bilization. We, therefore, recommend that the Emergency Court of Appeals again be vested with authority to hear and determine challenges to the validity of rent regulations and orders-an authority which that court presently has with respect to the validity of pricing orders and regulations issued pursuant to the applicable provisions of the Defense Production Act. The Stabilizer dodged this question and charges in the Senate Banking and Currency Committee hearing.

Fourth, the power to grant or deny evictions should be returned to State courts of competent jurisdiction.

The Housing and Rent Act of 1947 as originally enacted permitted a landlord to obtain the eviction of a tenant for specifically stated reasons by applying to the appropriate State or local courts. However, the 1949 Housing and Rent Extension Act substantially altered eviction controls by delegating primary authority to grant or deny evictions to the Office of Rent Stabilization. It is our recommendation that the power to control evictions should again be returned to the State and local courts.

For example, if the nonresident owner of housing accommodations now desires to obtain such accommodations for his own use or occupancy, he must first apply to the Office of Rent Stabilization for a certificate to permit him to pursue his local eviction remedies. That Office, on the basis of affidavits or mere letters, determines whether the owner"in good faith" desires or needs such accommodations. If the Office of Rent Stabilization determines that the owner is not in 'good faith" entitled to occupy the accommodations owned by him, his petition is denied, and there being no judicial review, the denial is final.

For the above reasons, we strongly urge that the statutory provisions contained in the original Housing and Rent Act be reenacted, to restore some measure of fairness in the operation of the restraints on the landlord's right to evict.

Now as to rent advisory boards: The decisions, responsibilities, and functions of rent advisory boards, are of critical importance in the fair and unbiased administration of the Housing and Rent Act. It is thus of paramount importance that the members of such boards consist of able and unbiased persons. This is particularly true of the public members of such boards, who normally cast the decisive vote on matters coming before the board. However, complaints have been received from many sections of the country that the public members are not unbiased and properly representative of the public, but have been appointed in order to give decisive weight to the tenant's interests.

The history of the Chicago Rent Advisory Board well illustrates the successful effort of the stabilizer to obtain a board sympathetic to the viewpoint and interests of tenants. Rent advisory boards are tripartite in nature, with equal representation accorded to property owners, tenants, and the public. The original Chicago Rent Advisory Board was of such a character. It twice voted to increase rentals in Chicago, which action was twice vetoed by the Housing Expediter. The Expediter then enlarged the board by adding six new members. The public members appointed to the enlarged board numbered among them two members appointed by the CIO, two other labor union officials, and a member long associated with movements to advance

public housing. These "public" members have successfully "balanced" the board's actions consistently in favor of the tenant, thus frustrating the principle underlying public representation on tripartite panels.

The recent tremendous consternation in Washington caused in the steel industry illustrates better than words the complaint of these little owners about the supposed "impartiality" of many of the Rent Advisory Boards.

Discussion of Fair Net Operating Formula: In the Senate Banking and Currency Committee hearing, the industry testified that the so-called fair net operating formula was neither fair nor just and that it reduced the return on a piece of property to that of Government bonds. Mr. Woods did not deny this accusation-nor did he even try to explain it away.

The fair net operating income formula as devised by the rent stabilizer is a cruel hoax perpetrated on millions of property owners who were hopeful of relief and on Congress itself. In my estimation when Congress stipulated that a fair net operating income be granted it meant just what it said a proper return based on sound economics which should definitely not enrich the property owner but return him a fair net operating income for the type of property he holds. The bitter truth is that the fair net operating income formula does none of these things.

What is wrong with the ORS formula for fair net operating income: 1. It is very difficult to prepare-95 people out of a hundred would not be able to prepare it without an accountant.

Mr. BARRETT. What makes it difficult to prepare?

Mr. DULAURANCE. Well, I have entered it in the record.

Mr. BARRETT. I understand the fair net operating returns to be if you made any repairs at all, all you have to do is to take the bills, and bring them to the rent area director and submit them to him, and he allows a proportionate return as rent.

Mr. DULAURANCE. If that were true, it would be easy.

But each one of those bills has to be prorated over a certain period of time. It must be determined whether the repairs were made as repairs, or as complete replacements.

Mr. BARRETT. Do your bills not indicate that?

Mr. DULAURANCE. Yes, your bills would indicate it, but for instance, carpentry repairs are prorated on a 10-year basis. If you have a hundred dollar carpentry bill, you are only allowed $10 of that $100 that you spent.

If you have $100 carpentry replacement, you are only allowed $5 of that $100 that you spent.

So in effect you have to have records that go back for 20 years in order to be able to properly determine what your operating costs are, because on carpentry replacements, plastering work, electric wiring, and plumbing, heating equipment, sewers, sidewalks and masonry, you are only allowed one-twentieth of what you spend in any one year, so that in order to properly make out this application you have to have those records for 20 years, and then allocate them accordingly. Mr. BARRETT. Of course on that form you are speaking of retroactive increases. I am speaking of the immediate repairs.

Mr. DULAURANCE. Well on the repairs you are allocated 10 years for carpentry

You

Mr. BARRETT. But you get it in advance of the 10 years. get an increase immediately, if you prove that you are not getting a fair net operating return.

Mr. DULAURANCE. Yes, that is true. But if you have repairs, and you have a thousand dollars income, in order to get an increase on your repairs you have to spend $1,900-almost $2,000-because those repairs are prorated-assuming that you do not have records that go back 20 years.

Mr. BARRETT. I do not think that is true, according to what we have where I come from. If you show any expenditures at all, you get a proportionate increase in your rent.

Mr. DULAURANCE. Well, I have filed the D-106 form, and the D-106 form itself says:

Similarly, if a roof was replaced any time within the last 15 years, one-fifteenth of the cost may be properly charged to the test year.

Mr. BARRETT. Within the last 15 years. But we are speaking of the expenditures you have now on immediate repairs. Is it not true that the landlord says to the tenant, "If you want anything repaired, repair it yourself." And where they are forced through, such as sanitation, et cetera, and he makes certain expenditures, if he takes it to the rent area director, he can get an increase in rent if he proves that he has legitimate bills for the immediate repairs.

Mr. DULAURANCE. Yes, then have an increase in rent based on a 20-year amortization.

Mr. BARRETT. Well, that is right.

Mr. DULAURANCE. 2. It requires records that the little owners, the very people you are trying to help, do not possess. In order to properly prepare these applications records must go back 20 years.

3. It forces the little owner to take a low depreciation figure-less than that permitted by the Collector of Internal Revenue.

4. Interest on mortgage indebtedness is not recognized as a proper charge by the rent director although it is by any accountant or the Collector of Internal Revenue. On the return permitted, interest on a mortgage cannot be serviced.

5. The fair net operating income formula gives a return that is neither fair nor proper. It permits less return than the Government charges for mortgage interest-and puts rental property return in the same category as Government bonds or less.

Let us look at what happens to a piece of property under the fair net operating formula as devised by the ORS. We have under consideration the following property purchased at a fair market price in 1942.

2-family house (cost 1942).

Present monthly rental, $45 (1942 rent, $37.50 each suite).

Yearly rental, both suites..

Yearly rental_

Expenses.

EXAMPLE 1

$10, 000. 00 90.00 1, 080. 00

$1,080. 00

580.00

500. 00

Depreciation allowed (ORS)..

Net operating income..

226. 80

273. 20

No increase allowed. Return on investment, 2.7 percent. The ORS states that 2.7 percent is a fair return-the same as Government bonds.

Mr. NICHOLSON. Is interest figured in that?

Mr. DULAURANCE. No, sir, in example 2 we will show you that. Interest is not permitted to be figured under the fair net operating formula.

Now suppose this owner had a mortgage of $5,000 on this property at 5 percent:

Former net..

Interest on mortgage..

Present net.

EXAMPLE 2

$273. 20 250.00

No increase allowed. Return on investment, 0.23 percent.
Mr. BROWN (presiding). Suppose he had a mortgage of $8,000.
Mr. DULAURANCE. It still would not be permitted.

23. 20

Mr. BROWN (presiding). He would go in the red then, would he not? Mr. DULAURANCE. Yes, he would."

Mr. BROWN (presiding). But it looks to me as though the expenses might be a little large.

Mr. DULAURANCE. Well your taxes are $235. Let us assume thatthese are based somewhat on Cleveland rates which are not too high nor too low.

Suppose your house is appraised at $6,000 instead of $10,000. Your taxes are $235 per year. Your insurance is $50. Your exterior painting is $116 per year, based on a 4-year period. Your actual cost of painting a house like that, at the minimum, is $460 in Cleveland— and I took the lowest figure available.

Your plumbing is $30. Your water is $18. Your heating is $30. Your roof is $20. Your downspouts are $15. Your carpentry work, $30; plastering is $10; sewers, $10; electric wiring, $5; masonry, $5; and miscellaneous, $6.

Now you may not spend for all those items in one particular year. On the other hand, your plumbing bill may be $90 instead of $30, and your total there is $580. All those amounts are reasonable, based

on a survey.

Mr. BROWN (presiding). I think it would be a good idea to insert that in the record to show how the $580 is made up. I think that is very important.

(The information referred to is as follows:)

Mr. MCDONOUGH. You have not accounted for income tax on the net income, have you?

Mr. DULAURANCE. No, I have not.

Mr. NICHOLSON. It would not be much on $23.

: Mr. BROWN (presiding). You may proceed.

Mr. DULAURANCE. Although accused of this in the Senate Banking and Currency Committee hearing, Mr. Woods made no attempt to justify his exorbitantly low return permitted under his so-called fair net operating formula.

Mr. Woods did not deny that his fair net operating formula was so low that mortgage interest could not be paid for under it and leave any net for the owner. He merely made the adolescent excuse that Congress intended to leave it out-thereby begging the question. Certainly Congress did not intend to force anyone with a mortgaged property to lose it--but did intend that the income would be fairwhich presupposed the ability to pay for normal financing on a piece of property. Two and seven-tenths percent can scarcely be so considered when even the FHA permits a return of 6%1⁄2 percent gross on investment.

In conclusion, this report has stressed the need of corrective action to permit owners of rental properties to obtain a fair return on a fair investment, and to eliminate present inequities in the granting of rent relief. There is also a strong and substantial need for judicial review of rent orders, and rent regulations; for the return of evictions to the jurisdiction of State and local courts; and for a reconstitution of many of the rent advisory boards to make them truly representative so that they can perform their important functions in an independent and unbiased manner.

However, the experience of 10 years of continuous rent controls has proven that rent control does not solve the housing problem-merely perpetuates it. Ten years of rent control have served to weaken the moral fiber of our people and made them feel that they have a vested interest in the property of others. But over and beyond all this, Government statistics produced by Government bureaus, properly interpreted, without political or personal bias, show that in decontrolled cities, in view of increased costs, rent increases have been fair and modest, thus proving conclusively that rent control is no longer necessary.

It is our association's earnest hope that this committee will recommend that all economic controls including Federal rent controls be terminated as speedily and expeditiously as possible. If the defense effort makes it impossible to terminate all economic controls including rent controls now, then the orderly decontrol of rentals can best be effected by decontrolling all areas now under Federal rent controls except for rental accommodations located in critical defense areas properly certified in the manner we have heretofore suggested. Thank you very much, gentlemen.

Mr. BROWN (presiding). Does any Member desire to interrogate the witness?

Mr. WOLCOTT. Mr. DuLaurance, I would like to go a little further into this question of rent increases compared to increases in all other items.

According to the Bureau of Labor Statistics, in the 1936-39 average, and up to March 15, which are the last official figures available to us, all items have increased from 99.4 to 188, an increase of 88.6. Food has increased from 95.2 to 227.6.

Apparel has increased from 100.5 to 203.5. That is an increase of 88.6, as I have said, for all items, 132 for food, 103 for apparel.