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Last year, because of the greatly increased burdens and the refusal of the rental authorities to cooperate in an adjustment of our rentals, the board of directors of the Cumberland Apartment, which is in downtown Louisville, authorized us to convert the apartment to an office building. Such a change would result in eviction of many apartment tenants who have been getting a big rental bargain for years. We need more, not fewer, such apartments, but it is so unprofitable to operate them, nobody wants to build any.
I do not know why some people today, and a lot of them in Government, at that, are ashamed of the word "profits." But they seem to act like it is poisonous to make a profit. It seems to be a growing bureaucratic trend of thinking that to make a profit is bad. Tax it all up, they argue, and then we won't have to worry about profits. But, gentlemen, you are reasonable and intelligent leaders of our Nation, and I say to you that when we destroy the profit motive in this country, we will destroy this country.
In our Louisville Cumberland, Dartmouth, and Willow Terrace apartment operations, we still are receiving income below prices of similar properties with similar replacement values, and we also have unequal rents for duplicate apartment units in the same building. As stated before, we have received certain percentage increases in income, but with the unequal schedule of rentals for the same kind of apartments, this application of bureaucratic stupidity simply increases the unequal treatment for tenants and in many instances we have refused to apply the increase because it is unfair. Certain tenants were paying adequate rentals in 1941 under trusteeships, in which all these apartments at that time were operating, and therefore now, with the percentage increases which have been allowed, many of them are getting to the point where we simply had to refuse them and could not apply them.
Considering the unnecessarily arbitrary rent control law under which rental properties and their values have been pegged since 1942, with the resultant disgruntlement among national real estate groups, any new attempt at controls—if any, indeed-most assuredly should try to avoid features which have created that disgruntlement. Why has the real estate so-called lobby been so persistent, so active, so loud in its complaints? Because, gentlemen, this inordinately burdensome control, or condemnation, law has kept rentals from an ordinary and uniform adjustment along with costs, prices, and wages and salaries.
Credit controls have just been lifted. Why? Because all over the Nation we had developed a new inventory attrition which was keeping businessmen from making profits, preventing goods from an orderly flow in commerce, backing up unemployment, stilling the flow of capital. Relief has been granted to the businessman, on whom there are no rent controls. Why isn't relief in an equal measure forthcoming to those who make their livelihood, and the livelihood of others, from rental properties? It is long overdue. We are suffering from attrition, too, attrition of the worst kind-bureaucratic bursitis. It is time, gentlemen, that the Congress reappraised the Nation's entire economic situation and reinvested Congress with the measures of control that have been delegated in wide authority to bureaucratic agencies. My good friend, Prof. Horace Poynter, of Science Hill, Ky, and Andover, Mass., who is learned in the Latin,
recently told me that even the Greeks had a word for bureaucracy, It was “grasshopper.” And gentlemen, we've certainly got a lot of grasshoppers here in Washington. It was bureaucracy that killed Rome and it will, if it is not contaminated, kill our democracy, too.
The other day I reread a paragraph in Gibbons' Rise and Fall of the Rome Empire, and it stated in there that it was not the barbarians that destroyed the empire, it was the "grasshoppers” or the people that, as they determined, the grasshoppers running all over the empire, bearing the people down, taxing people to death, which destroyed the empire from within. So I entreat you, gentlemen, return to the proper realm of congressional control the prerogatives that bureaucracy has usurped of the power that you have delegated in part.
Rent control investigations have followed the back-door method. Those who oppose the findings on the local level merely sit down and talk with some official who, using a form, chooses to uphold his own investigator. It is the role of judge, jury, and prosecutor. The late great Secretary Logan, as you will remember, Mr. Chairman, in 1936 in Louisville, made one of the outstanding speeches in the country on the dangers of our bureaucratic and administrative situation of governmental agencies, and it was participated in at that time by our Vice President, who expressed, at least at that time, somewhat the same views.
Of course, there is the appeal to a volunteer public group, rendering gratuitous services. The practice of this group has been to sustain the rent control authorities. There also is the right of appeal with no record of actual testimony. There is no excuse for bad administrative practice when it completely thwarts justice. This policy, which is totally un-American in all its aspects, has been followed as strict procedure by the rent control authorities for the past 10 years. I am not criticizing rent control authorities as individuals, but only as a system that has become grafted onto the American system of justice and which actually thwarts justice.
I do not see why people renting properties do not have the same appeal in the Federal courts that bureaucrats do who run the rent control organization,
The Cumberland Apartments is a nine-story building, containing 88 apartment units ranging from the efficiency type to two-bedroom units. On each floor are apartments which are approximately similar to those immediately above and below; but there is wide divergence in maximum rentals allowed. The housing expeditor has failed, or refused, to issue regulations permitting the Cumberland to charge adequate equalized rentals.
The Cumberland is situated immediately adjacent to Louisville's principal intersection of Fourth and Broadway. Since 1945, downtown apartment buildings with facilities comparable to Cumberland's have managed to obtain approximately 50 percent increase on maximum rentals over those charged at Cumberland. We have endeavored to adhere carefully to regulations without any effort to bypass the rules and regulations. Our several and concerted appeals to the Housing Expediter for relief all have met with failure. Our last fiscal report on Cumberland shows a further decrease in profits, and still no relief from the hardship.
The property earned last year $10,000, and in 1929 cost $620,000 to build and as I stated before, there are from two to three hundred of the widow and orphan type stockholders owning it.
Both the Dartmouth and the Willow Terrace apartments are the luxury-type apartment operations. The Dartmouth consists of 20 exactly similar luxury, high-priced apartments of the 4-bedroom, 3%-bath type. The rent ranges from $230 to $289.50 per month for identical apartments, without any exceptions as to appointments, furnishings, or decorations. The Willow Terrace consists of 62 oneto three-bedroom apartments, and has a situation almost exactly similar to Cumberland, with unequal rentals for identical apartments amounting in some cases to as much as a 30-percent diferential.
The Dartmouth and Willow Terrace were built in 1927 and cost $2 million, and today the reproduction cost has been estimated at $3 million.
The property was sold at public auction in 1947 by the Fidelity & Columbia Trust Co. of Louisville, as trustees representing the bondholders, for a period of approximately 17 years. The apartments at that time were fully occupied under rent control, and the reason the properties were sold at public auction was that they could not get sufficient income even to service the bonded indebtedness and allow the property to be reorganized by the bondholders. The Dartmouth is tenanted by Louisville's richest citizens, the chairman of the board of Louisville & Nashville, the president of Louisville Trust I could go right down the tenant list--and as stated before, it has four bedrooms, three baths, and the living room is very sumptuous with in each place a natural log fireplace and other facilities of that kind, and I think it is undisputedly the finest property in the Middle West from a luxury type.
In this instance, who needs protection, and why continue rent control over a property of this kind where, because of the unwillingness of the Rent Control Administration to carry out the acts of Congress, 20 identical apartments range from $230 to $285 per month, and the Willow Terrace is right next door, facing the finest park in the United States, Cherokee Park, with one- to two- to three-bedroom apartments. The Dartmouth and Willow Terrace apartments in 1951 earned $5,400 net on a property sold in 1947 at $700,000, plus necessary working capital, and of course the widows and orphans that originally bought the bonds lost about the same amount.
During the 4-year period of operations, no dividends have been paid on the stock and a total net of only $21,288 has been earned.
If these differentials alone were corrected and eliminated, we would not be dissatisfied too greatly with the ceilings, although on the luxury-type apartments, gentlemen, I cannot see where there is need for rent controls.
Neither the Cumberland, the Dartmouth, nor the Willow Terrace has any tenants who are properly subject to the 1941 rental freeze formula, which is based on such original rent without regard to the apartment involved.
There is no shortage of housing, apartment or otherwise, in Louisville, ranging from efficiency to four-bedroom and three-bath. Regulations should be permitted to allow lessors to charge rentals reasonably commensurate with facilities being furnished and certainly on a
basis which does not require identical apartments to be on wide differentials.
A good friend of mine, who is a public official in Louisville, making $15,000 a year, and his salary is well known, asked me 3 years ago to do everything I could to get an apartment. I found one of the best apartments at the Cumberland which was available, like which there is no other downtown, and I worked out with him at that time a rental of $116 a month. We paid $800 dollars to redecorate and $600 for new furniture. That was agreeable to him and he wrote me a letter accordingly.
Three months later, the rent-control authorities came in to Louisville and said we had to substantially reduce that rental, and he was willing to be of any help he could on it with them, but there is nothing we could do. I think the rental was reduced $6 a month, and the result is that it is an unhappy investment for us and an absolutely unfair situation, and here is a man who is getting a public salary of $15,000 a year, and we were doing him a favor to rent him this apartment.
Inequities result from differentials for identical apartments. Since local expediters say that existing regulations do not permit such relief, although actually the law authorizes any regulations necessary to correct any and all inequities, the extension of rent controls--if any, indeed-should make mandatory the issuance of necessary regulations to accomplish this and other fair adjustments.
You will remember, Mr. Chairman, when I appeared before you in 1950, you had put into the record of the proceedings a requirement that rentals be adjusted from the lowest price to the highest price for each type unit. As of that time there was no economic reason why this type of apartment renter should be protected from an economic standpoint. The Rent Administrator has ignored the law and the intent of Congress, every 2 years, in applying the regulations, so as a result its administration has been a blot on the fairness and good faith of governmental agencies generally.
Our latest fiscal audit on the Dartmouth-Willow Terrace operations shows a net profit of only 3.5 percent of our income, after taxes, compared with 10.1 percent in 1950. That, gentlemen, indicates how the growing cost of operations with our frozen inequities is eating away our profits and those of the widows and orphans who have their investments in the operations. Don't you reasonably agree that we are entitled to relief?
As for the Capitol Apartments in Frankfort, which we have hoped would give promise to the promotion of other private-financed apartment housing in communities that badly need it, our latest fiscal audit shows a deficit of more than $5,000. And this in the face of repeated requests, and refusals by the authorities, for rent relief for more than 2 years. Our previous fiscal audit showed a deficit of more than $3,000. The audit before that showed a deficit of more than $1,500. Talk about accelerated depreciation, gentlemen, here is a good example of accelerated deficit with no cure in sight.
We talk about accelerated depreciation. This is an example of accelerated deficit. The attitude of both these groups of bureaucrats is the same the way they carry out the Federal intent of the law, and how you can figure profits without figuring interest and depreciation
on a property, under the American system, is more than I have been able to figure out.
With reference to the Capitol Apartments, we now have been informed by the Federal Housing Administration that we cannot figure our depreciation at the accelerated rate of 3% percent, instead of the 2% percent, as the law provides. Yet we have been doing that for 2 years, and in our returns to the Treasury Department. Now the FHA tells us we can't do it. If you cannot use the depreciation permitted by law, it will do you no good.
Gentlemen, in closing, I want to say that, if it has not been entirely evident, I am thoroughly aroused over this matter. I think it is absolutely unfair and economically iniquitous. At the risk of censure of my own party, I want to say further that there seems to be a public clamor for a change in political administration. If we get a change, it is going to be due--more than anything else--to the fact that all of us in my party have allowed bureaucracy to become so strong that we have lost control of it. Gentlemen, it is within your power to restore part, if not all, of that control to its constitutional place.
The CHAIRMAN. A great part of your complaint is that comparable apartments have varied rents, and you feel they ought to be adjusted equitably so that each person renting a comparable apartment should pay practically the same. Is that not one of your complaints?
Mr. GRAHAM. Yes; I will just illustrate by the Dartmouth. Here are the richest people in Louisville. It is a luxury apartment. You remember you and I drove by there to look at it one day.
The people that are in there do not need any protection by you gentlemen. Now there may be certain groups that do. I will not argue that question from an ideological or economic or political standpoint, but these are the richest people in Louisville, but still some pay $230 a month and some $239 a month for exactly the same facilities. If there is any fairness in that, I am crazy.
The CHAIRMAN. Well, I understand further that you want to exterminate all bureaucrats, all agencies, and all grasshoppers. We always listen to you with pleasure, my good friend, and you always are free to express your views to this committee, and we are always pleased to see you come before us, but that is a pretty broad order.
Mr. GRAHAM. Thank you, sir.
The C'HAIRMAN. You do not expect all of us to act upon that demand for change, though, do you? Because I commit myself now by saying that I cannot go as far as you go in that respect.
Mr. Graham. Well, I agree with you on that, too, Mr. Chairman. The CHAIRMAN. The clerk will call the next witness.
The Clerk. Mr. Harry J. Fitzgerald, National Association of Real Estate Boards.