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I have brought a chart along to show just exactly what I mean, and what has occurred.
At the top you will notice the 2 different charts, 1 of business activity, which is the well-known Cleveland Trust chart, and the other is on real-estate activity, which is the Roy Wenslick chart.
You will notice, and we do know-we have had some very serious depressions especially in the 1870's, in the 1890's, and, of course, in the 1930's. In each case where we have had a business recession, plus real-estate recession, we have had a serious depression. In each case the real-estate recession has followed an excessive building of houses. You will notice in this chart that over these valleys and hills, in the real-estate activity chart, you have an idealized cycle of 183 years. Give and take 1 or 2 years more or less, the crest of a realestate boom, down to the valley in the recession, back up to the crest of the boom, is approximately 18 years. This chart is a chart representing the business activity and the real-estate activity for the last 100 years of our country.
Interestingly enough, if this chart were long enough you would find the same cycle going along from the year 1800 on. This cycle has continued on that basis over periods of 18 years, and you would find that the valleys and the crests of the booms were very similar, and corresponded with the depressions and recessions in business.
Now, I think in considering what we should do with this housing bill, we should recognize just exactly where we are in this cycle. This chart has been drawn up to January 1, 1954. You will notice that at the present time we are on the downgrade of our real-estate cycle, a cycle that has lasted for 150 years. We have also, as we know, constructed more housing in the last 8 years than in any other 8-year period in the history of our country.
Recently we have had some questionable repercussions in business, plus a large housing construction program and I think that we should recognize the fact that we may be in a vulnerable spot if we espouse and permit a forced increase in the construction of housing.
Recessions and booms in real estate have occurred in periodic cycles of fairly equal length. This is the longest perceptible business cycle and takes almost a generation to complete. Although undoubtedly affected by other business conditions, they are generally considered to occur independently of them. Consequently, we must come to the conclusion that a depression in real estate occurs for the normal causes, the existence of a buyer's market, which is caused by overproduction or excessive inventory.
The recession or boom in housing is further accentuated by two important characteristics seldom found in other commodities.
1. Homes cannot follow demand. Build too many homes in one city and you have a real-estate depression in that city regardless of how great the demand might be a hundred miles away. This can be cured only by the natural growth of population or the natural collapse of old houses in the community, both of which take a long time.
2. Housing is very sensitive to overproduction. Almost every commodity is susceptible to increased consumption except housing. No family can use more than one house in a given community. Consequently, too many houses does not mean more use of housing but
rather a vacancy of housing, thus affecting adversely the value of other housing in the community.
I have taken the liberty of considering some of the economic fundamentals of housing in order to emphasize the importance of housing and the ease of overproduction once supply and demand have come into balance. That it would be highly undesirable to undermine the value of the average family's and the Nation's largest asset cannot, I believe, be disputed.
Are we overbuilt?
One of the characteristics of a building boom is that it seems to feed on itself. Even at its crest most people see the need for more building and are fully convinced that it will continue. I think this is our situation today. Before we decide to go along with the crowd we must consider the following:
1. That the building boom has continued for over 8 years.
2. That much of this building has been fostered by increasingly liberal credit terms.
3. That we have more housing per capita than ever before in our history. If we occupied our housing as we did in 1940 we would have 6,500,000 vacant units, or 13 percent vacancy.
4 That the growth of our housing compared to the growth of our adult population indicates phenomenal growth in housing. Between 1940 and 1952 our adult population increased 14 million; our housing 12,700.000.
5. That our marriage rate has been going down for several years. At the present time it is at the lowest rate in 14 years.
6. That there will be fewer young people of marriageable age for the next few years than in the past few years.
7. That normal economic conditions will cause a contraction in the use of housing.
8. The clearance of slum housing and the rebuilding of slums will not prevent our overbuilt condition. However, it will give us a chance to build some extra units for direct replacement.
a. The need for rehabilitation is far greater than housing replacement.
b. We have a larger percentage of good housing in the country than ever before. It will be difficult to determine how much replacement we will need, and where, pending normal occupancy.
We can see there is ample evidence that we may be past the crest of the housing boom and evidence that we may be overbuilt. The provisions of our housing bill must be limited so that the civic benefits may be available without causing a surplus and destroying the value of existing housing.
We would like to discuss the various provisions of H. R. 7839, 83d Congress, 2d session. We are familiar with housing because housing is our business. More so we believe than the builder who builds the housing for sale, the real-estate broker who sells the housing for his commission, and the mortgagor who finances the transaction for his interest return. We are the ones who own and operate housing, it is our responsibility and our problem. We have the following suggestions, by section:
Section 101, title I, provides for repair and rehabilitation loans. We believe that this section provides for sound and beneficial help
to many homeowners. These loans are designed to encourage repairs and rehabilitation. Easily available they are made on a short-term basis.
We think that this financing should not only be easily available but easily payable. There is a great deal of sound, well-built housing in substandard areas which cannot be mortgaged because of its location. This prevents the repair or rehabilitation of property which otherwise could be saved. Maintenance and modernization of such property should be encouraged by easy long-term payments. A first mortgage will give ample protection. The increased maturity period will cut down the burdensome payments required by short maturity dates. Consequently, we offer the following proposal:
1. In the case of property without mortgage the maturity date may be increased to 10 years for single dwellings and 15 years for multiple unit dwellings where such loans may be secured by first mortgage collateral.
Providing money for rehabilitation is excellent, but we do not believe it goes far enough. Money is only one of the tools necessary for the repair and rehabilitation of property, but money is worthless without the know-how, ability, and understanding of how it should be spent. To remedy this problem we make the following suggestion: 2. That architectural advice be made available for contemplated improvements. That this be provided for a modest sum and that it be a preliminary requisite for the obtaining of such a loan.
On the next 2 pages, I have 2 examples of rehabilitations. They were included to show that it is possible to have a rehabilitation of a piece of property, and that it can be done very cheaply.
I think that a great deal of money has been wasted in these title I loans with ill-conceived rehabilitations such as brick siding, and asbestos siding, which, as a matter of fact, deteriorates the home a good deal more than it was when it started to be repaired.
Much of it is very expensive. It cannot be painted. It gets dirty, and after a certain time nothing can be done with it. I have actually seen a great many homes in Cleveland that supposedly have been rehabilitated, which will have become slum property forever, because of this stuff that was put on.
Mr. MCDONOUGH. Mr. DuLaurence, on this example you have here, you say a few months later and approximately $849. Was that just the refacing of the building?
Mr. DULAURENCE. The refacing of the building cost $849, as you see it. The rehabilitation before and after.
Mr. MCDONOUGH. What about the interior?
Mr. DULAURENCE. I haven't included any figures on the interior, because of the fact that it would be impossible to show the development of the interior.
But let's use this example that you have spoken of. If this property were refaced with asbestos siding, or some of the material that they use for that purpose, it would cost 2 and 3 times as much as this $849, wouldn't look nearly as well, and in 4 or 5 years the owner would find that it had been a complete waste of money.
The next page shows another rehabilitation of a house that was built during the 1870's. You will notice that it received a great many unflattering remarks at the time of the contemplated improvement. It was rehabilitated for the sum of $680, as you see here, and it made
a remarkable difference, and an improvement that will last. That is why we suggest that people must be given help and guidance at the same time they are loaned this money for their rehabilitation work.
3. That more rigorous rules be established to protect the homeowner from dishonest builders and unprincipled contractors. I believe the need for this suggestion needs no explanation.
SECTION 203-TITLE II HOME FINANCING
This section increases the amounts which may be loaned on 1 to 4 family dwellings in the following manner: 1 and 2 family, from $16,000 to $20,000; 3 family, from $20,500 to $27,500; 4 family, from $25,000 to $35,000.
We object to increasing of these loanable amounts, not so much because this tends to be inflationary, but because this insures mortgages on houses which closely approach the luxury class. A $20,000 mortgage represents a house valued at no less than $24,500, the house of a $10,000 to $12,000 a year executive.
Even if we do agree that this high-income-bracket housing classification has a right to Government help, I think we would also agree that easy credit of this kind frequently permits owners to overbuy or purchase a home which their income really doesn't permit. If we owe people a duty of helping them buy homes, we also owe them the duty of keeping them from getting head over heels in debt. Under the present law a house of just over $19,000 can be purchased under FHA insurance. That would seem ample for the ordinary needs of the average citizen.
HOME OWNERSHIP ENCOURAGED
For the reasons already mentioned we do not believe that a decrease in downpayments is either advisable or economically sound at the present time. Nevertheless, if this committee finds that there is a need for their further reduction then we have a suggestion which we believe is practical and which will cure the dilemma. This would tend to accomplish both objectives, that is, be economically sound and reduce the required downpayments.
We suggest that a special provision be made in the case of homes between the $8,000 and $15,000 price range. That these homes be sold under trusted mortgages or land contracts as follows:
1. Reduction of the original downpayment to one-half of schedule but in no event less than 5 percent.
2. Providing for enlarged or special amortization payments for the first 3 years, to take care of the difference.
3. At the end of the special amortization period the owner will obtain a deed to the property subject to normal financing.
We offer this as a possible solution to the pressure for lower downpayments but do not believe the insurable amounts should be increased nor the downpayments reduced.
SECTION 213- -COOPERATIVE HOUSING
This section provides for loans used for the construction of cooperative housing.
We believe it rather unfortunate that this section has been expanded to encourage families, especially veterans, to enter into this form of home ownership. When housing is scarce this may appear a desirable way of procuring a home.
Unfortunately the cooperative fails to do this on many counts. cept in a very few places and under unusual circumstances it has proved itself a poor investment. Its resalability is poor both as to facility and price. Neither physically nor psychologically does it give the feeling of home or home ownership. We think it poor judgment to encourage people to invest money in what has proven to be something of a white elephant in the past and what may well be one again in the future.
ARE THE COOPERATIVES FAVORED?
We fail to understand why the cooperative has the most libéral financing provisions in the bill. The housing provided seems to be the least desirable if past experience is any criterion. Actually this bill provides far more liberal financing to the cooperative than to the individual homeowner or private apartment operator.
Section 203, single to 4-family, 95 percent of first $8,000, then 75 percent, 30 years financing.
Section 207, private multifamily, 80 percent loan, 30 years financing. Section 213, Cooperative multifamily, 90 and 95 percent, 40 years financing.
It is difficult to see who can gain from this admittedly questionable promotion with the exception of the builders.
SECTION 220-REHABILITATION AND URBAN RENEWAL
This section provides for financial assistance in the rehabilitation of existing dwelling accommodations and the construction of new dwelling accommodations as an aid in the elimination of blight and slum conditions, and in the prevention of the deterioration of property loacted in an urban renewal area.
We believe that every reasonable means should be given cities not only to rebuild their slum areas, but to prevent the deterioration now in or closely approaching the twilight zone. We subscribe with all the conditions set forth in section 220 of the contemplated bill. We would like to suggest 1 or 2 others which we believe would be of great help.
EXPERT ADVICE NECESSARY
I do not believe that I am maligning people when I say that most people do not know how to redecorate, rehabilitate or remodel a home on a sound economic basis. They frequently know what they like, but invariably do not know how to achieve it. Consequently, a great deal of money is wasted through poor rehabilitation, poor planning, useless construction, which, once the newness wears off, causes worse looking slums than we had before. We suggest:
1. That every city certifying under section 220 hire or provide for the services of at least one architect, whose duty it will be:
(a) To furnish examples of modernized facades of the types of homes indigenous to the city, and