the best terms could only be obtained by immediate action might hasten action which would otherwise be deferred.

I have here some relative figures taken from the Statistical Abstract for 1933 of the United States, showing the trend of residential construction.

The normal value of residential construction is about 212 billions. In 1925 it was $2,747,000,000, and in 1932 it had declined to $280,000,000. Expressed in square feet of residential buildings it declined from 559,000,000 in 1925 to 73,000,000 in 1932.

This tabulation illustrates clearly the subnormal level in the construction industry, and accounts for a large part of the present unemployment. Without going into details, the year 1933 bettered the situation very little.

The doubling-up process has resulted in most people having some form of shelter, but too many families are inadequately housed at the present time. I have no definite information as to the value and floor space of residences destroyed by fire, but the total annual fire loss is approximately $450,000,000, and many residences are torn down to escape tax rates which in recent years often exceed the earning values of city properties. Depreciation is also taking a constant toll. All this is a matter of common knowledge, and I think it is generally agreed that we are accumulating a large shortage of adequate housing. Eventually this situation must be met.

Should the shortage of housing become too acute, the cost of meeting it would be colossal. Therefore there is much to say in favor of any plan which will serve to gradually divert into the construction of needed housing, with consequent relief of unemployment, any accumulated funds possessed by people who really desire better housing but who do not have in hand sufficient funds to start. It is trite to say that the home owner is the better citizen

I have a few figures here showing the odd movements of invested funds. For instance, building and loan associations from 1928 to 1932 declined about $300,000,000. Life insurance in force declined from $108,000,000,000 in 1930 to $100,000,000,000 in 1932. But, on the other hand, postal-savings deposits increased from $119,000,000 in 1928 to $914,000,000 in 1933. Obviously people distrusted the ordinary organizations and shifted their funds into Federal control.

It is interesting to note that building and loan assets declined from $8,824,000,000 in 1930 to $7,745,000,000; that life insurance in force declined from $108,885,000,000 in 1931 to $100,154,000,000.

Conversely, postal savings increased from $127,639,000 in 1929 to $914,234,000 in 1933. As a matter of fact, this latter figure represents only the balance on deposit in banks, while the actual amount to the credit of postal-savings depositors at the end of 1933 was $1,208,844,000.

Savings and other time deposits in State and National banks declined from 1928 high to the end of 1932, while deposits in mutual savings banks advanced from $8,600,000,000 to $10,040,000,000 in 1932. Many of these depositors would build if afforded some financial assistance, and the employment brought about by construction activities would have a favorable reflex everywhere. It is probable that at the present time construction costs are lower than they will

be 2 or 3 years hence. So this would seem to be an opportune time to extend assistance to home builders.

In the matter of renovating and remodeling, there are many tenement properties rented by owners. I speak of this from a personal standpoint. In the State in which I am interested there are some 75 tenement properties that are rented. We cannot borrow on that commercially, because the revenues today are taken up almost entirely by taxes. Renovation of these properties is just as important as renovation of privately owned homes. Many of thes renters, owing to reduced income, have been unable to pay for adequate housing. The property owners, harassed by high taxes, have been unable to keep these tenements properly repaired and the low income from such properties has made it difficult for many of the owners to borrow for maintenance of these properties even when they wished to make repairs. I trust that some provision will be made in your legislation for taking care of this situation.

Senator KEAN. Let me ask you a question right there. Suppose the income from these houses is not sufficient to pay anything more than the taxes: Would you think it was a good loan for the United States to make on that property when the prospects are that you could not pay interest?

Mr. PUGH. I think it would be analogous to the statement that the gentleman from New York made about the man who had a house on which they had a loan and if they could have repaired the roof on the second story the rental of the second story would have taken care of the roof repairs. But today, taxes being a first lien on property, they just take everything away from them.

The possible conflict of interests between the agencies here proposed and those now existing will of course be considered from the larger viewpoint; but our industry, employing normally 100,000 men and now about 15,000, sees in this bill a possibility of a general and sound improvement.

That is all the statement I have to make, gentlemen.

Senator BULKLEY. Thank you very much.

Is Mr. Caffery present? (No response.)

Is Mr. Duke present? (No response.)

We will adjourn until 10 tomorrow morning.

(Whereupon, at 4:45 p.m., the committee adjourned until tomorrow, Thursday, May 24, 1934, at 10 a.m.)

FIRST ANNUAL CONVENTION-THE MORTGAGE CONFERENCE OF NEW YORKFEBRUARY 1, 1934, AT THE HOTEL COMMODORE, NEW YORK CITY

THE SMALL HOME SITUATION

(By Mr. D. E. McAvoy)

The Long Island Real Estate Board has welcomed the invitation to touch upon "the small home situation" at the first annual convention of the mortgage conference of New York. The board has delegated the presentation of its viewpoints on this subject to its mortgage and finance committee, on which I have the honor to serve with Mr. William McDermott, president of the Long Island Bond & Mortgage Guaranty Co.

While, without doubt, the small house question has some problems peculiarly its own, we do not believe that it can be treated strictly separate from the general housing problem. In marketing small homes on Long Island, customers

are drawn from the city at large. When this angle is viewed it is easy to understand its interrelation.

The purpose of this assignment, we understood, was to ascertain whether there is a need for construction in the small-home field. While an inspection of Queens, Nassau, and Suffolk Counties would reveal that there are relatively few unoccupied houses today, we do not feel, however, that this condition should be a sole index as to the need for new construction. We are in a period of transition-a state of flux-and financial reverses and upsets have occurred to many of the occupants of these houses, and many of these homes will be in the market for sale whenever there is a revival.

We regard as a more important aspect of this question-and the one that should be our guide the economic position of existing housing. Is it sound? Provided there is sufficient housing to decently shelter people, is it wise to bring more houses into competition with those already existing? Also, what types are really needed? Who can know in the absence of a true survey? Unquestionably, it is quite possible that cases can be found of new houses selling in various sections. Again, is this a true guide, when the strategies of sales psychology are analyzed? This year's motor car may be so improved with gadgets as to make an owner dissatisfied with a still good car of a former year, and these differences, by cultivation, can be so marked as to make him discard his older car as obsolete, when such, mechanically, is not its condition. This obsolescence during the last 10 years has been so speeded up by the manipulations of operators, heedless of true needs, that we seriously feel it must be controlled in order to safeguard equities of former purchasers as well as mortgage investments.

At the present time a majority of home owners are retaining their homes because of leniency being extended by mortgagees. A majority of mortgages are now running open and would be called if it were not for the existing moratorium. Any appreciable amount of money provided for new construction now would be the forerunner of wholesale foreclosures immediately upon the expiration of the moratorium, and new construction would so depreciate old houses that wholesale abandonment also would result with its attendant demoralizing effect on home ownership.

Present rent schedules both in private homes and apartments are below the minimum to justify existing mortgages. I understand that there are a number of apartment houses with occupancy well up to normal that are still in the red because of the greatly reduced rent schedules. Also a great number of owners of two-family houses have either vacant apartments, or, if occupied, the rent is far below the amount necessary to warrant the amount of the exist ing mortgages and leaves no leeway for the reduction of the mortgage, particularly because of the lowered personal income of the owner who, if he could, might be willing to carry on and meet his contractual obligations, despite his lowered personal income.

Home ownership developed tremendously during the expansion period following the war, largely because of the rents obtaining at that time. Today rental income is estimated at 65 percent as against 100 percent as of December 1928. Other commodity incomes show 85 percent, according to David Lawrence in the United States News.

During the same period we had a great natural increase in population, plus a crowding to urban centers because of the opportunities for remunerative employment. The automobile industry, relatively new, was growing at a rapid pace; the radio industry was likewise in a state of development; the use of electrical appliances advanced to a new high, and the moving-picture industry rose from an obscure position to take its place among the greatest industries in the country. During every period of prosperity some new and growing industry led the way, but in the decade immediately preceding the depression we had four. Today we have none in the offing.

It is said by advocates of new construction that our prosperity has always depended upon activity in the construction industry, and that the return of prosperity depends upon a renewal of activity in that industry.

The construction industry should realize that a proper cultivation of repairs and modernization of existing houses can furnish them, more soundly, with many hundred of millions of dollars per year.

Recognize the fact that more labor and building materials can be consumed in reconditioning and modernizing existing structures, with the salvation not only of owner but security investors, than really needed new construction could possibly give at the moment. When a property is allowed to run down,

both the owner and mortgagee suffer. Many times foreclosures are the result, in which event the mortgagee has to advance money to restore the property to salable condition and then seek a buyer. If one is obtained, it is usually one with a small amount of cash, and he may not be any better risk than the former owner, so that the position of the mortgagee is only technically improved. Under such conditions, the new owner has not the interest and will not make the sacrifices to maintain the property that the original owner would because of sentimental associations.

There are whole areas wherein properties are in need of modernization and repairs, or both, that will, with improved conditions, be abandoned if new housing is provided to any appreciable extent. Repairs and modernization should be supervised so as to provide not only for the physical preservation of the property but in order that it will be made desirable. After this is cared for, the construction industry, revolving through this gear shift, can tackle in a better day the enormous market of small houses, the "Fords ", so to speak, a possible billion or two in dollars per year. A market only feasible if home owning is made and proven safe.

For example, I know of one owner that recently reconditioned a frame building. It transformed the appearance of this building by encasing it in brick veneer and fire-proofing the roof with material of an attractive appearance; inserted a girder and lally columns in the basement, where too wide a spread would cause undue settlement, and water-proofed the cellar.

In addition to improving the appearance of the street, and contributing to community betterment, they sold the house to a buyer who would not consider the former building, and netted $1,500 over all expenditures.

The need for new housing at any time is dependent upon three major factors: (1) increase in population; (2) a rising standard of living; (3) shifting population. The increase in population has greatly slowed down due to our immigration laws and lowering of the birth rate. Rising standards of living are brought about by increased income, usually the result of business expansion and the rise of new industries, neither of which seems imminent. I do not refer merely to business improvement when I speak of business expansion. Shifting population, while creating prosperity in one direction, creates a problem in another, such as blighted areas.

The Long Island Real Estate Board, conducting the Long Island division of the home mortgage advisory board, in a valiant, constructive effort to forestall a paralyzing moratorium, had considerable opportunity during the past 18 months to realize the complexities and gravity of our present situation. The records have shown that in these times the average family cannot meet carrying charges and amortize their mortgage likewise. In the recommendations that this division presented to the Senate Banking and Currency Committee at a hearing last April, prior to the passage of the Home Loan Act of 1933, we advocated that the Home Loan bonds should run for a period of 30 years, instead of 15, as decreed; that the bonds should be guaranteed as to principal, as well as interest, so as to expedite conversion for the home owner, as well as to liquefy the mortgage holder; that the bond yield to the bond holder should be 3 percent, so that the annual carrying charges to the home owner, covering interest and amortizatiton should not exceed 61⁄2 to 7 percent.

Practical men realize that, where a home owner has difficulty in paying his 6-percent interest, without any amortization, it is impossible for him to pay about 8 percent, as the present act now entails. When the three-year period of grace from principal reduction is taken advantage of, as the majority will do, they are forced to amortize on a 12-year plan, which entails about 10 percent per annum. This will cause widespread default and retard the re-creation of a selling market. On the other hand, it is plain to be seen that, if the annual charges, covering interest and principal, are kept to within 7 percent per annum, infinitely more people can soundly maintain and carry their properties. It will likewise increase the re-creation of a selling market.

Under the Danish system, which has been in successful operation for many years, the home-loan bonds run for 40 years, and it has been said that they constitute the best collateral in that kingdom.

With an amortizing mortgage, at the end of 15 years the unpaid amount, in a majority of cases, will not much exceed the land value, so that there is really no real risk if houses are safeguarded from false obsolescence brought about by deliberate outmoding on the part of parasitic operators.

We suggested last April, in connection with the Home Loan bill, that suitable safeguards be set up to protect both the mortgage and home-owners' in

terest. We quote from a book that was distributed nationally by the Home Mortgage Advisory Board, of which Frank A. Vanderlip is chairman, and on which I serve as secretary, covering in extensive fashion a plan calling for a survey of building control, from which the following is taken:

"Set up in each Federal Reserve District by proposed governmental unit, with assistance of or in combination with the building-trades associations and realty boards, scientific surveys as to new construction so that the usual orgy of overbuilding in needed types will not be again experienced at the first upturn of business:

"(a) Every loaning institution to agree for a certain number of years to make loans on new construction only where approved under these surveys.

"(b) Realty, unlike any other commodity, presents unusual opportunities to control production so as to permit demand to equal supply, and thus resuscitate equities not yet destroyed-only submerged for the time being through such control of loans for new construction.

"(c) It must be kept in mind that part of these submersions of equities because of lack of apparent demand is due to doubling up'-sometimes 3 families to 1. This represents but a temporary compression of demand and not a permanent reduction. Reemployment will speedily end this unhappy situation which is contrary to our American standards and the demand for homes will speedily expand.

66 REFORM BUILDING METHODS

"(d) The governmental unit in connection with its advisory boards to formulate standards in keeping with the viewpoint that home construction is a 'longterm commodity.' That it should be set up with a probable life of at least 50 years' duration rather than to be shoddily constructed on the theory that it will become outmoded in a decade. Standards and regulations that fulfill will forever prevent the 'jerry' building episode witnessed in the past decade, since the speculative building field became infested with nonbuilder operators.

66 FOSTER COMMUNITY BEAUTY

"(e) The governmental unit in connection with its advisory boards to set up regulations relative to town planning, zoning, and architectural standards to prevent the infection of land and communities from architectural monstrosities-another byproduct of the jerry' builder. Such a department could also do much to work out ways in connection with modernizing; to offer suggestions to owners of existing buildings, how, by alterations from time to time, they could overcome some of the unsightly appearances that so many of these buildings now present, and how, by proper landscaping, a bleak environment can be transformed. Continued work of this nature would be of great aid to sustaining and improving values, both rental and sale."

At that time we further recommended that an appraisal standard should be set up so as to avoid the evil of reappraisals in the absence of any so-called "market." We recommended using 1926 values, plus subsequent improvements, less 15 percent.

Senator Couzens asked at that time by what percentage reproduction costs had been reduced from 1926 cost levels. My answer was 35 to 40 percent, but that this constituted no criterion, because lack of the financing element kept this from being competitive except on paper; at the first tide of recovery, prices would rise.

It will be conceded that since this statement was made in April 1933, building reproduction costs have increased approximately 25 percent. In view of the monetary change, fixing the dollar at about 60 cents, which is now an accomplished fact, we are urging that the Home Owners' Loan Corporation adopt the appraisal system advocated by us until a market is reestablished, and that this manner of appraising should be adopted for 1 year at least, or until such time as the situation does not call for a more liberal basis of appraising, for this well can happen, between the combined action of the monetary change and such changes of wage scales as may come under N.R.A. developments.

Summing up the "small home situation" and its relation to new construction, we would say: Have such construction as is needed, as shown by a survey or running inventory to be established through the cooperation of the Federal Government, the building trades and supply associations, and the realty boards. [Applause.]