MINORITY VIEWS

THE ADMINISTRATION'S RENT SUPPLEMENT PROPOSAL

INTRODUCTION

The Administration's rent supplement proposal contained in section 101 of this bill is foreign to American concepts.

The proposal kills the incentive of the American family to improve its living accommodations by its own efforts.

It kills the incentive for homeownership; it makes renters wards of the Government.

It is a system of economic integration of housing through Government subsidy.

It is the way of the socialistic state.

KILLING INCENTIVE

Under section 101 (d) of the bill the Housing Administrator may subsidize a tenant's rent in an amount up to the difference between the fair market rental for the unit and one-fourth of the tenant's income.

That formula kills the incentive of the American family to improve its living accommodations by its own efforts. A family with $3,000 a year income $250 a month-could live in a $100-a-month apartment and pay rent of only $62.50 a month (one-fourth of income) with the Government providing a subsidy of $37.50 a month (difference between one-fourth of tenant's income and market rent for the unit). The disincentive of the family to improve its housing accommodations is readily apparent. Should that $250 a month family's income increase to $300 a month, its rent payment would increase to $75 a month and the Federal subsidy would drop to $25 a month. And, of course, if the family's income increased to $400 a month, it would pay the full market rent of $100 a month as one-fourth of family income of $400 a month would equal full market rent for the unit. In other words, the family with $250-a-month income has no incentive to improve its living accommodations by increasing its earnings to enable it to rent better accommodations. It can live in the same accommodations with $250-a-month income as it could if it increased its income to $400 a month.

The formula also produces another type of disincentive to a family improving its living accommodations by its own efforts. That $250a-month-income family might decide it wants to live in a $200 amonth apartment instead of the $100-a-month unit. Under the formula it could do so. And under the other proposed provisions of this section, this still would be true. The primary requirement for a qualified tenant is that he be unable to obtain standard privately owned housing at a rental no more than one-fourth of his income. far as the proposed law is concerned, that standard housing could be standard housing suitable to the tenant's needs or suitable to his desires. The Administrator could decide either way. The family

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would pay the same one-fourth of its income as rent or $62.50 a month and the Government would pay an increased subsidy of $137.50 a month to make up the balance of the fair market rent for the unit. Under the formula the way to better housing is increased Federal subsidy rather than increased individual effort.

When another head of a family earning $400 a month and paying $100 a month rent-without any help from Uncle Sam-saw that his neighbor, earning far less than he, was able to move into a much better apartment with no increase in his rent payments, he suddenly would wake up to the possibility of the formula. This family, otherwise eligible for rent supplements, by free choice could be living in standard but crowded quarters. The head of the family simply does not want to allocate more than $100 a month of his income to housing. With the balance of his income he prefers to enjoy other amenities of life, such as a second car or an extra week's vacation. Rent supplement is his easy way out. He would be eligible for subsidy in a more expensive apartment. He, too, would move to the $200-a-month apartment. He would continue to pay only $100 a month of his income as rent because the Government would provide the other $100 a month necessary to cover the market rent for the unit.

This formula is a formula for killing the American incentive system of improving one's lot by one's own effort. This would be keeping up with the Joneses via Federal subsidies.

THREAT TO HOMEOWNERSHIP

To own one's own home, no matter how modest, is the goal of the typical American family. The rent supplement kills the incentive of a family to achieve that goal. Under FHA underwriting standards a family with $3,000-a-year income can afford to purchase a home costing 21⁄2 times that amount or a $7,500 home. The housing cost of such a home would approximate $60 a month. But as noted in the illustration above, the $3,000-a-year family by paying $62.50 a month as rent could live in a partially federally subsidized $100-a-month rental unit. The cost of such a dwelling unit would approximate $12,500. Or, as above noted, that same family could also live in a $200-a-month rental unit and pay only $62.50 of its income a month as rent with the balance of $137.50 paid by the Government under the rent supplement formula. The cost of the $200-a-month rental unit would approximate $25,000. Why would a family strive to own a $7,500 home when for approximately the same monthly outlay for housing it could rent a $12,500 or $25,000 cost dwelling unit? Not alone would the rent supplement proposal kill incentive for homeownership, it also would be a powerful incentive for a family to discontinue homeownership and become a renter on the Federal dole. That runs counter to the American way of life.

ABSURD FORMULA

Although the subsidy formula contains no dollar amount limitations, indirectly there is a dollar limitation because of the maximum mortgage amount per unit in the FHA section 221 (d) (3) program. This is the existing FHA program which would have to be utilized in financing the project. That maximum mortgage amount under existing law is $29,000 for a three or more bedroom unit, in an ele

vator-type building in a high cost area. This would be left unchanged in this bill for a three bedroom unit but would be increased to $32,987.50 per unit for a four or more bedroom unit under the provisions of section 203(d) of this bill. Such a four-bedroom, twoand-a-half-bath unit would rent for approximately $315 a month. A large, qualified tenant family with only $250-a-month income could live in such a unit with the Government paying a subsidy of $252.50 a month to make up the balance of the market rent for the unit.

But even this does not measure the full amount of Federal subsidy that could be paid. Under FHA mortgage insurance programs, the mortgage limitation is satisfied if the average mortgage for the units in the project does not exceed the mortgage limitation per unit. FHA insured projects can and do have penthouses and our theoretical project would be no exception. It could have a penthouse costing $100,000 and renting for $800 a month.

The occupant could be a large family eligible for rent supplements, with its entire income derived solely from public assistance payments. Under section 101 (d) of this bill the tenant's income for purposes of the formula is the "tenant's income as determined by the Administrator pursuant to procedures and regulations established by him" [emphasis supplied]. With this discretionary authority the Housing Administrator might determine that public assistance payments should not be included in tenant's income for purposes of the formula. Accordingly, this family's income would be zero. Applying the formula, one-fourth of the tenent's zero income equals zero, so the tenant would pay no rent. Under the formula the Federal rent supplement may not exceed the difference between one-fourth of the tenant's income and the fair market rental for the unit. So zero (one-fourth of the tenant's zero income) from $800 a month (the fair market rental) leaves the Government paying the full $800 a month market rent as a subsidy. The welfare family can live in the luxurious penthouse. Fantastic? Of course the results are fantastic. Ridiculous? Of course the results are ridiculous. Absurd? Of course the results are absurd. But they square with the rent supplement formula. It shows just how fantastic, how ridiculous, and how absurd that formula is.

Surely the Congress could devise more sensible limitations than the wide-open, socialistic subsidy formula contained in section 101 of the bill. The Housing Administrator submitted testimony to the committee (p. 255 of hearings) that under the rent supplement program:

*** it should be possible to accommodate families with incomes of between $3,500 and $6,000 in larger cities and between $3,000 and $5,000 in smaller cities where costs are generally lower.

If that really is the objective of the program, then why not write those limitations into the law?

ECONOMIC INTEGRATION

From a social standpoint, few would argue that one man's rental dollar should buy as much in the way of shelter as another's, within the same general area of our country. Moreover, we can support the goal of those who view with alarm the proliferation of drab Federal

housing ghettos, built to accommodate a rigid and disheartening packing together of computerized equals.

But, in the disguise of calling for action against these pockets of federally sponsored sameness in our cities and towns that have low-rent public housing, the administration has recommended a program that would force-with the power of the Federal dollar-what we choose to term "across-the-board economic integration." This runs through the thinking on the rent supplement proposal, as well as the various land development programs contained within other sections of this bill.

Within broad areas of our Nation, untouched by the Federal housing dollar, we would argue with those who support an initial allocation of $8 billion for the purpose of creating a national system of unequal opportunity in housing. We oppose the view of those who would move the $2,000-a-year family in the apartment next door to the $5,000-a-year tenant, and into the $15,000-a-year neighborhood, solely through rent subsidies. Moreover, we seriously question whether the man paying $150 a month for an apartment would understand why his next door neighbor should receive equal value for half the rent. From a social standpoint, there is far more to neighborhood preference than the monthly cost of one's dwelling. In short, as the respected Housing Affairs Letter of April 16, 1965, put it: "Can this world's economic lions and economic lambs lie down en masse in the same veldt?"

Keep in mind, it has been made abundantly clear that rent supplements would be a nationwide program. On May 17, during the final stage of hearings on this bill, Congressman Clawson asked the Housing Administrator, "This is going to be a rather broad program, then, is it not, if we are going to move the rent supplement program in all areas involved?"

Mr. WEAVER. "Yes, this will be, of course, nationwide."

UPPER MIDDLE INCOME FAMILIES

Under date of April 21, 1965, the Housing Agency submitted to the Subcommittee, a table showing income ceilings which would be set for individual cities in administering the rent supplement program. The setting of such income ceilings is purely discretionary with the Administrator. From this table it is readily apparent the Housing Administrator will substantially breach the national median family income ($6,249), in the case of large families. Here are the income limits the Administrator proposes to set for such families in several of the larger cities:

Whereas the national median income for all families ($6,249) as shown by census data is total family income, the Housing Administrator is not bound by any such specific definition. Quite to the contrary, section 101(d) provides that income of the tenant shall be "the tenant's income as determined by the Administrator pursuant to procedures and regulations established by him." From total family income the Administrator could and doubtless would make one or more exclusions from total family income and thereby reduce the amount of family income that would be counted under the rent supplement proposal. Precedent for this exists in the public housing program. For instance, in New York City up to $2,400 of income earned by secondary wage earners (wife, children, etc.) in the family, can be excluded from the family's total income for purposes of determining eligibility and rent payments. Should the Administrator make a similar exclusion for the rent supplement program, the New York City family income limit of $8,900, as shown in the above table, actually could mean that the total family income was $8,900 plus $2,400 excluded income, or a total, actual income family limit of $11,300. In other words, the rent supplement proposal can reach well up into the middle-income family level.

PUBLIC HOUSING JEOPARDIZED

It is little wonder public housing proponents are greatly disturbed by the Administration's rent supplement proposal. (See testimony of the president of the National Association of Housing & Redevelopment Officials, p. 425 of the hearings.) The rent supplement program could run the public housing program right out of business, because Federal subsidies under rent supplements can be far larger per month, per unit than is possible under public housing. Under the public housing program the Federal subsidy is limited to the amount necessary to pay principal and interest over a 40 year period on cost of the unit. There is no such subsidy limitation under the rent supplement program where the subsidy can cover not alone principal and interest costs of the unit over a 40 year period, but also practically all of the operating costs as well. Needless to say, rent supplements can also run the cooperative housing, and 221(d)(3) subsidized interest rate programs out of business.

In short, the rent supplement program has a Federal subsidy potential that no other Federal housing program can even come close to matching.

$8 BILLION EXPERIMENT

We were told by the Housing Administrator, as well as by other witnesses, that the Administration's rent supplements constitutes an experimental program. But involved in the proposal is the authorization for the Housing Administrator to enter into 40 year contracts with approved housing owners to pay them rent subsidies in amounts not exceeding $50 million prior to July 1, 1966, which maximum amount would be increased by $50 million on July 1 in each of the years 1966, 1967, and 1968. In other words by fiscal year 1968, $200 million a year payment contracts could be outstanding, extending for 40 years. Potentially, that makes it an $8 billion program that could extend to the year 2008. To us, that is a whale of an experimental program.