Mr. WILLIAMSON. But you have rent control in existence and I say it is the existence of the rent control on the old accommodations that has contributed to that uneconomical use of space which results in your high ratio.

Senator MOODY. For the higher-income groups, the Los Angeles figure was 31 percent.

Senator CAPEHART. Mr. Chairman, this gentleman says he has the right answer to it.

Senator MOODY. May I ask another question, please? I am informed I have to leave and I would like to get this.

Mr. FITZGERALD. May we inject the answer after you have left? Senator MOODY. Inject it right now.

Mr. SNYDER. You are talking about the rents on new construction. The total number of rental units in new construction represents about 20 percent of the total. For example, if you are talking about 300,000 units in the United States and if you are also talking about families of low income you cannot very well strike an average for the whole Nation when you talk about just those families of low income and just those few properties.

Now, how many families of low income paying 58 percent of their income which would be more than $170 a month rent, are actually going to be involved in this survey that you are talking about?

There are very, very few. It does not represent a cross section at all. It represents a tiny segment, using but a tiny segment of the total number of new units.

Senator MOODY. I think that is undoubtedly true.

The point that roused my interest was, the effect of decontrolling these new units because of the fact that here are rentals which are substantially higher than the level of proper ratio. I am not saying that most of the low-income families in the country are spending 58 percent of their income in rent. Of course, that would not be true. On the other hand, there are those low-income families who have found it impossible to find other places to live and are having to pay nearly 60 percent.

Mr. SNYDER. That would mean more than $170 a month rent. which would be a natural impossibility. Fifty-eight percent of a $3.000 income, would be $74 a month.

Senator MOODY. This is $2,000 to $3,000, and the specific rent in Chicago is $121.

Mr. SNYDER. New construction in an area already under control is not controlled, but all other units are controlled. So what you are talking about here is a very tiny segment; and it is rent control itself that is causing that condition because of maldistribution of the

space.

Senator MOODY. I do not know about that.

Mr. SNYDER. That is the fact, sir.

Senator MOODY. Let me ask you this. I was very glad to hear you say, Mr. Fitzgerald, that you felt that 20 percent or something in that area was the normal rent.

Mr. FITZGERALD. That is of the income.

Senator MOODY. I was given the other day a book by James C. Downes, Jr., called "Principles of Real Estate Management, Division of Education, Institute of Real Estate Management" of your organi

zation and on page 18, under "Principles of Real Estate Management" and under "Rental Price Level" this statement appears:

Rent is an independent factor governed by its own law of supply and demand. It moves up and down on the axis of residential occupancy. True, there is a level at which families will withdraw from housing consumer groups, but the whole scale of residential rentals may be raised, at times when residential occupancy is at point of shortage or higher, to from 35 to 50 percent of family income. At such times the property manager must proceed cautiously, must be sure of the strength of his occupancy situation, must know enough about the income level of his tenant families to accurately gage the point of diminishing returns in his rent rates.

Now, I take it from what you have testified today that you do not believe that a level of 35 or 50 percent of income is a fair level.

Mr. FITZGERALD. I don't think he indicates that either, does he? Senator MOODY. Well, he says:

The whole scale of residential rentals may be raised from 35 to 50 percent of family income.

In other words, you do not feel that the residential rental should be 35 percent to 50 percent of the annual family income?

Mr. FITZGERALD. In the case of luxury apartments or something of that kind, which has no bearing on the subject we are touching upon. I would say that in the case of an average factory employee or someone on an average salary, that it would have no application to the thing he is talking about.

Senator MOODY. I will not take the time of the committee to read all this, but this is at the conclusion of a hypothetical case where the Jones family has an income of $200 a month and it says:

Now comes their property manager whose check of current facts has told him there is a 99 percent occupancy with the notice that their rent is to be raised to $60, a 50 percent boost. The first reaction of the Jones family is to tell their manager that such a raise is impossible, that they will move. Mr. Jones instructs Mrs. Jones to start out the next day and look for an apartment. For 1 day, for 2 days, for a whole week, Mrs. Jones combs this neighborhood for a place to live and finds nothing comparable to her present quarters. In fact, in all of her search she finds only one available apartment, a much inferior unit, in a poor location at a monthly rent of $55.

The Joneses, in despair, hurry to their property manager to tell him they will stay at $60.

* * *

And then the comment, part of which I read you a moment ago, reads this way:

The lesson the apartment manager learns from the above illustration is that there is no fixed relationship between the level of rentals and the level of family income. Rent is an independent factor governed by its own law of supply and demand. It moves up and down on the axis of residential occupancy. True, there is a level of rental from which people will withdraw, but the whole scale of residential rentals may be raised at times when residential occupancy is at a point of shortage or higher to from 35 to 50 percent of family income.

And then he goes on to say that the manager must be cautious. That is the reason some of us believe that you have to have some protection for the renter, because of this philosophy which has been taught, according to your statement, in your real estate news letter for November 12, 1951, at 127 universities. I am sure it is a good idea, to teach the principles of real estate economics in universities, but I do not agree that this matter of getting a family in despair and then boosting their rent 50 percent is a very good policy.

Mr. FITZGERALD. The $60, though, is 25 percent of their income, is it not?

Senator MOODY. It is 30 percent. This says from 35 to 50. Frankly, I just thought you might want to repudiate this.

Mr. FITZGERALD. Here we have the FHA, who has used the basis for many, many years, that 25 percent of income is the proper level. That is the FHA.

Senator MOODY. I am not trying to put these words in your mouth at all, Mr. Fitzgerald. I am merely asking your opinion of them. Mr. FITZGERALD. We have stated our opinion that there is a rule of thumb employed by the industry of roughly 20 percent of income for rent.

Senator MOODY. In your opinion it is 20 percent?

Mr. FITZGERALD. Approximately.

Senator MOODY. Thank you very much.

Senator FREAR. Senator Capehart?

Senator CAPEHART. I have no questions.

Senator FREAR. I have a couple of questions in my mind.

At page 3 of your testimony at the top of the page under No. 3, line 2:

which has resulted or threatens to result,

And then you go down further and say:

I would like to emphasize at this point that the finding of excessive rents

Did you mean to imply that an excessive rent must be found before these conditions are met?

Mr. FITZGERALD. That is one of the criteria in there and it is being ignored completely in their usage.

Mr. WILLIAMSON. It is excessive rent increases, not excessive rents and not a housing shortage.

Senator FREAR. You imply that you must bring in an assertion that this rent has increased but does it or does it not mean according to your interpretation under No. 3, that to threaten is the same thing as an excessive rent ruling?

Mr. SNYDER. I believe the answer to that is that threat of excessive rents is taken into account by the fact that rents, even if they are threatened from here until next year, can always be rolled back to the May-June 1950 date, so a threat is not the criterion, but the actual excessive rent increase itself.

Senator FREAR. Does it not say the threat to increase is your criteria and not the actual increase?

Mr. SNYDER. Yes, sir, it does say the threat.

Senator FREAR. Then I think you agree, then.

Mr. SNYDER. But neither the actual rent increases, excessive rent increases, nor the threat of excessive rent increases, was included in the analysis sent out to the field offices by ORS.

Senator FREAR. I am not arguing that. I think you recognize, however, that a threat to increase is the same as an increase.

Mr. SNYDER. No, sir. I think the Congress intended, when it said, "The threat to increase would be one of the criteria," that at the same time, it said, "You can control these rents back to January of 1950," and it controlled that threat.

The actual increase, I think, is really the intent of the Congress here, sir.

Mr. WILLIAMSON. I believe the Congress presumed the Administrator would apply some reasonable standard to evaluating excessive

rents.

Senator FREAR. I do not think we disagree on that, Mr. Williamson. The point we are trying to clear up here is whether the Administrator can recognize a threat of excessive rentals.

Mr. WILLIAMSON. I hope the Senator will ask Mr. Woods how he goes about evaluating that.

Senator FREAR. Thank you very much, sir.

(The statement of Calvin K. Snyder and papers referred to by Mr. Williamson follow:)

STATEMENT OF THE NATIONAL ASSOCIATION OF REAL ESTATE BOARDS, PRESENTED BY CALVIN K. SNYDER, SECRETARY, REALTORS' WASHINGTON COMMITTEE

Mr. Chairman and members of the committee, I am Calvin K. Snyder, secretary of the Realtors' Washington Committee of the National Association of Real Estate Boards, with offices at 1737 K Street NW., Washington, D. C., and 22 West Monroe Street, Chicago, Ill. Our association represents 1,118 local real-estate boards and 47,287 realtors throughout the United States engaged in all phases of the real-estate industry.

The National Association of Real Estate Boards supports and urges the repeal of credit restrictions over real estate, better known as regulation X, because:

1. It has penalized the little fellow who could not afford the larger down payment for a home.

2. Congress recognized, when it approved the so-called Denton amendment in 1951, that the credit regulations issued by the Federal Reserve Board and the Housing and Home Finance Agency were too harsh with respect to FHA and conventionally financed housing so as to place an undue burden on home purchasers in the low- and middle-income ranges.

3. Regulation X has not reduced the volume of building or conserved critical materials required for defense needs.

4. The voluntary credit-restraint program has been more effective than regulation X.

5. Through industry's high production of critical materials and the overestimating by Government agencies of the need, critical materials are on the market in increasing supply.

6. If the Congress wants sufficient defense and military housing, surely it must be aware that regulation X does not further this objective.

The Housing and Home Finance Agency winter issue of Housing Research candidly admits that regulation X penalized the little fellow who could not afford a larger down payment for a home. On page 7 of Housing Research we find that changes in the mortgage market and the number of housing starts "** * * OCcurred as a result of a complexity of factors, including the tight mortgage money situation. The latter factor may have been just as much or more responsible than credit restrictions for the developments in the housing and mortgage market which are discussed."

The article continues: "* * * In the 1951 period the price distributions of new homes financed under each of these programs (FHA and VA) showed that a smaller proportion of homes purchased were priced at $10,000 or less and a larger proportion were priced at more than $10,000

* * *

"Thus it was estimated that, based on the amount of first mortgage as a percent of purchase price, at least one-third of the new home purchases financed with FHA-insured loans and about two-thirds of the new home purchases financed with VA guaranteed loans would have been ineligible. The comparable estimate of ineligible conventionally financed new home purchases (those requiring the higher down payments and without any form of Government guaranteed or insured loans) would have been only 18 percent under the regulations," the article states. Commenting on another phase of ineffectiveness of the credit regulations, the same article refers to the percent of homes purchased with all cash. We quote:

* * it is evident that the cash home purchases were relatively more frequent among buyers of homes costing less than $5,000 and of homes costing more than $15,000 * *k *. Here is another indication that credit regulations would be partially ineffective in curtailing housing demand

These comments in HHFA's Housing Research also support the fact that regulation X did not reduce the volume of construction or conserve critical materials, its stated purposes for existence.

*

*

*

* * *""

Increased cost of materials, the controlled materials plan and the withdrawal of support of Government long-term bonds accounted for the decrease in housing starts, according to Housing Research. On page 11, we find: " With lending institutions reluctant to sell their bonds at a loss (due to new Federal policy) there developed a shortage of mortgage money for new loan commitments. The resultant difficulty of obtaining advance commitments added to the credit regulations gave impetus to the decline in new home building. This statement readily admits that the credit regulations did not in themselves cut home building starts but that a change in the flow of money did result in that cut. Public and industry support of the voluntary credit control program under the Federal Reserve Board's direction has gained Nation-wide publicity. It is this program that has effectively brought businessmen and Government together under a publicly accepted self-restraint program. Its effectiveness further attests to the need for repeal of regulation X. American businessmen have had enough of the bureaucracy strait-jacket and are anxious and willing to support voluntary control programs.

Production is the answer to any shortage. Again it has been proved with the most recent announcements by NPA and DPA that, surprisingly, we have more critical materials on hand than had first been believed. Little by little materials are being reported in greater supply. All of these facts point to the need to repeal regulation X as a materials conservation factor.

If regulation X had been responsible for conserving materials that are becoming increasingly plentiful, or had fairly and effectively controlled new home buying, it might be reasonable to take another look. But today it is neither needed nor wanted. It has resulted in hurting those who needed housing most but could afford it least.

The armed services and the Housing and Home Finance Agency admit that there is little relation between the number of units programed in a critical area and the actual number of units needed by the armed services involved in that area. For example, 100 rental units have been programed in the Fort Benning, Ga., area for suspended credit restrictions. The Army advises us, however, that the housing deficit on June 30, 1952, will be approximately 7,497 units. At Fort Hood, Killeen, Tex., there has been programed 1,000 units for suspended credit restrictions. Yet, their June 30, 1952, estimate of housing deficit is 9,893.

We are certain that the Congress is desirous of bringing about sufficient housing construction in the defense areas. It is obvious, however, this result will not be achieved by the present system of doling out a little relaxation of the credit restrictions here and there.

We support wholeheartedly the repeal of the regulation X credit control program.

OFFICE OF RENT STABILIZATION, NORTHEASTERN NEW JERSEY AREA RENT OFFICE, Newark 2, N. J., October 19, 1951.

ALEXANDER SUMMER, INC.,

Teaneck, N. J.

(Attention Mr. H. C. West.)

GENTLEMEN: Re your letter of October 18 in which you request the policy of the Office of Rent Stabilization on painting and decorating and repairs with relationship to landlords' filed statements that these services were not provided, kindly be advised that the registration statement is merely a self-serving one filed by the landlord and is not binding on the Office of Rent Stabilization.

The area rent director has determined that in this area it was the normal practice of owners to paint and decorate, particularly in multifamily dwellings, at least every 3 years, and if he failed to do this during rent control there has been a decrease in service.

We trust that this answers your question. If we can be of any further service, kindly advise.

Very truly yours,

MICHAEL PECORA,
Area Rent Director.