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And if we could find ways of beginning to satisfy that need we should relieve some of the inflationary pressure and develop a greater stability to our economy.

So I guess I start with the feeling that anything that we can do that really does help to satisfy this great demand that exists for housing and that will undoubtedly exist into the indefinite future because of the rapid rise we see in our population, it seems to me that this industry will be kept busy and that its ability to satisfy that need will help to stabilize the economy. So I think there should be a better overall economic situation in the country.

Now, if there should be a recession, then I think the point you make is well taken. The impact on a single organization might be greater than it is now on any single organization. That is, the accumulated impact.

I do not really know how to answer that question fully.

Representative BROWN. I will let your answer stand. I think I would enjoy challenging it from an economic standpoint.

Mr. FINGER. I might add, I would want to call in some reinforcements that were really better versed in finance than I am.

Chairman BOLLING. Perhaps you would like to have the agency submit a paper on this. It is a very interesting question. Representative BROWN. I think it might be helpful. (The table below was subsequently submitted:)


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Note: Sources from the 1940, 1950, and 1960 censuses of the United States; 1966 data from Bureau of Census/Bureau of Labor Statistics publication entitled "Social and Economic Conditions of Negroes in the United States," BLS Report No. 332, Current Population Report, series P-23, No. 24, October 1967. For 1940, substandard is defined as units reported to be in need of major repairs or lacking adequate sanitary facilities For 1950, 1960, and 1966 substandard is defined as units reported as dilapidated or lacking adequate sanitary facilities.

Representative BROWN. Mr. Biederman, if you have any comment, please make it in written form, because it is a significant part of this consideration. I am not sure that I am in complete agreement with you, Mr. Finger, on the fact of which comes first, the chicken or the egg. I think that certainly the activity in the housing field and building, has a significant impact upon the economy. Whether it is significant enough to maintain the economy if we cure the problems through industrialized housing is something that I am not sure that I

Mr. FINGER. That alone would not insure stability, but it would contribute to it.

Representative BROWN. I am sure it would contribute to it. But assuming that we have a recession in spite of that, then what happens to the fact that you have this heavy investment in industrialized

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housing and perhaps a complete dissolution of the demand that sustains it?

The same thing happens in the automobile industry. You can argue that the automobile industry helps maintain the economy, but when the economy goes, then we have real problems in the automobile industry.

I gather, Mr. Biederman, if I may finish up quickly on two or three other things, in reference to your specific proposal, that in the seventh proposal you are suggesting that we move in this country into a forced investment in housing through the vehicle of requiring segments of the private economy to invest in housing.

Mr. BIEDERMAN. Very definitely.

Representative BROWN. Why those specific segments? Why not


Mr. BIEDERMAN. Well, I have indicated here financial institutions. The intent of the statement was that any source that has funds that are being used for investment should be used, as least some percentage should be used, for real estate investment, real estate mortgages. I am not limiting it to pension funds or any financial institution that is in an investment position.

Representative BROWN. What would you base the Federal Government's right to require that on? The licensing of the financial institution or

Mr. BIEDERMAN. Well, right now, the Federal Government indicates that-excuse me. The States indicate that a savings and loan may not invest more than a certain percentage. The State governments indicate that credit unions are not allowed to invest more than a certain percentage of their funds in real estate. I am turning it around and saying the State government or the Federal Government, through the vehicle of the States, should require a minimum percentage that is higher than the maximum is now.

Representative BROWN. I think the turning around makes a sig nificant difference in the right of the Federal Government to require versus its right to prohibit.

Chairman BOLLING. Of course, it could prohibit all the others and all that was left go to real estate, which is a technique often used.

Representative BROWN. I see. It occurs to me that a real problem in law exists in making that requirement. And it seems to me a pretty sharp departure from our traditional concepts of what we can do in this area of forcing investment. That is not to say that we may not come to that some day. We have come to a lot of things that once seemed to have a questionable base in law. But it strikes me as a rather unusual recommendation.

Mr. BIEDERMAN. My feeling is that unless we do some pretty unusual things, we are not going to meet our housing needs.

Representative BROWN. I would like to ask this question. How did we meet our housing needs before the Federal Government got into business?

Mr. BIEDERMAN. We have not met our housing needs.

Representative BROWN. How did we meet them years ago when we were beginning to develop a need? There must be some answer to that question. If we did not meet them, where did people live?

Mr. FINGER. What we actually had, Mr. Brown, and still have, are people living in substandard conditions and conditions that we now believe are just not suitable for people. That is why a good bit of what we have to take care of is replacement of stock that is in use that really should not be in use. I think that accounts for a particular part of it.

Representative BROWN. I realize you are not a history major, Mr. Biederman, because you mentioned that. When we go back to the beginning of the country, I realize that the Pilgrims in Massachusetts were probably living in substandard housing. Have we always been behind, or did we catch up some place along the line, and for some economic reason, slip behind again?

Mr. FINGER. We did produce a large number of housing units right after the war when there was a great need and private industry did go to work. It was during that period that the Lustron experience was developed and that was with Federal encouragement, actually. But even then, there were still substandard units available, crowded conditions. Those were not really taken care of even in that period. I might add that the maximum production we have ever had was 2 million housing units in 1950, right in that period. We are now talking about going to 32 million housing units by 1978. So there is almost a doubling over the maximum we have had. We have only been producing at the rate of a little under 12 million over the past 10 years. So we have really been creating a deficit in this period and we have not taken care of the substandard units.

There are people who are prepared to buy housing who have funds and can't find what they want.

Mr. BIEDERMAN. If we address ourselves to how we have fallen behind or why we have fallen behind, I think the population increases in the last 50 years, certainly just in the last 10 years, have been far more dramatic than previous population increases. That has contributed to the deficit.

Representative BROWN. One of the other things you have mentioned, and one of the things which we have not really gotten resolved by the method suggested and which I think this particular committee ought to give more attention to, is the question of interest rates and what has happened to costs.

The question I am asking, and that I wish I had more time to explore, is whether we had in the history of our country a broader spread between the cost of building a house and the low income average or the average of what we call low-income people in terms of their capacity to pay? Has the spread been narrower, has it been greater? What has caused this sudden disjointing of the cost of housing from the capacity of people to purchase housing? When you talk about somebody being able to pay for a house twice their annual income, if you assume that the poverty level is $3,000 a year annual income, two times that is $6,000 and you cannot build a house for that. Has that always been true? In other words, has our "poverty level" always been such that you cannot afford housing? I wonder if that is the case.

Or perhaps the case is that the Federal Government has contributed a lot to this whole problem by inflation, which has jacked the interest rate right through the roof, a situation that has occurred before in our history. I think we could correlate it to what occurred in the 1920's and 1930's as to the cost of housing relative to the income of the poor, however you identify that segment of the economy. Maybe we ought to look at some of the contributions to the problem-to the problem, not to the solution-that are being made and have been made in the last 10 or 15 years by the Federal Government and cure some of those approaches of the Federal Government to this problem. In other words, if we did not have such a rapid rate of inflation, perhaps we could meet our housing needs through the exercise of private sectors of the economy.

I would like to go on from that point and ask whether the subsidization of interest rates or the subsidization of housing or even the subsidization of this new concept of construction is a contributing factor to the problem or to the solution? Are we contributing more to the problem than we are to the solution by doing this at this time? Mr. BIEDERMAN. First we have to understand what is the problem, If we accept

Representative BROWN. I think we know what the problem is.

Mr. BIEDERMAN. If we accept that the problem is not sufficient numbers of housing to house our people decently, then we have to attack that. Now, there are very few problems that I am aware of that you can attack without creating other problems during the course of the attack. But if, primarily, we want to provide decent housing for Americans, then we must address ourselves to that. Certainly, by subsidizing industrialized housing systems, we are going to be jacking up the price of materials, or by subsidizing industrial housing systems so that there will be more housing systems developed and, therefore, a greater demand on materials, and, therefore, an increased requirement for lumber, for example, then the price of lumber is going to increase, and therefore, contribute to inflation. There is no question that we are going to be developing ancillary problems in addressing ourselves to the prime problem of providing housing.

Representative BROWN. I learned when I was in college and taking economics of course, it has changed so much that it is a little difficult to know what is true and more that when the volume increases, the price usually comes down. I do not think that is the problem. The problem is what has been done to the money market by inflation and how the money market affects the housing market. Obviously, it does affect that market, because you mentioned earlier one of the big problems we have is the interest rate. How you attack the interest rates short of the Government acting like they do not exist and subsidizing them, I do not know. It seems perhaps we ought to attack more broadly by curing the interest rates and helping the housing situation in turn.

Mr. FINGER. May I go back to one of the earlier points you made? There are data to indicate that the number of substandard units has been decreasing with time. In other words, we are chewing into part of that problem.

Representative BROWN. Going back how far?

Mr. FINGER. I think it is down in half over some significant period. I can get that information for you. So there has been some real progress in trying to get rid of that problem. But there is no question that there were millions of substandard units that were being used in years past and the number has been coming down, so there has been some progress along those lines.

In regard to the interest situation, I think that does hurt us. If the interest rates weren't as high, there would be additional funds available in the mortgage market, since investors presently place funds in other sources with higher returns. So it clearly would help us.

As far as the subsidies and supplements go, we find tremendous numbers of applications on the books waiting for the additional appropriation that is now just about to come through in our fiscal year 1969 supplemental, waiting for that funding before they start housing development. All of the past funds, the $25 million we have had in section 236 and in section 235, were allocated some months back and there are many builders who are concerned about the ability to maintain their capability to build in the price range that we need without those subsidies. They have not been able to start anything. They are concerned about maintaining their manpower, their labor force, their suppliers, and so on.

Representative BROWN. I would just like to suggest to you, Mr. Finger, that at some place in the studies you are doing in this whole area, you relate an average income of Americans and I do not know, maybe you can only go back to 1913 in the way of Federal statistics in this area because of the income tax-and the cost of building an average home, and then throw into that curve some figures on the interest rates.

We are doing some wonderful things with computers. Maybe if you put some of those figures through computers, we will learn something about the impact of the economy generally on the housing market, and that might give us some advice as to what direction we ought to take in this. I think the directions you point out in spite of my somewhat vigorous comment about several of the specific recommendations, are very encouraging and ought to be given some thought. They are very beneficial in that regard. But you seem to be overlooking or ignoring some of the other obvious parts of the problem that maybe these answers, rather than helping to cure, are continuing to stimulate. Mr. FINGER. I am sure these data are available and we will pull them together.

(The following table was later supplied :)

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