2. In any resale or rerenting, provision is made for a veterans' preference period of 7 days. (In any first sale or renting, the preference period is the period of construction or conversion and 30 days thereafter.)

3. Prefabricated houses and dwelling units covered by a cooperative mutual ownership or similar plan are specifically included in the definition of housing accommodations to which veterans' preference applies. In applying veterans' preference to prefabricated houses, the period of erection will have the same significance as the period of construction has in the case of conventionally built housing.

INCOME OF LANDLORDS

Your committee has heard much testimony on the unfairness of holding rents down while not controlling any other group in our economy. Your committee looks with sympathy on many cases where landlords have received reduced incomes on their property, and it was for that reason that in the Rent Control Act of 1948 additional avenues of increasing rentals were provided for all landlords, particularly the small ones.

Your committee feels that the public generally, and especially the landlord, is not always fully aware of the economics or the accounting of renting. Your committee threfore desires to emphasize that the important item to landlords is the net income they receive from their rental property and not the rent the tenant pays.

This fact appears to have been generally overlooked. As a result the rent control issue has been confused.

It is, therefore, important to keep in mind the three terms: "gross income," which is the amount of rent paid by the tenant; "net operat ing income," which is gross income minus operating expenses; and "net income," which is "net operating income" minus interest and depreciation. Net operating income and net income are residuals and, therefore, slight increases in gross income or slight decreases in expenses can result in great increases in the net profit which goes to the landlord. An example of how this works out is given below:

Assume a house is worth $6,000 and has a monthly rent of $54.50, but is only rented 11 months of the year with 1 month's vacancy. The gross rent would be 11 times $54.50, or approximately $600. Assume heat costs $175, taxes $100, insurance $25, and repairs or decorating $50. Total expenses equals $350 and net operating income would be $250. Depreciation on the house over a 40-year period at 21⁄2 percent per year would amount to $150 per year. Assume a $1,000 mortgage at 5 percent interest, the interest charge would be $50 per year. A $250 net operating income less $200 would leave $50 net

income.

Assume that the house is rented 12 months instead of 11 and that the operating costs and fixed charges are the same. The net income rises to $104 or 108 percent. In other words, a slight increase in gross income, if unaccompanied by changes in expenses, results in a great increase in net income. Now assume that the landlord ceases to decorate the interior of the home, the $50 item would be deleted and the net income would rise to $154 or threefold the original $50. This example illustrates graphically how a slight increase in rent can result in a very large increase in the net return to a landlord'

In a period of normal rental operations landlords generally have always had some vacancies (in 1939 the vacancy loss for the country was estimated by the Bureau of the Census to be between 8 and 9 percent in 1946 the vacancy loss had dropped to less than one-half of 1 percent). Now vacancies have practically disappeared.

This has had a decided effect on the net operating position of landlords and their net income.

While the price for interior decorating and maintenance and the price of heating fuel have risen since the inception of rent control, in most instances landlords do not pay for the heating fuel and to a large extent they have been able to reduce greatly the amount of interior decorating required for their rental properties. The effect of this has been that while the charges for their services have gone up, the actual expenses of landlords have not risen nearly as much as the increases in wage rates and prices would appear to indicate.

While no accurate information is available on landlords' net operating income since June 30, 1946, the Office of Price Administration estimated for the period ended June 30, 1946, the net operating income for large apartment structures had risen over 1939 by 28 percent and the net operating income for small structures (four units or less) had risen 43 percent. The Office of Price Administration also estimated that in 1946 net income increased by at least three times the increase in net operating income.

Because your committee has no accurate information since the year 1946 concerning landlords' net operating position and owing to the many complaints of real hardship on the part of landlords, the committee has provided for a general Nation-wide rent increase for those rental properties which have not had 15-percent rental increases on the basis of voluntary leases or recommendations of local advisory boards.

GENERAL RENT INCREASE

In an effort to generally relieve landlords of any hardship which might exist, your committee decided to increase maximum rents on October 1, 1949, and again on April 1, 1950, by 5 percent of the maximum in effect on June 30, 1947. The maximum rent for no accommodation is to be increased under this provision more than 15 percent of the maximum rent for such unit which was in effect on June 30, 1947, plus or minus applicable individual adjustments made since June 30, 1947.

In one case called to your committee's attention in granting the general rent increases on an area-wide basis, the Housing Expediter has required each landlord to file a petition for each rental unit affected by the general rent increase. In such a case individual rent adjustments when made pursuant to and as part of a general rent increase are to be considered general rent adjustments.

Cases where the maximum rents have been increased by means of valid leases pursuant to section 204 (b) of the Housing and Rent Act, are to be treated in the same manner as those cases where the rents have been increased pursuant to a general grant of the Housing Expediter.

In view of the provision for over-all rent increases, your committee hopes that during the next year the occasions on which the Housing Expediter shall be called on to grant hardship adjustments will become few in number.

Your committee thinks that the Housing Expediter should in the future modify his regulations so as to grant rent adjustments on the basis of comparability only in cases where the maximum rent is abnormally low due to peculiar circumstances. Your committee had brought to its attention a number of cases where exorbitant rent increases were granted on company-owned housing on the basis of comparability. Your committee is of the opinion that where rent increases are applied for in such instances, the Housing Expediter should treat them on somewhat different basis than comparability. Your committee feels strongly that such precipitous increases in rents in any community can only result in great hardships not only on the tenant but on the whole community and is not in keeping with our intent in enacting a fair rent-control bill. The historic differential which has existed between the rents on such housing and rental housing available in the general market should be preserved. The rents on company-owned housing has historically been established by the management on the basis of collective bargaining or employment practices in the industry. Precipitous increases in these rents will to make existing employer-employee collective-bargaining relations intolerable.

DURATION

After weighing the evidence_received by it during the hearings, your committee decided that Federal controls ought not to be extended at this time beyond March 31, 1950, insofar as rent controls in general are concerned, and June 30, 1950, insofar as eviction controls are concerned. It therefore provided in the bill that the rent control portion of the Housing and Rent Act of 1947, as amended, should terminate on March 31, 1950. However, the Office of Housing Expediter would be continued through June 30, 1950, for the purpose of exercising controls on evictions. In order to protect the tenant in occupancy on March 31, 1950, the bill expressly provides that if such a tenant during the following 3-month period pays the rent to which the landlord is entitled after the 5-percent increase in maximum rents which will occur on April 1, 1950, that tenant cannot be evicted merely because he refuses to pay more than that amount of rent during the 3-month period. However, housing accommodations becoming vacant during the 3-month period are automatically decontrolled as far as the Federal rent-control law is concerned.

STATE ACTION

Your committee wishes to emphasize that the various States should immediately concern themselves with the matter of deciding whether they deem it advisable to control the maximum rent charged for residential accommodations in all or any portion of the State. To implement the policy of granting the States the authority to make the final determination on this matter, the bill provides that Federal rent controls shall cease in any State where either (1) the governor certifies that an adequate State rent-control law has been passed, intended to supersede the Federal rent-control law, or (2) the State by law duly enacted declares Federal rent control is no longer necessary in the State or in any particular part of the State, and notifies the Housing Expediter of that fact. Should the State provide for State rent

controls, the officials administering that program for the State are entitled to receive upon request the files of the Office of Housing Expediter concerning Federal rent controls in that particular area. It should be noted that if any particular State passes a law providing for State rent control and provides that it is intended to be in lieu of Federal rent control, the governor still has the discretion of deciding whether that State rent-control law in his opinion adequately provides for rent control in the areas in the State governed by the State law.

RECONTROLS

The present law exempts from the definition of controlled housing accommodations any motor court, or any part thereof, and any trailer or trailer space, or any part thereof. It has been brought to the attention of your committee that in certain areas of the country there may be considerable doubt as to the justification of this exemption for housing accommodations of this type which are used for permanent occupancy. The bill as reported by your committee, therefore, permits the recontrol of motor courts, motels, trailers, or trailer space which on March 1, 1949, were rented for permanent occupancy, but only upon recommendation by the local board if in its judgment the demand for such rental housing accommodations has not been reasonably met in the area concerned.

It will be recalled that under existing law there is excepted from the definition of controlled housing accommodations those housing accommodations in hotels which are occupied by persons who are provided customary hotel service. This had the effect of decontrolling many units otherwise in permanent occupancy in residential and apartment hotels. Under the committee amendment accommodations in hotels, even though provided services of the character defined, will be recontrolled unless they were used for transient occupancy on June 30, 1947. Housing accommodations in permanent occupancy in apartment hotels and residential hotels should be treated in the same manner as other permanent housing, particularly since control is exercised over almost identical units in apartment houses. It is provided, however, that in the case of such accommodations which are recontrolled, the maximum rent shall be the rent in effect on October 31, 1948.

Your committee also recommends that there be included authority for recontrolling, on the recommendation of a local board, housing units not rented for a 24-month period after February 1, 1945. Decontrol of housing units not rented for a 24-month period after February 1, 1945, as provided in existing law, has not accomplished the purpose for which it was designed. Instead of resulting in any substantial addition to the supply of rental housing, it has been used to effect decontrol of housing accommodations through mere shift in occupancy; that is, a landlord would evict a tenant from a controlled unit for his own occupancy and then rent on a higher basis the unit which he previously occupied.

In the past 2 months area rent offices made investigations of 13,416 permanent hotel units, and units not rented for a 24-month period after February 1, 1945. The present average rent of these accommodations is 60 percent higher than their average previous rent or comparable controlled rent.

Your committee received evidence to the effect that the decontrol of areas by the Housing Expediter could be hastened by him in several instances if he were given the power to recontrol such areas in the event that such action becomes advisable because of the development of a scarcity of rental housing due to national defense activity or change in employment or other conditions, or due to an actual or imminent unreasonable increase in rents. The bill grants such a power to the Expediter provided that the appropriate local board recommends that he take such action, upon a determination by the board that such scarcity of rental housing has developed or an unreasonable increase in rents has occurred or is about to occur. It is the opinion of your committee that the local board, which represents the affected interests in the particular area in question, is the best body to determine initially whether conditions exist in the area which would warrant its recontrol. As a safeguard to the adequate determination of local conditions, the bill requires that the local board follow the same procedure in this respect as it does at present with reference to recommendation for decontrol of an area.

In order to insure that there will be a local board which can make the determination required to recontrol an area, provision is made for the reconstituting of a board, if necessary, meeting the requirements of the act, in the same manner as the local boards are originally nominated and appointed.

CONVERSION DECONTROL

Your committee was in receipt of testimony to the effect that the provision in the present act providing for decontrol for housing accommodations provided by conversions was abused by landlords who "converted" premises for the sole purpose of achieving decontrol of the accommodations. To prevent the continuance of such abuse, the bill requires that accommodations created by conversion after the effective date of enactment of the Housing and Rent Act of 1949, shall not be decontrolled unless and until an order shall have been issued by the Housing Expediter which he shall issue if he finds that the conversion actually resulted in additional self-contained family units.

CRITERIA FOR MAXIMUM RENTS ON RECONTROLS AND NEW CONTROLS

For those areas or accommodations which may be recontrolled or brought under control for the first time by virtue of the provisions of the bill, three general criteria are established for determining the maximum rent. The maximum rent is (1) the maximum rent last in effect under Federal rent control, if the housing accommodations involved were formerly under Federal rent control, plus or minus applicable adjustments; or (2) the rent charged in the area for comparable housing accommodations, plus or minus applicable adjustments, if the accommodations were never under Federal rent controls; or (3) the rent in effect on October 31, 1948, for recontrolled permanent accommodations in hotels.