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PAT HARRISON, M I S S . , CHAIRMAN
WILLIAM H. KING, UTAH
ROBERT M. LA FOLLETTE, JR., WIS.
WALTER r . GEORGE, OA.
ARTHUR CAPPER, KANS.
DAVID I. WALSH, MASS.
ARTHUR H. VANDENBERG, MICH.
AUBEN W . BARKLJEY, ICY.
JOHN G. TOWNSEND, JR., DEL.
TOM CONNALLY, TEX.
JAMES J . DAVIS, PA.
JOSIAH W . BAILEY, N. C.
BENNETT CHAMP CLARK, MO.
HARRY FLOOD BYRD, VA.
AUGUSTINE LONERGAN. CONN.
HUGOL. BLACK, ALA.
PETER G. GERRY, R. I.
JOSEPH F . GUFFEY, PA.
ROBERT J. BULKLEY, OHIO
PRENTISS M. BROWN, MICH.
CLYDE L . HERRING, IOWA
J£>l<xte& Senate
COM MITTEE ON FINANCE
9
FELTON M. JOHNSTON, CLERK
Hr« Marriner S« Eccles
federal Reserve Board
Washington, V.C
Dear Mr. Eccles:
I am enclosing a copy of a brief whicli
outlines the main features of a housing plan
which has been brought to my attention. I would
appreeiate it if you could have someone of your
research staff check It over and give me a report as to Its feasibility particularly in regard
to the financial guarantee involved*
RML:nc
June 5, 1937*
My dear Senator:
I have your letter of June ^d enclosing the
copy of the orief outlining- the main features of the
housing plan, and I have turned it over to our economic
staff so that I may have prepared promptly an analysis
and study which will enable me to arrive at some competent judgment about it. A S soon as they are able to.prepare this analysis, I will furnish you with a memorandum
and give- you the report which you request.
1 appreciate your sending this to me. A S you
know, 1 have been greatly interested in the whole housing
problem ever since I came to Washington and took part
during my stay in the Treasury in the preparation of
legislation.
Sincerely yours,
14. S. Iccles,
Chairman.
Honorable Robert M. LaFollette, Jr.,
United States Senate,
Washington, D. o.
T H E
E Q U I T Y
P L A N
Washington, D.C
May 25, 1957
SUMMARY
PAGE
1
INVESTMENT INSURANCE RISKS
5
MONTHLY PAYMENTS (New Houses)
8
MERCHANISM AND ORGANIZATION
10
MONTHLY PAYMENTS (Existing Houses)
12
WRITING-OFF HOUSE AND BUILDING-UP
EQUITIES
14
EQUITY BUILDING (Liquidity, Transfer and Renewals)
18
1TRITING-OFF (Depreciation and
Obsolescence)
20
WHAT THE PLAN DOES FOR THE INVESTOR,
LABOR AND THE NATIONAL GOVERNMENT
22
WAYS AND MEANS
23
SUPPORT
23
LIST OF APPENDICES
PAGE
I.
Market - Incomes Served by Plan
1
II.
Equity Losses under Mortgage System
5
III.
The Guarantor's Point of View
5
IV.
Help to Existing Dwellings re Application to Peoria, 111.
5
V.
Vacancies
5
VI«
Elements Influencing Monthly Payment - Possible Economies
8
VII.
Purchaser's Point of View - Outlined Contract
8
VIII.
Purchasing Power Index
8
IX.
The Community Unit
8
X.
Slum Clearance
8
XI•
Mechanism and Organization
10
XII.
Existing Dwellings
12
XIII.
Writing-Off Subsidized
12
XIV.
Interest, Principal and Equity
14
XV.
Monthly Payment Increases
18
XVI.
In Financial Depressions
18
XVII.
Equity Transfer
18
XVIII.
Renewals
18
XIX.
Depreciation and Obsolescence
20
XX.
Extension of Contracts
20
XXI.
Employment Created
22
XXII.
Fluctuations
22
XXIII.
Draft of Legislation
23
THE EQUITY PLAN
INSURED HOME OWNERSHIP FOR MODERATE INCOMES
SUMMARY
Append,
The Equity Plan creates a new market for those families
who are at present renting without hope of ever acquiring a
home.
It will also facilitate rehousing on a large scale by
allowing wtrade-inft values on existing houses.
Type Houses:
House with garden plot, as an integral part of
a small neighborhood unit, sold less than $5,000.
Market:
Present best estimate: Disregarding the great
metropolises, towns under 5,000 inhabitants and
reaching, in time, incomes as low as $1,500, the
plan could serve 6,000,000 and upward.
Urban population can be roughly classified in
three groups:
20% - Taken care of by present mortgage system.
- Served by this plan.
- Needing, at present, subsidy for decent
homes.
1.
Insured Investment substituted for old European mortgage
instrument.
Home purchasing liberalized in typical
American way.
2.
Long-Range Continuous Program possible by:
(a) Widening considerably the market for houses through
requiring only small or no down payment and allowing for transfer of equity.
(b) Helping write off andwreck a substantial proportion
of the existing one and two-family houses at the end
of tbir useful life.
I.
2.
3*
Cost Reduction allowed by long-range continuous program
through:
Stimulating the creation of privately well organized
buildhg companies (a combination architect and builder)•
Having labor gradually put on a yearly basis rather
than hourly rates•
Long-term contracts for materials.
Advance land acquisition to avoid speculation,
4.
A $4,000 House, part of a small neighborhood, can be purchased with no down payment, over 19 years, for $42.00
monthly, including taxes, structural repairs, neighborhood management. Cost of the house and relatively monthly payment will naturally vary from region to region.
5.
Small Homogeneous Neighborhoods would allow for:
(a) Protection of the value of the house•
(b) Services - through cooperative group organization
- impossible to provide for isolated individuals such as medical care, home economics, recreation,
gardens and other activities,
(c) Economies in family budgets*
(d) Possibilities for self-expression leading to a
higher degree of civilization.
6.
Home Purchaser is buying without getting into mortgage
debt:
His built-up equity is:
(a)
Insured against loss.
(b)
Transferable to any other vacant house under
the plan*
(c)
Liquid to cover monthly payments during loss of
income periods.
The purchaser can increase his monthly payments without
risk of foreclosure loss. His incentive is further increased by a substantial bonus.
3.
& family is gradually led to home ownership with the
maximum security, being able, if necessary, to make
the average three or four changes of houses during a
19-year period without ceasing to accumulate towards
home ownership*
7.
Existing Houses: The best half of existing houses in a
given community could also be purchased under the plan
allowing for lftrading-inw equities and for the protection
of values upset by an extensive program. This is possible
at a monthly payment close to rentals through help from
grants included in the monthly payments on new houses•
The above will help slum clearance; at present new house
building only takes care of new families, keeping slums
and tenements always occupied generation after generation.
This plan is not intended to displace the present mortgage
system or FHA's insured mortgages which should financially
assist only those families able to afford,without secondary loans,
a sound equity for the building of a custom made house on a lot
of their choice.
EXHIBIT
I.
INVESTMENT INSURANCE RISKS
Risks incurred by insuring |4,000 the total sale price of
a house bought through a purchase contract.
iUsks limited by:
Houses sold around or under 15,000.
Title not guaranteed at fixed date.
New houses in protected neighborhood.
Purchasers have vote in Management Corp.
Equity redemption in cash limited if necessary.
Proportion of existing houses insured in
the fund kept low.
Risk from House
New Houses
Existing Houses
1. Fire, tornado, etc.
Taken care of by
existing companies,
Taken care of by
existing companies,
2. Structural repairs.
$40 yearly.
$80 yearly.
3. Writing-off (Obsolescence & Depreciation), The house could
be wrecked physically
at the end of - - - - 33 years.
years
Risk from Purchaser
4. Delinquencies (the
purchaser stops his
monthly payments or
pays only partially,
The purchaser can
draw on his equity
account for long
periods.
The purchaser can
draw on his equity
account for long
periods.
5. Vacancy (the purchaser moves out)
Sfo
7.5%
5.
I.
INVESTMENT INSURANCE RISKS
Append.
For a $4,000 new house all major risk factors add as follows
in the monthly payments:
1.
2.
3.
4.
5.
Fire Insurance, Tornado, etc.
Structural Repairs
Writing-Off
Help to Existing Dwellings
Delinquencies
Vacancy
.50
3.50
6,00
4.00
- -2.00
$16,00
This $16 paid monthly covers all risks and therefore the investment of $4,000 can be insured 100$.
The past decades have clearly shown that the buying of a home by
modest incomes under the mortgage system is impractical and often
disastrous. In the past four years one home out of five has been
either foreclosed or menaced by foreclosure; and the amount of
"equities" in homes wiped out is around two billion dollars.
Federal insured investment is suggested as a practical solution.
No one in particular "holds the bag" any more than in a large insurance company.
1.
2.
3.
II.
III.
Fire, tornado, etc* are old riskswell taken care of by existing companies.
Structural repairs will be pooled and taken care of on a
group basis, reducing the cost not only by group work but by
careful checking at regular intervals. Other repairs are
borne by the purchaser.
Writing off is explained in Charts Vand VII.
Help to Existing Dwellings: A long-range continuous program would be impossible without helping to write off a substantial proportion of the existing 1 and 2-family dwellings.
The sum indicated has been calculated to take care of the bet- IV.
ter half of one and 2-family dwellings at the rate of $4 monthly. This $4 monthly contribution is the very thing that enables
the purchaser to buy a house instead of renting old quarters.
4.
Delinquencies are avoided for the most part by allowing the
purchaser to draw upon his equity account to cover his monthly
payments. Periods as long as a year could be taken care of.
(See Chart VI)
5.
Vacancy: This vacancy rate is high to take care also of areas
affected by shifting population. If the average vacancy rate
turns out to be only 3$, this would allow out of every 100
houses, 15 years under the plan, 6 houses in depopulated areas
to be written off twice as fast.
V.
Operating expenses should be a small monthly item, the Insuring Agency
dealing only with millions of dollars through the Trustee Companies*
E> HIBIT II B
60MF ARISON ECU ITY PLAN ?ITH FHA (t
he most li beral
FHA
ting ulan)
tial servi ce charge, taxes, et
Down payment: f 800 & aboi t 1*200 ini
Monthly payment : $29
7 Purchaser s "secret hope" i
rtro
jotro :
May be completely wi ped out.
•
P
E. P. Dowr i payment: £1,000 ( I n i t i a l ser rice charg , taxes, t c . incluc
n sale pri ce)
£30 (F^us {7 for r e p a i r s aijid manag emint not inM o n t hly paymer
eluded in FHA payments)
U rr?A?
Rapi d writing-off
\
fEqu Lty Insured, Transferable,
\
S
\
\
Liqiid
I Incentives to increase i
paynents: No ganger of
oss
'„ 1 per
mon ihly increase
EXHIBIT II.
MONTHLY PAYMENT
(New House in Protected Neighborhood)
A 30-year purchase contract on a $4,000 house. If $42 is paid
every month, title goes to the purchaser after 19 years at "bookvalue1* $2,100.
Principal
Avg, 30 years
Interest ®4# Avg, 30 years
Depreciation (compounded in fund
at Z% interest)
Contribution to depreciation
of existing homes
Vacancy Insurance (based on
5% vacancies)
Taxes & Fire Insurance (Taxes in
outlying districts assumed at
$10 per 1,000 sale value)
$11
8
(Avg. 19 years
(Avg. 19 years 10)
6
4
2
4
AS COMPARED TO PRESENT FHA INSURED MORTGAGE
Monthly Repair Reserve;
This payment is not included in FHA insured mortgage; thus has to be in the family
budget. If repairs are ignored, heavier
bills will ensue; far wiser to have this a
fixed supervised charge*
$35,00
3*50
Management:
Supervises house repairs and neighborhood
maintenance essential to keep values stable
and secure. Helps in setting up and running
at cost all forms of cooperative effort leading to:
(a)
(b)
(c)
(d)
(e)
Savings in family budget*
Recreation direction and health service,
Interest in garden and general care of
the community.
All forms of individual and collective
expression that promote and enlarge
and cultural life,
Providing all those pleasures, comforts,
and conveniences that cannot be afforded by those living unrelatedly,
.
TOTAL MONTHLY PAYMENT
3 # 50
$42,00
8.
II.
MONTHLY PAYMENT
(New House in Protected Neighborhood)
Append,
As an illustration a $4,000 house cubing 10,000 ft, part of a
protected neighborhood, including a large plot for gardening and
share of community features, such as: shopping center, 4-room
school, auditorium, etc*
The "book-value11 is kept, as far as possible, under the market
value. It is determined from time to time on the basis of local
rental surveys averaged over a period,
A sale price under $5,000 could be obtained in nearly any part
of the United States; it is preferable to start with a good product
at a higher price and gradually reduce costs through large-scale
continuous operations, than to attempt, as at present, to reduce
cost at the expense of quality in order to fit the mortgage system.
VI.
In time, as far as can be forecast today, the $1500 income group
will be reached allowing for a rehousing of possibly half the urban
population, depending on raise of incomes to the 1929 level• Quotas
would be set for cities and regions in order not to upset the realestate market*
The purchaser is not buying under a mortgage debt but through a
purchase contract. This purchase contract is over 30 years in order to give 11 years leeway. At completion of payments he receives
a deed with community restrictions and the obligation to keep paying $11 covering taxes, fire insurance, repairs and management.
The debt service $31 could follow the purchasing power of the
dollar in order to protect the investors against inflation and the
purchaser against deflation.
VII•
VIII,
Community Unit: The purchaser not only buys a house but a share in
an organized and protected neighborhood. The unit of construction is
no longer the house but a community of about 250 families.In general,
the physical aspect might correspond to Radburn,N.J,or Greenbelt,Md.
A 250 family community will give optimum savings in construction;
is a manageable unit;provides for introducing every form of cooperative endeavor, for gardens and interest in general appearance, for
savings in family budgets, for health and medical care, for recreation for grown-ups and play for children and for all those individual and collective expressions that cannot be afforded by those living unrelatedly*
IX.
The manager will not only take care of the physical property but
afford guidance in cooperative activities. He must have real understanding and adaptability •
Each community is a unit in a great chain of units which as their
relationship grows more and more intimate will steadily enlarge the
nature and variety of cooperative efforts.
Slum Clearance: When costs are substantially reduced, the purchase
contract could be extended to the millions of slum dwellers through
a rental subsidy at about one-half the cost of an outright grant.
X.
EXHIBIT III.
MECHANISM AND ORGANIZATION
TRUSTEE CO.
Management
Co.
THE TRUSTEE
CO.
THE MANAGEMENT
CO.
Management
Co.
Management
Co.
(Revolving fund $100,000 upward.
(Sells insured bonds at 3#5$, redeem( able in 30 years maximum.
(Receives service charge of •5#.
(Appoints manager.
(Buys and controls land.
(Links management of different com( munity units.
(Long-terra policies.
(Holds title.
(A body composed of the home purchasers,
( presided over by the manager who con( trols votes until all titles acquired.
(Community unit run at cost,
(Routine duties: collection monthly pay( ments, repairs and maintenance, super( vision of community features*
(Guidance to purchasers for cooperative
( endeavors^
10,
III.
MECHANISM AND ORGANIZATION
Append,
The Trustee Company's officers are outstanding personalities - business men with a long-range social mind, also in
other fields men of great repute. It invests in Management
Corporation, each owning a community unit, and controls its
majority vote through the appointed manager•
The Trustee Company holds large tracts of land for protection and future developments; in time it may be, if necessary, empowered with the right of eminent domain.
The Trustee Company receives 1% of the cost of each new
community and a yearly service charge of .5$ from each existing community until completely paid for. This service charge
is not paid on vacant dwellings.
The Manager can receive |5,000 yearly; he must be a man
with background, taking his position as a mission; training
of younger men would be necessary.
The monthly payment is collected by the Manager who keeps
the management fee, the repair fee and the taxes, sends the
balance to the Trustee Company who keeps the principal and
interest and service charge; the balance, or premium is then
sent to the Federal agency in charge of the investment insurance.
The Federal agency in charge of insurance;
Collects premiums.
Pays out on vacant dwellings*
Guarantees on insured bonds the paying back of
principal in 30 years maximumtalso the stated interest
Makes rental surveys periodically to determine
the "book-value11 which averaged over a period
will be kept below the values calculated from
these rental surveys.
Keeps up-to-date files for the transfer of
eauities.
A National Federation of Trustee Companies , a semi-public
body, could do part of the above functions, also sell all insured bonds. This Federation would be supported by a fixed
contribution from all Trustee Companies.
11.
EXHIBIT IV*
MONTHLY PAYMENT
(Selected Existing 1 & 2-Family Dwellings Values about $3,000 to $8,000)
A 20-year purchase contract on a $4,000 appraised house•
If $51 are paid every month, title to the purchaser after
14 years at "book-valuew $2,200#
Principal
Avg* 20-years
Interest @6^ Avg. 20-years
Premium %Z% Appraisal Value
$1?
12
7
(Avg* 14 years $13)
(Avg* 14 years 16)
AS COMPARED TO A 14 YEAR B&L CONTRACT
$36.00
Taxes & Fire Insurance (Taxes in
cities assumed at $20 per thousand
sale value)
8*00
Monthly Repair Reserve (Assumed
twice as high as on a new house).
7 # 00
This payment is not included in a
B&L contract, thus has to be in the
family budget. If repairs are ignored,
heavier bills will ensue. Far wiser
to have this a fixed supervised charge
TOTAL MONTHLY PAYMENT
$51,00
12.
IV.
MONTHLY PAYMENT
(Selected Existing 1 - 2-Family Dwellings - Values about $3,000 to $8,000)
Append,
No sound business enterprise would install new equipment without writing off the old. Viewing as a whole, the better half of
the existing one and two-family dwellings this same principle
applies.
Existing dwellings will only be insured after the intense
building of new communities begins to upset values and ?/hen customers for new houses cannot dispose readily of their old house. Insurance of existing houses will give prospective customers of new
houses a "trade-in" value through transfer of their equity. Absentee ownership will also be protected by allowing the owner to
sell under an insured contract with a limited loss.
Xll.
At the beginning of an intense building program an existing
dwelling was salable at |5,000 but two or three years after |3,000
could only be obtained; theinsuraace fund meets the loss half-way
by appraising at $4,000. The rent in such a home will generally
be only a few dollars less than the monthly payment charged on
the purchase contract.
The monthly payment is higher than for the same financing on
a new house because title is given in 14 years and interest, taxes
and repairs are much higher.
If the writing-off in 25 years and the 7.5^ vacancy rate was
charged directly without aid from the monthly $4 of the new houses,
the premium would be $16 increasing the monthly payment to $60;
this would be prohibitive to families paying less than $50 rent*
Every new house yields yearly $48 to help write off existing
equities and mortgages. This $48 is paid in any case aggrating
in 19 years $912. For instance if a purchaser is able to pay off
in the 15th year he will have to add $190 to the outstanding
balance.
For every 3 new houses built one existing dwelling can be insured with only Z% premium. Any acceptable house could be insured beyond thB proportion for a premium of about 6^.
If the purchaser pays off in 14 years, his average yearly
insured equity is $13. He, theefore, pays only $38 for shelter
in a house well kept up in repairs. This in most cases would be
less than the current rental.
The writing off can be accelerated by increasing the $4 from
the new houses either through subsidy in times of depression to
increase the home building without further upsetting values; or
by keeping the monthly payment constant and applying economies in
cost to increase the $4.
XIII.
13
RITIMG OFF HOUSE A:\IE BUILDING UP EQUITY
CHART V.
1
-DTD
,
) ^W.
Curve A: Cumulative accrued ov
cr amoubto $4,000 p
time.i.
t any g"
Oth year he accruec
hip or amunt paid
nership
id off
the
ownerff is
Curve C
Book-value M for a
traight me nthly depr ecidtion with no compound
aterest. This is at
the rate of 1,8# yearly
Curve D
straight line accumu]ating eno4gh to pay off
he "book- v,alue"at V.
ears or
dnd of 30 )
Tfhe pure ha er cannot
craw below this line.
mo-.
BookGvalu " of theLouse on
he basis f average 3% yeary depreci ti on
Th book\ialue" the 10th year IS
13,160, th outstand n
al
ance aiX theft Lime w o
http://fraser.stlouisfed.org/
3,160Federal Reserve Bank of St. Louis
Curve B:
14.
mITING-OFF
V.
HOUSE AMD BUILDING-UP EQUITY
Append,
The rhythm of writing-off the house and buiiding-up the equity
contrasts with the present frozen values of speculative expectancies and the psychology of debt and foreclosure. Year after
year the position of the purchaser becomes more secure by having
his house gradually written off and his equity substantially builtup .
Depreciation Fund:
$6#00 per month compounded at Z% interest. Complete depreciation
in 53 years.
Straight depreciation without compounded interest in 55 years.
If new 30-year contracts are made in depression periods at the
book-value at that time, the Trustee Company is paid the amount
of the depreciation on the house, the depreciation curve will then
fall somewhere between Curves B and C.
Title:
The time at which Curves A and B meet is about 19 years and the
book value of the house is then $2,100. The Trustee Company will
receive from the Depreciation Fund the complement to $£,000 or to
the book-value of the last renewal*
The exact time at which the purchaser will have title is not
guaranteed in the contract: this is an added security for the
insurance fund as the exact depreciation and the number of adjustments are difficult to estimate, but, with a large enough number
and diversification of neighborhoods the chances are the purchaser
will have title in 19 years or before if the status of the vacancy and repair funds allow it.
It is also possible that through rapid technological improvements and general rise in incomes the monthly payment could after
a while be kept constant and not only existing homes but those
built under the plan, becoming old also after 10 or 15 years,
would be more rapidly depreciated (increasing the $6 for depreciation to {7 or $8), then the first purchasers of houses under the
plan would get title several years before 19 years.
Average Total Equity: Over 19 years: $2,100 ; 19 x 12 : $9.10
Over 30 years: 4,000 7 30 x 12 - 11.10
Permanent Equity:
The book value of the house at the end of 30 years is $500.
The monthly permanent equity is then 500 t 360 = $1.40 - This
cannot be drawn upon. It is the minimum rate of redemption of
the insured stock*
Average Liquid Equity: Over 19 years: $9.10 - $1.40 = $7.70
Over 30 years: 11.10 - $1.40 = $9.70
The average liquid equity will most probably vary from $6 to $8
depending on the time at which the title is acquired; this amount
can be drawn upon to cover monthly payments in case of emergency.
XIV.
15.
CHART VI
\ISURANCE A FTER PRINCIPAL. PAID- 3FF
J_ o
-
1
-O
o
VI.
EQUITY BUILDING
(Liquidity, Transfer & Renewals)
Append
Down Payment: A down payment of $200 will be required from those
who can afford it. This down payment will immediately create a
reserve. If the savings of the purchasers are not sufficient
then the first year payment (interest and r rincipal) will be devoted to this initial reserve or f229.
The first years interest or $160 will be added to the |4,000
and the purchaser will pay $45 instead of |42.
At, the end of the second year in case of extreme emergency the
purchaser could be carried for 7 months.
Increased Monthly Payment: By paying more monthly (the purchaser
has no risk by doing so for he is insured) the purchaser can obtain title several years before the 19 years. Title in 15 years
would cost him |7 more monthly. A bonus of $1 per $3 increase
monthly could be diverted from the depreciation and vacancy funds.
XV.
Temporary Loss of Income: During the periods of unemployment or
sickness, the purchaser can draw on his liquid equity. For instance, the 10th year he can draw as much as $950 or enough to
carry him along for 22 months. If at the end of this period he
continues his monthly payments regularly he can still have title
the 24th year. The bulk of the delinquent cases should be taken
care of by the above.
The principle collected monthly from non-delinquent purchasers
would cover about 20$ delinquent accounts. In extreme depressions more bonds could be issued against the insured value of
the houses, bonds bought by the Federal Reserve if there is no
market.
XVI.
For prolonged depressions certain families having used up the
liquid equities could be carried for a period, making up by paying one, two years more.
Equity Transfer: At any given time his total equity has a definite value. This value can be transferred to any other house
under the same plan minus whatever interior repairs are needed to
put the house back in shape.
It will enable the American family, who changes its home on
the average every 5 years, to go through life always accumulating towards home ownership with the greatest possible security.
Renewal 50-year Contract: In period of degression a renewal can
be made, i.e. after 10 years a new 50-year contract could be made
for the book-value of $5,160, lowering the monthly payments from
|42 to |54 and giving title in 24 years instead of 19 years.
The Trustee Company would then receive *Q&0 which could immediately be used to further home building at a time when it is most
needed, or partly be used to redeem insured stock.
XVXI.
XVIII
19.
CHART / I I .
o
RITING-OFF
(E epreciatio n & Obsole scence)
f
/
$
3
Q
>
/
/
:
/
/
\
/
/
•
|
/
/
\
//'
It
1
o
>i—
20.
VII.
WRITING-OFF
(Depreciation and Obsolescence)
Append
The variation of values in different neighborhoods and
regions will be pooled on the basis of rental returns and
not sale values at any given time. It is assumed that with
a sufficient: number of houses andvariety of neighborhoods
curve B will be well under the actual values. There will
be in any case a forced depreciation however stable the
neighborhoods*
Once insured a house is never sold it is held until
completely paid for or completely written off. The holding,
after a time, of a substantial proportion of one and twofamily dwellings will do much to avoid periodic real estate
collapses*
XIX.
Studies of long trend depreciation are lacking, but the
present study of FHA of the rentals of some 800 apartment
houses should be a guide and pave the way for a study of one
and two-family dwellings. First brief analysis of this study
shows a surprising stability over 20 or 30 years if the rentals are averaged.
Neighborhood I.
There is a shifting of population, values are coming
down, purchasers will have title in 15 years - book-value
$1,500.
An excess of naghborhoods of this sort would upset the
reserves and the vacancy fund would have to be drawn upon.
If this is not sufficient^ the purchase contracts would have
to be paid in general over a longer period of time.
Neighborhood II.
There is an increase in population. Values are very
stable. The house is written off at the minimum rate of,
let's say, 55 years - the purchaser will have title in 22
years, book-value $2,500.
XX
21
EXHIBIT VIII,
ADJUSTMENT OF MONTHLY PAYMENT
$42
Renewal
(after 10 years)
$34
Index adjustment
(1932 level)
Equity (10th year) drawn
upon for 4 or 5 years
Federal subsidy on losses
for carrying families a year or twof
$23
22.
THE EQUITY PLAN
WHAT IT DOES:
FOR THE INVESTOR: Insures his investment and interest against
losses* Protects his investment against variations, over a
30-year period, of the purchasing power of the dollar. Frotects present investments.
FOR LABOR: Through a long-range program permanent reemployment
of millions of unemployed, servicing directly and indirectly
the building trades.
Stabilization and increase of yearly incomes of building
trade workers*
Stabilization will bring back into building trades those
presently employed in industry. Technological improvements
would allow for training new men in simple tasks.
XXI..
FOR THE NATION: Gives the National Government great power
through insurance, to guide the re-buiiding of the United
States towards a new level.
Frotects the real-estate market against undue fluctuations
by:
(a) Holding the new insured houses until paid for
or ready to wreck.
(b) Gradually insuring a substantial proportion of
the existing dwellings and holding them as above.
In financial depressions:
(a) Renewals will provide funds for building of new
houses.
(b) Purchasers once their monthly payment scaled down
by the purchasing power index can have it further
substantially scaled down through renewals and
can draw on their equity account for long periods.
(c) The National Government, without setting up a new
costly machinery, can subsidize;
1.
The writing off of'more existing dwellings,
thus allowing for more new construction withOUL further upsetting the market.
8.
The probable losses on extensions of contracts
for purchasers having nearly exhausted their
equity account.
XX!I
23.
Append,
WAYS AND MEANS; Demonstrations of planned community units in
selected regions could be launched immediately under the Large
Scale Housing Division of FHA.
The plan can be enacted in simple legal form as an amendment to some existing housing law.
Financing could be started by the RFC, then taken over by
private capital and may be in time by Federal credit at handling costs*
SUPPORT:
By Industry:
It will gradually help its decentralization*
For increased profits: For every |4,000
house, material manufacturers will
get about $2,000.
For increased efficiency: Men happily housed
have increased efficiency. Increased
leisure of employes spent in tending
gardens and enjoying community features
instead of subversive discussions and
over drinking.
By majority of urban population.
XXIII,
@FedFRASER