Mr. KNOWLES. No; I do not, Dr. Smith. I do not think that would be true a hundred percent, however. I am sure that it is contemplated that in some instances the land would not be on Government property. Mr. SMITH. Do you envision some possible untoward implications in a program of this kind?

Mr. KNOWLES. Some, yes.

Mr. SMITH. Do you not think, as a contractor, and in the high position of responsibility which you occupy, that we ought to find some way to do this without going into an abnormal program of this kind?

Mr. KNOWLES. I think I indicated, Dr. Smith, that I thought the normal and preferable solution of the problem would be to have these houses built as the property of the Government on Government-owned land. I said that at the outset, and I still think so. But if it cannot be done that way, if appropriations are not available, the urgency of the need for housing at these installations is tremendously great, I know that. And I think that, as perhaps an emergency measure, some legislation of this kind might be justified.

Mr. SMITH. Has the Congress refused to appropriate money for the building of these houses? Has the proposition been put up to Congress and has it met with refusal?

Mr. KNOWLES. That I cannot say, sir.

Mr. SMITH. May I ask that question of Mr. Foley?

Mr. FOLEY. You had better ask it of the military, Congressman. I do not know. It would be their appropriation.

Mr. O'BRIEN. There has been testimony to that effect already; that they got an appropriation but that it is not sufficient; that it was only a small fraction of the total need.

Mr. KNOWLES. The Budget Bureau could probably answer that question, Dr. Smith.

Mr. SMITH. Well, I am not questioning the need for the housing at all, but I do seriously question a proposal of this nature. It is so out of the ordinary, so bizarre, you might say, that it puts a big question in my mind as to whether the Congress of the United States ought to undertake a proposition of this kind.

We have areas, for example, which, undoubtedly, will be abandoned. That is, the Military Establishment will either move somewhere else or will be disbanded. And there will be those houses. That is one phase of the thing. In my mind, to build a private house on Government-owned property is questionable.

Mr. NICHOLSON. Mr. Chairman.

The CHAIRMAN. Mr. Nicholson.

Mr. NICHOLSON. I am still interested in what Dr. Smith said, and the report of Mr. Symington was that in 1947 they built 4,018 houses. In 1948 they did not build any. In 1949 they built 907. So evidently somebody in high places did not think it was necessary for the armed services to have money sufficient to take care of these problems. Mr. KNOWLES. They may have thought it necessary, sir, but perhaps could not get it.

Mr. NICHOLSON. Could not get it from the Government?

Mr. KNOWLES. That is right. Could not get the appropriation. Mr. NICHOLSON. In other words, they did not believe the armed forces needed this. If they did think so, they probably would have made some provision for it.

Mr. TALLE. Mr. Chairman, are there representatives here from the military?

The CHAIRMAN. They have testified. Their testimony is in the record.

Mr. TALLE. If they are here today, I should like to ask what has happened since the war to require this sort of proposal at the present

time.

The CHAIRMAN. We will give you an opportunity to do that, Mr. Talle.

If there are no further questions of Mr. Knowles, he may stand aside. Probably Mr. Foley would like to discuss the suggestion made by Mr. Knowles as to the 95-percent insurance.

Mr. FOLEY. Yes, I will be very happy to, Mr. Chairman, because I think it is an extremely important point. The whole matter was discussed very thoroughly in all of the studies that we made on this problem, and there was considerable debate upon the question of 95 percent limitation in the Senate hearings.

The administration has taken the position that the 95 percent proposal is, from its experience and study, unnecessary to accomplish the purpose designed in the bill, would unduly and unnecessarily increase the risk to the Government and consequently to the taxpayer, and that the housing, to the extent contemplated, with a billion dollar authorization, can be achieved through private enterprise, to the best of our judgment, after much consultation with the builders, under the 90 percent limitation.

There are various reasons for that which I would like to discuss very briefly, and probably Mr. Richards can furnish more detail. In the first place, it must be remembered that we are concerned not only with a builder or sponsor for such a project, but we are concerned with a lender. The proposal here is private enterprise, to the full extent, subject, of course, to the assistance given by the insured mortgage procedure.

There is, I am afraid, a rather general misapprehension as to what is the attitude and the motive of lending institutions lending private capital on housing in connection with insured mortgage procedure, to the effect that they will make any loan that the Federal Housing Administration can insure. As a matter of fact, lenders making such loans with private capital are seriously concerned with getting the type of a loan that they can reasonably assume will continue to be operated by the sponsor. They are not particularly interested in getting loans which they have reason to believe may result in failure.

There is very much question in our mind that you would find private lending institutions prepared generally to make 95 percent loans, even though insured, on this type of project, as against, for instance, their readiness to make a 95 percent loan for a single-family house in which the borrower is the owner and occupant.

On the other side of the picture, we have had a great deal of consultation with builders, we have had a great deal of experience with builders in connection with rental housing projects, and we have found that the 90 percent limitation is generally sufficient to induce builders to enter into rental housing construction.

There is some variance, of course, in this type of operation. The previous witness is mistaken in two points, one of them seriously, when he says that the testimony that I gave, and that Mr. Richards

gave, to the effect that we do not believe that this bill, if passed, will solve all the housing problem, is due to our belief that 90 percent is not sufficient. If you will examine our testimony, you will see that that statement was made as against the paying ability of the lower classifications of technicians who might be housed in this housing.

That part of the difficulty will not be solved by increasing the percentage of the mortgage which can be insured. Nor will it be solved by raising the ceilings of the amount of mortgage and consequently inducing the builder of higher priced housing to participate. The problem there is getting down in rents, and not making it possible to build more expensive houses.

There are other serious problems involved in the responsibility and in the actual mechanics and procedures of insuring mortgages in this type of situation. The previous witness has also called attention to the language which says that the commitment to insure is based upon the Commissioner's estimate of what will be the replacement cost.

It is a very important piece of language. It is an extremely difficult and responsible task placed upon the Commissioner of the Federal Housing Administration, because you will realize it means that he must estimate, let us say, today, how much it is going to cost to build a project which is going to be perhaps 6 or 8 or 10 or 12 months in the building. That was always a serious problem for him. It was a less serious problem during the period of the war and right after the war while costs were rising, because he could ordinarily feel that his estimate, carefully made, but made always against merely the gathering or typical data and not the actual final experience in the building, had a margin of safety. But we are now in a period of falling costs. It is quite possible that he may estimate today a 90 percent of a projected cost estimate for the next year, or 6 or 8 months, and find the actual experience to have made that a 95 percent or even greater loan, when he gets through. Yet the Government is committed.

We have never found a practicable means of putting a down escalator on that commitment made in advance. In the rising cost situation, if the experience of the builder, actually incurred, showed that the estimate originally was too low, the commitment could be raised, so long as it wasn't raised above the legal ceiling.

So that we are satisfied, from long experience, and from much study of this individual situation, that a 90-percent ceiling will be effective in nearly all cases, and neither we nor anyone else connected with this matter, including the previous witness, will be able to tell you that 100 percent would produce a project in every installation. No one can assert that positively beforehand.

We are satisfied that the 90 percent is sufficient, that it will produce the housing to the extent contemplated in this bill, which, under the ceiling would be around 120,000 units, and we are satisfied also that the $8,100 per unit ceiling on the mortgage, which is not the ceiling on costs, sir, will also accomplish the purpose, because, again, from our experience in the past-and we have produced a very large amount of rental housing all over the country under that ceiling-that is satisfactory.

True, in response to the question which you put earlier, sir, Mr. Nicholson, if you were going to contemplate building exclusively six-room houses in these projects, quite possibly in many situations, you might find the $8,100 ceiling inadequate. But that ceiling in the

bill is an average, and you do not build all six rooms. You build a range, and the figure is an average figure and applicable only to the residential sections or the project.

I said that the previous witness was mistaken on another matter, which is not so serious, when he suggested that the Senate committee had yielded to the blandishments of Mr. Foley. I had never previously had the gratification of hearing myself described as a blandishing sort of person, but actually, what the Senate committee did, I am sure, was to yield to the compulsion of the facts.

You may wish for more from Mr. Richards on the detail of the operation of this question. If you do, he is available.

The CHAIRMAN. Mr. Foley, what proportion of these houses will be built on Government-owned property?

Mr. FOLEY. I do not know that I can answer as to the proportion, but you raise the question which has been under discussion here of the problem involved in building on land the fee to which may remain in the Government. Is that what you have in mind?

The CHAIRMAN. Yes.

Mr. FOLEY. The bill provides for the removing of certain difficulties which have stood in the way up to now of building on those lands, the fee remaining in the Government, because of the revocation clause required by other statutes. Where the military allows a leasehold, this would correct that difficulty. The building on leased land is a common thing in our operation. The only difference here being that the leases would be given by the Federal Government.

The leases would be protected, of course, in the usual way, and the amendment we have suggested with regard to the use of eminent domain removes another possible factor of difficulty.

I think, indeed, in response to the question of Congressman Smith, as to whether this sort of thing, building privately owned units on leaseholds of lands kept in fee by the Government, has ever taken place I am advised, and I do not know that this is the only instance, that it has taken place in connection with land owned by the Department of the Interior, at Boulder City.

The building of projects of this kind, with insured mortgages, on leaseholds rather than lands held in fee by the owner or sponsor of the building, is a very common procedure, Congressman.

The CHAIRMAN. Are there further questions?

Mr. NICHOLSON. Mr. Chairman, we are not going to move out of Boulder Dam and we might move out of a camp.

I would like to get straight in my mind the question of building on an Army reservation. If they were built on land other than on the reservation, the housing would be taxed, would it not?

Mr. FOLEY. You mean building on lands adjacent to a military installation but not owned by the military?

Mr. NICHOLSON. That is right, that would be subject to tax by the local community, and on an $8,000 value, that would be at least $320 per year of taxes and $320 per year interest on your money, at 4 percent, makes $640. Then you would have to pay insurance, and so forth and so on, so you could not get to this proposition where they would pay $37.50 for rent.

Mr. FOLEY. The question you are raising, Congressman, if I understand you correctly, is whether it is possible, under all conditions, to build suitable projects, in which it will be possible to get down in

the rental sufficiently to serve all of the military and civilian personnel involved. We have already raised that question in stating that it cannot be assumed that this tpe of operation will meet all the need. It was that type of thing that we had in mind, sir. Those things will be examined very carefully in the processing of an application for the insurance of a mortgage in such a case, with procedures which have been developed to a high degree by the Federal Housing Administration and result in a decision as to whether the proposal is practicable for the purpose. If it is not, it will not be insured.

Mr. NICHOLSON. Did I understand you to say that you build houses containing less than six rooms?

Mr. FOLEY. In building a rental project, you have a range of accommodations. Your families are not all of the same composition. You will have couples, you will have families with one, two or more children. You build a rental project to cover a range of accommodations. So you get the useful application of the average mortgage procedure, which is contained here.

Mr. NICHOLSON. As I understand, this is for a family man, not for a man who is just married. If he is just married, he does not have to bring his wife on the reservation. She can live out in California, and he could be stationed up in my State.

Mr. FOLEY. I think you will find, Congressman, that one of the difficulties the military has had-and they can testify much more accurately on this point-has been the difficulty of getting and holding personnel where a family has to be divided, whether it is a family of man and wife or a family of man and wife and children.

Mr. NICHOLSON. Well, the Army says that they have in slums or under slum conditions. I was in the Army 2% years, and any outfit I was ever in cleaned the place up pretty soon so that it was a fit place in which to live. Has the morale of the Army become so bad that it cannot clean up the places in which it lives?

Mr. FOLEY. That is a question I would prefer you direct to the military.

Mr. NICHOLSON. Yes, I know. But I do not believe so, and I do not believe you do.

Mr. FOLEY. There is one other point I might make, because of the testimony just given you. It does not necessarily follow, gentlemen, that the housing proposed here, any more than the housing we have been getting in large quantity during the past several years, is to be built by members of the General Contractors' Association, which ordinarily is made up--and I am willing to stand corrected on this if wrong of what we call the heavy construction industry. A very large part and I think I might be safe in saying most of the rental housing that we have had sponsored and built up to this time has been built by building sponsors who at least are not known to us because of their membership in the General Contractors' Association, but more commonly in the residential builders association.

The CHAIRMAN. If there are no further questions, you may stand aside, Mr. Foley.

Mr. KNOWLES. Mr. Chairman, may I correct the statement just made by the witness?

I would like to say that a very, very substantial part of the residential construction of the United States is built by the members of our association and the members of our association account for about