Mr. MULTER. I am not trying to trick you. I am asking now whether the 87 cents per square foot is a fair return. Mr. Cook. I think that is a question that I am not in a position to answer without taking into consideration a lot of factors that do not appear on these charts. There is a matter, which you brought up, of construction costs, investment capital, and items of that sort, which made it impossible. for me to state, in regard to this large number of buildings, whether that is or is not satisfactory. Mr. MULTER. Let's tackle it from another angle. Down below, in the left-hand corner of the chart, you have percentage of increase. Mr. Cook. Yes, sir. Mr. MULTER. You show operating costs have increased from 1940 to 1950, 63.6 percent, rental rates have increased 62.5 percent. Mr. Cook. Yes, sir. Mr. MULTER. Net loss to the owner, 1.1 percent. That is right. Mr. Cook. That is correct. Well, no; there is a net difference, sir. Mr. MULTER. Net difference? Mr. Cook. Yes, sir. Mr. MULTER. Well, if we just took those two items into account, the increased cost, and the increased rent, does that give us a net loss of 1.1 percent? Mr. Cook. If we took no other items into consideration; yes, sir. Mr. MULTER. Let's take, for the purposes of this illustration, a building that has, or had, in 1940, a gross income of $100,000. Let's assume he was making nothing on it. He was just breaking even, at a hundred thousand dollars. His operating cost goes up 63.6 percent, and his rental rate is increased 62.5 percent. He has lost not more than $1,100. Is that a fair way to arrive at what the situation would be if we just took those two items into account? Mr. Cook. Yes, sir; if you just took those two items into account. Mr. MULTER. But, according to your chart-and I think the fact. is-occupancy increased 18% percent? Mr. Cook. Correct. Mr. MULTER. Therefore, he got $18,500 more rent, didn't he? Mr. MULTER. So he is better off, according to your own figures, figuring it on a dollars-and-cents basis, where the man started out just breaking even, he is making more than 17 percent more today than he did in 1940. You have got a 17-percent return on a hundred thousand dollars where he was breaking even in 1940. Mr. Cook. That is right. Mr. MULTER. And if that man was not breaking even but making some money in 1940, he is certainly a lot better off today, because he has got a bigger return. Mr. Cook. Mr. Multer, I never did say he wasn't better off today than in 1940; I would say that every building owner is. Mr. MULTER. I am just trying to make it clear that he is better off. Mr. Cook. He is definitely better off; yes, sir. Mr. KLUCZYNSKI. Would you yield for a question? Mr. MULTER. Yes, sir. Mr. KLUCZYNSKI. Mr. Brown, you are acquainted with the New York State control law as to commercial business property. Mr. MELVIN BROWN. Yes, sir. Mr. KLUCZYNSKI. Do you have what they call a graduating lease or an escalator clause or percentage lease in New York? Mr. MELVIN BROWN. We have no escalator clauses in commercial leases. We have graduated rentals and rentals with percentages in them over a certain amount, only on stores. Store leases. Mr. KLUCZYNSKI. That is right. The reason I asked that question, I asked Mr. Woods last week if we were to control business or commercial property, if there would be such a thing as a negotiated lease with an escalator clause, or a percentage lease, or a graduating lease, and he said, "No; that would be out, unless you had that lease before June 25 of 1950." In other words, if we pass this bill now, there will be no such thing as a graduated lease. Mr. MELVIN BROWN. Well, that would be of inestimable destructive effect in New York City and in another place that had store leases. rent a store. Mr. KLUCZYNSKI. The reason I asked that question is because I Back in 1937, I had a 10-year lease, starting with $300 for the first 2 years, $350 for the next 3 years, and the last 5 years at $400. My lease expired in 1947, and I renewed it for 10 more years, starting with $500 for the first 2 years, and $700 for the next 3 years and a thousand dollars for the last 5 years. I am now on the last 5 years. And I say that I am not going to be for this controlling of any commercial property. Rent means nothing to a business. I don't care if I pay a thousand dollars or five thousand dollars a month rent. I am better off paying that and making money than paying a hundred dollars or two hundred dollars and starving. Mr. MELVIN BROWN. I agree with that perfectly. Mr. KLUCZYNSKI. And because New York is under control, commercial control, I don't know why we should penalize the rest of the country. Mr. MELVIN BROWN. I agree with that and may I ask the indulgence of the chairman just for one second. I believe there is a statement in the record by Congressman Multer to the effect, addressed to my colleague, Mr. Cook, asking whether it isn't a fair statement asking that the average office rent per square foot today is about $4. I want to correct that. Mr. BROWN. We will now recess to reconvene at 2 o'clock. (Whereupon, at 12:30 p. m., a recess was taken, to reconvene at 2 p. m., of the same day.) AFTERNOON SESSION (Whereupon, at 3 p. m., the committee reconvened, the Hon. Paul Brown, presiding.) Members present: Messrs. Brown, Patman, Multer, O'Brien, Kluczynski, Gamble, Talle, Cole, Scott, Nicholson, McDonough, and Widnall. Mr. BROWN. The committee will come to order. The clerk will call the next witness. Mr. HALLAHAN. E. M. Spiegel, representing the National Association of Home Builders. Mr. SPIEGEL. Mr. Chairman and members of the committee, first I would like to read my prepared statement, and then I would like to refer to certain charts which we have brought along with us so as to make the story more complete. Mr. BROWN. You may proceed. STATEMENT OF E. M. SPIEGEL, SECOND VICE PRESIDENT, NATIONAL ASSOCIATION OF HOME BUILDERS Mr. SPIEGEL. My name is E. M. Spiegel. I am the second vice president of the National Association of Home Builders and an active home builder in several northern New Jersey communities. I appear before you today at the request of the president of our association whose engagements prevent his being present. The National Association of Home Builders currently has more than 20,000 members and affiliated local associations in 174 major metropolitan areas throughout the country. It is our estimate that they build approximately 75 percent of the new housing constructed in these areas. In presenting this testimony I have had the benefit of the advice and recommendations of our national board of directors at a recent 3-day meeting, most of which was devoted to considering the impact of defense activities and credit controls on our industry. Our board numbers 262 men, and provides a representative cross section of the home-building industry. We are primarily interested in section 106 of this bill which seeks to continue and extend the basic authority for the imposition of credit controls upon mortgage finance. We are mindful of the needs of defense production and of the inflationary danger if civilian production were to continue at unreasonably high levels. We are convinced, however, that under the present controls we are heading right back into a serious housing shortage, perhaps even more acute than the postwar shortage which required 5 years to overcome. When credit controls over residential real estate were first established last July-even prior to passage of the Defense Production Act-the organized home-building industry recognized the necessity for tapering off the high level of housing production at that time. However, when controls under the act were imposed by the Federal Reserve Board with the concurrence of the Housing and Home Finance Agency in October, we pointed out that they were much too drastic and that, as soon as the backlog of financial commitments outstanding prior to and not affected by the issuance of the regulation was exhausted, the home-building industry would be brought to a virtual halt. During the intervening 6 months, housing starts have continued at a high level and have presented the illusion of a healthy building industry. We have repeatedly pointed out that this volume has been maintained only by virtue of the temendous number of commitments, still in effect, which predated the issuance of credit controls. These have now been absorbed and housing starts are now beginning to fall as we predicted they would. Based on the reports that we have obtained from representative. builders from all parts of the United States in attendance at the board of directors meeting which I mentioned a moment ago, we predict that during the next few months the rate of starts will drop steadily. In a special session devoted exclusively to consideration of morgtage finance problems, almost to a man our directors present testified that they planned to start only a fraction of the number of houses which they started last year. As far as we can see, we will be fortunate if we attain 800,000 starts in 1951, which would represent a cut-back of approximately 45 percent under 1950. Many predictions in the industry indicate the possibility that we may fall far below even that low figure, perhaps to 700,000 or less. Of even more importance, the rate of applications for new financing indicates that, if the present trend continues for the next few months, 1952 will show a still sharper drop. As you know, April and May are generally considered peak production months in the home-building industry. At this season starts should be up substantially over the figures for the first quarter. Instead, they have turned down. This is highly significant. Bureau of Labor Statistics data on housing starts show that starts for the month of April dropped 5 percent under the figure for Marchthe first March to April drop on record in a nonwar year. April 1950 showed 133,400 starts. This year this figure slumped to 88,000—the lowest figure for April in 4 years. Applications for FHA mortgage insurance and VA loan guaranties have gone down to less than 40 percent of last year. At this point, Mr. Chairman, I would like to refer to these charts, which we have prepared. Copies of these graphs have been made available and are offered as a part of the record. Mr. BROWN. They may be inserted in the record. (The documents referred to appear on the following pages.) Mr. SPIEGEL. This first chart of total nonfarm housing starts indicates that in 1948, this black line, at the end of February, we had approximately 50,000 starts. At the end of March the starts ran up well over 75,000. At the end of April they were up to about 100,000. That was in 1948. In 1949, which is the blue line, we had approximately 50,000 at the end of February. We ran up to 88,000 at the end of April, and at the end of May we were over 95,000; that was 1949. In 1950, at the end of February we had about 83,000 starts, and ran on up to approximately 149,000 at the end of May and continued on up over that line to about 145,000 in July. Now for 1951, you see this little orange line that zig zags-we started in January with approximately 86,000-just under that-for the end of 1950. We came down to about 80,000 at the end of February, ran up again to a little above 90,000-I think the figure is exactly 93,000 according to the BLS-and then dropped to 88,000, according to the BLS, for the April figures. Mr. GAMBLE. That is 1951? |