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As this rate has not been maintained thus far, the average for the rest of the decade should be raised to 2,000, of which 1.1 to 1.5 should be new and 0.9 to 0.4 should be rehabilitated.

SUPPORT TO THE ECONOMY REPRESENTED BY RESIDENTIAL CONSTRUCTION Recessions tend to start and to be aggravated by declines in private investment, rather than by declines in personal expenditures. In constant prices, gross private investment declined by over 90 percent from 1929 to 1932, while personal consumption expenditures declined 17 percent. Though residential construction dropped in large part because of the collapse of the mortgage system-which cannot occur again-it nevertheless held up much better than investment as a whole. It represented 17.7 percent of total private investment in 1929, and reportedly 55.6 percent in 1932. It was reported as being three times the support to the investment segment in 1932 (when it was needed) as in 1929. New census data just coming out indicate that there may have been a good deal of residential construction going on outside of permit areas, and that actually residential construction may have accounted for two-thirds of all private investment in 1932. Residential construction represented 21.2 percent of private investment in 1953. If it is given a chance to return to its earlier place in the consumer budget, if bigger and better houses can again be financed, housing would represent nearly 25 percent of all private investment, and during a recession could be maintained at high levels (due to the backlog of unsatisfied demand for bigger and for better housing). This would prevent investment as a whole from declining far. This would help prevent a recession from snowballing, and make it possible to work out of difficulties in a short period.

If the value of new houses built were to be as large in relation to disposable income as they were 20 or 30 years ago, they would be 25 percent greater on the average than they are now. With the major decline in interest rate that has occurred, this would still leave the servicing cost of the capital far less in relation to income than it was 20 or 30 years ago. But it would increase private investment in housing by 25 percent and bring residential construction from 21.2 percent to 25.2 percent of all investment-assuming no change in other investment. But there would have to be changes in other investment, because this expansion in housebuilding would require more investment elsewhere to produce the larger amounts of material and equipment required. In the year 1954, for instance, this could cause an anticipated decline in capital formation to become an increase in capital formation.

This would be accomplished by increasing the limits of the 95 percent loan from $8,000 to about $16,000.

TABLE IV.-Relation of investment in new housing to gross private

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SIZE MORTGAGES IN THE TWENTIES'

The former Division of Building and Housing, established by former President Hoover in the Department of Commerce, made studies of mortgage financing methods in use during the 1920's.

One of the financing studies made by this Division of the Department of Commerce was an elaborate analysis of financing practices in a representative major city--Cleveland, Ohio. Assessements which were an 80 percent of market, could be used as a basis for relating mortgages to the value of properties mortgaged.

A sample of 2,231 mortgaged properties was selected, and the size mortgage placed on each property was related to the corrected assessment, or true value, of the property. The following table shows the result.

TABLE VI.-Percentage distribution of the ratio of total mortgages to corrected assessment value, by mortgagor (mass builder or owner builder)

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The ratio varied year by year. Higher mortgages were made early in the decade than were made after 1926, but even as late as 1928, when construction had dropped sharply, only 32 percent of the mortgages studied were for less than 80 percent of the estimated property value.

Another sample of 5,292 cases was used to secure information on the frequency of the use of second mortgages. It gave the following result:

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The practice of placing second and third mortgages declined after 1923, but at the end of the decade over 40 percent of homes being financed with mortgages still used junior liens.

TABLE VII.—Family income data relocation survey of the Gratiot Redevelopment Area, Detroit, Mich.

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Group A: Families eligible for permanent low-rent public housing only.
Group B: Families eligible for veterans' housing only.

Group C: Families eligible for both permanent low-rent public housing and veterans' housing.
Group D: Families ineligible for either.

TABLE VIII.-Relative use of FNMA by States relation FNMA holdings to United

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36. 89

TABLE IX.-Relative use of FHA by States 1952 FHA insurance per $10,000 in

Arizona

Utah.

come to individuals (by States)

$44. 88 | Alabama__.

$12.35

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Charts on the following pages show the transition of the secondary mortgage market portion of FNMA from a Government-operated, Government-financed organization to a Government-operated organization using private funds. The figures used in the charts are based on the following assumptions:

(1) That the Federal Treasury will furnish the original capital in the sum of $70 million;

(2) That users of the facility will buy certificates in the amount of 2 percent

of mortgages sold. Certificates to be exchanged for stock when total certificates equal $70 million Treasury stock.

(3) That FNMA will pay 22 percent to the Treasury in annual dividends on original capital and 22 percent on all paid-in certificates;

(4) Projected purchases, sales, average portfolio are listed by years on following page:

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