We, therefore, strongly urge that competitive rents be allowed as established by the market. Even under the post-World War II emergency Congress specifically exempted properties constructed after February 1, 1947, from Federal rent controls in recognition of the fact that such controls impeded construction of rental housing.

We endorse that part of section 108 of S. 3399 which would remove an inequity which adversely affects rehabilitation projects under section 220. By removing the limit of 10 percent on builder's profit as an item of cost the Federal Housing Administration will be in a position to permit a higher percentage of profit in recognition of difficult. and complicated rehabilitation where the actual amount spent for rehabilitation is small compared to the acquisition cost of the structure.

The remainder of section 108 has as its object the removal of discrimination as between a builder-developer and an investor-developer with respect to section 220 projects. It is thought to accomplish this by (1) providing that a mortgage shall not be in excess of FHA's estimate of replacement cost and (2) eliminating the allowance for builder's or sponsor's overhead and profit as a cost item. We believe that the objective sought would be better served by approving the amendment already proposed by our association that only the excess of a mortgage over the certified costs be remitted for reduction of the mortgage.

Our proposal has the additional advantage of applying to both the section 207 and section 220 programs. We are confident that the committee wants to treat these programs on an equal basis. Surely it is as important to obtain rental housing generally as it is in urban renewal areas. The need, not the location, should be the governing criterion.

We recommend approval of section 109 of S. 3399 which would remove the present limitation of section 221 rental housing to nonprofit corporations. We do feel, however, that the mortgage amount should be based upon 95 percent of replacement cost instead of 95 percent of the commissioner's estimate of value, as is contemplated in the proposed amendment.

The section 221 rental housing program, along with the sales housing program under this section, holds much promise for the relocation of low and moderate income families displaced by urban projects and other governmental action.

Mr. Chairman, is order not to prolong unduly the time allotted me, I would like to file for the record our statement endorsing the 5-year extension of obligational authority for capital grants for urban renewal as set forth in S. 3399. However, I wish to invite the subcommittee's attention specifically to the two recommendations that we make:

(1) That no community be eligible for financial assistance unless it is actively engaged in the enforcement of an adequate housing code; (2) That applications for capital grants in urban renewal programs be subject to a priority system that will encourage more programs utilizing rehabilitation work.

That is the end of my prepared statement, Mr. Chairman, and I appreciate very much the opportunity to present it. Senator SPARKMAN. Thank you, Mr. Gill.

(The prepared statement of Mr. Gill follows:)

STATEMENT OF WALTER J. GILL, NEWARK, NEW JERSEY, NATIONAL ASSOCIATION OF REAL ESTATE BOARDS

Mr. Chairman and members of the subcommittee, my name is Walter J. Gill of Newark, N. J., and I am engaged in the real estate and mortgage banking field as executive vice president of the Alexander Summer Mortgage Co., an approved mortgagee of the Federal Housing Administration, and have had more than 24 years of varied real estate experience. I shall testify on behalf of the National Association of Real Estate Boards in regard to rental housing.

During the past 10 years Alexander Summer Mortgage Co. has arranged the financing of 83 multifamily housing projects comprising 11,421 dwelling units and involving an aggregate of $82,578,900 in mortgages insured by the Federal Housing Administration under various sections of the act.

The construction of an adequate volume of rental housing in the moderate rent levels, particularly in the large urban areas, has become one of the major problems confronting the industry as well as the expanding American population.

The fantastic growth of suburbia in the 12 years since the close of World War II has brought us from a country of 40 percent homeowners to approximately 60 percent. This is indeed commendable, and we are a much stronger nation because of our emphasis on home ownership.

However, the commendable growth of our suburbs should not detract from the increased attention being directed to the urban area, particularly the central city and the peripheral belt around the central city. The Federal Government has a tremendous stake in urban renewal and this subcommittee has labored and will continue to labor with this problem for many years to come.

Families and individuals who, either by preference or circumstances, occupy rental housing have found choice relatively limited in most cities during recent years. Because the volume of new construction has been low, the inventory of rental housing is little changed in number from 1950. The census conducted in April of that year showed 19.7 million renter-occupied dwelling units. Reports from the updated inventory of 1956 indicated renter-occupancy to be about 20 million.

While some 9 million dwelling units were being added to the owner-occupied category between 1950 and 1956, the renter component of the market was doing little more than holding its own. If we count all units built of the multifamily type since World War II, the total is only a little over a million. (See Schedule A.)

An effective rental housing program is necessary to meet the increased demands of the urban community as more and more American families turn toward the central city-a logical byproduct of the national urban renewal effort.

What is the rental housing need in the United States today?

While it is difficult to be specific in estimating need, we are aware of certain trends which underscore the growing need for more rental housing.

I have already referred to the urban renewal programs which are focusing attention on the central city as living areas not complicated by the transportation problems of ever lengthening commuting. There are other factors.

(1) An increasing number of single individual households. Many of these persons prefer apartments to a roominghouse type of shelter but are unable to find moderate rental quarters.

(2) The increase in number of persons in the upper middle-age and elderly category. Many couples, with their families grown, prefer apartment life. The convenience to facilities is important to them. The growth of pension plans and the sharp rise in recipients permit more and more older people to maintain their own households.

(3) The current income of families and individuals is at a level which permits a sizable economic rent to be paid by those preferring the privacy of apartment life but not wishing to be homeowners. In 1957 one-fourth of the families and single consumers in the Nation had personal incomes between $4,000 and $6,000. However, an even higher 27 percent received incomes between $6,000 and 10,000 while 11 percent had incomes of $10,000 or more. The average family income was $6,130.

I am attaching as part of this statement (schedule B) a breakdown of the record of FHA multifamily project applications from January 1, 1947, through March 31, 1958. While I have included all the programs, some such as the military housing program are too specialized in their purpose to lend themselves

to the analysis we make here. Others have expired and one, the section 213 (sales type) cooperative, is essentially a home ownership program.

Note the great contribution made by the section 608 program: 548,463 applications until the program was terminated in 1950. Note also the decline in the section 207 and 213 (management) projects from 1950 on, and the sharp decline beginning in 1954.

Thus we must conclude that the FHA multifamily programs until 1954 made a tremendous contribution to the provision of rental housing. The year 1954, of course, brings to mind the investigation conducted by this committee in irregularities in the operation of the section 608 program.

However, almost 4 years have passed since the Congress in the Housing Act of 1954 moved to prevent the recurrence of the irregularities which the expired section 608 program produced.

We respectfully suggest that a critical analysis of the preventive measures then taken might reveal that the medicine came close to killing the patient. The section 207 rental housing program became the victim of the reaction against section 608, a program which had expired long before the disclosures were made. Section 207, was, and is, an entirely different type of vehicle and not susceptible to the practices exposed by the 1954 investigation.

In our opinion the greater single factor conrtibuting to the decline in applications for rental housing since 1954 was the unnecessarily tight antimortgagingout provision which the Congress wrote into law that year. This provision required the mortgagor to remit for reduction of the mortgage any excess of the mortgage over the approved percentage of the actual certified costs. Thus in attempting to prevent windfalls the Congress went a step further and created an inequity. As a result a less efficient builder may obtain a higher mortgage than a more efficient builder.

Let me give you an example. Let us assume that an experienced builder and a nonbuilder both acquire contiguous parcels of land, identical in size. They have an architect design identical buildings for each, following which both file with FHA for mortgage insurance under section 207. FHA, having found values of $1 million on each, issues commitments to insure mortgages on the maximum allowable amounts of $900,000 each. Following completion of the construction Mr. Experienced Builder files the required cost certification. Because of his ingenuity and know-how, he is able to show that the entire costs were only $900,000. At this point FHA would be forced to reduce his mortgage to $810,000 because section 227 provides that no mortgage may be "in excess of such approved percentage of actual cost." Mr. Nonbuilder, on the other hand, who had used a building contractor to erect his project, was probably able to certify his actual cost at $1 million, as estimated by FHA. Therefore his mortgage remains undisturbed in the original amount of $900,000. Thus the experienced builder, upon whom we must depend for a sustained volume of rental housing construction, has been placed in a position less favorable than that of a novice.

We propose an amendment to section 227 of the National Housing Act which would remove the inequity which is largely responsible for the failure of the section 207 program to make the contribution which it could in supplying needed rental housing. Our proposed amendment would require that only the excess of the mortgage proceeds over the actual certified costs be remitted to the mortgagee for reduction of the mortgage. This would preserve the cost certification requirements of the 1954 act, prevent any windfalls, but would remove the one great deterrent to participation by the experienced builder in the rental housing program.

We propose additional amendments which we sincerely believe will contribute materially to a revival of the FHA multifamily rental housing program. These

are:

(1) The statutory maximum interest rate on FHA multifamily programs should be increased to 6 percent, the same maximum as now applicable to section 203, in order to give these programs a desired flexibility in interest rates during periods of tight money. We believe that the FHA Commissioner should have the discretion to increase or decrease the rate to reflect the rates on comparable investments in the private market. The type of flexibility we propose would eliminate the high discounts under section 207 at the present time, and would permit the programs to remain operative during tight money periods. (2) The Congress should make it clear that control over rents on section 608 and section 207 projects are discretionary with the Commissioner and should be exercised only to avoid excessive rents. Rent controls over section 608

projects are discretionary, but the language of section 207 has been construed to mean that rent controls over these projects are mandatory. As a result, the Commissioner has decided to treat both programs as requiring mandatory controls.

By controlling rents the Commissioner is forced to inject himself into the minute details of operation and management. Applications for rent increases are frustrating experiences at best. Rent controls, other than those imposed by FHA, are now a thing of the past, except in some parts of New York. We believe that the time has come for the FHA to remove such controls, yet reserve for itself the right to reimpose controls should rents become excessive. In other words, we want to shift the burden of proof from the rental property owner, who has had it for so many years, to the Federal agency.

We therefore strongly urge that competitive rents be allowed as established by the market. Even under the post-World War II emergency Congress specifically exempted properties constructed after February 1, 1947, from Federal rent controls in recognition of the fact that such controls impeded construction of rental housing.

We endorse that part of section 108 of S. 3399 which would remove an inequity which adversely affects rehabilitation projects under section 220. By removing the limit of 10 percent on builder's profit as an item of cost the Federal Housing Administration will be in a position to permit a higher percentage of profit in recognition of difficult and complicated rehabilitation where the actual amount spent for rehabilitation is small compared to the acquisition cost of the structure.

The remainder of section 108 has as its object the removal of discrimination as between a builder-developer and an investor-developer with respect to section 220 projects. It is thought to accomplish this by (1) providing that a mortgage shall not be in excess of FHA's estimate of replacement cost and (2) eliminating the allowance for builder's or sponsor's overhead and profit as a cost item. We believe that the objective sought would be better served by approving the amendment already proposed by our association that only the excess of a mortgage over the certified costs be remitted for reduction of the mortgage. Our proposal has the additional advantage of applying to both the section 207 and section 220 programs. We are confident that the committee wants to treat these programs on an equal basis. Surely it is as important to obtain rental housing generally as it is in urban renewal areas. The need, not the location, should be the governing criterion.

We recommend approval of section 109 of S. 3399 which would remove the present limitation of section 221 rental housing to nonprofit corporations. We do feel, however, that the mortgage amount should be based upon 95 percent of replacement cost instead of 95 percent of the Commissioner's estimate of value, as is contemplated in the proposed amendment. The section 221 rental housing program, along with the sales housing program under this section, holds much promise for the relocation of low and moderate income families displaced by urban projects and other governmental action.

Mr. Chairman, in order not to prolong unduly the time allotted me, I would like to file for the record our statement endorsing the 5-year extension of obligational authority for capital grants for urban renewal as set forth in S. 3399. However, I wish to invite the subcommittee's attention specifically to the two recommendations that we make: (1) that no community be eligible for financial assistance unless it is actively engaged in the enforcement of an adequate housing code, and (2) that applications for capital grants in urban renewal programs be subject to a priority system that will encourage more programs utilizing rehabilitation work.

Capital Grants

URBAN RENEWAL

We endorse the provisions of title III of the bill, S. 3399, which (1) changes the procedure for making planning grants so that a community may share in the cost of such planning in the same ratio as it shares in the cost of the project; and (2) extends the obligational authority for capital grants through fiscal year 1963 with a total authorization of approximately $1.3 billion and a gradual reduction in the Federal financial participation from the present 66% percent of net project cost to 50 percent beginning with fiscal year 1961.

We do not believe that reduction in the Federal financial contribution as set forth in S. 3399 means less slum clearance. On the contrary, if the two recommendations of our association, as set forth below, are adopted the end result

must surely be a marked decline in the growth of slums, thus insuring an ultimate greater accomplishment of the national urban renewal objective through far more improvement per Federal dollar spent.

In connection with the reduction in the Federal Government's financial contribution toward urban renewal, I would like to quote the policy statement on the subject adopted by the 1957 convention of the National Association of Real Estate Boards:

Greater local responsibility.—Freedom from Federal intervention and competition in State and local affairs is basic to the preservation of our Republic.

We applaud the efforts of the President and the Joint Federal-State Action Committee to terminate certain Federal assistance programs which more appropriately should be assumed by State and local governments.

We endorse the recommendations of the President that certain areas of Federal taxation be surrendered to the States and municipalities in order to provide revenue essential to their assuming local responsibility for many programs that are now federally assisted.

We urge this committee as well as the Congress to study the feasibility of surrendering present Federal taxes on real estate conveyances and estates to enable State and local goverments to assume a much greater degree of responsibility for slum clearance.

We note that recently the President, acting upon recommendations of the Joint Federal-State Action Committee, recommended to the Congress that one taxing area be surrendered to the States in order that the States may have the means for assuming greater financial responsibility for certain programs involving problems which are basically State and local problems. We are hopeful that continued studies in this area will result in the surrender of other taxing areas and the assumption by the States of more responsbility for urban renewal. Code enforcement

In Federal legislation to assist the cities in combating unfit housing conditions one of the principal advances made in the 1954 Housing Act was to establish the broad concept of "urban renewal" as distinguished from the more limited process of "urban redevelopment." Under the broader program cities were to be given encouragement and cooperation in programs that would provide rehabilitation, as well as total clearance, in bringing about the restoration of rundown urban areas.

It has become clear that this approach, with its potential of curing many times as much urban deterioration as could be hoped for under tremendously costly total clearance procedures alone, must rest upon a foundation of firm enforcement of city ordinances that require property owners to meet adequate health and safety standards for structures to be used for human habitation. In qualifying for Federal assistance in urban renewal programs cities are quite properly required to present "workable programs" committing themselves, among other things, to engage in this indispensable type of local government action. However, the cities are not required to show performance, but only to indicate a general intention to engage in future performance. Under existing administrative practices this may remain the case long after cities have received tangible financial assistance from the Federal Government.

For example, cities such as Birmingham, San Francisco, and Scranton have had their workable programs approved since 1955. Each of them has a sizeable reservation for a capital grant and each was in debt to the Federal Government as of December 31, 1957, for planning advances and temporary loans. At the time each of these cities had its program certified for a second time, none of them had taken final action on even adopting a local housing code. What is needed is a new expression in basic policy that is a proper prerogative of the Congress.

Therefore, we strongly urge that the Congress insure, by statutory requirement, that no city be eligible for direct Federal financial assistance in the form of capital grants for urban renewal until it shows that it is actually engaged in the vigorous enforcement of a city ordinance requiring all structures used for dwelling purposes to meet modern, reasonable, and adequate standards of health and safety.

Rehabilitation

The process of urban renewal, conceived of as a broader program than urban redevelopment, has nevertheless remained overwhelmingly no more than redevel