our slums have developed" (p. 1101). It is reasonable to suppose that private builders with a stake in protecting their investments would hesitate to have their properties managed on 5 percent commission unless they knew from experience that this would assure adequate and intelligent maintenance of their properties. The difference between the private 5 percent and public 13 percent management cost is not one of quantity or quality of services rendered, but of the efficiency with which the work is done. Obviously the Government has not in the past and will not in the future be able to approximate private enterprises' efficiency in the management of real estate.

D. MEETING THE NEED OF THE NEEDY

The National Capital Housing Authority has not met, and as a matter of settled policy has not tried to meet, the housing needs of the very lowest income groups. Its permanent nonwar housing consists of only 112 units under title I and 2,706 units under title II, a total of 2,818 units (p. 153). In these 2,818 units there were, as of January 28, 1944, 47 families on public relief, or 1.7 percent of the tenants in National Capital Housing Authority permanent nonwar housing (9. 93). At that time the District's Board of Public Welfare was paying rent for about 4,000 families (p. 97); these were not individuals but households (see p. 90). Thus public housing has 1.2 percent of the public relief cases and private enterprise houses the other 98.8 percent. Further, since "it was finally agreed that National Capital Housing Authority shall charge client families the full economic rent" (p. 167), it is the evident intention that relief families are to be automatically excluded from the benefits of any subsidies National Capital Housing Authority receives for reducing rents.

Nor would National Capital Housing Authority under any circumstances consider having more than 25 percent relief clients (pp. 5, 102, 108, 165, 175), and in fact feels that a maximum of "25 percent is rather too large" (p. 175). This limitation is made "in order to assure a helpful environment" (p. 165), "not [to] make a poorhouse of it" (p. 102); "if one filled a property with relief families, he made a poorhouse of it; he changed the whole psychology of it and interfered with the development of the families" (p. 102). National Capital Housing Authority believes "that we should have families of different economic status living more or less as neighbors"; that there is a stimulus in that "of keeping up with the Joneses," if nothing else, and our system provides for that" (p. 196). "Among the items to be considered" in determining the proportion of relief clients are: "(1) The families themselves; (2) the other families on the property; (3) neighborhood acceptance" (p. 197).

*

Clearly the National Capital Housing Authority tenants are a selected, favored group- -as unconsciously evidenced by Mrs. Coggs' praise, “By the careful selection of tenants and proper maintenance of the homes, it has demonstrated that Negro neighborhoods need not be blighted or run down" (p. 1133, etc.). [Italics supplied.] The 1941 annual report spoke of the National Capital Housing Authority's belief "that to accept tenants indiscriminately * * regardless of whether they give promise of responding to a better environment, would be as great folly as to throw a small force of raw recruits against an army of veterans. * * * Ever since 1936 * * * it has sought to so select its tenants that in each property there will be at least a small dynamic group whose influence will make for progress" (1941 annual report, pp. 9-10.) [Italics supplied.] In addition to formal eligibility requirements, "other conditions * * administratively imposed * * * concerned the character and reputation of the prospect, his housekeeping habits, his general stability and his health-'his' meaning 'his family's' " (1941 report, pp. 14-15).

*

Private builders, on the other hand, feel strongly that rental aid should be extended first to those who need it most, and that it should be handled through normal public-welfare channels. A representative of the American Association of Social Workers, misunderstanding the form of rental aid the builders propose, attacked it on the ground that it "constitutes a reversion to the demoralizing method of 'relief in kind' as contrasted with the improved current practice that encourages the individual to manage his own finances and make his own contracts so that he may have the incentive to become self-supporting" (p. 1241). This is, on the contrary, the builders' valid objection to public housing, since public housing is relief in kind, while rental aid administered through normal welfare channels is budgetary relief that gives the individual the opportunity to manage for himself.

Even if the National Capital Housing Authority did take a full 25 percent of relief clients as tenants, it would take 16 years, under its 20-year plan, to house all of them in the houses proposed to be built. If the National Capital Housing

Authority should take only the present proportion of relief clients, then at the end of 20 years, with 22,818 dwelling units under public ownership, there would still (assuming a constant relief load) be 90.5 percent of relief clients still taken care of in privately owned housing.

Since public housing, therefore, has not met the housing needs of the lowest income groups, and does not-even under a tremendously expanded programintend to meet it for many years to come, the private builders urge the adoption of a program which will meet their needs.

E. SELF-LIQUIDATION OF TITLE I

The National Capital Housing Authority has repeatedly claimed that its title I fund is self-liquidating. Since "the title II program * * * is not before this committee in any proposed legislation" (p. 1086), it is essential to determine what success the National Capital Housing Authority has had in the past in its effort to achieve self-liquidation under title I, in order to predict what would be the results of extending that program.

The 1937 annual report stated, "The Authority has never made a promise or a prophecy as to its program, but it has stated and now repeats that its financial objective is to end its work as promptly as possible and without a deficit" (p. 1009). Again, in 1939, "These operations are expected to pay all costs" (1939 annual report, p. 4). The 1943 report speaks of "the Authority's demonstration of slum reclamation without ultimate cost to the taxpayer" (1943 annual report, p. 8). Similar statements far too numerous for quotation have been made throughout these hearings (for a few see pp. 3, 18, 42, 150, 163, 171–172, 177, 200, 203, 926, 1078, 1097, 1169).

The National Capital Housing Authority's title I fund has received contributions from two sources: (1) Federal appropriations and allocations amounting to $865,496.80; and (2) District real-estate tax exemptions totaling $46,777.04 by June 30, 1942, and currently $9,389.09 a year (pp. 22-23). The National Capital Housing Authority explains:

"We were given $865,000 of Federal money. That was given to us as an appropriation, not loaned. We could have spent it in a year and closed the account. Instead we voluntarily treated it as a loan to be repaid with interest. At the same time the property we acquired with the proceeds of this loan was exempt from. District taxes. But we voluntarily assumed that the amount of this tax exemption also was a loan to be repaid with interest" (p. 177).

If these two contributions are to be repaid with interest, then the National Capital Housing Authority's present obligations (as of June 30, 1942) amount to $912,273.84 plus a good deal of accumulated interest. The National Capital Housing Authority reported net assets of $831,089.33 as of that date (p. 23). These assets are considerably overstated, since, among other things, they include quite inadequate reserves for repairs, maintenance, and replacements, and for vacancy and collection losses. (Hart's Second Rebuttal to Haskell, p. 1373.) So title I was nowhere near self-liquidation on June 30, 1942; though the National Capital Housing Authority positively stated, "It has been shown that the National Capital Housing Authority's * * * title I fund was self-liquidating on June 30, 1942 * * *"' (p. 1078). This statement is not only unwarranted, but it is ridiculous.

If the fund is far from self-liquidation now, it is increasing its deficit by 75 percent of income per year, so that title I will be further in the hole the longer it continues to operate. (Hart's Rebuttal to Haskell, pp. 5-10, exhibit A.)

The National Capital Housing Authority now asks for loans which are to be self-liquidating (pp. 148, 161). Ultimately, a $100,000,000 title I program is contemplated by the National Capital Housing Authority starting with $20,000,000 in the next 2 years (p. 19). But such a self-liquidating program, piling up annual deficits amounting to more than three-fourths of income, would cost far more than the private builders' proposal of use-value write-downs plus necessary supplementation of tenants' inadequate incomes.

F. COMPARATIVE RENTS

The National Capital Housing Authority rightly says, "While we in public housing wish to reduce costs * * *, it is of little more than academic interest merely to claim that private costs are lower than ours if the end result is higher rents to tenants or, through subsidy, greater cost to taxpayers" (p. 183). Private enterprise not only can show savings in the cost of construction and operation, but as well also can show that it can translate these savings into lower rents.

91183-45-pt. 15- 7

Since the issue is what can be done under the plans now proposed, and since radical changes are proposed in private-enterprise financing, present private rents based on far less liberal financing are hardly valid for comparison. Such a comparison is available in Mr. Warren's testimony on the relative rents that could be achieved by a private builder and by the National Capital Housing Authority on houses comparable to the V Street Houses at 1944 prices.

He assumed a saving to the operative builder of 28 percent in construction cost (p. 601). The management cost for the public project is assumed to be 13 percent, the average for the National Capital Housing Authority permanent housing, since the National Capital Housing Authority's lower figure for title I seems to have been determined chiefly by the impression that it had to show such a figure (pp. 601-602). (See p. 14.) Charging the private project with $75 for repairs and the public with $100, justified by Mr. Warren on the added cost entailed by governmental operation (p. 602), is also more than justified by the increased expense of repairs which will be incurred in the last 27 years of the public property's operation.

Though the public project has the advantage of 60-year amortization at 3 percent, as opposed to 33-year amortization at 321⁄2 percent for the private project, the private dwelling can rent at $35 a month and pay out as compared to $43 a month rent required for the public built dwelling if it also is to pay out (p. 590). On the same assumptions for identical three- and four-room apartments, the private three-room apartment could rent (with all services included) for $36.50, as against $48 for the public; and a private four-room apartment could rent for $42.50, as against $54 for the public (p. 608).

These figures would seem conclusive, and the National Capital Housing Authority has in fact not challenged them. Instead it has quoted the present V Street rent (based on 1938 prices) as evidence that the National Capital Housing Authority can rent for $25 what a private builder cannot rent for less than $35 (based on war inflated 1944 prices of materials and labor).

* *

"A two-bedroom house as proposed by Mr. Warren * * * has a shelter rent of $35. The National Capital Housing Authority project which he took as a guide * has an economic shelter rent of $25. Consequently, if we are to subsidize and if there were no public housing, it would be necessary to increase the subsidy $10 per family in order to put them into these cheapest houses proposed by private builders" (p. 1090).

The validity of the National Capital Housing Authority's comparison depends, first, on title I's being self-liquidating:

"Mr. WILKES. Secondly, may I ask the question, your National Capital Housing Authority $25 rent is based upon the assumption that title I is self liquidating? "Mr. IHLDER. On the evidence and proof that it is; yes" (p. 1091). Since it has been proven quite conclusively that title I is, on the contrary, very far from being self-liquidating, the comparison is altogether invalid. Second, it is based on a so-called economic rent for V Street houses which is very much less than a true economic rent, and which is based on a far lower use-value for the land than is used in the Warren estimates (Hart's second rebuttal to Haskell, (p. 1373). An economic rent for V Street comparable to the Warren $35 rent would be considerably in excess of $37 (Hart's second rebuttal to Haskell, p. 1373, and this is without taking any account of the pronounced increase in construction costs between 1938 and 1944.

The

The National Capital Housing Authority has presented another line of attempted proof which is unworthy of serious consideration, but which has been repeated so often in different forms that it should be answered once for all. This is the argument that since private rents include an owner's profit, they must necessarily be higher than public housing rents which do not include an owner's profit. National Capital Housing Authority, for example, defines "economic rent" as that which "includes every cost, but it does not include owner's profit. The lack of owner's profit is what differentiates it from commercial rent" (p. 4). From this it is easy to proceed to the following:

These economic rents are lower than the commercial rents the National Capital Housing Authority's tenants would have to pay *** if there were no public housing. So, if their rents were stepped up to a profit-making level, then it would be necessary to give rent assistance to many who now are paying from their own earnings the full cost of their dwellings. Under (the builders' plan), the rent charged each family for a proper dwelling would exceed the economic rents for public housing in order to assure profits to owners" (pp. 1092-1093). [Italics supplied.]

The whole argument ignores the fact that there are many differences in public and private rents besides the item of owner's profit, and the proof that private rents can include an owner's profit and still be considerably under the lowest rents public housing can achieve if it is to be self-liquidating-as private housing must be.

G. GOVERNMENT ASSISTANCE REQUIRED IN SLUM CLEARANCE

As the National Capital Housing Authority has said: "The purpose is to get rid of slums at a minimum cost to the taxpayer" (p. 926). Therefore, the ultimate test is the relative tenant assistance needed by the private-enterprise plan and under the public-housing plan to get the job done. Obviously good housing, especially if it is new housing, cannot be furnished at the same rental as the alley hovel.

If private enterprise is to do the whole job, two types of financial assistance will be necessary-one, amounting to the difference between the "fair market value" of the slum properties as presently improved; the other, assistance to tenants who cannot afford to pay the full rent in dwellings erected to replace the slum quarters which have been demolished.

The first of these Government financial commitments would presumably be the same in the two cases, since the sections on determination of use value, S. 1923, section 6 (p. 1186), and S. 1930, section 9 (p. 1192), show no material difference. On this point, then, there is nothing to choose between the two.

Private enterprise has shown that it will be able to achieve cheaper rents on comparable properties than public housing (always on the condition that publichousing rents are to be self-liquidating, as private enterprise rents must be). It necessarily follows that, in a given case, a family would require less assistance in a dwelling built by private enterprise under the proposed plan than in public housing This saving will be increased by the amount of income taxes and other taxes to be collected from the private enterprise rents. It is apparent, also, that the National Capital Housing Authority intends to take its automatic exemption from real estate tax as a subsidy (top of p. 1099). There is no provision in either S. 1699 or S. 1930 for any repayment of this tax exemption to the District.

The selection of tenants and the administering of the subsidies is, under the private-enterprise plan, to be done by the Board of Public Welfare. On its title II properties the National Capital Housing Authority estimates the cost of this service at 1 percent of rents collected (p. 920). On title I properties, however, where there are no graded rents, this service is not included in present management costs. There will thus be the same additional cost to the taxpayer for this one item whether the program is carried out under an expanded title I or by private enterprise.

The same persons can, therefore, be housed in dwellings built and managed by private enterprise under the proposed plan at a lower net cost to the taxpayer than they could be housed in comparable dwellings erected and operated by the public-housing authority.

H. NATIONAL CAPITAL HOUSING AUTHORITY 60-YEAR AMORTIZATION

The loans secured on dwellings private builders propose under their plan are to be amortized over 33 years. The National Capital Housing Authority has a considerable advantage in its financing at least so far as its immediate showing on rents is concerned--through amortizing its dwelling construction cost over 60 years, and then only to the extent of 80 percent of the construction cost (p. 908).

The standard Bureau of Internal Revenue allowances for depreciation are 40 years for masonry buildings and 25 years for frame buildings (p. 279). Thirtythree years is the longest amortization period mortgage institutions think sound for rental property (pp. 536-38, 579, 624). So public housing is engaging in a practice which the weight of responsible opinion regards as highly unsound.

* *

The National Capital Housing Authority justifies its extreme practice on the ground that the "National Capital Housing Authority projects, built with the objective of meeting a need that never before has been met, are designed for long life and low maintenance. This longer life of the buildings, due to better planning and adequate reserves for repairs and replacements * has made it possible to provide for a longer period of amortization with consequent lower annual payments" (p. 1092). Again, it was stated that it was "the engineers of the Authority who decided that the properties as constructed would last 60 years" (p. 334). The actual situation is just the reverse of this. The decision to amortize the properties over 60 years was made before any National Capital Housing Authority houses had been built (pp. 909-10). It then became the obligation of the Authority

to give its houses a useful life of 60 years. Actually it is assuming a 75-year useful life for the buildings, since it amortizes only 80 percent in 60 years (pp. 908, 910-11). There is no question but that, generally speaking, houses can be made to stand for 60 years. The question is whether it is economically sound to finance them over 60 years and thus make it imperative to keep them in operation that long in order to get the investment paid off. The physical life of a building may be indefinitely prolonged, but the useful economic life of a building ceases when income no longer meets the cost of operation, including increasing maintenance costs. Low-rental properties are subject to rather hard wear and tear. Any houses are subject to the relatively unpredictable influences of neighborhood blight. It must also be borne in mind that "technological advances, new methods, new materials, new designs, and new ways of assembling will all have an important bearing on house construction within the next few years and it is entirely conceivable that structures of this type will be so outmoded that they will be removed as being uneconomical to maintain or to continue to rent when perhaps much more efficient homes can be offered and at the same or even lower rents" (p. 543). There are houses in Washington 60 years of age, but what percentage of the houses standing in Washington 60 years ago are still in existence?"

National Capital Housing Authority consistently assumes that it will continue to draw the initial full-rental income from its properties for the full 60 years. There is one suggestion, however, that the 20 percent use-value is the expected capitalized rental value at the end of 60 years-that in 60 years the properties may be drawing only a fifth of the original rents:

"Yet after 40 and more than 60 years they were still producing good revenues that indicated from $3,000 to $10,000 and more capital value. This seems to indicate that with good management a house should be worth considerably more than 20 percent of its original cost after 60 years, that being what we had figured” (p. 1034). [Italics supplied.]

But for the Williston Apartments, for example, utility charges and operating services alone were 34.8 percent of rents in 1942 (exhibit XIII, p. 892). Repairs, maintenance, and replacements for Williston will average at least $4,402.23 over the whole life of the property ($3,144.45 from Hart's first rebuttal to Haskell (p. 1317), exhibit A, plus 40 percent, ibid. herein), or a further 38.5 percent of rents; and in the sixtieth year they will greatly exceed that average. Williston must, therefore, draw well over 75 percent of present rents-over 50 percent of a rent half again as high as the present rent-simply to pay for operating services, utilities, and maintenance. It is clear that, whatever the physical life of the Williston Apartments may be, the useful economic life will have ended long before.

I. CONSTRUCTION UNDER TITLE II

While no extension of title II is being requested as an outcome of these hearings, National Capital Housing Authority does contemplate further activity in this direction: "It is recognized that any additional program under title II would be carried out as part of a national program under legislation which is considered by other committees of this Congress" (p. 1086). It is evident that any gap between the 20,000 house proposed title I program and the program of at least 60,000 houses which would be needed to house all the lower income third could be taken up with title II housing without any congressional action at all, provided the Federal Public Housing Authority had the funds available. This gives a new turn to the question of public housing's competition with private enterprise.

What is chiefly significant about title II financing, as it relates to this question of competition, is that one governmental agency, Federal Public Housing Authority, loans to another governmental agency, National Capital Housing Authority, up to 90 percent of the development cost of its projects (p. 830) the other 10 percent to be borrowed from local banking sources; and then pledges for 58 years the payment to National Capital Housing Authority of an annual subsidy of 3 percent of the development cost (p. 821), which is only 0.1112 less than the amount required to repay the full principal and interest (p. 821) to Federal Public Housing Authority and the local bank. Thus the Federal Government in fact obligates itself to pay for the land, utilities, and buildings, requiring the rents to produce only enough revenue to pay for rental collection charges and maintenance.

National Capital Housing Authority contends that this coincidence between the subsidy and the interest-and-amortization requirement is purely coincidental (pp. 832-833, 844). The fact remains that under the law National Capital