Contract Period

NON-OB FUNDS

7,363

RCJ/Nov. 15, 1973

TOTAL SITE COSTS

18,271

Mr. McCORMACK. Let me pursue this for a moment. For our own understanding, we can do a little bit of the seat-of-the-pants calculations here.

We are talking about 4,000 units altogether. I immediately ended up with $2,500 per unit, and I come up with $10 million for equipment. This, of course, is for the heating gear or the heating and cooling gear. It does not involve installation. That leaves us still 80 percent of our money, or $40 million total. As a matter of fact, I find the staff has come up with the same figure.

[Laughter.]

The staff has come up with a higher figure, but anyway, we have ballpark numbers here.

I would like to solicit your response to these numbers.

Mr. MICHEL. I would like to defer to Mr. Joseph Sherman, director of our Operation Breakthrough program, and I think you will find on the basis of the prototype nature of the units and questions of acceptability in the private market, it would be significantly more than the $50 million.

Mr. SHERMAN. I think in the Breakthrough program we found that when you deal with a prototype house, which at least initially the solar energy type house would be, that you find a reluctance or inability on the part of the builder to build. You find a reluctance on the part of the owner to own. You find a reluctance on the part of the insurer to insure and the mortgage banker to make a loan.

All of these things tend to generate into a significant problem area causing the expenditure of additional time and dollars. We found this problem in Operation Breakthrough where there was no highly sophisticated technology but rather adaptation of existing technologies into new uses.

We figured that the average price of a house would have to be double the intended market value to come up with a good working budget for a prototypical type of house. What we did was we built approximately 3,000 housing units on 9 sites across the country, which are not too different in scale from the program contained in H.R. 10952 and we found that those housing units, although we were shooting for an average of $20,000 apiece on the final sale in the market, cost the Government approximately $40,000 apiece.

Mr. McCORMACK. What were you building them for?

Mr. SHERMAN. To demonstrate new and innovative technology in the construction and planning of the house. You will have to go through a prototypical design process which itself is time consuming, and then you have to go through a demonstration process. Due to the prototypical nature of the program you will not be building at maximum efficiency based upon knowledge of the real market.

There is an additional problem associated with the solar houses that makes the acceptability even more in doubt than with houses built with new and innovative techniques. We have seen in at least some of the types of solar units that the house has a different appearance. You may have a house with a roof at a very high angle, for instance. You may also have a different composition of roof. The mortgage banker may turn around and say, "Look, I just do not understand that house, and I do not know how it is going to perform. I do not know if it will last the life of the mortgage. I do not know what my

risks are." This may be one of the single most important constraints to rapid development and acceptance of solar houses.

The Government will have to work with mortgage bankers to reinsure their loans in order to develop an understanding and acceptance on the part of the mortgage banker and acceptance on the part of the industry, in general.

Mr. McCORMACK. May I just interject that we have-you may be aware of the fact that we have-anticipated this facet of the problem. as well, and we have two companion pieces of legislation, one which stimulates tax incentives and one which stimulates mortgage incentives.

Of course, we see this problem much the way you have described it. I have commented that it is like pushing the entire society off the diving board at once, the construction industry, the homebuilding industry, the mortgage industry, and the individual citizen and everybody. That, of course, is the whole concept of this program.

So I very much sympathize, and we totally agree with the problems you are presenting here. Of course, that is what the whole program is intended to explore.

By the way, these other two bills on tax incentives and mortgage incentives one is drawn and the other is nearly drawn-we hope to have them soon available for review and critique. Maybe you would like to take a look at them. We would appreciate your comments and critique on them.

Mr. SHERMAN. An additional point I am trying to make is the homes must be acceptable to potential purchasers. I have seen statistics which show that the average turnover rate of the house is every 7 or so years and in the Washington area it is close to every 4 years. Housing is the single largest investment a person makes and there is a reluctance to go into anything very different and very new. In order to overcome this reluctance a sales and educational campaign is needed.

The point I am trying to make by all of this is that overcoming these problems takes time and money. That is why I have a problem with the $50 million for the solar devices, plus the ultimate demonstration of the 4,000 units.

Mr. McCORMACK. We very much appreciate that, and we hope you will provide us with all of the information you can possibly assemble. We will have it submitted and inserted in the record, and we will certainly benefit from your experience and your wisdom in this.

Mr. MICHEL. Mr. Chairman, we will not only do that, but I would like to offer any assistance to your staff in the process of drawing the bills if we can provide information.

Mr. McCORMACK. We appreciate that and will take advantage of

that.

By the way, Mr. Sherman, to respond to this problem of the buyer reluctance, we are including, of course, total life costs in the tax legislation and in the mortgage incentives program. I do not have the details of that.

Mr. SHERMAN. We provided some of that in the Breakthrough program and the guarantee that if anything happened to the experimental features of the house that the Federal Government would come in there and replace it with conventional construction, but people still