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GENERAL HOUSING

MONDAY, JUNE 7, 1948

HOUSE OF REPRESENTATIVES,
COMMITTEE ON BANKING AND CURRENCY,

Washington, D.C. The committee reconvened at 10:30 a. m., the Honorable Jesse P. Wolcott, chairman, presiding.

Present : Messrs. Wolcott, Smith, Kunkel, Talle, Kilburn, Cole, Hull, Banta, Fletcher, Nicholson, Spence, Brown, Patman, Monroney, Folger, Rains, Buchanan, and Multer.

The CHAIRMAN. The committee will come to order.
We will continue hearings on the housing bills.

We have a statement by Congressman Grant, of Indiana, our next witness. You may proceed, Congressman Grant.

STATEMENT OF HON. ROBERT A. GRANT, A REPRESENTATIVE

FROM THE THIRD DISTRICT OF INDIANA

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Mr. GRANT. My name is Robert A. Grant. I am a Member of Congress from the Third District of Indiana.

Mr. Chairman, at the outset may I thank you for the privilege of these few moments before the committee, and also may I commend the committee on the painstaking effort and study and care with which it has approached this problem of housing for America.

At the present time the house trailer industry is carrying the burden of a discriminatory "housing" tax, not shared by other types of dwellings, which is a considerable deterrent toward providing additional shelter for our people during the current housing shortage.

It is the 7 percent excise tax, charged on the purchase of a new house trailer under the automotive equipment section of the Internal Revenue Code. It strikes the particular group of home seekers who can least afford the tax, those who cannot purchase more expensive homes, and who are having the hardest struggle among all the population groups in finding adequate shelter.

The house trailer industry is the largest segment of the prefabricated housing industry. There are some 250 manufacturers of house trailers, compared to 60 manufacturers of prefabricated, or factory-built, locally assembled conventional homes. The output of the house trailer industry numbers some 70,000 units a year-last year, it produced 72,000, and expects to manufacture 100,000 units this year, if the industry can hold its market. The total output of other manufacturers of prefabricated homes is less than 10,000 houses a year.

So the house trailer industry is an important factor in the housing field. It has been estimated that more than 300,000 trailer-coaches, as

revenue.

they are termed by the industry, are in use, and that they house more than 1,000,000 people, or 1 out of every 143 persons in the United States.

The industry is capable of providing a house more economically than any other prefabricated manufacturer. A trailer-coach comfortably housing three people, with electric refrigeration, hot and cold water, shower, completely equipped kitchen, and completely furnished from living room to bedroom, sells for an average price of between $2,500 and $3,000 delivered to the consumer.

The excise tax on such a trailer-coach will average from $100 to $200, depending on its price range. This sum, in many instances, means the difference as to whether a young married couple is able to purchase one or not.

One of the most unjust factors in this matter is that it almost constitutes a special tax on veterans. At the present time, members of the trailer-coach industry, of whom many reside in my district, tell me more than 60 percent of all trailer-coaches sold are purchased by veterans, who probably have been hit harder by the housing shortage than any other single group.

Many of these veterans cannot afford to buy other types of homes in the current market, and so are least able to bear the burden of such a tax. Elimination of this levy will not greatly decrease the Government's

Last year, I am told, the collections on the excise-tax levy totaled $5,220,909, which is not a great sum in comparison with the figures we deal with today. The benefits to be derived from its elimination would far outweigh the loss of this sum to the Treasury.

There is an intangible factor in the use of trailer-coaches which I sincerely believe has a major bearing on the housing situation. Surveys of thousands of persons who live in house trailers show that most of them, through the savings they are able to make, and the equity they establish in purchasing their house trailer, are enabled to make a down payment on a permanent home and are thus started on the road to real home ownership.

This tax can most logically be eliminated by incorporation into the housing bill, the writing of which is now being considered by the Banking and Currency Committee of the House.

I should also like to urge the committee's consideration of a plan of accelerated depreciation for rental housing. I introduce such a bill, H. R. 6359, on April 27 last.

Under the bill any outlays made within the next 5 years for the construction of new rental units or the remodeling for rental of existing units could be written off in a much shorter period of time than is presently authorized.

Under today's practice, depreciation in such cases extends anywhere from 25 to 40 years, but this bill would permit expenditures for rental construction to be written off in a period not shorter than 5 years, the precise time to be at the election of the taxpayer.

Those in the industry who are best in a position to know are of the opinion that millions of dollars in the construction of new rental houses and apartments would spring up if a plan for accelerated depreciation were adopted.

The thread of a future recession in business might make a builler hesitate to invest funds in rental units that might later represent a loss. However, that possibility would be greatly relieved by this authority which would permit the writing off of that investment within the more foreseeable future.

The immediate effect of the plan would be to permit the taxpayer to plow more of his receipts back into his investment and thus temporarily reduce his tax liability. However, it would only hasten the day when the entire investment would have been written off, and the taxpayer then would have no more depreciation to claim.

It would not forgive the payment of anybody's taxes, but it would temporarily postpone the tax liability in these cases in a further effort to meet America's housing problem.

America's need for homes is so great and so urgent that bold action is required to meet that need. That need should be met by private industry and this proposal will provide an added incentive toward that end.

I wanted to comment briefly on two proposals, Mr. Chairman.

One is the proposal to lift the 7-percent tax on trailer accommodations which is now applied to the sale of all trailers; and, as I think your own experience will prove to you, as it does to me, that the trailer-coach today is being used by our people as temporary housing. There was a day when it was thought of as the toy of the wealthy man, but today it is being used primarily and almost solely for housing. There is no tax on the prefabricated house, but there is a tax of 7 percent on trailer-coaches—which I think is an undue burden on that industry and on the beteran or nonvetrean who must resort to that type of housing.

The other matter which I should like to urge, Mr. Chairman, is, I think, much more fundamental in this whole question of housing, and that is a plan for accelerated depreciation.

On April 27 I introduced a bill providing for such a plan for investment for rental housing, and I am convinced that such a plan, if incorporated in a housing bill, would be a great incentive to private industry to help lick this problem of which we are all aware and which we are all anxious to see solved.

To me it is one of the very foremost things that we should do to strike at this problem of housing in America.

Today an investor must be confronted with the knowledge that a housing unit that he shall build for rental purposes would be written off in a period of 20, 30, or 40 years, depending on the type of struction and perhaps the whim of the Bureau of Internal Revenue. If we were to permit a builder to write that investment off at a much more accelerated rate so that it could be written off in the foreseeable future, I am convinced that it would be a great boon to investors in rental housing.

It is true, there would be some temporary loss to the Bureau of Internal Revenue, but the ultimate loss would be little or none because it would only hasten the day when the builder would have no more depreciation to charge off as against his income, and he would be paying income taxes on the whole of his income.

Those are the two items I wanted to urge, Mr. Chairman, and I thank you again for the privilege of appearing before you.

The Chairman. Thank you Congressman Grant. You may supplement your remarks if you care to.

Congressman Reeves.

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STATEMENT OF HON. ALBERT L. REEVES, JR., A REPRESENTATIVE

IN CONGRESS FROM THE FIFTH DISTRICT OF MISSOURI

Mr. REEVES. Mr. Chairman and gentlemen of the committee, my name is Albert L. Reeves, Jr. I represent the fifth Congressional District of Missouri. I want to express my thanks to the chairman and the members of this committee for their courtesy in permitting me to make this brief statement.

I am very much interested in the housing legislation now under study by this committee. It is my conviction that direct and effective means must be employed to meet and solve the housing problem in the United States. The particular point I desire to discuss has to do with a proposal to authorize accelerated amortization, for Federal income-tax purposes, of that portion of the initial cost of construction of new rental housing which is recognized to be excessive and inflated. On May 11 of this year I introduced a bill, H. R. 6510, covering this situation.

The gentleman from Indiana, Mr. Grant, has already referred to his bill(H. R. 6359) on the same subject. No other bills having the same purpose appear to have been introduced in the House. There is a major difference between the two bills.

Congressman Grant's bill would authorize amortization over a period of 5 years of the entire cost—100 percent of the cost-of constructing multiple-dwelling rental units. I think that in this regard it goes further than the situation justifies. If adopted it would permit the builder to write off his entire investment in a period of only 5 years. There are many objections to that approach, in my opinion.

H. R. 6510, the bill which I introduced and urge the committee to consider, proceeds on a different theory. What retards the construction of rental housing today is the excessively high cost of construction-the inflated cost-which by shrinkage over a period of years, threatens substantial loss to the investor. H. R. 6510 eliminates that hazard by permitting rapid amortization of the inflated portion-but only of the inflated portion—of the cost of construction of rental housing units. It would permit one half, or 50 percent, of the initial cost of construction to be amortized over a period of 5 years at the rate of 10 percent per year, to be taken and allowed, of course, as a depreciation deduction for Federal income tax purposes. The normal allowable depreciation deduction is 21/2 percent per year. By this bill an additional depreciation allowance of 712 percent per year would be authorized. Over a period of 5 years the additional depreciation or amortization, allowed would total 371/2 percent, or slightly more than one-third of the initial cost of construction. There is ample evidence and authority to the effect that at the present time construction costs are inflated by just about one-third. H. R. 6510 is designed to permit the owner to recover that inflated one-third in 5 years as depreciation.

It seems obvious that if you can get the hurdle of inflated construction costs out of the way, private financing will be very much interested much more interested than it is now-in investing in the construction of housing for rental purposes.

There is a clear precedent for what I have proposed. Section 124 of the Internal Revenue Code contains provisions by which tar contractors were permitted accelerated amortization, by depreciation deductions, of the cost of construction of war plants. There is a plain parallel between that situation and the situation which confronts us now.

Simply for the record, Mr. Chairman, the accelerated amortization proposal is not offered as an alternative to or as a substitute for any other provision of the bill or bills before the committee, but on its own merits.

It seems to me that there are three qualifications, or changes which might well be made in connection with the provisions of H. R. 6510 if they are accepted by the committee and incorporated in the housing bill. H. R. 6510 now provides that the accelerated amortization may be taken on rental housing, the construction of which is commenced after the date the bill becomes effective. I think a specific date ought to be fixed, and I suggest March 1, 1948, which represents in most parts of the country the beginning of the construction season. In other words, the bill should provide that the accelerated amortization, or de. preciation, may be taken and allowed on rental housing, the construction of which is commenced on or after March 1, 1948. And I think there should be a termination date, as well. The accelerated amortization should be allowed only as to rental housing, the construction of which is commenced on or prior to a fixed date—say December 31, 1941.

Second, the accelerated amortization provision should be effective as to any particular rental housing property or project for a period of 5 years commencing with the first year in which the earnings of the property or project become subject to tax. I do not think that suggestion requires any amplification.

Third, because the housing problems of veterans are particularly acute and are entitled to preferential treatment, it should be provided that the accelerated amortization or depreciation shall be allowed as to rental housing—and I suggest this language—“in which preference is given to veterans for occupancy by applicable law, and the construction of which is commenced after March 1, 1948," or whatever date the committee fixes.

Mr. Chairman and gentlemen, it is my conviction that authorizing by law aceclerated amortization, or depreciation, to wipe out the inflated portion of the cost of construction of new rental housing will greatly stimulate the investment of private capital in that kind of construction, and would do more to produce additional rental housing than any proposal which has come to my attention.

I earnestly urge the committee to incorporate provisions to this effect in the housing bill now under consideration.

The CHAIRMAN. Is Congressman Hand here?
You may proceed Mr. Hand.

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STATEMENT OF HON. T. MILLET HAND, A REPRESENTATIVE IN

CONGRESS FROM THE SECOND DISTRICT OF NEW JERSEY

Mr. Hand. Mr. Chairman and members of the committee, it seems to me there can be but little objection to the policy of this housing proposal. It properly recognizes that the welfare and security of the Nation, and the health and living standards of the people require production of residential dwellings and community development sufficient to remedy the admittedly serious housing shortage. It further proposes the beginnings of a program to eliminate slum areas, and sets forth these basic principles:

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