff points out that with the elderly we are talking about one- or two-person families.

Mr. GUNTHER. I'm talking about all of

Senator PROXMIRE. Obviously, you can house people in an apartment, in a unit, for a lot less if there is only one person or if there are only two people. One person can live in

Mr. FULLERTON. Not that much less.

Senator PROXMIRE. If you have children, a five-person, four-person, or six-person or eight-person family, you can't. You can't live inMr. GUNTHER. Senator, you don't build for any less money, no matter whether you are using 1 percent, 2 percent, or 10 percent. The cost of the structure would be the same.

Now, I contend that a 3-percent subsidized interest rate with rent supplement would create the same results as this bill we are discussing here. The only difference is that following my suggestion

Senator PROXMIRE. Well, it's a double subsidy. You said "with rent supplements." Sure. You have a 3-percent subsidized interest rate, and in addition you throw in rent supplements.

Mr. GUNTHER. Senator, we are just starting. It has only been a couple of years that we have had the 221 (d) (3).

I think Mr. Fullerton read in his testimony that in Newark, N.J., where I have done some work and am planning quite a bit more, that

a great many apartments under 221 (d) (3) have been approved but construction has not commenced as yet.

Here we are starting a program, and before the builders and the planners are able to put the spade in the ground, Washington begins talking about the "new program."

Every 2 years we get a new housing bill that completely defeats

Senator PROXMIRE. You make an excellent point. I think you have a very good point, and I think I would agree that the committee may want to take a good, long, hard look at whether they write off 202 or 221(d) (3). We want to keep them on the books, keep them funded, keep them operating until we find whether or not 236 can be practical and can work.

Mr. FULLERTON. Senator, as to that construction cost item, a nobedroom or one-bedroom apartment-the major part is obviously in the mechanicals, plumbing, and electrical and so forth. We are talking about a $15-per-square-foot construction cost there as compared with $5-per-square-foot construction cost in the bedrooms.

When you are adding bedrooms, you are adding the cheapest construction of all.

And then, over against that, in one FHA office, Tampa, where we are in the throes of (d) (3) application in behalf of the most worthy and able sponsor, we are discouraged from building larger than threebedroom apartments.

So that while the purchase is to house these desperately needy families and fatherless families-and I'm talking about the people that I deal with everyday.

I researched this need to where it becomes a personal thing almost. We are talking about seven and eight children in the family. And under BMIR or the market interest rate, rent supplement program we are discouraged from building larger than-well, they said, "Build all two- and three-bedroom apartments, for our experience is that those are the most easily marketed."

We need some no-bedroom apartments, and we need some six- and seven-bedroom apartments in order to house these people so that these sons and daughters of these families can sleep in different bedrooms. And if that's not the intent of 221(d)(3), I can't interpret the legislation.

But when we face it on a practical level at our own expense in behalf of these church groups, when we face it at the insuring office level, we are told, "Well, our business judgment is two and three bedrooms."

So the need goes flying out the window, and the intent of the legislation is completely aborted.

Senator PROXMIRE. I think you gentlemen made, as I say, a very strong presentation, and we appreciate it a great deal.

Mr. FULLERTON. I am very grateful for your time, sir.

Senator PROXMIRE. Thank you.

Our last witness-who was out of the room at the time so I said Mr. Fullerton would be our last witnesses-is Mr. Blue Carstenson of the Farmers Union.

Mr. Carstenson, as you know, the hour is late. We have business on the floor. But you go right ahead.

If you can abbreviate your statement, the entire statement will be printed.

STATEMENT OF BLUE CARSTENSON, ASSISTANT LEGISLATIVE DIRECTOR, FARMERS UNION

Mr. CARSTENSON. I would appreciate that very much, Senator. The reason we were late is that we just returned from our convention, and it has been rather hectic, with many surprise

Senator PROXMIRE. I notice the Secretary of Agriculture announced 90-percent price supports for milk.

Mr. CARSTENSON. Absolutely. This was a great announcement. Sentor PROXMIRE. As senior Senator from Wisconsin, it couldn't make me happier.

Mr. CARSTENSON. Senator, I would like to submit the testimony for the record and just highlight a few items out of it.

Senator PROXMIRE. Fine.

Mr. CARSTENSON. As you see from the testimony, FU convention passed a number of housing resolutions. I would like to just skim through the testimony.

I think one of our big concerns and continuing concerns is that in all the effort to do something about the problems of housing in the ghettos and the urban slums, and so on, that they don't make them any more attractive, because if they do they are going to continue to swamp the urban areas with rural refugees, and we hope some attention could be paid to the speeding up of the process of rural housing. We continue to be very happy that the rural community development district bill program is a part of this housing bill, and we hope that that will be continued.

We personally like the language in the Percy-Mondale version over and above the administration's. These are very minor things. It is just slight differences in wording giving a little clearer delegation to agriculture.

We have continued concern about high interest rates. And, frankly, we haven't figured out quite how that last increase in the discount rate what real relationship it had with the gold prices, except a psychological one. We wish they'd figure out some new way to deal with monetary policy than just one process of either tightening the money or increasing the discount rate.

And we hope that the Congress would give them some instructions one what new directions to take.

As you know, credit now is up to $50 billion a year in the farming area. I don't have to tell you this. But in talking with the farmers at our convention, the shortage of funds is serious, and it is going to continue to get more serious with the need for expanded loans and expanded development in our farm areas.

We feel that we should say once more that the direct loan programs are still the cheapest and are the best way, and we hope that someday they will be able to change the budgetary procedure so that loans will not be counted as expenditures.

However, we do feel that the abandonment of the sales participation principle is something that we had hoped that the Congress would have done before, but the feeling is apparent from the bill that the administration is abandoning this procedure in support of the interest subsidy which seems to be a much more direct way of handling the whole business.

If you are going to have to take it out of the budget, you might as well do it directly.

We would hope you would in the language of the bill put a few more safeguards or ways of insuring there isn't collusion between the builders and the banks in terms of the interest rates.

We are not sure we can see enough safeguards here so that there will be any incentive for the contractor to get loans at the lowest possible interest rate on the open market.

If some additional safeguards can be put in there, some watchdog procedure or something this way, I think this thing would go well. Senator PROXMIRE. Very good point. It hasn't been stressed by other witnesses. I'm glad you bring it up. It's something we have to look for. Any ideas you have on a specific amendment would be very welcome. Mr. CARSTENSON. I would like to take the opportunity to do that at a later point

Senator PROXMIRE. Very well.

Mr. CARSTENSON (continuing). When I can do a little bit more thinking and checking on a few ideas we have.

We did feel the Percy-Mondale bill was good in many respects, especially organizational format. However, the Administration's proposal of going down to 1 percent, of course, is much better.

We do feel that the Percy-Mondale bill, in calling for a self-help experimental program, was deficient in one respect, in that this gave the program to HUD. And, unfortunately, the experimental programs in HUD just simply don't get in to the rural areas.

We would hope that there would be a parellel experimental program in the rural areas through the Farmers Home Administration. I know that the Percy-Mondale bill only calls for a very small amount, I think $15 million, but there should be an equivalent kind of program in Farmers Home.

Senator PROXMIRE. Mondale's first name is Fritz. It's the Mondale bill.

Mr. CARSTENSON. We also felt it was good to keep the bipartisan approach on this. [Laughter.]

We have participated in the National Housing Conference, and we do support the general principles in the testimony by the Housing Conference, with the one exception concerning the elimination of the ceiling of FHA and the VA mortgages, which we think is just eliminating one more device which is used to hold down the interest ceiling.

We don't think taking it off will in the long run mean we are going to get more money for this. It is just going to continue to go up. On this point we agree with the AFL-CIO.

Senator PROXMIRE. Don't you recognize that you should get more money into housing? You see, the trouble is you don't keep the interest rate down by keeping the ceiling on. You increase the points. People aren't going to loan money for less because there is a ceiling.

What they will do is condition their investment on the ground that they get an effective interest rate which is the market interest rate. Why should they go to housing and loan at a lower rate when they can put it into something else, some kind of business loan, or a Federal investment and get a higher rate?

Mr. CARSTENSON. We realize this. The use of points is not good. On the other hand, every time the ceiling has been raised in the past it just meant a continued upward movement of the interest rate.

We are at this point at a 40-year high in interest rates.

Senator PROXMIRE. I think you are on absolutely sound ground when you talk about the discount rates having been increased because of international balance of payments problems. This is something many of us felt had to be done temporarily. We hope and pray they can bring it down as soon as possible. We know it is going to have a very unfortunate effect on housing.

Mr. CARSTENSON. Farmers too.

Senator PROXMIRE. But I don't see how an interest rate ceiling on the basis of our experience keeps interest rates for housing down.

Mr. CARSTENSON. Well, it has been. And I say that I am not sure it can keep them down. I think it helps. It is a psychological thing. The person then has to add points on top of it.

All I can say is that we are reluctant to see the ceiling go. Well, we would hope that the committee would perhaps take some other actions to see what else could be done to reduce interest rates.

Perhaps, we would agree to let them go off if the committee would take some other action.

Senator PROXMIRE. That's good. I think we ought to think much harder than we have on how to make funds available for housing. We can't insulate it from the rest of the monetary system, but we ought to provide that it doesn't get starved as it did in 1966, as it is likely to again this year, as interest rates may very well increase substantially higher than they are now.

As you say, they are the highest they have been in this century. Mr. CARSTENSON. Forty years. If you say this century, I'll take that. Senator PROXMIRE. Maybe they were higher in 1929, temporarily. Mr. CARSTENSON. Forty years anyway.

Senator PROXMIRE. Close to the highest in this century.

Mr. CARSTENSON. We would hope this committee would perhaps hold more hearings in the whole general field of interest rates and see what can be done.

Senator PROXMIRE. The Joint Economic Committee, of which I am chairman, is going to hold those hearings.

Mr. CARSTENSON. Very good. We would like the opportunity to testify.

There is one minor point in the resolutions that were passed that I would like to call to your attention that might open up a log jam that we have had in relationship to-well, it's on the page on revolutions on credit. It says that we urge the Congress to amend the Housing Act to provide that only new farm homes on the immediate lot, not to exceed 10 acres, would be encumbered in

Senator PROXMIRE. What paragraph is that?

Mr. CARSTENSON. This is on the page marked "Credit for rural housing." It is the sixth item.

We have come up here the last number of years and indicated 1-acre encumberment. When a person builds a home, a farm home, on a farmthis is on page 3, the sixth paragraph.

Senator PROXMIRE. Oh, yes. I see.

Mr. CARSTENSON. Today when a farmer, if he lives in town, builds a house on a lot, only that lot is encumbered and the house in encumbered. If he builds it on the farm, on the farm that he is operating, he has to encumber the whole farm, which means refinancing quite

« PreviousContinue »