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FEDERAL HOUSING ADMINISTRATION WASHINGTON, D. C. J. M. DA1GER ASSISTANT TO THE ADMINISTRATOR Ifey 3j 1939 Dear Marriner: I am enclosing herewith a copy of a letter that I have written today to Leon Henderson at his suggestion. I wish that you would call me after you have read the letter. Yours sincerely, J. M. Daiger Assistant to the Administrator Hon. Marriner S. Eccles, Chairman Board of Governors of the Federal Reserve System Washington, D.C, c 3, 1939 Dear Leon: Mere is a matter that I think you sai Lube ought to know about, especially in vieu of the housing studies you and he are directing for the TKBC. It relates directly to the problem of rstisylatinp; renteX-hou^inr construction, stressed. by Mr* Stone, wio came to see m© yeateru&y to discuss the COEIlaittee'f. nl&ns for hearings on the construction industry. The House and Senate, u you &now, have recently pfts#ed the FHA amendments, but with some differences that have now to be adjusted in conference, *e &r« greatly concerned about a provision that the House nit into the bill, by amendment from the floor on the notion of Congressman Cochran of Missouri. This provision, if retained, would constitute & serious obstacle to further activity in the very fielo where construction is L;ost urgently needed but most difficult to induce. lou and Lube will recall ttafct one of th# la&in purposes of the JMHIttBg legislation proposed by the President in. his special Biess&ge of Moveisbtr 29, 1937, 9Md included in the ajsendisents that became law on February 3* 193&, ^&B to encourage and facilitate private construction of rei&tiveiy low-rent housing. The effectiveness of the caentiisants in this respect is attested by the fact that %~e >iave issued insurance or coEEdtsaents for f100,000,000 of rental-housing mortgages dazing the past 15 oonths, tind ii&ve pVOieetS involving an adaitional 14-5,000,000 of insurance under exarainatioilj ^hersas the total rental-housing insurance for the three years prior to the 1938 luaendaents was only S15»000,000. The 193S amenoxaents put & liait of £0 per cent on rentalhousing wartg*Q&B9 but provided that th© insiirance should be based on "the amount which the Administrator estimatea will be the value of the property or project wrien the proposed iKprovoaentG are C O K ;:}.ieted,w This is in accordance with the ippaniwi practice regularly followed by fia&ncial institutions in nakiii£ loans and hj the courts in vmlnatlon and condemnation esses. The provision inserted by the House cuts across this with a restriction thst "in estis&ting tae valti© of the property or project » • • the Aciininistretor shall determine the value of • 2- this property as of t$ae date of the application for insurance, and in no case shall he estimate the value . . . to be in excess of ttet miu© of the property at such time plus the value of the proposed improvements thereon*R Ixm will M g j of course, that the effect of such & restriction would be to put the appraisal, the eetiit&i Btrueture» and the mortgage oa & b&sis that does not recognises Mm rental-housing enterprise as a going concern, but siaply as raw liuody materialsj, labor, etc*f costing thus-ajid-so-inaiQj dollars. Ton will also see that the formula is easy for the owner of highpriced land who wdftoftf to use it for & relatively high-rent project, but discouraging and difficult in the ca.se of an operator resourceful enough to mogsenbl© a large tract of lowpriced land, tii© T&lue of which will be enhanced ©Ten by the building of relatively low-rent housing* Congressman Cockr&a'c pmrptM is to preremt the "write—up11 of land mittii that is9.the recognition of &ay enhaoceaexit in property Ttineil reauxt.ing- froEi the C4irryiing out of rental-housing proj-ecta* If trie resourceful operator is to be denied that recognition, however, then he must find a m&j to rais© isore ©equity c&sh, tie up mor© workitig Cftpital for 25 ysurs or longer, uad, for an ©qu&l period, be content «it!i a io^er current return on bii investiaent* The bill as passed by the Senate replaces M M Cochran a&enassent *itj|ti & pro^ieion that would effectively prevent or offset • w i f l f Talimtion of iMtAg but without pensllsii»g initiative and iiigenuity is deT#loping the garden type of rental pptjejgtaN e« g», Colonial filing© tad Buekinghan—in low-cost land everns* This provision w i sponsored by e special sub-cos®ittee composed of Senator Raclcliffe, Senator Brown9 and Senator faft. To U M SO per ceat iisitation, the Senate adds the furtiier re«.trictioa that the mortgage "shall not in any ©vent tBMoi th© amount wiiich the Administrator estimateis will be th© cost of the completed pisysie&i ijiprovtsseats on %im property or project, exclusive of public utilities and streets, organisation expenses ana rti—Ililinil chtirges, during or incidental to cons traction »• This is ui together §&mA9 r©asoaablef and practicable; the Cochr&n anendaent is not. The effect of the alternatiTe proposals is reviewed fully la U M enclosed letter frosa 11 I f Coleau to Congressman Cochran, written at the latter1s request. The Congressman, however, remains unconvinced and is insistent upon the retention of the House provision by the conferees. I shall appreciate any suggestion or assistance that you and Lube can give in the matter, for if the Cochr&n amendment is retained the rental-housing program, which is just getting fairly under way, is going to have a bad setback between now and the time trie TMEC begins its hearings on the construction problem. lours sincerely, J. M. P^iger Assistant to the Administrator H.B.I On the advice of our General Counsel, we are holding some $25,000,000 of rental housing commitments in abeyance pending a settlement of the appraisal question raised by the Cocixran amendment. This neans a delay or loss in 1939 building contracts and exaployment, and necessarily a postponement until next year of projects that cannot be completed in time to meet the fall rental aarket* Mr. Leon Henderson, Executive Secretary Temporary Bational Economic Cosamittee Washington, C. C. JMD/eld
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