Housing Authority could, if it wished, and as a matter of fact many authorities do, let the subsidy take care of carrying charges and simply collect from tenants enough to pay operating expenses. The total subsidy National Capital Housing Authority receives is even far greater than 3 percent, since there is also District real-estate tax exemption (pp. 171, 196, 200), which at 1.75 percent makes a total subsidy of 4.75 percent. This is over 150 percent of interest and amortization. Who would ever have suspected that such a scheme could have been slipped through Congress, obligating the Government of the United States to hundreds of millions of dollars and proposing to obligate it to the extent of billions? Even with this subsidy the rents on one title II property need to be increased at least 15 percent before they will pay costs (Hart's first rebuttal to Haskell, p. 11 and exhibit B), and the total subsidy needed in a post-war year, if tenant incomes fall to the level of 1941, will be 5.76 percent of development cost, or 1 full percent more than is available. This would involve a subsidy of $22.30 per family per month (Hart's first rebuttal to Haskell, p. 1373).

It is obvious that no private builder could compete with properties subsidized at such a rate. It would be like a toy manufacturer attempting to compete with Santa Claus at Christmas time.

J. GOVERNMENT COMPETITION WITH PRIVATE ENTERPRISE

Public housing under the program proposed will be in direct competition with private operative building.

National Capital Housing Authority has repeatedly stated that it supplements, but does not compete with, private enterprise. "National Capital Housing Authority wishes to reassert its desire to see private enterprise do as much of the job as it profitably can and its belief that the field in which private housing has operated can be expanded" (p. 1078). "National Capital Housing Authority has kept out of the field served by private enterprise, and limited itself to providing good housing at rentals for those whom private enterprise clearly cannot serve, (p. 1086). "Our policy from the beginning has been whatever is pro-vided by private industry, we are relieved of responsibility * *" (p. 15)..

*

"It has been the Authority's policy from the beginning to welcome any contribution by private enterprise." (1939 Annual Report, p. 2). The recommendation of the D'Alesandro committee that "wherever a private builder can fill a comnunity need, he must be permitted to do so" was "in accordance with the National Capital Housing Authority's policy and practice" (1943 Annual Report, p. 11). "As National Capital Housing Authority has stated many times, it has always encouraged private builders to do such a thing as is now proposed" (p. 991). "Now, as to who will do it, there we come back to our statement that the more private enterprise will do the less would be left for us to do" (p. 187). "So far as competition is concerned, the charge does not apply to the National Capital Housing Authority. It always has welcomed every contribution that private housing makes. Its repeated statement is:

"Public housing should supplement private and, therefore, the more that private does in producing good houses at low rents, the less public will have to do." "This has seemed to us a policy statement that not only is in the public interest but one that should be eminently satisfactory to private enterprise. For under it private housing sets the boundary line and takes for itself all that it can do well and profitably" (p. 126).

The plain meaning of these statements would seem to be that, if private enterprise is now prepared to do the whole job, then there will be nothing left for public housing to do. But National Capital Housing Authority has qualified its invitation to private enterprise in a way which would leave National Capital Housing Authority a monopoly over a huge field. For it "welcomes" only "all that the private builders will do well without Government subsidy" (p. 183); it leaves open. "the market which is apparently open to private enterprise operating at a profit, without rental subsidies" (p. 1079).

How large, then, is the field National Capital Housing Authority insists upon for itself? Housing for all families making less than $2,000: "There is tacit acceptance that in the District of Columbia private enterprise cannot build for families with annual incomes less than $2,000. Need for the Authority's service, therefore, extends from that level down to the level of those who need public or private assistance" (p. 24). Indeed, it somewhat leans toward $2,400 or $2,600 as its upper level (p. 157). Public housing advocates seem agreed that "nearly a third of the population has incomes normally too low for them to pay for the full cost of decent housing" (p. 1110). There were over 51,000 families in Washington with incomes under $1,500 in 1940 (p. 1206).

It should be obvious that a governmental agency which proposes to supply a commodity to a third of a community's families is going to be competing with the private enterprise which has previously supplied all of the commodity.

As it is, however, public housing is enabled to compete with private enterprise housing in the low income field only by means of subsidy. This follows from the demonstration that its rents must be higher if the properties are to pay their way. Any program of public housing, therefore, would necessarily involve Government competition with private enterprise at the expense of the taxpayer.

Since private enterprise can build, maintain, and manage housing at a lower cost, there would seem to be no reason left for the erection of additional housing by National Capital Housing Authority, unless that reason be a desire to socialize the industry in the United States second only to agriculture.

Is it any more logical to conclude that, because the lowest income group needs better housing, the United States Government should build, own, and manage itthan it would be to likewise conclude that because the same group is underfed, underclothed, and receives an inadequate amount of fuel the Government should therefore go into the businesses of farming, clothing, manufacturing, and mining? And this even if the Government might conclude it could farm, manufacture, or mine at a lesser cost than private enterprise?

Fortunately, because private enterprise can build and manage at a lesser cost than can the Government, we do not have to rest our case on the plea that the American way of private enterprise must be preserved, even if it should cost the Government something to do so.

Furthermore, the builders ask only that Congress grant the right of eminent domain and give tenants less assistance than is required under any existing or possible Government building-owning-managing plan—and they are willing to do the job.

K. PLEDGES BY BUILDERS TO BUILD LOW-COST HOUSING

At the February 28 hearing Senator Tydings, in view of the opposition of the operative builders to an expanded National Capital Housing Authority program and their testimony that they could do the job better themselves, asked: "Would it be too much to ask if you could submit to this committee a statement signed by the builders that they would obligate themselves to undertake it, as to what they would do, what houses they would build, and what they would rent for, after they were built?" (p. 264).

On March 31, 1944, immediately after Mr. Warren's presentation of the private enterprise plan, pledges were presented by responsible local builders who agreed to build a total of 23,680 low-rental housing units under that plan in the first 6 years after building is permitted under Government regulations (pp. 613-616). Since National Capital Housing Authority estimates that there are 20,000 substandard houses currently in need of replacement (pp. 17, 18), these builders' pledges constitute an offer to do all the building necessary to replace the slums.

When commitments were asked from private builders for war housing, they obligated themselves to build 13,000 units and built 27,000 (p. 617). This fact of itself certainly creates a strong presumption that the present pledges will be kept.

Financing pledged at the same time is ample. The Perpetual Building Association pledged $1,000,000 a year when the plan was in an early stage, and now plans to make considerably more available (p. 618). Some of the District of Columbia Building and Loan League members, including the Perpetual Building Association, will make available a minimum of $3,000,000 for the first year, "almost unlimited funds are available for lending purposes from the Federal Home Loan Bank of Winston-Salem, N. C.," and it is to be expected that when the program gets under way many more institutions will become interested in the financing of these projects (p. 578). This financing is to be at rates of 3%1⁄2 to 4 percent for up to 33 years on 90 percent of the value of the properties (p. 578). This financing is the most advantageous ever offered by public or private sources in the District of Columbia.

National Capital Housing Authority has expressed doubt that the present interest of private builders in slum reclamation will continue after more profitable business can once more be resumed (p. 1100). Complaints have been frequent throughout the hearings that, since private builders have never before undertaken such a program, there is no reason to believe they will go through with it now. These are reasonable points to raise, but they can be answered with

assurance.

First, the private builders have never had the power of eminent domain, and without that power it is impossible to clear slums (p. 581). It is not economically possible in many cases to pay the fair market value of slum property, demolish the buildings, and then put up low-cost housing (p. 581). Private builders have never been able to build within the means of the very lowest income groups for the same reason that public housing has never been able to house them without subsidy-because their incomes are too low for them to be able to afford even the very lowest rents that must be charged for proper housing. And private builders have at last been able, through the consistent downward trend of interest rates and an extension of the amortization period, to reduce financing charges very considerably (p. 586). Lack of the power of eminent domain, the necessity of paying full "fair market value" where the improvements were to be demolished, and lack of advantageous financing-these have always heretofore made it impossible for private builders to attempt slum reclamation on any considerable scale. With these difficulties overcome, private builders will be able to do the job they wish to do.

Their continued interest is also assured. Aside from the interest in keeping their promises which may be expected of a group of highly reputable businessmen, and aside from the continued interest in reclaiming the city's slums which is natural to men who have had so large a part in recent years in building the city, there is the perhaps more convincing reason that it will continue to be a wise enterprise from a financial standpoint. After an organization of reasonable size has built only a fraction of the higher-priced houses it is able to build, it reaches the point where, because of the tax structure, there is little incentive to build up to its capacity. In the houses to be built under the present plan, on the other hand, the money can be plowed back in and a good equity created (p. 587). Allowable deductions for depreciation by the Bureau of Internal Revenue makes the investment an attractive one from a tax point of view, even though the percentage of return is low. Assuming, as we are quite safe to do, that the tax structure will not change radically in the immediate future, then we can be sure that there will be compelling practical reasons for a continuance of interest by builders in the present program. However, if the Government is to compete with private enterprise in building low rental housing both private financing and other private enterprise will be scared away because private enterprise must in fact be on a self-liquidating basis and the Government operating under nonrepayable grants need meet only maintenance charges.

Mr. WILKES. Now, the second point I would like to make is this: I had never engaged, prior to this housing inquiry, in presenting any matters before congressional committees, and while I had represented the local builders for a number of years, since about 1929, I asked that they get someone who had done that kind of work, and, through circumstances which you would not be interested in, a day or two before the hearing, the job fell on my shoulders, and I got the best builders, from the point of view of character and reputation and financial ability, in my office for a bull session on Sunday, and I said to them substantially this: "I have gone over the plan and there isn't as much profit in your plan as builders have been getting, and I want to know whether you gentlemen are actually interested in doing this building after the war is over and you can get materials."

Mr. Morris Cafritz, who is and for some years has been our largest builder and a man who is very responsible in every way, was the first one of the group of seven-we went around the table-and he said:

I will be interested for these reasons. In the first place these locations are downtown locations which are prime. Builders have never been able to get anything like this in the history of building. If the land cost can be reduced to a fair use value, the buildings will always stay rented and you will have a very— a prime investment from the point of view of having no vacancies to be concerned with.

Secondly, if public housing stays out of the picture, you can get financing to finance that on a very liberal basis. Just a few years ago, builders financed on trusts which matured in 3 or 5 years. Today the building associations run them up to 12 or 15, some of them 20 years.

We went to the building and loan associations, and they agreed, and the testimony is in the record and referred to in my statement here, they agreed to make $3,000,000 a year available at the lowest rates ever available in the District. I will read from the statement of Clarence E. Keefer, president of the District of Columbia Building and Loan League:

Local building and loan associations are prepared to loan money on low-rental housing such as is proposed to be erected under the plan submitted by the Home Builders' Association at rates of interest from 31⁄2 to 4 percent and for an amortization term up to 33 years upon a basis of advancing 90 percent of the value of the properties. Funds during the first year would be available to the minimum extent of $3,000,000.

It is my sincere belief that as these projects get under way more institutions will be interested in assisting in the financing of this type of housing and, therefore, considerably more funds than mentioned above are likely to be available.

Senator ELLENDER. Was that promise made on the basis that you clear these lots that I speak of, near the Capitol, and let the city of Washington pay a part of the charge?

Senator TAFT. And sell the lots to the builders for the same thing you would have to pay for a lot in Anacostia?

Mr. WILKES. It was not tied down to any location but the plan contemplated the building of two types of buildings: One, those located in the slum areas, the parts of the cleared areas not reserved for schools, fire stations, and parks.

Secondly, the building of new buildings to accommodate part of the people who had to be moved to somewhere around the periphery of the built-up sections.

Now, Mr. Cafritz further said this:

I can do two or three blocks of this building a year without interference with the volume of business which I do in my office, because the type of building is simple, and with one good superintendent and one good foreman I can just add him onto my pay roll in my office, and with a minimum amount of supervision I can do that kind of a job. It is the simplest type of building that there is.

Senator TAFT. Who is going to own these houses? Are you proposing to sell them? Is someone going to rent them, or what?

Mr. WILKES. It would be proposed to either lease them and we would not recommend either particularly-leased on long-term basis or owned by private enterprise.

Senator TAFT. What do you mean by "private enterprise"?

Mr. WILKES. Private individuals.

Senator TAFT. The people who live in the houses or who rent the houses?

Mr. WILKES. This is all rental housing. The houses for sale, we believe have been adquately taken care of in this area and I believe throughout the United States by private enterprise.

Senator TAFT. Are these builders going to put their money in? Mr. WILKES. The building associations will put in 90 percent and the builders 10 percent, and the builders will own the houses.

Senator TAFT. You think builders themselves will invest in rental houses?

Mr. WILKES. They have. Yes. Builders here have built more rental housing units in the last 4 or 5 years than our public agencies have.

Senator BUCK. How much equity, 10 percent?

Mr. WILKES. No; under existing financing they have to put in, if financed by the building and loan association, more than 10 percent. If financed by insured loans of F. H. A., in some instances I understand it has been less than 10 percent.

Senator TAFT. Don't they sell those houses as fast as they can? Mr. WILKES. No, Senator; unequivocally no; because, coming to my last point that Mr. Cafritz brought out, a builder who has attained any success very rapidly gets up into the upper-income brackets and he gets into a position where it is much more important for him to build up an estate in rental properties than it is important for him to engage in the business of building houses for resale and paying an income tax on, not the one-quarter of the capital gains but the total capital gains, because that is his business.

So that actually in the last 6 or 7 years builders have retained a very substantial part of the rental housing which they have built in the metropolitan area of the District of Columbia. And throughout the country, Mr. Cortwright tells me, that conforms to my understanding. Senator TAFT. Do you think that is true throughout the country? Mr. CORTWRIGHT. Yes, Senator Taft. They have constructed at least 400,000 units for rental, and the great bulk is owned by the builders and they do not want to liquidate it. They would rather have that monthly income. We have learned that only during the war. That was the result of a requirement that a very substantial part of our housing be built for rental.

Senator ELLENDER. Does that condition exist only during the war?

Mr. CORTWRIGHT. We were pushed into it, but we have learned the advantages of it.

Senator ELLENDER. My guess is that about the end of the war they are going to start unloading.

Mr. CORTWRIGHT. If I may say so, that will depend entirely upon the income-tax situation.

Senator ELLENDER. Well, I doubt that there will be reduction. Mr. CORTWRIGHT. Well, we will hang onto it, then, sir.

Mr. WILKES. Senator, this matter of unloading the matter as to which there is a difference of opinion. Actually, immediately following World War No. 1, people felt there was going to be a tremendous exodus from Washington. There was a housing shortage here for some years thereafter, and building costs went up after World War No. 1, and we suffered very little.

In conclusion, may I just make this final observation? I would like to leave a copy, a summary, which I believe is attached to my statement, which I would like to have incorporated in the record, and I would like also to leave for the use of the committee's files, a complete copy of the testimony taken before Senator Burton's committee. If the private builders are given the implementation of eminent domain, which, in the District of Columbia, I think, would be constitutional-it has been decided both ways in court in various sections of the country.

Senator TAFT. You cannot give that to the private builders.

Mr. WILKES. No, if a Government agency will acquire for the purpose of obliterating slum conditions, land which is resold for the