reserves to compensate for the decline in the rate of interest. The rate would be high enough to permit the investment of these funds to provide an income which would be sufficient to meet the reserves on the higher rate. Accordingly, that figure would probably rise to somewhere in the vicinity of $100,000,000 or more. If this same ratio existed or applied to all the insurance companies in the country the amount available for additional dividends would probably run to $430,000,000; and with an interest rate 1 percent higher the cost of security would be reduced by substantially the same amount.

Now, this decline in the interest rate is not just a temporary or passing sort of a phenomenon.

Senator MITCHELL. You are talking about the over-all condition in housing's effect on interest.

Mr. DOUGLAS. Not yet. No. No. It is not just a temporary, passing, or whimsical thing we have to deal with. It is a permanent thing. It stretches far forward into the future. Life insurance contracts extend away on for decades, in many cases for more than three-quar ters of a century, and the reserves held against them remain large. These reserves on business now on our books will continue for a long period to represent the major portion of the life insurance company obligations. Because of the fact that beneficiaries under the existing policies talking now only about existing policies-usually have the right to take the proceeds of their policy in the form of an annuity or interest on the sum left on deposit, these obligations will extend well into the twenty-first century. Life insurance companies, accordingly, make long-term investments, because it is a long-term business and so the prevailing low rates will be projected forward for a protracted period of time.

In the company of which I am president there will still be funds. requiring interest in the year 2000, resulting from the insurance in force outstanding at the present time.

This chart here reveals the reserves on existing business; they rise to the period 1950 and then don't run off until well into the twentyfirst century. So that the consequences of what has happened in the last 10 years will be felt for a long, long, long period of time. They will be projected forward through several generations, and that is quite a significant fact. If we could change it today-but we cannot change it; there is nothing that will allow us to change it

Senator MITCHELL. But the effect of housing itself is going to be projected through the following generations?

Mr. DOUGLAS. I am sorry you were not here, Senator, when I opened, because I think I have stressed the significance of housing to the American people. I think it is a vital thing. Please don't misunderstand me.

Senator MITCHELL. I had to catch up with your statement-
Mr. DOUGLAS. I have no written prepared statement.

Senator MITCHELL. I noticed your news release here and in that you mentioned the extension of the mortgage maturity and say that actually increases the cost.

Mr. DOUGLAS. Yes; I have a chart to show that, Senator.

Senator MITCHELL. Wouldn't the extension allow also the reduction of the monthly cost and the equipment of the house, thereby making for greater home ownership and therefore greater stability?

Mr. DOUGLAS. I am not at all certain. I will come to that point. I have a chart on that, Senator, I would like to discuss with you. Senator MITCHELL. All right.

Senator MURDOCK. All the charts that can be put in the record are supposed to be included, aren't they?

Mr. DOUGLAS. If I may, Mr. Chairman. I hope these graphic representations have revealed the truth of the conclusion that interest is of vital significance to the cost of security, and will have demonstrated the real meaning of interest rates at least in part-to this extraordinarily large group of American citizens.

The question I want to put before you, if I may, is whether as a result of the serious consequences that have already been caused by the reduction in the interest rate for this predominant part of the American population, and the more serious consequences for future generations by reason of the running off of investments made at the higher rates, there will be any contribution of significance to the objective of providing good quality housing at reasonable prices obtained by the further reduction of the interest rate which this bill encourages.

Now, the housing problem consists, I think, of two parts. There is the immediate one, and that is a matter of emergency manipulationdoing everything that can conceivably be done for the purpose of meeting the present shortage, which as I have indicated before, is about to produce much more than a very irritating inconvenience to a large part of the population. Building supplies, labor in the factories that produce building supplies, and, of much less importance, construction organizations and site labor, are the factors which limit our ability to increase the supply of suitable housing facilities. There are no other limiting factors. There is an ample supply of credit; indeed, there is an ample supply of everything else that affects housing.

These financial devices which the bill carries-that is, lower interest rates and the extended period of amortization-will provide or produce, I think, two results that you probably don't want to produce. The first follows from what I have presented to the committee; that is, to damage further the personal security of 60 to 70 million people, 74 percent of all the families of the country, by making life insurance more expensive and putting further serious pressure on the institutions that provide it. I am not exaggerating that pressure. It is a matter of public interest. I don't want to be in the position of spe cial pleader for a small group. The pressure that this interest rate puts on life insurance companies is, I believe sincerely, a matter of high public interest.

The second thing this bill will do, I believe-and this is perhaps more a matter of opinion than it is a matter of fact-will be to make housing more expensive for the returning veteran and the American people generally, and cause their financial burdens to increase. I would like to talk to this thought for a minute, if I may.

This latter results because, through making credit easier, the bidding for the limited supply of housing is made more spirited. Prices of houses and rentals, already at a high level, will thus be driven higher. We see that in our present mortgage situation. We see the rise in prices and we see the refinancing of our mortgages. We have seen the manifestation of precisely this point in our own experi

ence.

I think if credit is made easier what has happened in the past will be exaggerated.

Senator MCFARLAND. That has not necessarily been true in the case of the automobile, has it?

Mr. DOUGLAS. No. It has not been true in the case of the automobile because in the production of automobiles they have come to grips with the problem of costs. Actually they have pushed the price of the automobile down by a whole variety of technological advances, they have produced great volume by more effective and efficient technological methods, and as a result they have pushed the price down and down and down until it comes within the reach of millions and millions of people. I think that is the real guts of the housing problem. I refer to the report of the National Housing Agency.

Senator MITCHELL. Are you in favor of the research portion of this bill which tries to get at that problem?

Mr. DOUGLAS. I am in favor of research, because I feel that housing may provide the same economic impetus in this country in the period just ahead of us that the railroads provided in the last quarter of the nineteenth century, and the utilities and the automobile industry provided in the 1920's. But I think these financial devices will provide an even more severe financial burden when supplies become less tight and more abundant. These are the two results I believe will be achieved by trying to approach the problem by these financial devices.

The conclusion seems to me to be inescapable that financial devices alone will not add one shingle to a roof, not one board to a floor, not one room to an existing structure, not one house on a vacant lot. The problem is a different sort of a problem.

The National Housing Agency has completed a study which I have graphically represented in this chart which you have in front of you. It shows that a reduction in the rate of interest of 20 percent will reduce the monthly housing cost by 4.3 percent. The extension of amortization provision will, however, increase over the life of the house the monthly housing cost by 62 percent. A reduction in taxes. of 20 percent will decrease the monthly cost by 5.6 percent. A reduction of 20 percent in maintenance will decrease the cost 4.4 percent. A reduction of 20 percent in the cost of the house and the land, building material, and unit cost of labor, will reduce the monthly cost by 15.4 percent.

May I have the next chart just to show the source from which I took this information. It was a study by the National Housing Agency entitled "Housing Costs," issued in December 1944. This is merely to show the source from which the previous chart was taken. The same figures are here that were on the other chart. It shows very clearly that the reduction in the rate of interest by 20 percent and the extension of the period of amortization by 20 percent actually increases the monthly cost.

Now, that is what I mean when I say that financial devices will not bring you closer to a solution of this problem. The solution is in the other areas, and the National Housing Agency in its report on housing costs confirms this conclusion.

May I have the privilege of introducing this?