profit groups build housing which these families, i. e., middle-income families, can afford.

For the past several years, the Government has been concentrating much of its efforts in the housing field to stimulating greater activity on the part of private enterprise in serving the needs of the middleincome market. Today, the necessity for greater and more generally effective activity in this area is more important than ever. This results from the fact that high prices and costs of housing have tended to price many middle-income families out of the market at the same time that the housing shortage has seriously limited the supply of adequate existing housing available to them at prices they can afford. This has not affected all middle-income families equally, it is true. Many such families have been able to satisfy their housing needs. Nonetheless, some middle-income families in most areas have been priced out of the market, and many such families have run into difficulty in high-cost areas. The problem has been most acute for families who, for economic or other reasons, should rent rather than buy.

The provisions of title I of S. 2246 as reported by the Senate Banking and Currency Committee are designed particularly to increase the effectiveness of the Federal Government's aids and incentives to private enterprise to expand its operations in the middle-income housing market. For the most part, these proposals would carry further in practice the policy, now firmly established in FHA legislation, of directing the most liberal mortgage-insurance aids to housing in the lower rent and sales brackets.

However, as I am confident your subcommittee realizes, not withstanding our present and other proposed additional measures designed to expand the effective area of operations for private housing, it is clear that there will remain a considerable segment of the middleincome housing market which will not be everywhere served by the current production of private industry, or by the existing inventory of older housing. The program which we are now recommending is designed to help private enterprise meet those further needs.

It is important that no single proposal should be regarded as the total program for encouraging the production of housing for middleincome families. On the contrary, each should be properly viewed in the context of the total-as an added factor to supplement existing activities and other Administration proposals already pending before the Congress or included in these amendments.

Before I discuss the principal features of the new middle-income proposal, I should like to define broadly the income range of these families and their position in the housing market in terms of the rental equivalent which they can afford to pay.

On the basis of hitherto unpublished data collected by the Bureau of the Census for the year 1948, we are able to present a much more up to date picture of what is meant by the phrase "middle-income" than was possible last spring or summer. For the purposes of this discussion, the middle-income housing market for the country as a whole can be defined as comprising those urban families of two or more persons whose cash incomes were between $2,700 or $2,800 and $4,400 a year. Approximately one-third of the urban families in this country had annual incomes within that range during 1948, according to the latest census study.

Senator LONG. You say approximately one-third of the families had incomes-do I understand one-third had incomes over that? Mr. FOLEY. Yes; as the table will make clear.

Senator DOUGLAS. You are speaking of urban families; not of families of the country as a whole?

Mr. FOLEY. That is correct, so far as the figures of $2,800 to $4,400, which I just gave as representative of the country as a whole. The table furnished to you, however, gives further break-downs, which I should like to discuss briefly.

We have supplied to your subcommittee a compilation based on this Census study which gives a good picture of 1948 income distribution. I should like particularly to call attention to the last five columns of the table which relate incomes to the size of the communities where these families live. It will be noted that in cities with a population of one million or more, one third of the families had incomes within the range of $3,135 to $4,841. In smaller communities, the income range for the middle third of the population dropped somewhat, until in communities of 2,500 to 10,000 population the range is $2,451 to $3,929.

(The table referred to will be found on p. 37.)

Mr. FOLEY. Having defined the middle-income housing market for the country as a whole, in these terms, let us examine what rent or rental equivalent families within these income ranges can afford to pay. On the basis of the usually accepted rule of thumb that monthly expenditures for shelter should not exceed 20 percent of income, housing for middle-income families should be available at shelter rents ranging from $45 per month to $73 per month, or at a median shelter rent of approximately $59 per month.

I should like to make perfectly clear to your subcommittee what is included in our definition of "shelter rent." For this purpose we have defined shelter rent as including the total amount which must be paid by the tenant, exclusive of utilities. In the estimated rent and cost schedules which I will summarize later for you, we have estimated the cost of utilities at $8.50 per month. In effect, then, gross rent, which can be defined as the total amount a tenant occupant must pay on the median basis we are discussing, would be about $59 plus $8.50, or $67.50.

One useful guide in making analyses of this sort can be found in the FHA statistics on mortgage characteristics analyzed on the basis of mortgagors' income. For example, during 1948 mortgagors with an effective monthly income of $250 to $300 purchasing new homes were undertaking a total monthly housing expense of $70.66. "Monthly housing expense" for this purpose includes mortgage payments, maintenance cost, and operating expenses. The average mortgagor in this income group had an effective monthly income of $262.44, so that his monthly housing expense averaged almost 28 percent of monthly income. Statistics from this particular group of FHA mortgagors have been selected because they fall roughly into the middle-income group which we are discussing this morning.

Under the terms of the amendment dealing with cooperatives and nonprofit organizations which we have recommended, we have reason to believe that it will be possible to obtain rentals closely approximating the range which an analysis of current incomes shows to be necessary. It is our expectation, in fact, that rents can be reduced approxi

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mately 25 percent below rents currently being obtained in FHA section 608 rental projects.

Admittedly, the figures on "monthly housing expense" on sales housing, because they include equity payments, are not strictly comparable to rent charges. Nevertheless, the fixed amounts which must be paid each month, as a percentage of income, do give a good indication of the relative ability of middle-income families to pay for their housing. Since, particularly for middle-income families, it is the monthly cost which determines the type of housing which such families can afford, the comparison is significant.

Like the present title III of S. 2246, the proposed amendment relies on cooperative and nonprofit organizations as a means through which additional housing for middle-income families can be obtained. I should, therefore, like to make perfectly clear why I believe that organizations of this type hold special promise for added progress toward attaining our total housing objective in the middle-income field, and thus warrant the encouragement and assistance which the proposed amendment would provide.

The cooperative principle is as old as America. It has proved tremendously successful in many fields. The various agricultural cooperatives in the production and marketing field are, I suppose, the finest example we have of the desirable results which can be obtained through cooperative organization.

Our basic problem is, after all, one of further cost reductions, in construction, financing, or maintenance, or, preferably, by a combination of economies in all three. Cooperative housing and nonprofit housing offer great promise of achieving such cost reductions because of savings immediately obtainable in operation and maintenance, and potentially, in construction costs. Further, the amendment provides an economical financing system, since all economies obtained by cooperatives or nonprofit organizations are automatically translated directly into reduced charges to the consumer.

There are many reasons which are frequently cited as to why the development of housing cooperatives has not been more widespread. Certainly one of the principal obstacles, on which almost all authorities agree, is the extreme difficulty which groups of would-be housing cooperators have ordinarily found in obtaining the necessary financing of their operations. Another is the lack of accumulated experience, such as exists in other areas of housing, through which groups of prospective cooperators would be assisted and guided in proper organization. The organization of a cooperative for the purpose of producing or owning and managing residential property is admittedly not easy, but the successful ventures which have been made and the success of the cooperative principle in other fields make me optimistic as to the possibilities for accomplishing true total housing cost reductions through cooperative organization and have convinced me that the time is ripe for the initiation of a vigorous program to show that real progress can here be made through the application of the cooperative principle to housing.

It is noteworthy, from a study of various cooperative housing undertakings in the country, that the difficulties I have mentioned have often resulted in enterprises finally only partially using and benefiting from the cooperative principle.

Essentially the aim of the proposed amendment is to make it possible for cooperatives to be properly formed, and soundly organized, to be given a good start, and to be assured of reasonable financing, supplied by private investment capital.

The amendment provides, first of all, that the Housing and Home Finance Administrator shall undertake a program of technical advice and assistance in the organization of cooperative and nonprofit housing corporations. The carrying out of this responsibility would require the development of recommended plans and methods for the sound organization of cooperatives, including technical advice and assistance in their formation, and in the planning, construction, and operation of their projects.

We believe that this is a function which must be undertaken at the outset if a fair and practicable opportunity is to be given to fully test the usefulness of cooperatives in the housing field. It is a type of activity no different from that undertaken from time to time in many other areas by the Federal Government. It would be similar to the professional and technical guidance supplied through the Department of Agriculture that has accomplished such outstanding results in the farm field. It would parallel the technical service and assistance that was undertaken through the Home Loan Bank Board in the Federal savings and loan field when authorization was first given for the chartering of those institutions. It is entirely comparable to the great variety of services rendered to the building industry, land developers, mortgage lenders, and individuals in the Federal Housing Administration program.

The amendment provides that this function be performed as a public service and that it be handled from a division within the Housing and Home Finance Agency. I know there are some who believe that there should be created a separate constituent agency, within the Housing and Home Finance Agency, with a statutory responsibility for handling these activities. While I appreciate the sincerity of purpose which undoubtedly motivates such recommendations, I do not believe that it is consistent with sound principles of efficient Government organization. It is certainly inconsistent with the recommendations of the Hoover Commission. It would be directly contrary to the policy established last year by the Congress in providing that the newly established, important program for the clearance of slums should be handled by a division within the Housing Agency, just as is contemplated by the proposed amendment. Moreover, if the program contemplated by the proposed amendment is successful, the time will come when these advisory activities need not be continued on the scale which will be necessary at the outset. Therefore, by any practical test, the provisions of the proposed amendment to provide such services through a division within the Housing Agency seem obviously more sensible and economical.

Related to the task of giving technical advice and assistance in the formulation and organization of cooperatives, is the task of providing adequate funds for the development of plans and specifications for a particular housing project. The amendment authorizes the Housing Agency to make preliminary advances of funds to housing cooperatives and nonprofit housing corporations to enable them to formulate specific plans for the projects they propose to undertake.

The provisions of the amendment relating to preliminary advances impose on the Administrator a responsibility to administer such planning advances in the soundest and most economical way. The advances are limited to the amounts required for necessary work preliminary to construction and may not exceed, in any event, 5 percent of the estimated cost of the project. It is probable that the maximum would be required only in the case of relatively small projects, and that on larger projects such advances would probably run to about 3 percent of estimated project cost. These advances would, of course, be paid out only as actual progress was made in the formulation of the project and the actual preparation of plans, thus reducing the risk involved in making them. The advances would be retired out of the proceeds of the permanent loan on the project.

As your subcommittee is aware, it is customary to capitalize in the cost of a rental project preliminary expenses, including architectural fees and supervision. In the administration of the section 608 rental housing program, for example, amounts up to 5 percent of project cost may be included for these purposes. Similar expenses must be incurred by cooperatives and nonprofit corporations, of course. Because actual experience has demonstrated the extreme difficulty which. such organizations have encountered in their efforts to obtain funds. for this purpose from normal lending sources, the amendment authorizes short-term advances to be made directly by the Housing Agency. It should be clearly recognized that a new program relying on the formation of what, in many areas, will be a new type of private enterprise group may well be seriously impeded without provision for some relatively small preliminary advances to enable such organizations to undertake and pay for the complicated job of formulating a housing project or development. I heartily endorse the establishment of an adequate revolving fund to be used for this purpose under proper supervision and regulation as contemplated by the amendment.

In favorably reporting title III of S. 2246 last year, the Senate Banking and Currency Committee has already approved in principle the recommendation of the President in his state of the Union message last week. This called for the enactment of legislation authorizing a vigorous program to help cooperatives and other nonprofit organizations build housing which middle-income families can afford, as one of a series of aids to private enterprise.

Senator MAYBANK. Mr. Foley, you have called attention to this phrase "private enterprise" several times in your statement. You are going to enlarge upon that, are you?

Mr. FOLEY. Yes, sir.

Senator MAYBANK. Thank you.

Mr. FOLEY. In my judgment the most important feature of the amendment is that it would perfect title III of S. 2246 by making it possible to carry out this program through the investment of private capital in housing projects undertaken by cooperatives and nonprofit. corporations, thus eliminating the necessity for direct Federal loans, as originally contemplated.

Senator MAYBANK. In other words, by this amendment we are to have private enterprise wherever possible instead of the Federal Government, in your opinion?

Mr. FOLEY. Yes, Senator. I will expand on that as I go along.