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FEDERAL HOUSING ADMINISTRATION WASHINGTON, D. C. J. M. DAIGER ASSISTANT TO THE ADMINISTRATOR JUlie 15 , 1939 Dear Marriner: I am sending to you herewith by messenger the memorandum that you asked me to get from Mr* Lambert for you, and that I referred to in my telephone call a few minutes ago. With this memorandum I am also sending two binders containing material in which Mr* Lambert thought you would be interested* One binder contains a copy of a memorandum that Mr* Lambert wrote on May 22 for Mr. Noble* I had not seen this before, nor have I had an opportunity to read it before transmitting it to you* The other binder contains a copy of an application that Mr* Lambert recently submitted to Mr. Straus in behalf of the Princeton Housing Authority* Mr* Lambert showed me a copy of this shortly after it was submitted to Mr* Straus. lours sincerely, Hon. Marriner S. Eccles, Chairman Board of Governors of the Federal Reserve System Washington, D.C* c o p I Memorandum on L o w e s t Housing A Suggested Method of Financing and Proposed Legislation If a sincere effort if to be made to stimulate industry and increase employment, the activity aost susceptible to v.ide expansion is the erection of dwelling units for an income group for which new dwellings have never been provided. This is the income group that pays &n economic rent of between $5 h.nd $10 per room per month* For the next decade, at le&st, the potential market afforded by this group would be unlimited. Inasmuch as conventional methods of financing have nerer provided new dwellings for this, the largest single urban group in ttet country, different Mftbtdl of financing must be used to reach it. There are two major cost factors that have prevented private enterprise from supplying the needs of this available inarket. They tire: 1« The existence of & speculative equity in practically all schemes for erecting dwelling units. 2. The necessity of aciairig full local taxes to the rent or to equivalent purchase payments• Speculative equities can be entirely eliminated, local tax costs in rent minimized, by Federal legislation as followsi (a) Speculation Eliminated The investing capital agrees to give ownership of the project to the municipality when the original development cost has been amortized (nith interest or uiviciends of not more than A per cent) from rents. Any excess is to go to the Government in taxes# In exchange the municipality agrees to lessen annual local taxes by 1 per cent of the original cost. The Federal Government agrees to have some agency (irach as RFC) lend the municipality annually, through the investing corporation, an amount equivalent to 1 per cent of the actual cost of land and buildings. The municipality pledges its growing and final equity in the property to secure trie repayment of those annual loans with compound interest* But inasmuch as the investment capital lias given up all speculative equity, and has limited its return to a niaxiauis of 4 per cent, it must have some incentive to act. This incentive is supplied by having a Federal agency (such as FHA) insure all or a substantial part of the principal of the actual aiaount invested in housing and an interest return of (let us say) 2 per cent. Under this plan, as speculation is eliminated, the sole motive of the investor is to buiM permanently M i «t lovr cost. 1 "** »* "m His best assurance of getting tae limited rttnn on the investment is to have 1m rents for a long period, (b) Tax Costs Reduced, Tax costs in MKtf &re= reduced without ior>s to the Federal Government or to the municipality* Tnis is accomplished by having a Federal agency finance annually the municipality's growing ownership in the property* It is reasonable to expect, before con- struction and choice of sites, that the municipality will agree to the lowest possible assessments, inasmuch ag the final equity, after repayment of the 1 per cent annual loans, will lie with the Municipality. Under the circumstances, in tae average urban communities which m&ke up the l&xgest market, it is likely that the tax burden put on rents will not exceed 1 per cent of the original development cost* In isany cases, on unproductive sites, better arrangements can be made* I An Illustration under Proposed Cost of family unit—four rooms and bath L i $3,000. Level annual payment from rent to amortize investment to corporation and yield 4. p&T cent for 28 years* ($3,000 x 6%) $180, Maintenance, collection of rents, insurance, etc* 120. Rent before local taxes Full local taxes (2$ of $3,000) — Annual loan from RFC (1% of $3*000) 30* Taxes required from rent 130. 30. Total Rent $330. Rent per unit per month. . . + • • • $27.50 Rent per room per month . « • • • • • • • * • • • $6,875 An Illustration with Speculative Capital Cost of family unit, four rooms and 'b&tii - f3fQGQ» 80^ mortgage—$2,400 insured FHA 4i / I / 2 » 7 ($2,400 x 1%) Return on 20 per cent equity—$600 x 21% Maintenanc©, collection of rents, insurance, etc. 162 • 120, $450 • Rent before local taxes Full local taxes J 2% (3,000 x 2$) 60^_ $510 g Rent per annu© $42.50 Rent per month $10.625 Kent per roo© per month If re&iier is sceptical of ta& return of 27 per cent cm trie speculative equity, let him ask himself if he would undertake a Diiiidiiig ventiare with less margin set tip as &» objective in the original rent* MEMORANDUM OH A PLAB TO STIMULATE INDUSTRIAL ACTIVITY BY RESIDENTIAL CONSTRUCTION Submitted to Edward J. Noble, Department of Commerce, May 22, 1959 Copies of documents attached herewith; !• Chart of residential construction and other industries, 2. Memorandum of Plan, This Memorandum is substantially the same as one submitted to the President and the Treasury Department in the fall of 1958. 5. Draft of Proposed Bill. This is the draft of a bill prepared on October 27, 1958, by the Legal Division of the Federal Housing Administration. One change has recently been made - the tax credit is five per cent, instead of ten per cent, of gross income. 4. Letter to Mr. Nathan Straus. 5. Photograph of Princeton Project. 6. Specifications and Cost of Princeton Project. 7. Floor Plan and Plot Plan of Princeton Project. 8. Copry of Pamphlet to Princeton Tenants, 9. Newspaper Clipping on New Brunswick Project. This is the only drawing available at this date. The clipping is from the New Brunswick Home News of April 27, 1959. 10. Editorial. Clipping of New Brunswick Times of April 50, 1959. mswm or fHE tup The plan discus Bed la this meaorancua wrs f i r s t proposed in writing to the Administrator of the Federal Housing Administration in August, 1958* Authority to m§# the £&eiliti@§ of that Adiai&istrfction in derelopin^ the idea was isunedif tely gnntaeU Constant discussion and analysis of the proposal proceeded with many economists and ijiiiTidmala la and ontsicia the F#d#ml Ck>rert»8iit» In October, i t was ptmBmtmtk to the President, who indicated interest and arranged to a fttrtiiei1 a##ting* On October 27, ISIfS^ a te&t&tiirs b i l l for ® the Comgr©ss was ir»im by tim tegal DiTisioii of ^ # Housiag Adli^iiiatraticm* I cog^ of that b i l l , with a e&sage in er#dit jfam t ^ t per eant* ta fi^a p#re©mt», i s attack#d Q® Murmsfa&r Z$ lfS8, ttoe President ealled a j^eting a t fhit« House for further discusfiiau In additicm to th« were presents HtoEy H&rg#iitlmi, Jr # f Seere^taiy 0f th# frtms^i John W* li&nee, Under-Secretary of the Treasury Stewart McDonald, Administrator, Federel Houfiin{; idainistraticm Abner Ferguson, Legal Division, Federal Housing Administration J, M. Daiger, Financial Adviser, Federal Housing Administration Gerard S* Lambert, Mvis«r, Federal Housing Administration It was dacid#d that it would h® imwtm to pr#0a for tion of the bill at that tiae, because tiie Administration had a bill before Congress asking for the elimination of tax exemption on all future issues of Federal or State bonds, and the proposed bill cm housing contained a tax credit feature. It was urged, h o w w r , bothteyth« Pr«#ld#nt end by Seeretafy Morgenthau that projects similar to the Princeton operation be extended as widely as possible la the thirty-three States which would permit them undar existing laws* A memorandum WBM prepared the next dsy, pointing ^mt that if it aemed politically i&expedieEt to <*ffer legislation with a tax credit feeture, the incentive to capital could be supplied by having & Governmental agency (such at the Federal Housing Adainietration) inspire at lemat a portion of the return on the investment. So opportunity arose for presenting thia memorandum to the President, because it was believed that the Administration did mot want the matter of legislation pursued at that time. News of the Princeton Project spread, and several communities have shown voluntary interest in the plan as a solution to their pmblaas* Specifically, Hew firunmlclc, law Jersey* after eareful ^ has cteeidei! to gn ahead with am experimental project for fifty It must be imderatood that the creation of the Princeton Project> and &ny similar one, 1 B for the priasary purpose of demonstrating that the fundajaental financial aspacta of the original proposal do actually solve the probleau fha U B # tf th# local ho^ai^f amthori% is a deviee *to briiag nbmrb the inMttileitd eleaants which mn fee more s^a^ly e&& witti widtr ap|JUleatl^i tgr fedar&l Xegislatlim# In Princeton, the bonds of the housing authority are tax exempt and thus supply the incentive* The housing authority's agreement to turn the project over to the «micl|MiLitgr after ejp^rtisatioii is entirely wmamra In Marcht 1959, a supplementary plan, employing the facilities of the United State Housing Authority, wr,& evolved* An outline of that suggestion is given herewith in a letter to Mr # Nathan Straue, Adadnistrator of that agency. t&# eiretasti^ues^ i t I s elemr th&t i t would hm to haw o&# or »or@ proj#rfc§ metmlly mmbrmU& mhioh srafgaatsi t o i r . Strums* Hts#& wsild &# i a to toe Priac#tcm aad 8#w ftranswiek projects^ whieii are entirely witii pri^m^ capital H t h tliis fe0i^iEg i a a e t m l %h® t^miltt obtained Jimtifiidl lm0.BlM.tim, whiek wmld is&i t^ a •xtension of the principle* Head prirate cmpitalf it tb# b#0t p^int &f attaek on stagnation* letiiritr ia *^i^ fluid is :r#l&ti*miy lowmr thaa to any »ajor iadluatiyf and i t is tfasr^fore ^i#t ^uiesptibl© of expansion^ See hma ba#m aeetiiad of d«life®rat#ly r^raaining in hiding. Ste# rnm&r t o tbis charge %M toat tii# eoimtiy la &kmm&$ m*v im mm% induitries^ and y^|uir©a no further inveetaent* 1km p luti^nith l a offered to e3wat# && entirely i investment, and one which t& capable of developaent for years to come* Hiis a&rk#t i a mm that # speeding g^i#ra!2y f htes nmrnr hmm mtmrmA ty priTate investment capital. I t la the faarfcet for fi^pr reaid^atial ecmatrueti^a for families vfim&m ineomes fore© than to peyj in n n t a l or equivalent purchase payments> between $5 and $10 par room per month* for SoImtJon of tfaig Problem If aation^«id# rtsMential eonstructicm % c a p i t a l f®r t h i s iMc®m group i s t o be aebieirsiij firm icings necessaryi I* Re&t#f or mqt&mlmt payments t %*&£& reach & &#w income gnragu IX* Elimination of the Speciaative Motive,. Ill* I?* Incentive for idle investment funds* Creation of large building eorpor&tio&s to bring about narked economies. f. Gow«mii#Bt aid, but ia tb# d«ead# from 1980 t® Mam titan fo^ 1 billiim dollars p$v jmr* I t ia «rrid#nt that of fajtily tmit# eoettag m#r# tliism #4fCXXJ icms^ i t i$ futil© to attempt to get any 3uch ejaoxint of investment in tlint co-1 brackets The mmm industrial result can be brought about, however, by erecting new units to rent or sell to families in an income group who cannot consider the ©r r m t of a B#W dialling tmder eouT^atioiial aothode ©f finance* II It doe ^ mot s»e» to be generally recognised that m $ of d#ttrrtats to low i^nta i« tha faet that fr>i&lly all 0f our23®aaljsgt ithixk pa^s naa seonomie rent, is bt< by sp^c^alative capital• It is thought that with present low mortgage rates, under Federal Housing Administration insurance, low rents will result. Practice mot Bhm t&it to b# tru©» Ska 0p#eialatiT« biaili#Ff ip&ta properly to sat Ills rantg to bring a li&iidsQTO return oa ids e^siily iaon»y» fide foi&t i s illustrated balow* A pi^fit of %w&nty*»§mrm per e«at» on 1^# ©Qtiily i s pr0Si»^i* &0r@ i s f&tnty of triclmce 1iiat 1iiJU figure i t often exceeded• the iiiT0ii^i0t of liCX) to _m®t Qt. 1M®& mA buildings With a^cmiaMir# Qaifitai $100 iar earning 27$ %g at 1% ( 4 | + | 4- t • ,ao or 12$ cluo^M before Thus, i f asieeialatiw eapital rsfusad to build wittesmt a t l#ast # (l#t ua m^) r t t t i m , the financial cliargts #r el^T^a per e#at# im the total imT®st^^nt in th* project* Full ownership by iaveetaent capital A 1#T©1 puya^nt ^f Bix per e^it* per am»i& will » t i r » $100 to tw&%^igitt yaa^i and yi#ld four p#r e^it» cm a l l omtstaiitliiig balamcss* This figure i s used for convenience. A shorter amortisation period only raises the rate* | S or e]t Putting i t another m&y - i t t& mkvmmXy mlik#3y tliat capital n i l l hvdM mm ^wtllii^is wilii th# imi#rsta2idtog tilt rsturs **& #qui% for aaortiaaticm and i&t^rast shall hm li&itfcil t© six per cent. 230L MB cmmm.i&m&l financing has aot brotaght fbout a iwiv&l of tha building industiy, some m®w anoroach must be found. The approach etf*r*<! in this pl&m mqusstioitebly mdWLatre# low r«&ts by i-tgr aad by tiie totol #li»immticm ar loading of If capital i s t# fi^# up a l l speenlatire |500aibi3Li^^ i t nave some alternate iuetntive t o make the investment. That i s to tb# machinery nebieh «* imir# d#iri0@d i d l l eert&ialy brtrnf tlie low whicn are our objective, but ne must &pply so ma thing to maice the machinery run, H10 pTimmf mtmmmd&ttm ia that thia isteisatlf» b# a tax I t i* tlie soimd^st ]^thod f f01* i&#r$ i s mo #xpimiittire of tv&&&p no eaatiiig#at l i a b i l i t y of t&# Cbvsmm<mtf «^id i t will tap a vpst hoard of idle capital. Furthermore, i t can be shown that, witii thm tax dedtictioiif the nmt rm*m.vtm& of tha Cfov*x8M&t will Ik a ^««ora3Pidi3©i attadted her#wit& i t la pointad out that a avoids a l l of the cogrr»&tio&&l objections (soae of wMch «ffiotioaal) to tax ereapt bonds. A aecond, but lags satisfactoiy method, woula be to tii» iaemtiT# by CSoy#3fi»«atal tesura&ca of 1iia prinei|jal aad a portion of of eorpor&tiotia •apecialljr auldtorlMd to apaxmta tmdar tliia 9ueh iaatir^ies la oecunriBg in «ai^f f arms to-^iay wx&®r the pr@a#at letforfeiBataly, i t would not b# && fm® mn opamtioa of capital aa wotild i^stilt tmder -Uia tax credit f i r s t ttees of tii© abor# fiT0 0l>js€tIir#g hmtm already been achieved in a demonstration under this plan* The operations of the Princeton Project, finished in December^ 1958, and having rents of $6*25 per rooaa per aonth^ prove this statement* I t was b u i l t with private capital that for yeai^s lias been on deposit in a banic, bringing toe Federal Government nothings The sninicips! authorities of admit th#y will recs#iir# a '^mliie greater tbm th# local ta3c«s b#sa d@jt#rraci* ^imaf tbtro i# E0 Federal or State subsidy, further ocmXixmed by "tia# grojaet in lew &niits«&ekt lew Jere^*, abo-tit to ©Etar the e0msrfcructioii stage* fib© figtir#t for eostt rents are the sasie* The incentive in these two demonstrations i t by #zehangiiig tfee property for boatis of a l&^sdL to^iiag feo&dsf yielding fotir per c^it # f are frmm from of A KJ^ fo or fh# Ik iiis message to Congress on November 2? # 1937, the frssisiemt s&idf lag In btiilding i s a <ir»g urn a l l iacustiy a^l trade* This presents am urgent problem which ia the caamon concern of industry, labor, and All bi^imedt needs th# Saftiaitsii of ordmrm aufi tfet @f purctoasiag pewr^r tbat c ^ » mbm hv&Mij&g in Gr^at mua^^ra of p#0pl© loc^; dlreetlgr ®r todinie^y to construction industry for employment. This industry^ to a p*#at#r s x t m t tfe^a aay oth#r f cms pmt iiila fts&da to work amd thus speed up the circulation of the Nation^ money supply. This, in turn, would increes© national income, reAied uneaployment, end as a r#s\ilt ecsatrilbmt@ tonmrd a balancing of tha This quotation m&f h® supplemented by the statement that if private capital #o#a not pro^id# miffiei^at ii#msing in the XwmT income growpa9 ®xp®®<xxr&a of State and Federal funds to nm% an i&sistant d^^nd will inerma© of Cfciaet $f The object of the plan outlined in thisffiemorzmdusiie to iniit^e a fos1* of cmpltftl, not no® aetivtly aiq^LcgrMl ia feotiaing, to invest large sums in lo*-cost housings fke capital referred to Is that wfeieh %B ordi&arlly i&irested a t a low rate of l&terea and wnich could not be induced to engage in purely speciiletivs A ftirtoer object i s to employ this capital in the of large corporatisma^ sa tfajtt the ob^ietis advantage &f quantity building and operation may be utilized• file new <i»®llliig m i t 0 for i^Btal or for smlm ^lieh ar# ikLasaad for iHmediate occupancy by those in the loTrer income groups j hence n laj^# tmtciueh#d wnftat #xista in this field* Of th# mrbm imatal favUies la the 4 m i l l l ^ p^r rwit of toaa tesa #S per ri^it per 5 million pay rent froa | 5 to |10 per room per month rf of mr& thaa ^LO i^^ mm p#r mcwith For the f i r s t group aoms provision is being made by the of tbe ttilted States Hot^ii^ Autiiii3dliyf altoot^gli the approprlatiim f®r that parfKiaa wiH ©Te&ttaally t#k# of only about 200,000 families• Of the l a s t group only about 60tQOQ f&milies are im p r o t ^ e t of beimg provided for by the tion of raat&l imita# file ireiy ljupge tmde^iloped i^3dc#t la for those faailiea in tiie middle group paying rent from $5 to $10 par rooiB per m<mth—a monthly rental of #20 to |40 per fawily unit* The Plan If p r i m t e empital^ not now engaged directly tn ing > coulci be directed to the huge markst mat mow being touched, re#alt cm our national i&eo&e would hm eqtsimleiat to the of a new i&dustiy* the plan proposed herewith. aiiOuM that j^anlt» I t i s m^g®Bted that a a#w %pe of eorpoimtloti shall bm rteopiised in th@ B^^ranue 4et# For the pwrgm® of , tb@s# eoipor&tlo&s will be of tii@ itrreatiient feomsiag coirporatlona l i a i t a d to a Mdciaaisi 3mtmti of 4 par catit# om th® eapital iB-* no profit eotild accroa to tba eorporati^n or imitator beyond M i i&eo®n oithar during tii@ period of op@;mtlom or at liquidation• To accomplish t h i s , I t is proposed that funds invested fcy %bB eorporatioa In homging properties shall b« repaid corporation ia #qiml p«riodie pa&mnta 0T#r a period of predetermined with resp#et to aaeh hou#itig property* Ibat la to say t the corporation will reeeiw eaeb prop#riy as ©res aBonat stifficiimt to rsttiara tii# capital a period of years and yield 4 per eaut* <M th# a«i^mt of money a t i U imTestsd in the propmT^ i& any o&# jmx* %km the rmmvmn fro® ai^r givmi hotting m i t hm® resnlt#d to the repayment of the capital and a maximum of 4 per cent, thereon, the unit must be turned over to the eotwmitgr if the houaat mm hv< for j or to the occupants if built for sale* In the case of a rental project that 1$ to be turned to the eosmmity after the rtt&Fsma&t of the e&pitel^ i t i s reasonable to expect that f before the project is "undertaken, arrangements could be made with, the municipality because of the aasiired acquisition of such a valuable asset, to accept local taxes only in the amount required for essential services to the property* t h i s taring in enrr&nt tax#s wotild r&&vmm mm of the substantial charges which meke for higher rentals, y#t item nrrmigmmnnt woula airaatually afford th^ prop#r% producing for i t a rws&ua ^xce^iag tJmt from taxes. In other words, the community acquires a capital asset m a0iiTO€ of r#v^mu0# niiiefa togttbtr ®ay Justify a marked r e in local taxes* Tim c®m*mi%? cmP of eotiraa, vmm i t a discretion in the ease of each housing unit, as i t would have mo forced obligation tmder the Federal l&w* liia ©vantttal mmmrwhlp by th# e^^amlti%^ of properties of tfedU ^>rt would constitute & ctisti&et sd^an€# in aoeial e^mtrol* la faet, i t would b$ si!Tis«bl# to prorid# timt the oommmii^ m&$ to i t s &Lser#tioii# obtaijt m a t any ti&s after IS y#ars from th# dat® of i t » construeby pggri^Bt of tht outstaadijag aamimt of th# in^eated capital* 1h® r ^ t d r e d rel#aae of the t i t l a to th# property eliainetea a l | desjrt or pofaibi^Jlty of 0fi«milatiim> aad to m pen&ta l o w r remta or lower BQ&t&ly pay»&&ts# A Btwi? of rest&l pwjeots now being imUt by porivmte capital di#eloa## tii&t tiia d#air# for speeuiatiYe profit la e rery l&vfP f&etor in of low i^ntals* I t i s proposed that corporations tmd@r tibds plan ao «0r%ag0Sf thu^ #li^iaiittog the ^wrious other tham interest and aj^rtissatiim^ which &m n^rtgags fin&nei&g* After providing for current dlri&md8f tiona would h® p&Twttt&& to a#t aaide a t tfa© #ad of aagr a r©s#J?ire for deficieneiaB of aBortisetioii and amotmt #qual to aot sore than oae^half that year*a for m^rtisaticm «ad dlvidendB* Ih^ r^sarre so aecimialatod, m®TM wotilii mot be permitted to #xce«d a t as^ tSj^a an a&omt to twic® mich mqr&rmmts for ai^y ciirr^nt year* Any earnings r ^ ^ i a i ^ after provisi<m haa l>@ea aacie for thi« reserve would b# paid aa a tax #acii year to tim Fsd#ral GoTeiTOB^at» I t i s furt&er proposed that, as the aaorti«aticm with r#iqp>eet to asegr htamitog property i s o^spleted, the *cetaral&t6tl reserve shall be prop«>rti<mat^ly x^4mcml smd the a^o^iit of nv&h T®&mH®& paid es a tax to tiie Federal Cb¥era»aiit* Ja the of cliasolutioa or liqmidmti^t of aa isrrest&ient houaiag funds remaining after repa^nnent of the invested capital and dirideads of 4 per e«nt* to th# date of aucii di^aolutic^ or liquidation would bm paid ma a ta^c to the Federal Government, With such a plan ®M outlined, no speculative profit would b# po0#ible for the isrr&ater* Tim s#ewity for aent would be £>ovght by reaching %km mass a&rket of tfe* low income group* Such an objective offers an incentive for capital ia X&rg# bloote to m® i t s f a c i l i t i e s to Xmtmr buil^ii^ eosts by ^ i ^ g of wil^riaXs, i»proT#d larfcfcoda of building, ami employment of labor, of I t ia proposed that, although the rate of return for these securities may mot exceed 4 per cent*, the rate for any new issue mey, If circumstances warrant, be made less thzn 4 per cent* by Joint action of th* %€3?@taiy of tttt frsasuiy and th# f@dtrm3l # ffe&s proTisiim woiald p«>T#nt ^ ^ poasibl* Fsdaral finaaei^g^ and alao would afford by th# GwBraatnt if f uarther ex^asicm of is Hewing set up the mechanism ^iiich in operation would certainly provide new housing for the income group not now being rm&chm^p i t ia t i a m t i a l to i&eliiue %M the {£*& a factor that i s a strong induceaent to capital to make the investment. This i s true because, as outlined, the plan requires eapital to limit i t e rstur&«-»t0 giw tap a l l c k i e # af profit-^to foirngm m^ guarantee of its iw?mtmn% or #&mings->-*e£<i to offsr eoatroi of Its rats of return and future expansion to a governmental body* The inducement should be consistent with the policies of the Ada&nistration and of the Treasury DepartEnent. It should also be of a efa&r&eter whieht i&ll aetmily attract capital is large amounts and for continuing periods. The inducement cugherewith complies v/ith these requirements. It la proposed that all rsiriiiia» accruing directly to frm, th#s# colorations ahall b© stablest to all yadsrsal incoae taxes, but that on account of the public good resulting froa the investment & reward or subsidy be permitted in the form of a deduction from the total income subject to atirtaxf the deduction to be the ajiount of income from these corporations, but in no casa to exceed 5 per cent, of the aggregate income from all sotune#sf including tax exempt securities. For f^mmplmp if aa indiTidtmi ima an i&eoas t*m all sources of #!O)f000t and it is dariirad as follonsi |40fOC» fi^« tax exsmpt bonier #10tCX>0 from common stoek^ 0nd f^Jf<K3O from securities of these investment housing corporation, a deduction of $5PQQG is peraitt@4 from tii# incoa# atibjaeif to aurta latimg the surtax* If only #5tQ0Q of ills laeoss is fmm corpor®tiaasf m deduetloo. of $S f 000 froa th# ineoi^ aibjsot to surtax ie p«x»itt0d« la the east of a corporate l»^^atorf it is proposed f b#foi*e calculatiag the Federal eoiporaMoi tax # a shall b® allowed of 85 per cent* of th# sammt ree^iiwd as case shall the amouat upon which the 85 per cent, deduction e&leulmtfcd axee^i 5 p#r cant* of th# agg^gate i&e<*«*i froa sources, including tax exempt securities• I t Is clear that tjiese provisions aake I t impossible f#r corporatlima i»r individuals of high income to r©tSx# b#hdad thss« sneuritiea i s an #ffort to a^oid their prop^rticmat^ share of Government axpenses, Gorporatloas holding such securities do not present any surtax problem. In the case of txie hmming eorpomtimia them0#lir«&# tiie Teiy matxire of thmlr tions would suggest that the Federal Government require thes to pay cmly the tax resulting from their earnings $M excess of the authorized dividends &na reserves. I t has b©^t stat#d &bo^# that the to capital imtild be Qtm&t&tmit with GorexiMw&iit policy* fklm atatw^nt i t true for two reasons* 1* Sie €brn3?ma«»t haa fota^! i t wit^ and a#c#ssaiy to offer ao»e aid to promote various kousteg a&tlrttiea* IM tk© east of the Itaited Statsa Housing Antttofiiy, v « y Btibttsntlal sufcsidieB are offered• In the case of the Federal Housing Adminis- tration, a contingent l i a b i l i t y in undertaken, Hie assistance or subsidy suggested here applies to the income groups lying those be&efited by the activities of these tiro this €aa#f bow^err* tha operation of the plan result* in no by the (krrera»ei*tf m© ecmttegflot l i a b i l i t i e s of the # and in feet as imereaa# in tto s e t rwentit of tti# # fhis iaer#as# ia i^raaue eoaea from fmdm^l taicas on stinmlatfd iadasttlal a c t i r i % resulting cliraetly from i&m ^ tii&t incraase C^E be skowa to be greater tham lint tax deduction allowed* £• Granting $f tax d0dtKstlimsf as pr^p«>a0<l for m %Mucmm&t$ In mot iae0nsist0at with tba Presid#at f s aeeea^ of April 14j 13i8 # because the uaual objactic^is to tax exempti^i do mot apply* 'lie usml objections to exeaption are aa follows: a,t Say ex^iiitloa hm a t^midectjcy to flaaf on the cmitim^jr capdtal would be fros a^ l&aeti** state to atisula^ as iadnatey susceptible of expansion• b* of tiie Unoer this plan there would be a met increase in the revenue erf th# freaaury^ m^»t otiierwise obtainable Srom the building exeaptioQ Q D aunicipal issues haa a tanaency to ; about unnecessaiy increases in the debt of coaaaimlties because of #a#e of -10- Uaoer this plan no nev, debt t& the municipalities ia Ob title e<mtrmiyf th^r n i l l r&e*£iT© a ffcr&mi^tit fc*stt a a m goure* of revetus** l0re©Y&rf any ia the properties Hill r t » to the mimieiimlitiaa r a t t t r than private ov/ners, 4» ,|t r jg, ,fo^i^ly. .wimig. that avoid their sh^re of Government and State exoeaaes by in Complete or even a material avoidance of income taxos i s Sj^ossibl© vmA&T t4te plan pF®po8®&. ^et t a x d#dme*l^sa piroposed are in r e t a i l for a direct social and #e®&oaie b^tafit» The deductions are earned only as funds ers employed l a the strjction ami operation of men houBing for low-income groups* st#p aseeasa^y to hcmaing with private eapitel i s tlia ers&tt0ii of tor#stlng corporatto&s, ^ployliig th©tr financial r#ao\ircea t t e t e i e a l sicill to lower building costs* H10 propos^fl plan bring about thia cisair^d result* I t ie essential^ hm&w®rP that a l l ccmpcmant parta b€ permitted to f tmcti<m i the ®t®mn% imtoaclied narfe^t will &at b© ' V P L A N 1 C -OF D EL 1 V El - T Y P I C A L P O W E L L - U N I T 4- H0U51NG-PR.0JEXT P C L 1 N C L T O M NE.W F P. A N K. L I N - G R O U P A • V E- N U E- P L A N P O W C LL 4- AVOC2.QAN -AHCH1TECT5 - L A M 5 E R T • H O U S I N G • P R I N C E T O N - N L W • P H O J L C T J E . R . 5 L Y - COPY SPECIFICATIONS Housing Project on Franklin Avenuef Princetonf N, J. Matthews Construction Company, Duilciers Coraoleted December lf 1956 FOOTINGS - 6" x 20* - It5:5 concrete FOUNDATIONS - 8» cinder block BRICKWORK • Veneer - kind hand brick laiu on edge in Is Is 6 mortar vdth one galvanized corrugated tier for every two square feet surface. Common brick - chimneys laic in 1*1*6 mortar «ith fire clay flues and cleanout doors. ROUGH CAKPMTKT - Framing #1 common fir of sizes shown on drawings Roof shea-tiling - 1 x 8 N. C. T&G Rough floors - S/4* irapor seal Masonite fastened with galvanized nails. Wall sheathing - 3/4* vapor seal Masonite fastened with cl nails* LATH & PLASTER - Exterior walls - l/2" Masonite insulating lath Interior walls & ceilings - 2 . 8 paper backed Steelerete lath. Plaster - two coat work - gjpsu® plaster with brown coat trowelled to a smooth finish Plaster work in bathrooms - two coat Portland cement - smooth finish. FINISHED FLOORS - #2 Red oak 13/16" x Z 1/4" face laid Kith cut nails over 50 lb. asphalt felt - machine sanded* ROOFING & SHEET METAL %ORS - Flashings - 16 os. soft copper base and counter flashings - with full pan type turned up into flue of chimneys. Slate - l/4** rough thick Bangor slate laid with galvanized nails over 30 lb. asphalt felt. Ho gutters or leaders required. MILLMRK - Windows - stock frames and sash of sizes shown on drawings. Interior doors - 6 panel stock 1 5/4* thick Interior doors - 6 panel stock 1 3/8* thick Trim - 5 5/8» Sanitary Jambs - 1* stock with loose stop soulas Closets - pin rail, shelf UKl *ocd closet pole HARDWARE - Butts - sheradised stock Door sets - Schlag with locks on front end rear doors only. PAIMTING - lalls of living room K*d bedrooms papered. Ceilings two coats of Casine paint Baths *\TiG- kitchens - three coats of lead & oil paint Interior trim elsewhere - stain & one coet of flat varnish Floors - two coats of ffiLnwax Exterior woodwork - prim and two coats of lead and oil paint Brickwork - U. S. Government fonaula v/hite wash. ELECTRIC WORK - Four circuit panel in kitchen with plug type fuse. Meter placed on end of each building with service carried along face of rear cornice to panel of each unit Service cable - G-E entrance cable or equal two wire. Sub-feeders - non metallic sheathed cable Boxes - standard enamel Switches - tumbler type Fixtures - Chase Brass Company - a s selected Door bells - front and rear on transformer SCREENS - Windows - top hung wood frames bronze wire Boor «•» stock -11/4* wood frames bronze wire, standard black enamel hardware* PLUMBING - Soil lines - medium weight cast iron later lines - copper tubing, brazed joints later closet - Kohler H0K-616Q-PR - Tank £-6798 Sink & Laundry tray - 42* K-16S5 Penfield, Combination sink and tray Lavatory - Sohler 20 x 18» K-250 Hudson Gas water heater - #40 Sands with SO gallon galvanized boiler Gas Range - Quality Model 2300 Bath tub-Kohler 48-C Cardinal HEATIHG - Oil fired convection unit manufactured by Motor Iheel Corporation, Lansing, Michigan - Mocel Duo-Therm 606-8 with rating of 37,500 B.T.U, per hour Storage - 275 gallon capacity tank aounted on pipe legs Gravity feed through copper tubing Unit burns #2 fuel oil. con HOUSING PROJECT ON FRANKLIN AVENUE. PRINCETON. N. J. Matthews Construction Company, Builders Completed December 1. 1958 Furnishing all labor and material for the work in accordance with plans and specifications prepared b y Powell & Morgan, Architects, New York City Field overhead . . . . . . . . . . . . . . $1,668,50 Rental of tools and transportation of'power equipment . 97.50 Strip and stack top .oil . . . . . . . . . . 210,54 Excavation of footing trenches and porch foundations • 145.50 Backfilling 54,70 Excavation for water trenches . . . . . . . . . 64.50 Concrete footings . . . . . 250.63 Porch platforms . • 117.45 Cinder block foundation including p&rging * • • • 565.29 Cinder block firewalls . . . . . . . . . . . 267.78 Common brick work including flues and cleanout ctoor . 470.14 Brick veneering . . . . . . . 1,110.45 Concrete chiianey caps . . . . . . . . . . . 25,25 Furnishing and placing lathing and corner beads • . • 751.16 Plastering 1,255.83 Foundation vents and lintels, furnished . . . . . 67.29 Poles for electric line 21.75 Floor framing - labor only . , 151.08 Roof framing - labor only • 247.16 Exterior wall studding - labor only . . . . . . . 170.55 Partition » • » 211.50 Celotex - rough floors * * . 101.96 Celotex-sheathing wells " * . . . . . . . 97.10 Roof sheathing . . . . 3 " . . . . . . . 188.57 Placing plaster grounds * " . . . . . . . 76,45 Placing nailing cleats for celotex - labor . . . , 15.76 Rough window hardware - furnished 52.21 Nails . . • 85.60 Lumber delivered to site . . . . 1,770,52 Killwork - furnished and placed . , 2,295,63 Window screens - furnished, and placed . . . . . . 175.21 Window shades " * • 74.85 Electric wiring and hanging fixtures . . . . . . 525.75 Electric fixtures - furnished . . . . . . . . . 179.79 Insulation - furnished and placed • 444.00 Painting . . . . . 1,772.00 Finished hardware - furnished . . 286.08 Roofing & sheet metal work . . . . . . . . . . 1,550,00 Finished wood floors - furnish rjid lay 860.00 Plumbing and heating . . . . . . . Clothes dryers - furnished and placed . . . . . . Furnished and placed bath accessories and letter boxes Builder's fee Actual Construction 4,650.00 56.55 94.82 25,051.42 . . 1.857.00 ^24,888.42 -2- Actual Construction Cost o f Land . . . . . . • Architect's Fee £,000.00 . . . . . . . Grading Hid Roads Finished Grading 500.00 « . . . » . . * Sewers end manholes Parking yard Tool House $24,888.42 949.65 54.34 • 750*00 * • 105.00 . 243.29 Fire Insurance • • • • • • • • Landscaping . . . . . . . . . Total 11.24 497.564- • . . . . $S0,000.00 # * * • • • .' -\ a. H DO m I • • r i " • • , Tl m CD Explanation for the tenants of the Franklin nue Project of the Housing Authority of the Borough of Princeton. T HE project consists of ten dwelling units which, with land, cost $30,000, or $3,000 per family unit. It was built as a demonstration that private capital may wisely invest to create new dwellings to be occupied at once by families whose income requires them to pay less than $10 per room per month. The units, each with four rooms and bath, will average in rent about $25 per month, or $6.25 per room per month. This is considering them as separate houses, where the tenant usually provides heat. If compared to apartments, when heat is supplied, the comparison would be about $28 per month, or $7 per room per month. The tenant's fuel is estimated to cost $3 per unit per month. Actually they are not like apartments, for each family has its own entrance and enjoys the common landscaping and adequate sunlight and air. Individual hot water boilers and heating plants have been installed to enable the tenant to control expenses. A central plant supplying all houses would require a fixed amount in the rents, and would prevent the opportunity of exercising economies which come from individual control of these expenses. These low rentals have been achieved by eliminating some of the factors which lead to higher rents. The obstacles which had to be removed were as follows: 1. HIGHER RENTS OFTEN COME FROM THE SPECULATIVE DESIRE TO GET AS MUCH AS POSSIBLE FROM THE OWNERSHIP OF THE PROPERTY. This desire is entirely legitimate, as we must have the profit motive, but for the purpose of solving the problem of low cost housing the possibility of any speculative profit was eliminated. This elimination was accomplished by having the investor agree to limit his return on the investment to the receipt from the rents of the same amount each month for 28 years, and no more. That is to say, $15 per unit per month for 28 years will gradually pay back the $3,000 that it cost to build a unit, and four per cent interest on the amount still invested in any one year. In other words, the financial charges are limited to $15 per month per unit, and at the end of 28 years the money will be paid back with interest of 4 per cent at all times. With the invested money repaid, the investor has no further interest in the property and he has arranged to have it pass, without debt, to the Borough of Princeton. To this $15 per month is added $10 per month for maintenances, collection of rents, repairs, fire insurance, etc. However, no matter what amount is required for maintenance, etc., the investor can never receive more than the sum of $15 per family unit per month. 2. LOCAL TAXES G O INTO RENTS. As the investor agrees to give the buildings and land to the Borough at the end of 28 years, the Borough will receive a property higher in value than the amount of the local taxes during that period. Therefore, although the Borough receives no taxes, yet it can lose nothing, because it gets the land and buildings in exchange for taxes. 3. A N INDUCEMENT MUST BE OFFERED TO THE INVESTOR TO PERSUADE H I M TO INVEST AT 4 PER CENT WITH N O CHANCE OF SPECULATIVE PROFIT. This inducement is created by having the Housing Authority of the Borough of Princeton acquire and operate the property. The Housing Authority has agreed to give bonds of the value of $30,000 to the investor in exchange for the property. As the finished property actually cost $30,000, there is no profit in the transaction. These bonds bear interest at 4 per cent for 28 years on the amount of the investment outstanding each year, and also yield an amount which will repay the original investment from year to year for 28 years. As the bonds are an instrumentality of the State of New Jersey, and for a public purpose, they are free from all State and Federal income taxes. An income of 4 per cent free from income taxes is attractive to the investor. (Incidentally, as the money invested in this property was lying idle in the bank the Federal Government was receiving no income upon it. Millions of such funds are lying idle, and they could be employed in this way to stimulate industrial activity, with the resulting increase in taxes to the Federal Government.) The net result of the plan, therefore, is that the Borough of Princeton pays out nothing and contracts no debt, the Federal Government pays out nothing and contracts no debt, and the investor is getting a good investment. MAINTENANCE AND COOPERATION An interesting feature of the plan is that, as the tenants determine to a large extent the amount required for maintenance and collection of rents, they may bring about lower rents by cooperation with the management of the property. That is to say, as the amount required from rents to pay bond interest and retirement of capital is a maximum of $15 per family unit per month, and as no profit beyond that figure can go to the investor, a reduction in maintenance, etc., can result only in a reduction of rent. It is, of course, necessary to maintain a reasonable reserve above $15 per month for contingencies and for fire insurance. In general, however, prompt payments of rents, thoughtful care of the property, and possibly contribution of labor for gardening and minor repairs, will render the need of this maintenance charge largely unnecessary. On the other hand, excessive abuse of the property, slow rent payment, and a lack of cooperation can only be met by increasing rents. The significant element of the plan is that, whichever of these two extremes exists, the amount of money coming to the investor remains the same—namely $15 per family unit per month. The buildings referred to in the above rental project, known as "Franklin Terrace", are a product of Princeton institutions. The builder was the Wm. R. Matthews Construction Company. Electrical work was by George Karch. Painting and papering was by Morris Maple. Architects were Powell and Morgan of New York (Alexander P. Morgan, Princeton '22). Landscaping was by George Drummond of Princeton. Construction was of standard materials throughout, and only union labor was employed. Walls are of brick veneer on concrete foundations. Buildings are insulated with Celotex and rock wool, are furred, plastered and papered. Floors are of oak and roofs of slate. All plumbing is copper. Units are separated by a fire wall of eight inch concrete block, affording substantial sound proofing. November 15, 1938 These articles are protected by copyright and have been removed. The citations for the original articles are: Daily Home News (New Brunswick, NJ), “Proposed Plan for Low-Rental Housing Units Here,” April 27, 1939, p. 1. Daily Home News (New Brunswick, NJ), “Housing Board Votes to Carry Out Project: Authority Definitely Approves Erection of Low Rental Units with Private Capital; Merchant Submits Plans for Two-story Buildings and Cost,” April 27, 1939, p. 1 New Brunswick Times (NJ), “New Brunswick’s Answer to Nathan Straus,” April 30, 1939. COPY Iferch 17th, 1959. Nathan Straus Esq., Shorehain uote-, Besuing ton, D. C. De&r ftTm Straus: Complying uitn your request on wy visit to your office on Iterch 15th, I am reducing to writing ny proposal mane briefly that day. The proposal in no way suf£**ti •• alteration of the work on low cost housing ana slum deference which you are aoing today, but of ?ers merely a plan for the exmnbion of that ?fork in a siigntly higher income bracket. The justification for the proposal is that it T*ould stimulate tne building industryj retrace unemployment, &nd provide housing for • group now possibly ineligible for your very lowest rents, but rho are nevertheless a w H i to cau^e private capital to provide decent dwelling accommodations. See Section 2 (2) of U M United States Housing Act. Thin letter is being written in Princeton, and of necessity is informal, but it nnould accomplish our purpose of presenting the matter for thorough discussion by you -• nc. your associates. Having no connection, with the dousing Authority of the Borough of Princeton I cannot speak officially for them, but I am talcing tneir only housing project here a3 ejx illustration to bring out tiie proposal. The Object of tne Proposal. The object is to ^tiaulate wide builcing activity tad in dolag iO to provide acoitionai low rent housing. This is PC- omplished by removing the objections tfeftt aunicipftlities h^ve to exemption of nousing projects from locsi taxes for a period up to 60 years, and by providing many more units p;-r taxpayer*s collrr. Unc er this plan the municipality receives tUe equivalent, of full taxes on property otrierwise not built, plus e. speculative equity in tae project. In reality, the erection of projects -oncer this arrangement increases revenues of the municipality immediately. Furthermore, by f-cquisition of "he l..nc tftd buiicin^s in a relatively short tiae it acquireE social eontrol over low rent properties, (in Princeton, the Borough m^y acquire the project an; Htm after 15 years by payment of 'he outstending amount on the bond3. All unearned increment accrues to the community hxm not to a Isad ovmer.) lule capital in every form, including carefully restricted funau, wouxci j'ind f>n investment which voold employ it in tiio most generally useful incustry - resicentiai construction. Tne Adadnistretion is being ssiced for wars to do this. brief Outline of Proposal. Stripped of the figures the proposal would operate as follows: Investment capital voluntarily feives to the municipality £.11 speculative profit in a building project be)ona trie retirement of the original investment and 4% thereon. In -jxchange, the municipality gives up local taxes for that speculative equity. These local taxes are then deducted i'ron the i^ente - tMUTlag thereby the safety of the investment capital. Toe feoeral Government uaes it3 superior credit to finance for the municipality i t s growing equity in the project, thus providing immediate funds in lieu of taxes, rnu using the property, after rstiremi-nt of i t t construction te' t , al security for thftt financing. The Governniarit'a contribution to the cauie is the interest c::rrge on financing that i. te credit. Private caoits..! provides 80$ of the f Present status of Princeton Project* There are ten family unite, of four rooms ind b?th each, renting for *25 per unit par month. Of this ,25 of rent, flS services the bones, ^nd £10 is for maintenance, collecting r nts, etc. Tencnts supply' heat through individual heating units at about §18 par yei-.r. This project m j built by the writer .rom personal funds at • cost of ^50,000. When completed and rented, title M f-; ireed by the local housing authority Hid v30,GO0 of bones of the authority were given me in exchange. E&cn £1,000 bond carries 28 coupon 60 pfiVf-ble each year for 28 years, thus r tiring tie ten.., and paying 4% interest on all outstanding balances. Being i^tuea by sn instr-jmentality of the State B.nd. for • public purpose, tney ere OMMpt f'roiE all State and Federal taxes. Hhen the bonus are amortised, the l:.nd sad buildingo become the property of the borough of Princeton. As this property of P. hofwlng authority is exexept from local tajces (apjroxiraately |6O0}9 tne Borough will eventually racei\re it as a compensation for the 7-emi^sion of tnose taxes. The Hypothetical Proposal. Presume U M buiiain S to be ju;:t co»oleted by private capital. To acquire theia the Princeton authority applia^ to the United States Housing Authority for a lo^n of 20$ of tne acquisition cost, or $€,000. Thit loaa is to b I mortized over 28 years by • level ennus.1 payment of (let ufl mmy) v',°8<:, or .047 per cent. The remaining 80%, or |>24,000, is obtained by a mortgage i'roia some lending institution, end •ay or ra^y not be insured by F. H. A, This mortgage *.oul be ijaortizec by a level ari..ur.i pc'tyment of |l,440, or 6%. -5- In adoition, tne Princeton uthority vetftld request of the U. S. H. A. an annwl p t contract of |480 per H M Tor 28 years. As required by tne Act, these payments will be used f i r s t for amortization of the |6,0QQ loan. Furthermore, the ..utnority oledges tust these accumuiatec payments are to be repaid -^o the 0« 3 , H, A. after tae retir3ment of ths aortgr.ge, tad trie property Hay ba held to secure taat pledge at that time. After payment of tills .iU&, nanely £15,440, any remaining equity will go to the Borough of Princeton. The II. &• u. A» or tne Federal Government offers f.o i t s contribution tne interest required to finance these annual payments through the 28 years. This interest chcr£e is the only expense to tne Government. I t is obvious that aora dwelling units csn be produced per Governcerit dollar >-ith thll expense txicoi v«itii an UUHMkl p^iy»en^ for 60 year:1., without recov^rjr of ne Rrinu^i payiaentt ">r interciBt -cnereon. For example, on the Princeton figures used above the Government's contribution over 28 years would be under 15% of the originel cost of ..he project. Local Taxes. 81th this proDosed arrangement the general revenues from rent and : r o i annual payments #ixl permit the local authority to pay the Borough of Princeton an amount equal to 80% of Lhe local taxes, aad in addition any equity in tha project a l t a r rapaylBg the ftrnupl receipts from U. 3 . d, A. In practice, full taxes snoulo eventually be receiver, ana possibly much more. Security for Loana. The Q« S. xi. A. loam of ^6,000 i s aecureu, f i r s t oy the annual payasnte, and in turn, thoc;e aJMUaal payments are secured by the remaining equity in the property. An •—lilt less than 50$ of the o r i g i nal cobt, namely ^io,440, will sieet tne aggregate o" nuese payments. Rent sciisdules provide a reserve ^uf icient to m intein x^ie prooerty in good condition "or tae period o£ Las loans. Compliance vrith tne Act. Th8 average income of tne tenants in Princeton i s un- er i^l,000 per year. They mrm in tha lowest income brackets. Private capital hht not formerly provided adoquata housing for tnem. A pronounced snortege of dwelling accommodations in Princeton for t h i s group makes any demolition of existing builcings inadviseVle, and so such oemolition coulu be deferred. AJbiUfJL pay me: i tb from the 0« 8, H. A, brlag about the low income ciiaracter of the r ^ n l t , and these payments ere used f i r s t to the U, S« H. A. capital IOLJI of #6,000. -4- t o t a l tax ity would thib rate action 1 J Lew,) Tne Municipality's contribution i s in the forffl of exemption from local taxes. (In practice, the local author pay 30% of the tax n i l to tha Borough in lieu of ti^-es. being tho 1- at rate assessed before acquisition. This permitted undsr tha New Jersey Local Bousing Authorities The annual paymeiit^ requested i n well -oncer the ^ rat© of interest plus 1 per cent of tha cojt of acquisition of the project. As I told you, I have r«fli . ross the F. H. A. a® in Km York or Princeton most of UM t i a e . I should - ppr heartaf froa you a t your early convenience a t 250 ??irk Avenue or in Princeton. ny miinicipj-iity except Princeton on the so-caliec: "Lf.abert Plan", but as tmsr+nffittf niaber of than t.re cosint to me for soae .solution of t h e i r problems. The ove proposal has b»«a s^gestet' to no one but your^elve, and I •hauld be very happy if you fine, i t to be something that f i t s into your operations and fchicn you mr-.y wi::h to heve generate from your office. lours veiy mincer el;*, (Sirned) G£2^RI> P. LAMBiRT,