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HOUSING COSTS AND INFLATION

11742
HEARINGS
BEFORE THE

COMMITTEE ON THE BUDGET
UNITED STATES SENATE
N IN E T Y -F IF T H CONGRESS
SECOND SESSION

JULY 14, 1978

N ovem ber

1978

Printed for the use o f the Committee on the Budget

U.S. GOVERNMENT PRINTING OFFICE
32-099

WASHINGTON

1978

COMMITTEE ON THE BUDGET
ED M U N D S. M USK IE, Maine, Chairman
H E N R Y BELLMON, Oklahoma
R O B E R T DOLE, Kansas
JAMES A. M cCLURE, Idaho
PET E V. DOM ENICI, New Mexico
SAM H A Y A K A W A , California
H. JOHN H EINZ III, Pennsylvania

W A R R EN G. M AGNUSON, Washington
ER N EST F. HOLLINGS, South Carolina
A L A N CR AN STO N, California
LAWTON CHILES, Florida
JAMES AB O U R EZK , South Dakota
JOSEPH R. BID EN , Jr., Delaware
J. B E N N E T T JOHNSTON, Louisiana
W ENDELL R.* A N D ER SO N , Minnesota
JIM SASSER, Tennessee

Staff Director
Minority Staff Director
F o x w e l l , Director of Publications

J o h n T . M cE v o y ,
R

obert

W. T

homas

S. B

oyd,

(II)

CONTENTS
July 14, 1978
Statements by Committee M em bers
Page

Chairman Muskie_
Senator Chiles.
Senator Bellmon_
Senator Domenici.
Senator Sasser.

2
2
5
6
7
Witnesses

Janis, Jay, Under Secretary, Department of Housing and Urban Develop
ment; accompanied by Lawrence Simons, Assistant Secretarj^ for Housing
and FHA Commissioner.
Prepared statement of Under Secretary Janis.
Neuhauser, Mary C.; Council Member, Iowa Citj^ Iowa, and member,
HUD Task Force on Housing Costs.
Smith, Herman J., Vice President and Secretary, National Association of
Home Builders,
Prepared statement of Mr. Smith.

8
13
34
20
27

Supplemental Material

Statements:

Sierra Club.

Papers:

“ Timber Harvest in the National Forests and Its Relationship to
Lumber Supply and Housing Costs,” by Robert Anderson, a forest
economist acting as a consultant for the Sierra Club in San Francisco.

Articles:

“ Boon or Bottleneck?” by James Carberry, Wall Street Journal,
July 10, 1978.

Reports:

Task Force on Housing Costs, Department of Housing and Urban
Development.
INDEX____

...
(in )

79
189

HOUSING COSTS AND INFLATION

F R ID A Y , JU LY 14, 1978

U.S.
C o m m it t e e

S e n a te ,
the

B udget,

Washington, D.C
The committee met at 10:10 a.m., pursuant to other business, in
room 6202, Dirksen Senate Office Building, Hon. Edmund S. Muskie
(chairman of the committee) presiding.
Present: Senators Muskie, Chiles, Bellmon, and Domenici.
Staff members present: John T McEvoy, staff director; Karen H.
Williams, chief counsel; Van D oom Doms, chief economist. Rodger O.
Schlickeisen, director, Commerce and Community Development; and
W Donald Campbell, senior analyst for Housing and Community
Development.
For the minority: Robert S. Boyd, staff director: Charles D.
McQuillen, counsel; and Carol Cox, senior analyst for Education,
Employment, and Social Services.
Chairman M u s k i e . The committee will be in order.
Before we proceed, our distinguished friend and colleague from
Texas would like to have the privilege of introducing a constituent.
I have agreed to give him that very unusual privilege provided he
limits himself to 1 hour. [Laughter.]
INTRODUCTION OF HER M AN J. SMITH B Y SENATOR BENTSEN

Senator B e n t s e n . I thank you very much. With your crowded
schedule I do appreciate your giving me an opportunity to introduce
this very distinguished and very old friend of mine, Herman Smith.
He is the vice president of the National Association of Home Builders.
He is uniquely qualified to testify before you.
He has built some 10,000 single-family dwellings and multiple-family
dwellings in the Southwest. In addition, he has been very much in
volved in national issues on housing in the last 10 years.
He was chairman of the Governor’s commission in Texas for homebuilding. He understands some of our problems, because he was the
mayor of a town in Texas for a period of time, a substantial city and
a growing city in Texas.
He is a man of integrity, and he is a man of ability. He is the man
who has the practical experience in housing to understand the con
cerns, and his responsibility as mayor of a city— I don’t know of any
office that is any closer to the people than that one. So he understands
the concerns on housing.
1 appreciate the opportunity to introduce him to you.

( 1)

2
OPENING STATEMENT OP CHAIRMAN MUSKIE

Chairman M u s k i e . Thank you very much, Senator Bentsen.
To put this hearing in context, I have a brief opening statement.
Today, we will consider the factors that have caused the costs of
housing to rise so rapidly in recent years. On June 7, the report of
the HUD Task Force on Housing Costs was released.1 That report—
its findings and recommendations—will provide a focus for our hearing
this morning.
I am grateful to Senator Chiles who suggested this hearing as a
useful contribution to the Budget Committee’s understanding of
inflation and possible steps to control it.
We are pleased to welcome this morning Under Secretary Jay Janis
of the Department of Housing and Urban Development; Mr. Herman
J. Smith, who is vice-president and secretary of the National Associa
tion of Home Builders; and city councilor Mary C. Neuhauser of
Iowa City, Iowa. Each of these witnesses is very well qualified to
help this committee better understand the forces driving up housing
prices.
FACTORS A FFECTING HOUSING INFLATION

The problems of inflation are demanding increased attention from
the Senate Budget Committee and others responsible for shaping the
Federal Government’s economic policies. Housing related costs are a
leading component of consumer prices, accounting for 43.9 percent of
the total Consumer Price Index. Therefore, an inquiry into the rising
costs of housing will be very valuable to the Budget Committee as
we prepare to reexamine the economic prospects for fiscal year 1979
in the Second Budget Resolution.
The diversity of factors driving up the cost of housing makes this a
particularly instructive case, although not all the inflationary forces
in the housing industry are typical of other sectors. We would like to
pursue this morning those findings and recommendations of the HUD
task force that relate to the costs of producing and operating a house.
We will be particularly concerned with the costs of acquiring and devel
oping land, the costs of other raw materials, and the costs of labor.
These have all been affected by public policy. The committee is par
ticularly interested in focusing upon those factors where Federal
action has tended to increase housing costs and where other Federal
action might be taken to moderate housing cost increases.
This is quite an agenda and we probably will not be able to cover it
all as thoroughly as we would like.
Before we hear from the witnesses, I will yield to Senator Chiles and
then to Senator Bellmon.
OPENING STATEMENT OF SENATOR CHILES

Senator C h i l e s . I am particularly pleased that the Budget Commit
tee is holding this hearing to investigate the rapid increases in housing
costs and the appropriate Federal role in reducing them. Now that we
have made the restraint of inflation our top economic priority, wre have
to explore the complex relationships which drive up prices in specific
problem areas.
1 See p. 79.

3
HOU SING ---- A LE AD IN G A R EA OF IN FLATIO N

Housing is certainly a leading area of inflation. While the overall
Consumer Price Index increased by 8 percent from 1972 to 1976, the
median sales price of a new home increased by 12.5 percent. The aver
age American spends about 30 percent of his after tax income for
housing, more than any other item of expenditure.
For first-time buyers of new homes, housing costs over 40 percent of
disposable income. While Americans are clearly willing to devote a
large share of their income to housing, cost increases are obviously a
major part of overall inflation. What I find especially disturbing is
that for the person who does not want to spend that much, low-cost
housing is just not available.
FEDER AL POLICIES AFFECTING HOUSING COSTS

The Budget Committee has played a leading role in the housing
cost area. Last year, at my request, the Congressional Budget Office
published a study of housing costs,1 which demonstrated that Federal
policies which presently focus on mortgage markets, are inadequate to
deal with housing costs. While financing costs accounted for 18 percent
of the average sales price increase from 1970 to 1974, land costs con
tributed 23 percent of the increase, and materials 25 percent. We there
fore have to examine how various Federal policies are affecting the costs
of land and building materials in addition to how fiscal and monetary
policy are affecting interest rates. Since those costs are affected by
several Federal agencies acting under the oversight of different con
gressional committees, the Budget Committee has a unique role in
seeing whether the combined effect of these different policies is to
create a national economic problem.
In the year since the last Budget Committee hearing on housing
costs, the Department of Housing and Urban Development appointed
a nationwide task force including many experts and interested groups.
The final report and recommendations of that task force have just
been published,2 and we will be focusing on those recommendations
today.
While I may not agree with all the specific recommendations, I
think that in general the task force took a comprehensive and innova
tive approach, and I hope it will be a springboard for rapid congres
sional and administrative action.
U N N E C E SSA R Y D ELAYS DRIVE UP F IN A N CIN G COSTS

In the financing area, the task force found many areas of unneces
sary administrative delay and overlap by HUD, the FHA, the VA
and the Farmer’s Home Administration. Unnecessary delays in Federal
processing of permits and financing approvals drive up the cost to
the builder of financing construction and that is passed on to con
sumers. I hope to hear in Under Secretary Jams’ testimony today how
many of these streamlining measures the administration will be able
to put into effect.
- ‘Homeownership : The Changing Relationship of Costs and Incomes, and Possible
Federal Roles,” Congressional Budget Office, January 1977.
2 See p. 79.

4
The cost increases associated with land supply and site develop
ment reauirements are one of the most interesting problem areas.
The growing number of environmental reviews by local, State, and
Federal agencies have added delays and uncertainties to the acquisi
tion of land for housing. Developers tell us that they build a cushion
for uncertainty into the price they charge for lots, since they know
they will have to absorb some cost due to delays or to land which
they will buy and then not be able to develop. The task force found
that a developer may have to get clearances from two or three Federal
agencies for a single project, and recommended that Federal agencies
be required to have a uniform set of environmental standards and
accept each other’s reviews.
We also have the situation where State or local governments may
have environmental reviews that are at least as stringent as Federal
requirements, but the Federal agencies require their own review
instead of accepting the State or local reviews. This kind of situation
drives up costs without adding anything to our actual protection of
the environment. I hope we will be able to have a good back and
forth among all our witnesses on this issue. We will particularly
want to know where we may need legislation that crosses the juris
diction of particular agencies and committees to consolidate environ
mental reviews.
In addition to environmental reviews, the task force found that
local governments have been driving up housing costs by limiting the
supply of land, by large-lot zoning and by placing excessive require
ments for site development such as sidewalks, extra wide zoning and
dedication of land for schools and parks. The availability of water
and sewer facilities is one of the major factors in determining the
availability of developable land. The Federal Government has been
playing a leading role in this area and I am sure we will want to
explore how the EPA programs and Corps of Engineers requirements
affect those costs.
FEDERAL GUIDELINES FOR ZONING AND SITE DEVELOPM ENT STANDARDS

The task force recommended that the Federal Government begin to
get involved with zoning and site development standards, which
have traditionally been a local responsibility, because local actions
are causing a national economic problem. They suggest having HUD
publish Federal guidelines for maximum site development standards
and model zoning codes, with regional councils responsible for adapting
these guidelines to local conditions and certifying to HUD that
local governments are complying with those regional guidelines.
They even suggest witholding Federal funds if compliance does not
occur. I know we will want to look at these issues very carefully
before getting the Federal Government into any new kind of regula
tory role, even where the objective is to reduce local regulation. We
will want to be hearing from all of our witnesses how effective an
educational kind of Federal role can be and how long it would take.
We would want to know whether there should be a legitimate role for
State laws to establish criteria for land zoning. All of these are very
difficult questions which we will want to explore so that if we set up a
new system it will be able to get enough public acceptance to work.

5
Mr. Chairman, I am pleased to join you in welcoming all our
panelists and I look forward to a useful discussion of these issues.
I hope that if we can come away with some clear signals for action,
we can use this as the first step in a new Budget Committee initiative
to reduce inflation by changing Federal policies that increase the
underlying costs of goods and services. It seems to me that too often
we come in too late and try to control prices, but those controls
fail because the actual costs to society keep going up.
Mr. Chairman, I want to join with you in saying how pleased 1 am
in welcoming all our panelists. I look forward to a useful discussion on
these matters.
Chairman M u s k i e . Thank y o u .
OPENING STATEMENT OE SENATOR BELLMON

Senator B e l l m o n . I have an opening statement, too.
Mr. Chairman, I am pleased to join you in welcoming Under
Secretary Janis, Mr. Smith, and Ms. Neuhauser, I am sure this panel
will contribute greatly to our understanding of the role that various
governmental policies and actions play in increasing the costs of
housing.
HOUSING COSTS OUTSTRIP AFFO RDABILITY

The recently released report of the HUD Task Force on Housing
Costs 1 confirms two suspicions that most of us have long held: First,
that the costs associated with purchasing and maintaining a home have
far outstripped the abilities of many Americans to pay. From 1972
to 1976 the median family income rose at an annual rate of 7 percent.
Meanwhile, however, median sales prices of new single-family houses
grew an average of some 12.5 percent per year, and homeowner costs
increased over 8 percent per year.
COST INCREASES DUE TO GOVERNM ENT REGULATIONS

Second, the report indicates that many of these increases are due to
Government policies and regulations. On the Federal and State levels,
there are environmental regulations, noise assessment guidelines,
coastal zone management programs, safety and health regulations, and
minimum property standards. On the local level, there are zoning
ordinances, building codes, fees, and impact taxes, land development
requirements, and permit regulations.
All of these things affect costs and thus deserve our closest scrutiny.
Some of them can and should be revised to relieve upward pressure on
housing costs. Hopefully, our discussion today will enlighten us as to
what actions might be taken by the Federal Government to best
accomplish this goal without encroaching upon the rightful jurisdiction
of State and local authorities.
I must say, I am pleased at this effort of Government to examine the
effects of its own practices. All too often, it seems that our energies are
channeled toward creating new programs rather than revising old
ones, and I welcome this opportunity to establish what could be an
overdue precedent.
Chairman M u s k i e . Thank you.
LSee p. 79.

6
OPENING STATEMENT OF SENATOR DOMENICI

Senator D o m e n i c i . I, too, will be very brief.
I have no prepared statement, but I want to compliment Senator
Chiles for suggesting the hearings, and I want to thank the chairman
for calling them.
I would like to share just a few things with the witnesses, and the
members of the committee.
NEW

M EXICO

B UILDING

CODE

REQUIREM ENTS

I was in New Mexico for about 8 days. Three things were presented
to me, quite by accident, that are very relevant to this hearing. A
group of citizens met with me. They were interested in building
clusters of houses for the handicapped, eight houses per cluster, in five
different communities, through a nonprofit corporation.
First of all, they had been working on the project for 18 months and
still had no approval. The first thing they had to do, required by law,
was provide an in-depth soil stability study. It only cost $5,200.
They are quite sure that the USGS could have given a blanket report,
but in that part of New Mexico there are no soil problems.
But that checklist said an in-depth soil study is necessary before
you can even start: $5,200.
I went up the road to another little community, a rural community.
This is not a HUD project, it is a Farmer’s Home Administration
project. It is way out in the country. There is not a sidewalk in exist
ence. Nobody builds them.
The requirement at the top of the list states that a completed lot
requires curbs, gutters, sidewalks, and includes specifications for side
walks, $ 1,000 per lot. It is $ 1,000 per lot for the poor people that are
self-help building homes.
I went up the road a little farther, and a group was meeting, talking
about a cluster of 60 or 70 homes, very spread out in a rural area.
Their first requirement was that they had to go through one of the
Federal agencies and build a sewer and water facility. The Federal
Government will not accept anything else. You cannot go with another
facility, even if they are accepted and can do the job.
They didn’t even have an estimate of what that would cost. But it
will probably be more than the sidewalks that I just spoke of.
1 am quite sure, from looking at the in-depth report, that I am.
talking about just a few of the governmental restrictions or limitations,
and 1 am sure they are imposed by cities, counties, and everyone.
It appears to me that just because we find a problem one place in
the country, the bureaucracy has a tendency to make it a condition
everywhere.
I am sure that this came about because some housing project that
HUD built sank into the ground. As a result, soil studies are at the
top of the list, anywhere you build them. It has to be a recognized
engineer, and with core holes drilled.
I am sure that the Farmers Home Administration has a good idea
in having sidewalk regulations. But it appears to me that $ 1,000 a
home for anything but the most recent self-help houses, and the cost
of water and sewer facilities, is silly. They cannot use noncity services.
I like those examples, because they came to me on my last trip to

7
my State. I am sure they merely scratch the surface. Whether we do
anything about them is another thing.
Thank you.
Chairman M u s k i e . Y o u are certain that these examples are purely
coincidental?
Senator D o m e n i c i . They were really accidental, except for the
clusters for handicapped people. They had made a specific request to
show me the problems they were having.
The others, I didn’t really plan to visit. It just happened that way,
much as the same came to your mind when you were running, Mr.
Chairman, and brought up Maine’s problems in public works all the
time.
Chairman M u s k i e . Y o u are running this year?
Senator D o m e n i c i . I guess I a m .
Chairman M u s k i e . That is one of the purposes of election cam
paigns, to find out what is going on at the grassroots.
Senator D o m e n i c i . I don’t want to leave the impression that I
didn’t know that all the time. [Laughter.]
Chairman M u s k i e . I have a written statement from Senator Sasser
who is unable to be here this morning because of other business that
he would like to have inserted into the record.
Without objection, it is so ordered.
PREPARED STATEMENT OF SENATOR SASSER
I would like to join my colleagues in welcoming our witnesses this morning for
this very important discussion of housing cost increases. And I wish to recognize
you, Mr. Chairman, and Senator Chiles, for focusing our attention on this critical
matter.
HUD TASK FORCE REPORT CRITICAL OF PRESENT POLICY

Mr. Chairman, the basis for this hearing is the final report released last month
by the task force on housing costs. The report represents a highly successful effort
to make a comprehensive study of this complex subject.
As the report suggests, we have not yet come to grips with the impact of national
monetary policy on housing problems.
Moreover, the report underlines the failure of the Government to understand
fully the consequences of Federal tax policies in the housing area. I think this is
of particular concern, considering that Federal tax expenditures in this area are
more than double the amount directly budgeted for housing problems.
Finally, the Government clearly has fallen short in its efforts to combat rising
housing costs. Indeed, the report documents several ways in which the Govern
ment exacerbates the problem.
HOUSING COSTS OUT OF SIGHT

Mr. Chairman, it is fitting that we address this issue as we face wThat may well
be another onslaught of higher prices and rising interest rates. This is the pre
diction of some economists. The problems identified by this report will surely
intensify under such conditions.
Already housing costs are out of reason and out of sight for many Americans.
We cannot prevent a crisis in escalating housing costs. The crisis is here. Our
concern is to prevent the situation from becoming intolerable.
We must be especially mindful of the consequences which rising housing costs
have for the least advantaged groups in our society— the poor, the elderly, and
young men and women requiring their own housing for the first time.
A recent congressional budget office report on housing indicated that homeownership rates are slowing, although Americans are continuing to buy homes in
greater numbers than ever before. The report also indicated that homeowners and
renters alike are spending a greater proportion of their incomes for housing costs.
Undoubtedly, those groups who have traditionally had trouble owning a home
will suffer the most from this trend.

8
Chairman M u s k i e . Mr. Secretary, we are delighted to welcome you
this morning. We appreciate your availability
We invite you to proceed with your testimony,
STATEMENT OF JAY JANIS, UNDER SECRETARY, DEPARTMENT OF
HOUSING AND URBAN DEVELOPMENT: ACCOMPANIED BY LAW
RENCE SIMONS, ASSISTANT SECRETARY FOR HOUSING AND FHA
COMMISSIONER
Mr. J a n i s . Thank y o u , Mr, Chairman and members.
Accompanying me today is Lawrence Simons, Assistant Secretary
for Housing and FHA Commissioner.
You have had an opportunity to look over my statement, so I would
prefer, with your permission, to summarize rather than to read the
the entire document.1
HOUSING COSTS DEFINED

In dealing with the question, it is important, I believe, to define at
the outset what we mean by housing costs.
First of all, there is the sale price of a new house. Then there is the
cost of a new home. There is a difference, an obvious difference. In
some places, cost does not relate to price.
Then there is the sale price of an existing home as opposed to a new
home. And then there are the operating costs of the new and existing
homes.
There we are talking about principal, interest, insurance, taxes,
and so on.
So any useful conversation on the subject has to distinguish between
these various items. For the most part, I will be talking about the
cost of a new home. That is what I would prefer to focus on for my
opening remarks.
M ED IAN PRICE OF N E W

S IN G L E -F A M IL Y HOMES INCREASING

There is a debate taking place as to whether or not there is a problem.
I think the arguments are somewhat specious on the side of those who
have said that there is not a problem. Those arguments stem from the
fact that the high costs of housing are masked by the fact that sales
are so good.
Of course, people are buying houses because there is no better invest
ment that most American families can make than a home, and that is
because of inflation, and the opportunity for equity accumulation.
But if you look at the latest figures— and I could not put these into
the testimony because they were not available— the latest figures for
the month of May, new one-family homes sold during that month,
May 1978, the median was $55,800. That is a jump of $2,800 over the
April figure of $53,000. That is a 5.1-percent jump in 1 month, from
April to May.
This is the highest increase, the greatest increase, ever reported in
1 month since anybody has been collecting the data.
1 See Mr. Janis’ full prepared statement beginning at p. 13.

9
In Western States, the increase was even bigger. It amounted to
9 .5 .-percent increase in 1 month.

These are brand new figures just released by the Census Bureau.
RELATIONSHIP

OF HOUSING COSTS TO IN FLATIO N

The argument about the relationship of housing costs to inflation
in general is best described by a chart in my testimony 1 where I com
pare the median price of a new home with median family income.
What you can see is that if you go back over time, over the last
20 years, then clearly at some time in the past, back in the 1950’s,
there was a time wdien the ratio of median family income to median
prices was similar to what it was in 1974 and 1975.
But clearly, what has happened since 1972 that ratio shows sizable
increases over the last several years, so that prices are getting away now
from median family incomes.
More important is that the trend is up all the time. Whether you
compare housing price to the CPI, or whether you compare it to the
wholesale price or median family income, it still shows the same:
Housing costs are outstripping whatever the indictors are.
I would like to enter some other data into the record that supports
this.
SEVER E TREND OF IN F L A T IO N -P L U S

It appears to me, gentlemen, that we are dealing with something
greater than inflation. We are dealing with inflation-plus.
It is clear that we have waste and inefficiencies in housing costs, and
we have severe trend problems. If not inflation— if inflation is not
the only answer, then what is it? What has changed over time?
I
would submit to you that it is harder to build a house today than
ever before, that is, the simple process from design, buying a piece of
land, and making an application, to the time that you complete that
project. It has increased dramatically, and the steps that you have
to take have become much more difficult.
CONSTRUCTION OF S IN G L E -F A M IL Y HOMES T A K IN G LONGER

The Rutger’s study on housing costs, just on construction costs
alone, versus time, shows that in 1970 you could build an average
single-family house in 5 months, from application to completion. In
1975, says the Rutger’s study, it took 13 months. From 5 months to
13 months.
This was my own experience as to time. It just completely changed
over the period from 1970 to 1975. The process is more difficult. The
environmental approvals and the zoning are much more difficult
because of the pressures of no growth at the local level, the need to
meet a whole new host of local, State, and Federal requirements,
shortages in materials that did not exist before, except perhaps as in
war times, and labor problems.
All of these translate themselves into a great amount of time, and
time equals dollars.
Chairman M uskie . Are these national averages, the 5 months and
the 13 months?
Mr. J a n i s . Yes.
1 See p. 14.

10
It was in Monday’s Wall Street Journal, the lead article on housing
costs.1
I found the same thing true in my own business in terms of the fact
that in the fifties, I used to be able to cycle a typical 12 -unit develop
ment in 9 weeks, 45 working days. I had a schedule, and I had an
operation.
This was large-scale production, and it looked much like the Ford
Motor Co.’s assembly line. I think Mr. Smith is familiar with that kind
of building.
But when I was a builder, that is the kind of operation we had. We
had an operation going every day for 45 days, and from start to finish,
that is how long it would take.
By the 1970’s, early 1970’s, I threw that schedule away, and instead
of 9 weeks, 5 days per week, I was going 6 months in my particular
area. That is my own personal experience on time.
So those Rutgers’ figures mean a great deal to me. From my own
experience I believe they are true. Of course, what this means is not
only increases in interest costs, but increases in overhead, and it re
quires higher profits on the part of the builder. It raises prices, and
what this does is hurt people.
What Secretary Harris has done is to focus on the people, on the
delivery of our programs as far as helping people. I am afraid that
this problem really relates to the fact that people are affected.
Young home buyers, young marrieds, the elderly, handicapped,
minorities, those who need it the most, are hurt the most.
T R AD ITION AL V IE W OF H OUSING COSTS

The traditional view of housing costs is that you would take the
various elements that go into housing and look at it, take the cost of
the land, and that is raw land plus the development cost of that land,
and that runs about 25 percent of the sale price. Then you take-----Chairman M u s k i e . I s that a higher percentage?
Mr. J a n i s . Yes, I was going to give you a comparison. The cost of
the land runs about 25 percent today. The cost of construction, that
is, labor and materials, runs 47 percent. The cost of financing runs 11
percent. The cost of financing includes usually the construction loan
interest; any permanent loan points you have to pay: and closing
costs; and overhead and profit, which runs at about 7 percent today.
t o d a y ’s

B R E AK D O W N VERSUS 1949 COSTS

If you compare today’s breakdown versus 1949, you find that land
and financing have increased the most, because land in 1949 was only
11 percent of the total cost, and financing, which is now 11 percent,
was 5 percent. So those are your two main items of increase.
The construction costs, what builders like to refer to as the “ hard
costs,” the brick and mortar, went from 47— went down to 47 percent
from 69 percent.
So your ticket items clearly are land and financing. Who is to
blame?
1 See p. 75.

11
In my judgment, there is no single culprit. I don’t think you can
point the finger totally at the government, local, State, and Federal,
even though there are excessive environmental restrictions.
There are excessive fees being charged. There is restrictive and
exclusionary practices. There are necessary building standards and site
development standards that are required. There are building codes
that are overly restrictive.
Nor do I think you can point the finger at labor in terms of restric
tive working practices, despite some very good union leadership that
I think is trying to get rid of the problem.
Nor can you point the finger at manufacturers in terms of prices of
refrigerators or stoves; nor lenders, in terms of increased financing
costs, or in terms of builders who in some cases want higher profits.
The biggest culprit of all, I think, in my judgment— and it is a
hard one to call— are requirements that exist at the State and local
levels. But this traditional view of housing costs, where you take the
land and the hard costs, and the financing and the profits and the
overhead, is a useful way to look at housing costs.
But I think the new view is to try and identify some issues that sort
of crosscut those.
TH R EE COST FACTORS T H R E AT E N DECENT HOUSING

I would like to submit to you, Mr. Chairman and members of the
committee, that there are three costs that we have not particularly
looked at before that cross over all of these categories.
The first is the cost of regulation. The second is the cost of cycli
cality. And the third is the cost of what I call indifference.
I would submit to you that that is the greatest triple threat to the
achievement of the American dream of a decent home.
Let me explain.
REGULATIO N

With regard to the cost of regulation, this is what I have heard from
builders. This is from a builder’s point of view.
Here is the way they look at the regulations. Here is what any
builder has to go through. I will read you a list of the kinds of regu
lations that are involved.
As you know, there are environmental regulations, air, water, and
general impact on traffic, and this exists both at the State, local, and
Federal levels. There are the Davis-Bacon wage requirements in
certain cases. There is affirmative action and equal opportunity rela
tive to fair housing, to contract compliance, and to title VI of the
1964 act.
There is the A-95 intergovernmental coordination requirement.
There are requirements with regard to the handicapped. There are
regulations at certain local levels that deal with consumer protection.
There are inflation impact statements that are required. There are
new energy standards. There is flood protection and drainage re
quirements. There are seismic requirements, noise abatement, fire
regulations.
There are garbage collection regulations that affect the width of
the street and turnaround. The motel and hotel reservation com

12
mission gets into the act in certain States with regard to approval.
There are OSHA requirements.
There are tree ordinances at local levels. Many of these things did
not exist 10 years ago.
I think if you scratch a builder hard enough on the back, you will
find that these are what his problems are, and this is what is making
the builder tear his hair out.
CYCLICALITY

With regard to cyclicality, as you know, we have had seven major
cycles in mortgage financing since 1949. We are in one now in terms
of high interest rates. It has not yet affected production, but at pre
vious cycles, production has been affected.
It is predicted that this will affect production going into the be
ginning of next year.
In any event, the effect of this cyclicality is that it leads to a great
deal of instability in the industry, not only among builders, but
suppliers, manufacturers, and others who provide the products.
Plant capacity, as a result, has waste, inefficiencies, and under
utilization. Plants cannot gear up not knowing when they will hit the
next cycle. That causes tremendous price problems.
Builder bankruptcy is a result of these cycles— the 1974 cycle was
the worst. That was a depression in the building industry, rather than
a recession. Those kinds of bankruptcies cause builders to tack on
higher profits in good times to make up for the bad ones.
Labor union restraints— the constraints that labor unions put on
in terms of work rules, in large measure, stem from this instability,
because they do not know from one year to the next that they will have
a guaranteed job.
INDIFFER ENCE

Let me turn to the cost of indifference. I would contend that there
are not a lot of counterpressures in terms of the various actors in the
process who raise costs for one reason or another. There is no incentive
to keep costs down in many cases.
The problem is, in my judgment, that nobody really cares enough
about the issue, or has cared in the past: Not the manufacturer who
raises his cost, whether or not there is inflation or recession or what
ever: or the builder who raises his profits; or the labor union which
puts on restrictions.
There is no pressure on the lender who charges additional points,
nor on the lawyer who charges fees in connection with title search;
nor is there any real pressure on local governments in terms of en
vironmental impact statements, excessive fees, adopting restrictive
codes, practicing exclusionary zoning; no pressures on State govern
ments in terms of unnecessary environmental restrictions or failure
to exert pressures on the cities.
There has been no one in the Federal Government who has cared
very much and given much more than lipservice to the entire question
of housing costs. Many of the regulations are necessary and useful.
Congress has passed them for good reason. No one here is arguing with
them.

13
BALANCE BE TW E EN E N V IR O N M E N T A L PROTECTION AND
HOUSING NEEDED

That is what makes the problem so difficult. Environmental-type
restrictions are necessaryTbut the object is to find a balance between
necessary environmental protection on the one hand, and the need
for Amercans to have shelter.
With regard to what we have done at HUD, while we have tried
to develop a sensitivity to the problem in the past year, we have
tried to give some national publicity to the problem. We have tried
to get our own house in order, to achieve coordinantion between
agencies.
Those are the things we are beginning to work on. I must say, it is
fairly minor, even if we were to be 100 percent successful in what I
just said. It would have a minor impact on housing costs in general.
I wish that were not the case, but the question of leverage is crucial.
We have a task force of outside people who have recently reported.
Many recommendations were good. We cannot accept all of them.
We also have a working group now. Bill White heads that group.
On August 25, the working group will give the Secretary a specific
report on all 150 recommendations and which we can do and which
we cannot do.
LAND USE CO ST-BENEFIT STUDIES AGREED ON

The Secretary did announce on June 7 several specific actions,
including the fact that we would support the Uniform Building Code.
We agreed to make an agreement for 300,000 grants for code studies,
and a $500,000 study, cost-benefit, on the question of land use and
environmental regulations on the one hand, and the impact of mone
tary and tax policies on the other.
Those cost-benefit studies are being drawn up. We will call a
conference with State and local officials on land questions, land use
questions, and development standards.
USE OF COMMUNITY DEVELOPM ENT BLOCK GRANT FUNDS

Finally, we are making clear that community development block
grant funds can be used for advance purchase of subsidized housing
sites, and for laying down the infrastructure.
Mr. Chairman and members of the committee, I commend you for
holding this hearing, and for your interest in the subject, particularly
Senator Chiles whose idea it was, and you Senator Muskie for calling
these hearings. Because what you are doing is focusing national
attention on this. That is a starting point.
Thank you. I would be happy to answer any questions you have.
Chairman M u s k ie . Thank you. We will hear from the other
witnesses before we get to questioning.
PREPARED STATEMENT OF UNDER SECRETARY JAY JANIS,
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
HOUSING COSTS

Thank you, Mr. Chairman. I appreciate the opportunity to address the
Committee on the very important issue of housing costs.
I don’t think it is necessary to remind anyone in this room that the cost of
housing— the escalating cost of buying and maintaining a home— is a topic of
32-099— 78------- 2

14
more than passing interest to most Americans. As a matter of fact, there has been
considerable debate in the press recently about how deep the crisis in housing
costs really runs, or for that matter, whether or not there really is a crisis in the
cost of housing. In my view, the argument is specious. What is clearly significant
about the current situation are the following two points: First, there is consider
able waste and inefficiency in the cost of housing right now as the result of
unnecessary requirements and constraints in the process of housing construction
and marketing; and second, if present trends continue, more and more families
will be priced out of the market as the costs of housing continue to outstrip family
income.
Clearly, home owners realize the increasingly large bite that rising fuel and
electricity costs and increasing maintenance costs are taking from their paychecks.
Potential home buyers are well aw’are that the high cost of developed land, the
high cost of home construction, high closing costs, and high interest rates are
making the prospect of home ownership more difficult with each passing day.
In turn, home builders have encountered the squeeze of higher prices for building
materials, for labor, for interest on construction loans, and the time-consuming,
frustrating, costly delays and demands by government at all levels which eat up
profits, stretch out construction time, and create risks which more and more
businessmen are finding unacceptable.
RATIO OF NEW HOME SALES PRICES TO INCOME

As government officials, elected or appointed, we are mindful of the need to
carry out that bold promise of the 1949 Housing Act to provide a decent home in
a suitable living environment. It will become harder and harder to meet the
promise of the 1949 Act if present trends in housing costs continue. The following
table showing the ratio of median home sales prices and family income for the
period 1949-1976 indicates, since 1972, a trend of increased relative housing costs.
While some observers may rightly point out that the ratio of new sales price to
income is presently at the level which prevailed in 1955, and therefore there is no
“ crisis,” what concerns me is the trend. The curve is on the up, and if the trend
continues, the ratio will be greater than the 1955 ratio and higher than at any
time. While the increase in the median sales price of existing homes has not been
as dramatic, the trend is still upward.
RATIO OF MEDIAN HOME SALES PRICES AND FAMILY INCOME, 1949-76

Year
1949..
1950..
1951..
1 95 2 ..
1953..
1954..
1955..
1 9 5 6 ...
1 9 5 7 ...
1958..
1959..
I9 6 0 ...
1961.
1962..
1963..
1964.
1965..
1966..
1967..
1968..
1969..
1970.. .
1971..
1972..
1973..
1974..
1975..
1976..
1977.................

....

. .
....

Median
fam ily income

1Vledian new
isales price1

Ratio of new
sales price
to income

$3,107
3, 319
3,709
3,890
4,2 3 3
4,173
4,421
4 ,783
4,971
5, 087
5,417
5,6 2 0
5, 737
5 ,9 5 6
6, 249
6, 569
6,9 5 7
7, 532
7,933
8 ,6 3 3
9,4 3 3
9, 867
10, 285
11,116
12,051
12,902
13,719
14,958
NA

$8,800
NA
NA
NA
NA
12,300
13,700
14, 300
NA
NA
15,200
NA
NA
NA
18,000
18,900
20,000
21,400
22,700
24,700
2 5,6 00
23,400
25, 200
27,600
32, 500
35,900
39,300
44,200
48,200

2 .8
NA
NA
NA
NA
2.9
3.1
3.0
NA
NA
2 .8
NA
NA
NA
2.9
2 .9
2.9
2.8
2.9
2.9
2.7
2.4
2.5
2 .5
2.7
2.8
2 .9
3.2
NA

Median
existing
sales price

Ratio of
existing
!sales price
to income

.
.
..

.....
.

$20,100
21, 800
2 3,0 00
24, 800
2 6,7 00
28,900
3 2,0 00
3 5,3 00
38,100
42,9 00

_
2 .3
2 .3
2 .3
2 .4
2 .4
2 .4
2 .5
2 .6
2 .5
NA

1 1949 price from vol. IV, “ Residential Financing", 1950 Census of Housing, and 1959 price estimated from data in
volumes II and V, 1960 Census of Housing, U.S. Department of Commerce, Bureau oftheCensus; 1 9 5 4 ,1 9 5 5 ,and 1956 are
for the first 6 mos of each year, from Bulletin 1231, “ New Housing and Its Materials, 1940 and 1956” , U.S. Department of
Labor, Bureau of Labor Statistics; 1963 through 1977 from Construction Report C25, "New One-Fam ily Houses Sold and
for Sale” , U.S. Department of Commerce, Bureau of the Census and U.S. Department of Housing and Urban Development,
Office of Policy Development and Research.
N A = N o t available.

15
PROBLEM OF HOUSING COST, A RECENT DEVELOPMENT

The cost of housing has not been a serious problem for most American families
until fairly recently. Until 1972, family income generally kept pace with housing
prices and the overall costs of home ownership and rents.
Median family income increased at an annual rate of 6.60 percent compounded
between 1963 and 1972, while the median sales price of a new single-family home
grew at an annual rate of only 4.23 percent. Home ownership costs rose by 5.17
percent annually during the same period.
But from 1972 to 1976, the picture changed radically, housing costs increased
dramatically, outpacing family income for the first time, so that if present trends
continue, it will be likely that more and more families wrill be priced out of the
housing market.
From 1972 to 1976:
Residential construction costs increased at an annual rate of 8 percent (including
both inflation and quality increases);
The cost of improved building lots increased almost 13 percent per year (includ
ing both inflation and quality increases);
Median sales prices climbed at an average annual rate of 12.49 percent on new
single-family homes, and 9.30 percent on existing homes;
Home owner costs— property taxes, insurance, maintenance, repairs, fuel and
utilities— rose at an average annual rate of 8.15 percent; and
Higher mortgage interest rates, when applied to higher sales prices, increased
the typical loan payment for a median price home by 80 percent over that fouryear period, an annual increase of 15.9 percent compounded.
The median price for a single-family home increased from $27,600 in 1972 to
$44,200 in 1976 to $48,800 in 1977, and is still climbing.
But most important during this same period, median family income rose at an
annual rate of 7.05 percent, lagging well behind housing inflation. The CPI
increased at an annual rate of 8 percent during this time period.
Finally, on June 30, it was reported that the Consumer Price Index (CPI) climbed
toy nearly 1 percent in May, led by food and housing costs. For the year May 19771978, it was also reported that housing costs rose 8.3 percent, while the entire CPI
rose by 7 percent.
PRESENT TREND---- EVER-HEAVIER BURDEN ON ALL

The high cost of buying and maintaining a home is an ever-heavier burden for
almost all of us. But for millions of American families, the effort to find a decent
home in a decent environment at an affordable price is more than a burden. If
present trends continue, this will continue to be a problem for young couples with
limited means trying to buy their first home, lower income families, the elderly
attempting to make ends meet on fixed incomes in the face of constantly escalating
costs, and those with special housing needs, such as the handicapped.
However, preliminary evidence suggests that these groups are adjusting to
higher costs in a number of ways, including spending a greater portion of their
income for housing costs and through a greater reliance on two-worker families.
Therefore, the overall homeownership rate has not been affected significantly.
The following table illustrates the increases in various monthly housing costs for
a median priced new home from 1967-1976. While the total monthly payment for
a median priced new home was $184 in 1967, it vaulted to $430 in 1976, an increase
of 134 percent. The portion going to interest payment increased from $58 to $168
in that period, an increase of nearly 200 percent.

16
IN C R E A SE IN V A R IO U S M O N T H L Y HO USING COSTS
FOR A M E D IU M PRICEDNEW HOJVIE
1967 - 1976
($22,700 (1967) - $44,200 (1976])

1967

1976

P R IN C IP A L
REPAYM ENT

IN T E R E S T
P A YM EN TS

PROPERTY
TAXE S

H E A TIN G &
U T IL IT Y
COSTS

M A IN T E N A N C E
COSTS

I am sure that all of us have asked, or have been asked: Where or when is it all
going to end? I am sorry, but I don’t have an answer to that question for the Com
mittee today. But I do know that our Department has taken the lead in focusing
national attention on this matter.
TASK FORCE ON HOUSING COST

Early on in this Administration Secretary Harris became concerned about the
problem and formed a Task Force on Housing Costs, chaired by William J. White,
consisting of experts from all disciplines relating to the problems of housing costs—
builders, lenders, planners, labor leaders, architects, local government representa
tives, consumers— and representing a broad geographic base. We asked them to
analyze housing costs and to develop recommendations which they could offer to
Secretary Harris for her consideration.
The report has just been issued and it proposes a series of 150 recommendations
aimed at the way land developers, home builders, financial institutions and officials
at all levels of government go about the work of providing new and rehabilitated
housing for our citizens.
Some of these recommendations are basic to the present system of housing
production, demanding new legislation. Others require only administrative change.
In any case, they will demand discarding old habits and accepting new, less costly,
less time-consuming ways of doing business.
The Department of Housing and Urban Development is taking this report
seriously. At the time of the release of the Task Force report to the press on June 7,
1978, Secretary Harris announced that HUD had already adopted some of the
recommendations of the Task Force, for instance, that there be greater flexibility
in determining wiien a full Environmental Impact Statement for a proposed
housing project should be made.
One of the questions the Task Force first raised was whether or not the problem
of high housing costs would solve itself? They determined that the answer was NO.
They found that housing costs have increased faster than costs in most other sec
tors of the economy, and that they will continue to do so unless positive concerted
action is taken by the housing, finance and land development industries and by all
levels of government which contribute to these higher costs.
What have past Administrations done to alleviate this pinch on the pocketbooks of the American home owner and renter? The answer has been, unfortu
nately, not much. Government regulation became more involved and complicated,

17
more time-consuming, more burdensome. In many cases, the concern of gov
ernment was to control unplanned growth, reduce urban sprawl, and end en
vironmental degradation— all worthy goals. Unfortunately, too few have found
the right balance between the need for legitimate environmental protection and
the need of our citizens for shelter. All too often, the regulations were overly re
strictive, unfair, and in some cases, counterproductive.
These were the conditions the Carter Administration faced when it came to
office. It was apparent that no simple, single magic formula would solve problems
which have been years in the making.
Secretary Harris recognized immediately the impact that housing costs were
having, not only on the housing industry, but on the quality of life of the American
family, when she took office 15 months ago, and that is why she created the Task
Force.
Although the authors did not structure the report in this way, I believe their
findings can be categorized into three major areas: the cost of regulation; the cost
of cyclicality; and, the cost of indifference. This is what I consider to be the greatest
triple threat to the Nation’s ability to achieve for all Americans the promise of a
decent home in a suitable environment.
THE COST OF REGULATION

Recent estimates have placed the cost of regulation as high as 20 percent of the
sales price of a house. Unfortunately, this figure makes no differentiation between
necessary and unnecessary regulation, for none of us, I am sure, wants to eliminate
requirements which legitimately protect the public health and welfare. However,
we have examples of bad regulations, regulations which are unnecessary or overly
restrictive at all levels of government— Federal, state and local.
The following table implies that the cost of regulation is most likely significant.
As a component of construction costs, developed land cost increased -from 15 per
cent in 1966 to 21 percent in 1974 and in 1976 was 25 percent. This is partially
due to normal supply and demand factors, but regulation has also had an effect.
The same is true for overhead and other costs, which, even though it declined to
17.5 percent in 1976 from the 1974 figure of 20 percent, still represents a 35 percent
increase in 10 years. To round out the table, financing costs constituted 10.8 per
cent of total construction cost in 1976, while the “ hard” costs— labor and ma
terials— dropped further to 46.7 percent.
CHANG E IN C O N S TR U C TIO N COST CO M PO NENTS
(Typical Single Family House)
1966 - 1974

PER C EN T O F
T O T A L COST
80 r—
69%

0
1966

1974

DEVE LO PED
LAND COST

1966

1974

C O N S TR U C TIO N
COST
(Labor & Materials)

1966

1974

F IN A N C IN G
COST

1.966

1974

O VERHEAD AND
O T H E R COSTS

18
LAND-RELATED COSTS AND RESTRAINTS

In many areas, the supply of developable land has been constrained in part by
local government limitations on the capacity of public facilities— especially water
supply and sewerage— and by restrictions placed on the use of land through zoning
and related subdivision controls and standards. Some of these regulations are use
ful; others are not. Government at all levels, has a positive obligation to review
these regulations to determine if less costly ways can be found to achieve the same
results.
Costs for site development, another crucial element in residential development,
have been one of the most steadily increasing components of housing costs over
the past ten years. Many standards are outmoded and excessive. Take road
construction in subdivisions: unnecessary access road requirements, excess asphalt
requirements, and unduly wide streets. Virginia requires a 7 percent grade on
residential streets instead of the previous 10 percent.1 This means more cutting
and filling and the removal of more trees. The 7 percent grade regulation is
intended for highway construction and is totally unnecessary on local residential
streets. Yet it is applied uniformly to both.
In addition to the cost of complying with high standards, the developer is often
subjected to a host of fees and assessments which have been increasing steadily
over the past few years.
Some of these charges are keyed to local governmental costs of processing
applications, conducting inspections, or performing necessary on-site mechanical
work. Other charges, sometimes known as impact fees, are designed to finance
capital costs normally borne by the community at large.
In a national study of State and local governmental capital demand, George
Peterson of the Urban Institute found that “ as much as $4 to $5 billion per year is
probably contributed to the public capital stock by developers who must install
community facilities at their own expense/} He estimates that this is an average of
$4,652 per housing unit and includes such items as minor subdivision roads, half
the cost of collector roads, sanitary sewage collection systems, storm drainage,
water distribution and park and recreation space. The imposition of these costs on
developers— in actuality, on those who will live in the subdivision— seems equitable
provided the costs are reasonable, the charges directly relate to the subdivision,
and the items are not those which local government normally provides without
cost.
Restrictive land use practices and exclusionary zoning have often removed
land from development or have reduced densities as a means of keeping out lower
income families. In part because of these and other factors, the cost of land also
has been steadily increasing. For instance, an Urban Land Institute survey of
seven metropolitan areas found an average increase in urban land prices of
100 percent between 1970 and the spring of 1974. The Department of Agriculture
found that the average value of land per acre of farmland— ultimately a prime
source of developable lots— almost tripled between 1967 and 1977.
Building codes have often been overly restrictive and local standards are some
times added to national codes with the result that costs are unnecessarily inflated,
Excess requirements are found in many local codes, and we are in the process of
making sure that our own Minimum Property Standards achieve a proper balance
in protecting the financial interest of the Federal Government while not overly
regulating the construction process.
As Secretary Harris announced a month ago, HUD wTill work with States and
local governments in developing recommendations for reasonable standards for
land development and in planning for an adequate suppty of useable land. In
this regard, the Secretary announced that HUD will convene a national confer
ence later this year, at which State and local officials will be alerted to how some
land development regulations unnecessarily increase housing costs and to address
solutions to the problem.
THE COST OF CYCLICALITY

During the past year, we at HU D have done a great deal of work on the role of
housing in the economy and the effects which monetarj^ and fiscal policy have on
housing performance. One of the principal things we have learned is that the
1 A lower percentage grade means a more level road. While this may be desirable,
cutting and filling to achieve a more level terrain can be extremely expensive. HUD’s
Minimum Property Standards allow for no more than a 14 percent grade. Beyond 14
percent, the terrain becomes dangerous for vehicular traffic.

19
sharp upward and downward swings in the housing industry are adversely affected
by rising interest rates and the availability of mortgage credit. As we all know,
housing production is one of the most cyclical areas of the economy. There have
been seven major housing cycles since World War II. In the most recent swing,
housing starts fell from a peak annualized rate of production of 2,500,000 dwelling
units in the first quarter of 1972 to a low of 953,000 in the second quarter of 1975.
These sharp fluctuations in production tend to drive up costs in all areas related
to housing construction and to have a significant effect on the efficiency of the
industry. In 1977, starts did increase significantly to 1.97 million units, the fourth
highest year on record.
Housing slumps lead to idle plant and construction equipment, to under
utilization of manufacturing capacity, to home-builder bankruptcies and to high
unemployment in the construction industry.
Unions find themselves for a number of reasons, including Cyclicality and sea
sonality in the industry, adopting restrictive jurisdictional work practices to
provide more job security for construction workers, and to bargain for relatively
high hourly rates to assure a reasonable average income during the drastic dips
and peaks in home industry production. Land developers and home builders
find they must have a relatively high rate of return on their investment to com
pensate for higher risks brought about when demand for housing drops.
Conventional wisdom tells us that cyclicality in the housing industry is unavoid
able and, in fact, desirable because of the countercyclical nature as it relates tothe economy as a whole. During an economic upturn, the housing sector usually
leads activity. As the peak is reached, interest rates usually increase because of
credit demands in non-residential sectors of the economy and a “ credit crunch”
adversely affects the housing sector. If housing production were to be kept rela
tively stable, the argument runs, its value as a tool to help keep the economy on
an even keel would be worthless.
But the conventional wisdom is not necessarily true wisdom. It is not necessarily
so that there is a conflect between relatively stable housing production levels and
general macroeconomic stabilization policy. A recent study by the MIT-Harvard
Joint Center found such to be the case. Stable housing production and a stable
economy are not necessarily competing goals. In fact, not only does instability
in housing production lead to higher housing costs, its presumed benefit as a
cushion on the national economy is also questionable. The results of a number of
simulations with econometric models indicated that with less severe cycles,
real gross national product could have been higher and the unemployment rate
lower during the late 1960’s and early 1970’s.
THE COST OF INDIFFERENCE

Now I would like to turn to the final category— the cost of indifference. In
many respects, this is the most important cost we have to face, because if no one
cares, nothing will be done about the problem.
By the cost of indifference, I mean that a whole series of contributors to the
cost of housing have been indifferent to what effect their individual actions have
meant to escalating housing costs. Over the years, too few of those in this chain
cared. Here I am talking about local, state and Federal government officials,
builders, materials manufacturers, lenders, local labor union officials, real estate
attorneys and so forth. We see the results of that neglect today— exclusionary
zoning, almost prohibitive site development costs, a shortage of developable land,
extensive red tape, built-in costs and constraints that are unwarranted or un
productive, and so forth. Many previous Administrations paid lip service to the
problem of rapidly escalating housing costs. But no one— inside or outside of
government— has done much about them. In addition, the valuable work of many
task forces and commissions was lost or ignored in the past after initial publicity
faded, simply because programs and mechanisms to implemnt their recommenda
tions were lacking.
I assure you that the 150 recommendations made in the Task Force Report will
be studied carefully by the Department of Housing and Urban Development. A
number of them will be carried out in the future. As a result of the recommenda
tions of the Task Force, Secretary Harris has put into effect the following actions:
She asked all program Assistant Secretaries to analyze all of the recommenda
tions of the Task Force as they affect their areas of responsibility and to report to
her on how best these recommendations might be implemented or whether they
should be implemented in their present form or in some adjusted form, and on
the cost and staff requirements necessary to implement the options they present.
HU D will support the revision of the nationally recognized one and two family

20
dwelling codes and will work toward the development of a uniform code. The
Department, in cooperation with the model code organizations, will also support
the development of rehabilitation codes for single and multifamily housing.
HUD has recently entered into an agreement with the National Institute of
Building Sciences to undertake a comprehensive study of building codes in the
country and to make recommendations to the department. On June 7, the Secre
tary announced a Grant Award of $300,000 to NIBS for this study. We feel they
will move forward with a program of activities consistent with the findings and
recommendations of the Task Force.
HUD has set aside $500,000 for research to begin immediately on investigations
of the costs and benefits of land use and environmental regulations and on the
impact of monetary and tax policies on the costs of housing. This research will be
competitively awarded to begin this fiscal year. Further research will be under
taken on other items recommended by the Task Force as determined by the Office
of Policy Development and Research.
HUD will work with States, and local governments, in developing recommenda
tions for reasonable standards for land development and in planning for an ade
quate supply of useable land. H U D will convene a national conference later this
year, at which local and State officials will be alerted to how some land develop
ment regulations unnecessarily increase housing costs.
Community Development Block Grant funds can be used to purchase sub
sidized housing sites well in advance of actual construction and thus avoid the
possibility of higher land costs later.
Block Grant funds can be used to pay for the necessary streets, sewers and
water lines, and other community facilities in housing developments serving lowincome families.
We are already taking these first steps toward implementing the recommenda
tions of this report. We know that some of the steps are going to be more difficult
and will take longer.
We are certain that not all these recommendations will come into being exactly
as proposed in the Task Force report, but we do want them aired, discussed and
considered.
IMPLEMENTATION OF RECOMMENDATIONS OF TASK FORCE

It is for that reason that Secretary Harris has asked for a report by the end of
August recommending what action should be taken on each of the 150 recommen
dations included in the Final Report of the Task Force on Housing Costs, in
corporating in these individual recommendations the comments of each of the
H U D Assistant Secretaries with the view of implementing a number of them by
the end of the current fiscal year on September 30.
At the same time, HU D will continue its efforts to reduce the time needed to
process applications for housing and other assistance in its Area, Regional and
Headquarters— an effort which was begun with the Department’s recent reor
ganization—-as a further step toward holding the line on housing costs in our
nation.
H U D ’s actions will continue to complement, and be in support of, the Carter
Administration’s efforts to relieve the supply bottlenecks in all sectors of the
economy in an effort to reduce inflation. For instance, the President has already
stated that, consistent with environmental goals, he is committed to increasing
timber cuts from our national forests as a way to reduce costs.
Only by positive action can the momentum toward ever-higher housing costs
be blunted. We are beginning that effort here today with your help and guidance.
That concludes my prepared testimony. I would be pleased to answer any
questions the Committee might have.

Chairman M u s k ie . Mr, Smith, you may proceed now,
STATEMENT OP HERMAN J. SMITH, VICE PRESIDENT AND SECRE
TARY, NATIONAL ASSOCIATION OF HOME BUILDERS

Mr. S m ith . Mr. Chairman and members of the committee, my name
is Herman J. Smith, and I am a home builder from Fort Worth, Tex.
I am testifying today on behalf of the more than 103,000 members of
the National Association of Home Builders (NAHB), a trade associa

21
tion of the Nation’s home building industry, of which I am vice
president and secretary. Accompanying me today are Robert D. Ban
nister, senior vice president, and Gary Paul Kane, associate legislative
counsel.
We appreciate this opportunity to discuss the findings and recom
mendations contained in the final report of the Task Force on Housing
Costs. The HAHB applauds the efforts of the task force and this com
mittee for looking into the serious national problem of escalating
housing costs.
The recommendations of the task force should, in our view, receive
serious consideration by both the Administration and the Congress.
In keeping with the request contained in the Chairman’s letter to us,
we will attempt to focus particularly on those factors that are amenable
to Federal action.
Because of time I will hit the highlights in my statement,
COUNTRY FACING HOUSING COST PROBLEM

Few would argue that this country is facing a housing cost problem
of serious proportions. In 5 years, the median sales price of a new
single-family home has gone from $32,500 to $53,500 in April of 1978.
Provided these are accurate, I will say that for the 5 years, I have
never seen a month like last May. If we are to look at the $55,000
median size home, other than in the West, and in the West we are
talking about a $75,000 to $100,000 median priced home, it means we
need an income of between $25,000 and $40,000 for families to purchase
this type of home.
If there was the 25 percent buying homes, it has evaporated, so that
I don’ t even know if 10 or 15 percent could buy homes at that price.
I think this shows the urgency of what we are talking about today Prices since 1972 have been bad, but the trend in the last year has been
terrible.
COMPONENTS OF HOU SING COST INCREASE

No single reason can be given why the inflation in housing costs has
exceeded the rise in family incomes, or of the prices of other goods.
Many factors have contributed to the sharp increase in the cost of the
average single family house. Of these, five that we feel are most
significant are the following:
One, the high demand for housing brought about primarily by the
rapid increase in family formation;
Two, limitations on the availability of resources used in housing
production (land, construction materials, and financing).
Three, sharp, cyclical fluctuations in the level of housing
construction;
Four, government overregulation. We don’t say that is fourth in
importance, but it is one of the five.
Five, the inflationary trend of the entire economy,
INCREASED DEM AND

FOR HOUSING

The recent high demand for housing has been brought about in
large measure by the rapid increase in the rate of family formation.
During the first 7 years of this decade (1970 to 1977), the number
of households increased by 10.7 million (17 percent) to a total of 74.1

22
million. This compares with an increase of 6.4 million households
(12 percent) during the first 7 years of the 1960’s.
The increased rate of household formation is a result of the postwar
baby boom and the ability of young singles and the elderly to main
tain their own households.
F IV E -Y E A R

POPULATION PROJECTIONS

Over the next 5 years, some population projections show an increase
of 7.5 million additional households. When combined with the number
of families currently occupying substandard housing, and the number
of housing units removed from the market each year by demolition,
disaster, or other means, an additional 12.5 to 14 million housing units
could be needed during the next 5-year period.
Of course, this could be handled through new construction, major
rehabilitation, and other methods.
A V A IL A B IL IT Y

OF CONSTRUCTION MATERIALS AND RESOURCES

Getting back to the five reasons, we believe that the Housing Costs
Task Force Report is quite accurate identifying the reasons for the
increase in the price of land. I will not go into individual items.
Policies of State and local governments have constrained the supply
of developable land , increased the infrastructure, development and
environmental requirements beyond the minimum necessary, and
established land development regulations and procedures which are
unnecessarily complex and time consuming.
Let me say that I don’t think it is an accident that the Census
Bureau shows that in the western part of the country we have jumped
15 percent in May. I am not building in the western part of the country.
From what the builders out there tell me— and I believe I am talking
about w^est of New Mexico— some of the land constraint factors are
a big factor contributing to this tremendous cost in the last few months.
With various motives in mind, communities throughout the country
have sought to limit or control development within their jurisdictions.
They have frequently imposed controls in the form of limitation on
the capacity of public services (for example, water, sewer facilities,
schools, roads), used zoning to limit growth or prohibit certain types
of development, and this is all in the area of moderate to lower income,
nearly all; discouraged develpoment through property tax practices,
or established outright ceilings on population or the number of building
permits.
As the Task Force Report notes, many of these requirements go
well beyond that necessary to protect basic health, safety and general
welfare. In addition, they place a disproportionate share of the
financial burden of growth on the first time buyer of newly constructed
housing.
The wholesale price index for the 12 -month period ending May
1978, shows that all construction materials rose 12 percent, almost
twice the rate of increase for all commodities. Concealed within this
high average increase for all construction materials are even higher
raises for the costs of certain basic housing components. For example,
mill prices for lumber and wood products, which make up approxi
mately 30 percent of the construction cost of the average new home,
have increased 30.2 percent in the last 12 months.

23
We have real needs of proper management of the forestry of this
country, and of the proper and allowable timber cuts to make this a
competitive industry
A second example of excessively inflated materials costs is that
experienced in the gypsum products— plaster board and lath— in
the 12 -month period ending May 1978, during which the wholesale
prices for these materials rose by 29.7 percent. One builder in Florida
reports that there were five major price increases in the wholesale
costs of plasterboard in his area during the 12 months.
A V A IL A B IL IT Y OF FIN AN CIN G

Thrift institutions remain the principal source of long term mortgage
-credit. Their ability to attract funds for housing investment depends
upon their ability to offer investors yields which are competitive with
yields from other investments. On the national level the tightening
of the overall money supply, general increases in the demand for
credit, or large scale borrowing by the U.S. Treasury push up yields
on competitive investments reducing the availability of mortgage
credit for housing industry.
CYCLICAL FLUCTUATIONS

Cyclic fluctuations in the housing industry, as Secretary Janis has
said, are a very important problem. Our written testimony outlines
most of the same points that he brought out.
EXCESS GO VER NM EN TAL REGULATIO NS

A Government Regulations and Housing Costs Study conducted
by Rutgers University in 1977 concluded that for a prototype $50,000
single family home, the cost of Government regulation could total
$9,844 or 19.7 percent of the purchase price of the home. That study
was completed in 1977 If it were updated today, it would be my opinion
that it would far exceed 20 percent.
The full impact of Government regulation, however, has yet to be
felt. The regulations we see coming on stream will certainly add to this
'Cost, unless they are turned around.
IN FLATIO N AR Y TRENDS

OF ECONOM Y

NAHB believes that the general inflationary trend in costs, wages’
and prices across the national economy as a whole has a significant
impact upon increasing housing costs. Together with general price
rises go increases in the prices of land, construction materials, labor
and financing. Business, labor, and government all share responsi
bility for current inflationary trends— business and labor by demand
ing increased returns for their efforts, and the Federal Government
by high levels of Federal spending accompanied by large budget
deficits.
FEDERAL INVOLVEM EN T IN CONTROLLING H OU SING COSTS

Appropriate Federal involvement in controlling housing costs, as
regards this report: having identified the causes of housing costs in

24
creases, we will now address ourselves to the role that the Federal
Government could and should play in alleviating or mitigating those
cost increases.
F IS C A L

P O L IC Y

NAHB believes the national administration should take a strong
leadership role in an effort to control inflation. We believe, one, that
Congress and the administration should proceed immediately toward
a balanced budget , two, that no tax cuts be adopted so long as there
is a deficit in the Federal budget, and three, that new legislation or
regulations be carefully considered for potential inflationary impact.
I might digress to say that I believe that if over a period of years
we have a cost-benefit analysis made of regulations that went into
effect, we could easily track back the problems that we are talking
about today, and we could easily identif}^ the problems that brought
us to the point where we are now,
Hopefulfy. from this point on, we can see the need for all regulations
having shown some kind of cost-benefit analysis to the American
people, and those concerned with it, instead of just running a paper
mill.
M ONETARY

PO L IC Y

Through national monetary policy the Federal Government can
both insure a continuous flow of financing for the housing industry
and moderate the sharp fluctuations in housing production.
NAHB strongly concurs with the recommendation of the Report
that the implications of wide cyclical fluctuations in the housing in
dustry upon the national economy be comprehensively reviewed: and
that the priority of housing when compared with other national goals,
such as acceptable growth in GNP, lower aggregate unemployment,
and moderate increases in inflation, be redefined.
There is an old adage among builders that when the economy gets
a sneeze, our industry gets pneumonia. We see these high interest
rates, 11 percent. We talk about this earlier as being a problem, not
only in view of inflation, but also a problem of slowing down housing
starts. You can anticipate that starts will be slowed considerably in
the next few months as the interest rates go up.
NAHB believes that these studies will show that housing cycles
can be moderated without adversely affecting the national economy,
T A X P O L IC IE S

National tax policy which impedes the steady flow of investment
funds into housing only contributes to the cyclical nature of the
housing industry, and causes a further escalation in housing costs.
We support the proposal of Congressman Steiger. We believe that
lower rates will increase the supply of venture capital.
I might add, gentlemen, venture capital is something the home
building industry needs. A recent survey shows that 52 percent of
our building members have 5 or less employees. We are truly a private
entrepreneurship throughout the country.
By that I am talking about home building without the various
subcontractors that fit into it. Venture capital is important.
The land availability in our area— and I might say that in my
own area of Dallas and Fort Worth, on the edge of the town, where

25
there might be an old lady who owns a tract of land, if she is looking
at a 45 -percent tax on that land, she is not going to sell. Whereby,
we believe the Steiger amendment will roll back capital gains so
that we could buy the lands.
It would come on stream for us by the homebuilding, and at the
same time, more taxes would come into the coffers of the Federal
Government.
CONSTRUCTION M ATER IALS

When taken collectively, the impact of Government regulations
dwarf other factors in the contribution for significantly increasing
housing cost. A modest estimate for Government regulations increasing
housing cost would be in the area of 20 percent for the total cost of a
single family dwelling. If Government’s share in inflation were tabu
lated along with its regulations, the overall contribution would be even
greater. The only comfort in the fact that Government at all levels
have had a substantial adverse impact on housing cost is the reali
zation that if Government has helped create the problem, it ought
to be able to help resolve it.
Some specific examples of Government’s impact on housing cost
include:
h u d ’s

PROCESSING PROCEDURE

The task force report confirms the often repeated assertion that
H U D ’s own loan processing procedures are a factor in raising the
cost of housing.
NAHB has taken a position in support of the current reorgani
zation of HUD field offices, based upon direct assurance from the
HUD administration that the reorganization will lead to a stream
lining and efficiency of HUD processing.
However, we believe the Secretary of HUD should be held strictly
accountable for the efficiency and effectiveness of HUD processing,
and that oversight hearings into the effectiveness of the reorganization
be held in early 1979.
B A LAN CIN G

HOUSING

AND

ECONOMIC

GOALS

W IT H

E N V IR O N M E N T A L

CONSIDERATIONS

26
I might add, Mr. Chairman, in the Wall Street Journal’s lead article
last week,1 Professor Case of the University of California had a sen
tence that made a lot of sense.
One way is to set up a one-stop shopping concept whereby builders
deal with a single Government agency for obtaining all the permits.
The agency should appoint someone to be truly accountable for his
actions. As things are now, public officials tend to pass the buck.
I don’t always agree with the University of California’s professors,
but in this particular case, I agree wholeheartedly. Where we are
looking for the development of 1 to 2 years in time to get a set o f
plans and specifications, the various agencies— and this varies in all
parts of the South— in the Southwest we are more fortunate than in
other parts of the country. If we had a one-stop concept, with a
properly manner agency, properly monitored, but where the setup
plans and specifications were all in that department instead of being
parcelled across the country, we would save a lot of time.
Senator D o m e n i c i . Are you talking about development permits or
housing permits?
Air. S m i t h . Development permits and single families, because that
is where the problem is, mainly, I would say that other projects, it
would seem to me we could have one agency that could handle that.
We have situations, for example, where under HUD we can obtain
FHA and VA approval for subdivisions, but then we have to go to
interstate land sales to obtain a permit to sell a lot somewhere else.
Here is somewhere where we have two requirements within the
same agency. We now have Farmer’s Home, with one set of energy
guidelines for homes, and HUD proposed another. So we get to the
point where we have to get our act together, or it costs us money.
Twoy close congressional review of future environmental legislation
to insure that economic considerations, particularly housing cost im
pacts, are adequately considered.
Three, careful review of Forest Service practices in order to increase
the annual harvest from national forests. We mentioned this earlier,
and I will not go into details on that. But there is some legislation
pending in this area.
IN TE R STA TE LAND SALES REGULATION

But we are concerned that OILSR has extended its jurisdiction
from undeveloped lots in remote parts of the country to the sales o f
fully improved or developed lots located in metropolitan areas where
land development activities are already heavily regulated.
We believe in the city of Fort Worth, or the city of Albuquerque,
that the city commission, the city engineers, the staff involved, once
they approve a subdivision, a bond has to be posted, that they can
properly regulate. And it is not necessary to spend thousands of dollars
to send an application to Washington to be approved by a Federal
agency.
FARM ERS HOME THERM AL PERFORMANCE STANDARDS

The task force report suggests that one method of controlling hous
ing costs is through the cooperation and uniformity of regulations.
1 See p. 75.

27
among HUD, the Farmers Home Administration, and the Veterans*
Administration. I think this is really important, that we have one
set of guidelines that all the Federal agencies are affected by,
LAND SUPPLY AND DEVELOPM ENT

Senator D o m e n i c i . What is the third one?
Mr. S m i t h . The Veterans’ Administration. Normally, the Veterans’
Administration and FHA work closely together.
As we noted earlier, excessive and burdensome regulation of State
and local governments restricting the development of land, imposing
excessive costs in the development of infrastructure or causing delays
through redtape and inefficient administration contribute significantly
to housing costs.
However, NAHB believes that responsibility for these decisions
should rest in the hands of State and local officials. And if pressures
for less restrictive land use controls are to come, they should come from
the residents of the area, not from the Federal Government.
Requirements relating to land dedication or fees and charges are
local problems, and should be resolved on the local level without any
Federal intervention.
I would be happy to answer any questions that you may have.
Chairman M u s k i e . Thank you very much for your testimony,
PREPARED STATEMENT OF THE NATIONAL ASSOCIATION OF
HOME BUILDERS
Mr. Chairman and members of the committee, my name is Herman J. Smith,
and I am a home builder from Fort Worth, Texas. I am testifying today on behalf
of the more than 103,000 members of the National Association of Home Builders
(N A H B ), a trade association of the nation’s home building industry, of which I am
Vice President and Secretary. Accompanying me today are Robert D. Bannister,
Senior Staff Vice President, and Gary Paul Kane, Associate Legislative Counsel.
We appreciate this opportunity to discuss the findings and recommendations
contained in the Final Report of the Task Force on Housing Costs. The NAHB
applauds the efforts of the Task Force and this Committee for looking into the
serious national problem of escalating housing costs. The recommendations of the
Task Force should, in our view, receive serious consideration by both the Ad
ministration and the Congress. In keeping with the request contained in the Chair
man’s letter to us, we will attempt to focus particularly on those factors that are
amenable to federal action.
INTRODUCTION

Few would argue that this country is facing a housing cost problem of serious
proportions. In 5 years, the median sales price of a new single family home has gone
from $32,500 to $53,500 in April of 1978. In urban areas, housing prices have in
creased even more rapidly. The $100,000 home once thought to be a “ dream estate”
for the very wealthy, now is not unusual in many areas across the country. Housing
prices and operating expenses have increased and are continuing to increase more
rapidly than family income and consumer prices generally.
All Americans are affected by increasing housing and operating costs. Those that
have purchased homes before the recent dramatic price increases, since 1970 or
even 1973, have been least adversely affected. The equity appreciation in their
homes has allowed many to move up to more comfortable homes with very little
increase in monthly mortgage payments. Those harmed the .most by the accelera
tion in housing cost are newly formed families which are potential first time home
buyers, low income families, and elderly people or others on fixed income. For
these individuals, the rapid increase in the cost of housing quickly outstrips the
gains in income they may have.
The National Association of Home Builders strongly concurs with the state
ment of the task force that “ all Americans are entitled to enjoy housing that is
decent, sanitary, and safe— and affordable— as a matter of right.” Frankly, how

28
ever, unless a concentrated and conscientious effort is taken to address this
problem, millions of Americans may never realize that right.
COMPONENTS OF THE HOUSING COST INCREASE

No single reason can be given why the inflation in housing costs has exceeded
the rise in family incomes, or of the prices of other goods. Many factors have
contributed to the sharp increase in the cost of the average single family house. Of
these, five that we feel are most significant are the following:
(1) The high demand for housing brought about primarily by the rapid
increase in family formation;
(2) limitations on the availability of resources used in housing production
( land, construction materials, and financing);
(3) Sharp, cyclical fluctuations in the level of housing construction;
(4) Government overregulation; and
(5) The inflationary trend of the entire economy.
INCREASED DEMAND FOR HOUSING

The recent high demand for housing has been brought about in large measure
by the rapid increase in the rate of family formation. During the first 7 years of
this decade (1970-1977), the number of households increased by 10.7 million (17
percent) to a total of 74.1 million. This compares with an increase of 6.4 million
million households (12 percent) during the first 7 years of the 1960’s. The increased
rate of household formation is a result of the post war baby boom and the ability
of young singles and the elderly to maintain their own households.
Over the next 5 years, some population projections show an increase of 7.5
million additional households. When combined with the number of families cur
rently occupying substandard housing, and the number of housing units removed
from the market each year by demolition, disaster, or other means, an additional
12.5 to 14 million housing units could be needed during the next 5-year period.
AVAILABILITY OF CONSTRUCTION MATERIALS AND RESOURCES FOR HOUSING

While demand for housing has been increasing, the supply of resources (land,
construction materials, and financing) used in building has not been allowed to
increase proportionately. Rather, constraints on the availability of these resources
have been increasing in recent years. These limits on the ability of the private
sector to respond to increased demand, are a significant factor in the increase of
housing costs.
LAND

We believe that the Housing Costs Task Force Report is quite accurate in
identifying the reasons for the increase in the price of land. Policies of State and
local governments have constrained the supply of developab e land, increased the
infrastructure, development and environmental requirements beyond the mini
mum necessary, and established land development regulations and procedures
which are unnecessarily complex and time consuming.
With various motives in mind, communities throughout the country have
sought to limit or control development within their jurisdictions. They have fre
quently imposed controls in the form of limitations on the capacity of public serv
ices (for example, water, sewer facilities, schools, roads), used zoning to limit
growth or prohibit certain types of development, discouraged development through
property tax practices, or established outright ceilings on population or the num
ber of building permits.
Other communities through regulations requiring dedication of land, construc
tion of public facilities, or compliance with certain environmental control require
ments have substantially increased the cost of developing a lot as a site for housing.
As the Task Force Report notes, many of these requirements go well beyond that
necessary to protect basic health, safety and general welfare. In addition, they
place a disproportionate share of the financial burden of growth on the first time
buyer of newly constructed housing.
CONSTRUCTION MATERIALS

The wholesale price index for the 12 month period ending May 1978 shows that
all construction materials rose 12 percent, almost twice the rate of increase for all
commodities. Concealed within this high average increase for all construction
materials are even higher raises for the costs of certain basic housing compo-

29
nents. For example, mill prices for lumber and wood products, which make up
approximately 30 percent of the construction cost of the average new home, have
increased 30.2 percent in the last 12 months. Yet the annual harvest in the 1970’s
from the National Forests— which constitute the single largest source of the soft
wood timber used in construction— is below what it was at the beginning of the
decade. Since timber production from privately held lands is expected to decline
in the 1980’s when housing demands will continue to increase, the National Forests
will become an even more critical factor in the lumber price situation. The only
way lumber prices can be moderated is to increase the supply and the current
trends show supply decreasing.
A second example of excessive^ inflated materials cost is that experienced in the
gypsum products— plaster board and lath— in the 12 month period ending May
1978, during which the wholesale prices for these materials rose by 29.7 percent.
One builder in Florida reports that there were five major price increases in the
wholesale costs of plasterboard in his area during the 12 months. This materials
industry is dominated by three large companies which accounted for almost 75
percent of the total sales last year. Two of these companies reported 1977 increases
in net earnings of 67 percent and 34 percent. NAHB is becoming increasingly
■concerned with the reasons behind the premium prices for gypsum products.
Other materials costs are experiencing increases directly attributable to govern
mental action. The cement industry, for instance, is widely engaged in fuel con
version programs to meet pollution control requirements. Some areas, particularly
in the West and Southwest, report cement plant closings which are, at least in
part, due to the high costs of compliance with new air quality standards.
Another case of governmental action leading to rising materials costs is in the
cost of insulation which has risen rapidly due to increased demand based on new
Federal energy conservation regulations for new construction, and the proposal
for tax credits for installing additional insulation in existing structures.
AVAILABILITY OF FINANCING

Thrift institutions remain the principal source of long term mortgage credit.
Their ability to attract funds for housing investment depends upon their ability
to offer investors yields which are competitive with yields from other investments.
On the national level the tightening of the overall money supply, general increases
in the demand for credit, or large scale borrowing by the U.S. Treasury push up
yields on competitive investments reducing the availability of mortgage credit for
housing industry.
Federal action through monetary policies and through the action of various
administratuve agencies can have a significant impact upon the availability of
funds flowing into thrift institutions.
CYCLIC FLUCTUATIONS IN THE HOUSING INDUSTRY

The sharp, cyclic fluctuations traditional in the housing construction industry
also contribute to the increase of housing costs. During periods of slack construc
tion, plant and equipment stand idle; the capacity for manufacturing materials
and components used in housing construction are underutilized; and construction
workers are not employed. During periods of high construction activity, workers
demand higher wages to provide reasonable annual incomes (considering periods of
unemployment); returns on plant and equipment must be high to make up for
losses during idle periods; and the demand for resources used in housing is in
creased sharply, resulting in higher land prices, higher material prices, and higher
interest costs.
EXCESS GOVERNMENTAL REGULATIONS

A Government Regulations and Housing Costs Study conducted by Rutgers
University in 1977 concluded that for a prototype $50,000 single family home, the
cost of government regulation could total $9,844 or 19.7 percent of the purchase
price of the home. A report by the Comptroller General, dated May 11, 1978,
found that in the communities that it has surveyed specifications or standards for
streets and related site inprovememts could increase the cost of a house by as
much as $2,655. In addition, potential savings from less restrictive local building
codes range between $0 and $7,300 with the median projected savings being about
$1,700 a house. The proliferation of government regulations and processing delays,
including those at the local level, add significantly to construction costs.
The full impact of government regulation, however, has yet to be felt. The
Army Corps of Engineers’ Dredge and Fill Permit Program, EPA’s policy to
32-099— 78------ 3

30
limit funding of interceptor sewer lines, EPA’s 208 area-wide water quality plan
ning program, and the Coastal Zone Management Program, administered by the
Department of Commerce, are all at various stages of implementation. At
the same time, other legislative proposals are on the hearthstone that could also
contribute to housing cost inrcreases.
INFLATIONARY TRENDS OF THE ECONOMY

NAHB believes that the general inflationary trend in costs, wages, and prices
across the national econom^y as a whole has a significant impact upon increasing
housing costs. Together with general price rises go increases in the prices of land,
construction materials, labor and financing. Business, labor, and government
all share responsibility for current inflationary trends— business and labor by
demanding increased returns for their efforts, and the federal government by high
levels of federal spending accompanied by large budget deficits.
APPROPRIATE FEDERAL INVOLVEMENT IN CONTROLLING HOUSING COSTS

Having identified the causes of housing costs increases, we will now address
ourselves to the role the federal government could and should play in alleviating
or mitigating those cost increases.
FISCAL POLICY

NAHB believes the national administration should take a strong leadership
role in an effort to control inflation. We believe (1) that Congress and the Admin
istration should proceed immediately toward a balanced budget, (2) that no tax
cuts be adopted so long as there is a deficit in the federal budget, and (3) that new
legislation or regulation be carefully considered for potential inflationary impact.
As its part, NAHB adopted a resolution on June 29, 1978, whereby NAHB
pledged to limit 1978 price increases to less than the average during the December
1975-December 1977 period (barring unusual or unforeseen cost increases in the
price of materials or labor beyond the control of the home builder), and to limit
1978 compensation increases to 5 percent.
MONETARY POLICY

Through national monetary policy the federal government can both ensure a
continuous flow of financing for the housing industry and moderate the sharp
fluctuations in housing production. In so doing, the housing industry and each of
its suppliers wTould be able to utilize more efficient technology and more capital
intensive production techniques. Plants could be built to accommodate relatively
stable and predictable construction levels. And the uniform demand for land,
labor, materials, and financing wrould avoid artificially high prices for those
resources during periods of peak demand.
The Cooley-Corrado study cited in the Task Force Report suggests that sharp,
cyclical fluctuations in residential construction may not be necessary to achieve
more stable output and employment in the overall economy. If this conclusion is
accurate, monetary policies could and should be used to moderate the wide fluctua
tions in the housing industry to the benefit of the home builder and consumer,
without harm to the general public.
NAHB strongly concurs with the recommendation of the Report that the
implications of wide cyclical fluctuations in the housing industry upon the national
economy be comprehensively reviewed; and that the priority of housing when
compared with other national goals, such as acceptable growth in GNP, lower
aggregate unemployment, and moderate increases in inflation be redefined.
NAHB believes that these studies will show that housing cycles can be
moderated without adversely affecting the national economy. We would support
use by federal government of various monetary policies intended to accomplish
that result. Specifically, the use of the government’s financial institutions (FN M A ,
FHLMC, GNMA, FHLBB) to moderate swings in the cost and availability of
mortgage credit; increasing the ability of thrift institutions to attract funds, such
as an extension of Regulation Q, and withdrawing Federal Reserve Board regu
lations which permit commercial banks to transfer funds automatically between
checking and savings accounts; and the use of tax incentives and modified regu
lations to increase the participation of pension funds and life insurance companies
in the residential mortgage market.
NAHB also believes that increased consideration should be given to certain
alternative mortgage instruments, such as graduated payment mortgages and

31
the financing techniques provided under the proposed Homeownership Oppor
tunity Act, S. 3053, introduced by Senator Sparkman. However, NAHB con
tinues its strong opposition to the use of variable rate mortgages, in the belief
thrift institutions will use those instruments as a device to continue the upward
trend of long-term interest rates and to increase their profits. For this same reason,
we oppose the Task Force’s recommendation that the FHA mortgage interest
rate by deregulated.
TAX POLICIES

National tax polic}^ which impedes the steady flow of investment funds into
housing only contributes to the cyclical nature of the housing industry, and
causes a further escalation in housing costs. NAHB agrees with the Task Force
recommendation that national tax policies should be reviewed to insure stability
and predictability of the tax treatment of funds for housing related purposes,
and to insure that the private investment and financing of housing will be
encouraged.
The cornerstone of home ownership in America has been the deductibility of
mortgage interest and property taxes from a famity’s gross income. We are opposed
to any change in this deduction. NAHB supports S. 456 which provides that
contributions in aid of construction to electric and gas utilities be treated as
non-taxable contributions to the capital of a utility, rather than as income. The
Tax Reform Act of 1976 provided this rule for contributions to water and sewage
disposal utilities. NAHB supports the concept of the Steiger amendment which
would return the capital gains tax to a maximum of 25 percent which prevailed
in 1969. We believe the lower rate will increase the suppty of venture capital.
And rather than reducing tax collections, Chase Econometric Associates has
determined that if the maximum rate were dropped to 25 percent on January 1,
1980, the result by 1985 would be $16 billion in added tax revenues.
CONSTRUCTION MATERIALS

The Federal Government can have significant influence in removing some of
the causes for the current high rates of inflation of construction materials costs.
The supply of lumber and wood products could be substantially increased through
efficient and environmentally sound management of the National Forests. An
increase in supply of these materials is absolutely vital if lumber prices are to be
kept under control.
A review should be made of all existing and proposed federal regulations dealing
with fuel conversion and pollution control of industries which produce construction
materials to determine whether these regulations are unduly burdensome, either
in extent or in timing of compliance, and contribute substantially to the rise in
costs of such materials. Where the supply of essential building materials is com
promised by such regulations, procedures for waiving or moderation of require
ments should be established.
Finally, the Federal Trade Commission should carefully examine pricing prac
tices in the gypsum industry.
IMPACT OF GOVERNMENT REGULATIONS

When taken collectively, the impact of government regulations dwarf other
factors in the contribution for significantly increasing housing cost. A modest
estimate for government regulations increasing housing cost would be in the area
of 20 percent for the total cost of a single family dwelling. If government’s share
in inflation wTere tabulated along with its regulations, the overall contribution
wrould be even greater. The only comfort in the fact that government at all levels
have had a substantial adverse impact on housing cost is the realization that if
government has helped create the problem, it ought to be able to help resolve it.
Some specific examples of government’s impact on housing cost include:
hud’s

PROCESSING PROCEDURE

The Task Force Report confirms the often repeated assertion that H U D ’s own
loan processing procedures are a factor in raising the cost of housing. These pro
cedures include unnecessary and cumbersome processing steps, unnecessary and
duplicative documentation and inefficient staff and management within the HUD
organization.
NAHB has taken a position in support of the current reorganization of HUD
field offices, based upon direct assurance from the H U D administration that the
reorganization will lead to a streamlining and efficiency of HUD processing. It

32
is also our belief that to reverse the reorganization at this time would be wasteful
and place a further strain on families who have already made commitments to
change location.
However, we believe the Secretary of HU D should be held strictly accountable
for the efficiency and effectiveness of HU D processing, and that oversight hearings
into the effectiveness of the reorganization be held in early 1979.
BALANCING HOUSING & ECONOMIC GOALS WITH ENVIRONMENTAL CONSIDERATIONS

NAHB does not question the need for national goals to improve environmental
quality. We do, however, believe that in light of the impact of regulatory initia
tives on housing cost, it would be appropriate to closely examine ways to reduce
unnecessary adverse impacts. Accordingly, we would recommend:
1. HUD and EPA explore the possibilitjr of developing a “ one-stop shopping”
concept for all federally funded programs to deal with the duplicative nature of
permit procedures affecting the development industry.
2. Close congressional review of future environmental legislation to ensure
economic considerations, particularly housing cost impacts, are adequately
considered.
3. Careful review of Forest Service practices in order to increase the annual
harvest fron National Forests.
4. Development of reasonable and balanced criteria to be utilized in any wilder
ness area designation.
5. EPA be urged to adequately consider the nation’s future housing and growth
needs as part of its mandate to protect the environment.
6. Review of the policy that is under consideration which would restrict the
funding of interceptor sewer lines.
INTERSTATE LAND SALES REGULATION

A classic example of how an administrative agency can distort the purpose of
well intended legislation, and thereby drive up housing costs unnecessarily, can be
observed by studying how the Office of Interstate Land Sales Regulation (OILSR)
distorted the purpose and intention of the Interstate Land Sales Full Disclosure
Act between the time of its passage in 1968 and today. NAHB supported enactment
of the Act in 1968 as a reasonable means to protect consumers against certain
deceptive and fraudulent sales practices used by a minority of unscrupulous land
developers in the interstate marketing of generally undeveloped real estate. A
major ploy in the marketing of this land was usually the fact that it was sold to
purchasers who were unable to inspect the site because of the buyer’s geographical
separation from the land’s location. In many cases the land lacked, and could
not be provided with, without exorbitant costs, basic services such as water,
sewer, electricity, and paved roads.
N AHB’s major concern is that OILSR has extended its jurisdiction from un
developed lots in remote parts of the country to the sales of fully improved or
developed lots located in metropolitan areas where land development activities
are already heavily regulated. In most of these “ regulated jurisdictions” before a
builder can sell even a single lot, he must gain approval from myriad local and
state governmental entities. In addition, he must have either completed, or post a
bond for the completion of, water, sewer, electrical facilities, and roads.
When confronted with uncertain filing requirements, the potential delays and
costs of a protracted dispute, and the potential civil and criminal sanctions, many
builders are simply refusing to sell any lots whatever to individuals; they will sell
only to other builders. This can prevent a family which does not yet want to be
tied to a particular builder from buying a lot in a good neighborhood either as an
investment or as a future home site. Those families who do purchase lots from the
second builder pay a higher price for the land as the result of paying two builder’s
markups.
NAHB strongly believes that where lots are provided with the necessary public
improvements constructed under substantive state and local subdivision regula
tions, further regulation by OILSR is duplicative and wasteful and needlessly
adds to the cost of housing.
NAHB strongly supports the provisions of S. 2716, sponsored by Senators
Nelson, Sparkman, McIntyre, Tower, Garn, Morgan, Cranston, Brooke, Heinz,
Bentsen, and Laxalt, now incorporated into S. 3084. We believe this legislation
represents a positive step toward correcting the hardships to home builders and
consumers alike caused by O ILE R ’s overreaching jurisdiction. The exemption of
the greater of 5 percent of a builder’s sales or 5 lots a year is especially beneficial

33
to smaller home builders who may, without solicitation, inadvertantly sell a few
lots to out-of-state purchasers.
The 100 mile exemption is most helpful to the builder operating near the borders
of one or more other states. People living within the 100 mile radius should have
easy access to the property and should be able to ascertain the facts necessary to
make an informed decision on the purchase of a lot.
Under each of these exemptions the consumer is well protected. The lot must be
free and clear of encumbrances, the purchsaer or his or her spouse must have
made an on-site inspection, and the seller must consent to jurisdiction in tha
purchaser’s home estate.
FARMERS HOME THERMAL PERFORMANCE STANDARDS

The Task Force Report suggests that one method of controlling housing costs is
through the cooperation and uniformity of regulations among HUD, the Farmers
Home Administration (FmHA), and the Veterans Administration. The Report
urges that the three agencies utilize uniform documentation, uniform procedures
and standards for environmental and subdivision review, and that mechanisms be
established to assure similar contents, enforcement and reciprocity of minimum
property standards by HUD, Farmers Home, and VA.
Despite the apparent good sense of this recommendation, on July 1, 1978, the
Farmers Home Administration put into effect Thermal Performance Standards
for the insulation of newly constructed homes inconsistent with the standards just
proposed by the Department of Housing and Urban Development. NAHB
believes that there is no justification for two sets of standards regarding thermal
insulation, and that the precipitous action by the FmHA is a clear example of
government action needlessly contributing toward increased housing cost.
From a technical standpoint, the Thermal Performance Standards promulgated
by FmHA do not take into account the type of heating system used in a home.
Instead they are based on the most expensive and least efficient form of hearing—
electrical resistance heating. Our engineers have estimated that the enforcement
of the Thermal Performance Standards could add several thousand dollars to the
cost of the average FmHA house. However, these regulations provide no incentive
for the builder to choose a more efficient form of heating since generally the least
expensive heating system to install is also the most inefficient. The proposed
Department of Housing and Urban Development Thermal Performance Standards
take these cost differences into account.
NAHB believes that oversight hearings should be held to inquire into FmHA
justification for promulgating these inconsistent standards.
HUD MINIMUM PROPERTY STANDARDS

Finally, we support the Report’s recommendation that HU D Minimum
Property Standards (MPS) be revised to be more flexible and to not include
excessive standards. We agree with the recommendation that the M PS’s should be
revised to allow the design and construction of low priced basic starter, unusual or
different types of housing. And we agree that the current MPS requirements should
be studied and immediately removed there from any unjustifiable cost increasing
technical, design, or site requirements.
LAND SUPPLY AND DEVELOPMENT

As we noted earlier, excessive and burdensome regulation of state and local
goyernments restricting the development of land, imposing excessive costs in the
development of infrastructure of causing delays through red tape and inefficient
administration contribute significantly to housing costs.
Communities which prohibit or exclude development entirely, shift the entire
burden of regional development pressures to their neighboring communities. This
seems not only inequitable, but also causes the cost of available land to escalate
still further. NAHB believes that communities should recognize their responsi
bility for accommodating a proportionate share of regional developmental pressure,
and should develop growth plans or strategies to permit that orderly process of
growth.
However, NAHB believes that responsibility for these decisions should rest in
the hands of state and local officials. And if pressures for less restrictive land use
controls are to come, they should come from the residents of the area, not from the
federal government.

34
We do not agree with the Task Force recommendation that the federal govern
ment should specify land use standards or publish advisory guidelines for local
governments on matters such as types and density of housing, amounts of land
developable, or locational characteristics. It has too frequently occured that
“ advisory guidelines’’ have quickly evolved into Federal controls or regulations.
It is our belief that land use is an appropriate function of state and local
government.
We cannot too strongly voice our disagreement with the recommendation that
H U D withhold funds for urban development from non-complying jurisdictions.
Requirements relating to land dedication or fees and charges are local problems,
and should be resolved on the local level without any federal intervention.
We do support and agree with the remaining Task Force recommendations
which would streamline federal procedures in this area, including for example:
1. The elimination of requirements for environmental assessments in
existing subdivisions;
2. The maintenance of lists of experienced developers so that applications
from those developers can be expedited;
3. The identification and allowance of area wide use of acceptable
Affirmative Action plans; and,
4. The adoption of uniform standards for environmental reviews, and uni
form policies and procedures for subdivision analysis among HUD, Farmers
Home, and VA.
CONCLUSION

We appreciate the opportunity to appear before you today, and we would be
pleased to respond to any questions you may have.

Chairman

u s k ie .

Neuhauser. you may proceed now

STATEMENT OF MARY C. NEUHATJSER, COUNCIL MEMBER, IOWA
CITY, IOWA, AND MEMBER, HUD TASK FORCE ON HOUSING COSTS

Ms. N e u h a u s e r . Mr. Chairman and members of the committee,
thank you for giving me this opportunity to speak to you today on
the final report of the task force on housing costs.
Mr. Chairman, I hope you will appreciate that I interrupted my
vacation in the sunshine State of Maine to come down here.
Chairman M u s k i e . A supreme sacrifice.
LACK OF SU FFIC IE N T, DECE N T, AND A FFO R DABLE HOUSING

Ms. N e u h a u s e r . A s a former mayor and a current city council
member, I have been concerned about the lack of sufficient, decent,
and affordable housing in my city. As a former member of the mayors'
task force on housing and a present member of the community de
velopment committee of the National League of Cities, I have found
similar concerns throughout the cities of our country. As a member
of the HUD task force on housing costs, and as chairperson of the
Subcommittee on land supply and development, I became convinced
that reducing housing costs can make better housing available to
more people.
I address the committee with that perspective.
LAND SUPPLY AND DEVELOPM ENT

I am sure that all of you have copies of the final report of the task
force on housing costs, so 1 will not repeat its contents in much de
tail here. I support the general recommendations of the report, and
specifically the recommendations contained in the chapter on land
supply and development. The full committee agreed that the biggest

contributor to rising housing costs is an insufficient amount of land
serviced with water and sewer for development.
Particularly, in the rapidly growing parts of the United States,
the price of buildable land has skyrocketed. In addition to land price,
site development requirements and processing delays drive the cost of
housing higher than necessary in many communities.
AFFORDABLE HOUSING

Antiquated and unduly restrictive building codes and lack of fi
nancing make it difficult for young families to enter the housing
market. For these same reasons, rents have increased as well, making
it difficult for a moclerate-income family or elderly person on a fixed
income to afford unsubsidized rental housing.
1 speak mainly of eliminating low-income people at this time, be
cause I don’t think they will ever afford any unsubsidized housing.
Of course those who already own housing can profit by the inflation
ary trend: and since the majority of voters in most communities are
homeowners, there is no great outcry by them for governmental
policies to change. It’s a matter of, ‘ T m on board, now pull up the
gangplank.”
The Federal Government should play a major role, in partnership
with local and State governments and private developers, to make sure
that an adequate supply of decent, safe, sanitary, and affordable
housing for all is available. Specific recommendations to accomplish
this are spelled out in the housing costs report. Let me highlight just
one. Although I believe orderly growth is in the best interests of a
community, policies which specifically exclude provision for housing
for low- and moderate-income people should not be followed by any
community which expects to receive grants from the Federal Govern
ment. Such policies can and should be identified by HUD.
SITE DEVELOPM ENT STANDARDS

In addition, HUD should work with State and local governments
to establish reasonable standards for site development. However, this
should be done with great care, recognizing that such standards may
vary across the country, depending on such factors as climate, popula
tion projections and market acceptability.
While doing this, it is important to recognize that, although many
changes in site development standards can in fact reduce costs, others
may simply shift the costs to the taxing body. Such shifts will not be
palatable either to elected officials or to taxpayers and may result in
exactly the opposite of what we wish, a no-growth policy,
R E H ABIL IT AT IO N PROGRAMS

In all deliberations on housing costs by the Federal Government, it
would be wise not to isolate that problem from other problems. For
instance, might the encouragement of more land development dis
courage redevelopment of inner cities? Is money spent on new sewers
then not available for replacement of old sewers?
The housing situation varies considerably from one place to another.
One community may not be able to house its people adequately and
should be expanded. Another community may have considerable

36
amounts of abandoned housing or urban land sitting idle. Rehabilita
tion programs and those which encourage the use of infill land should
be emphasized here. The solutions should fit the local scene, not be
designed in such an inflexible manner that they make no sense in many
parts of the country.
In our recommendations we should be careful to see that we are not
promoting further deterioration of the urban cores of cities and that
rehabilitation is given an equal emphasis. Remember that housing
situations vary from one place to another. While two cities may have
high-priced new housing, one may have abandoned neighborhoods
with decent housing stock while the older simply does not have enough
housing.
I found the deliberations of the housing costs task force to be
stimulating and provocative. Answers to very complex questions are
not easy to come by, and I found all the participants to be genuinely
concerned about the needs of low- and moderate-income people, as
well as lower housing costs for all. The builders represented on the
committee were particularly helpful in coming up with practical solu
tions. I say this lest anyone think my final remarks are critical of these
individuals, but they are meant to be a warning.
Housing costs are only one problem among many, I hope we will
not squander limited resources on extravagant solutions which do not
benefit those who really need them. If by reducing the cost of building
houses we come nearer making decent, safe and sanitary housing
available to all, then lowering housing costs is a commendable goal.
However, if the reduction of the cost of building houses simply results
in larger profits to developers without directly or indirectly benefiting
low- and moderate-income people, young couples trying to buy their
first home, older people living on a fixed income and those with special
housing needs, the Housing Costs Task Force will labored in vain.
I support the report of the committee and am happy that the
Budget Committee of the Senate is giving it immediate attention. I
look forward to the Federal Government’s working with us on the
local level to see that its recommendations can be carried out.
Thank you.
Chairman M u s k i e . Thank you very much for your excellent
presentations.
I yield to Senator Chiles at this point for questions.
CONSOLIDATION OF M ULTIPLE R EGULATIO NS

Senator C h i l e s . Thank you, Mr. Chairman.
Mr. Janis, a recurrent theme in the task force report, and in Mr.
Smith’s testimony today, is the cost of having multiple regulations
by HUD and the VA, Farmers Home, as well as the Environmental
Protection Agency, The task force recommended two kinds of con
solidation on environmental reviews, the first having various Federal
agencies develop uniform standards to accept each other’s reviews;
and, second, having HUD accept State or local reviews if they meet
certain criteria, and making that subject to appeal.
It seems that, really, both of these procedural changes could speed
up processing and reduce the risk and uncertainty for the devel
oper without requiring a reduction in the quality of environmental
standards.

37
You pointed out in your testimony that, while these regulation
costs are high, many of them are requirements that Congress has put
on, and that the people have demanded. We don’t want to go back
ward in regard to trying to provide safeguards and standards like
that. But where we find that it is simply because of overlapping,
doesn’t that appear to be the fastest way we could get at reducing so
many of the costs without giving up any of the benefits.
Do you think this kind of streamlining is feasible? Can it be done
administratively, or is it going to require legislative change?
Could we do it with a simple amendment to the HUD authorization
bill? What is your idea on that?
Mr. J a n i s . I don’t think it can be done easily, Senator. I think it
is something we ought to be continuing to look at.
We have to, I think, on consolidation— well, as you know, HUD
and the VA have worked very closely together. It is practically inter
changeable as far as regulations are concerned. These are agreements
of long standing which go back between FHA and VA.
Farmers Home used to be under the same umbrella, but Farmers
Home has kind of drifted away.
With regard to the acceptance by the Federal Government of State
requirements where there is an overlap, we are in fact now testing
that out in two places. We have an experiment in two communities
going on. I don’t remember which they are. I think Seattle is one of
them, and Minneapolis.
That is on local codes.
There is that attempt to see if there are adequate local codes in
existence, and if there is good enforcement of those local codes, and
we are experimenting with the possibility of waiving our own
procedures.
The same is true on the environmental level. I believe we have
an experiment starting in the Tampa Bay area with regard to the
environmental, where the local requirements are sufficient.
Part of the problem here is that there are statutory differences, and
obviously, we can’t waive statutory provisions even though there are
similarities between State requirements. In Florida, as you know, the
Land and Water Management Act of 1972 is a specific State law that
involves development and land use, and to the extent that it is con
sistent with Federal law, fine; but the problem is, I think, generally,
that we are dealing with laws that are at local, State arid Federal
levels, and the melding and consolidation of those is not an easy
sort of a thing.
ON E-STO P SERVICE ON R EGULATIO NS

Senator C h i l e s . I understand it is not easy, but let me just break
the question down a little bit. If we decided in Congress that HUD,
FHA, VA, Farmers Home should have the same kind of regulations
and that one should accept the other that there should be a one-stop
service in regard to those regulations, would that take legislation, or
can that be done by administrative fiat?
M r . J a n i s . I a m n o t 10 0 p e rc e n t su re.
Senator C h i l e s . H o w about telling me for the record, then, if y o u
are not sure today. Tell me how we do it.
Mr. J a n i s . Let me give you the sense of it. VA and FHA are no
problem. I don’t know with respect to Farmers Home. I think Farmers

38
Home would probably be the best one to answer that, but I would
be glad to ask the question and furnish you with an answer from
them as to why they drifted out from under the umbrella.
[The following was subsequently supplied for the record by Mr,
Janis:]
For the record Senator, Farmers Home has told me that the decision to accept
our regulations is an administrative decision and does not requirestatutory' changes.
They agreed to work with us to try and eliminate needless duplication of required
reviews, forms and regulations. Efforts in this regard have already been taken
with the Council on Environmental Quality to get environmental procedures
standardized. Farmers Home is also willing to work with H U D and VA to get
standardized regulations for subdivisions. They are willing to work with us in
establishing mechanisms to assure similar contents, enforcement and reciporcity
of MPS by themselves, FHA and VA when the standards are the same. In some
instances, such as energy conservation, the HU D standards and those of Farmers
Home are not the same. As a result, Farmers Home has adopted its own energy
conservation regulations. Let me assure you that we and Farmers Home will work
to develop similar standards on this issue and any other issue where differences
now exist.
CO ST -BE N E F IT STU D Y

Senator C h i l e s . HUD started some experiments in a couple of
areas. If that follows the normal pattern of how we do things, 10
years from now we will still be reviewing those experiments and trying
to see what kind of progress they are making, or something. W hy
can’t HUD come up with a model that, “ If your local government
had this, or better, and State government this model, and if you were
enforcing it, then this would be sufficient” ?
Then at least the local builders in an area would know where they
could go to put the pressure, in effect, to see that the local government
did come up with that. Or the local government deciding that they
were conscious of what the overlapping costs would be, could come
up with that.
Mr. J a n i s . A s you know, we have a study that is underway, and
that is the cost-benefit study— that we have put $500,000 into trying
to find that out. I don’t know what that study will show, M y guess is
that it is going to show an amazing complexity. I wouldn’t downgrade
experiments, by the way. The typical way in which FHA has operated
over the years-----Senator C h i l e s . I don’t downgrade them, Jay. M y only concern is
that, when you give me the one-month figures, those are so alarming,
and as you raised yourself, and Mr Smith did, I try to think where we
can do something about the problem immediately. Well, this looks like
to me the easiest, fastest way to try to get some kind of results in this
with a minimum amount of friction.
If you say that we have got to change the EPA requirements, then,
my gosh, we run into all kinds of problems of whether we are going to
minimize the changed requirements.
But to simply have a one-stop service and to have people using the
same set of regulations, it is kind of hard to logically argue that, and
I think maybe that is something we could accomplish. M y concern is
how fast can we accomplish it.
O N E -ST O P

SEHVICE

HAS

IN T E R G O V ER N M E N T A L

RELATIONS

PROBLEMS

Mr. J a n i s . Y o u , know I proposed a one-stop service when I was in
Florida, as a Florida builder, just State and county level, and it was
just about impossible.

39
In Florida, the State has its own requirements on water quality,
and Dade County had its requirements on water quality. Now you
start imposing the Federal Government on. The one-stop idea is a
great idea, but when you are dealing with State, Federal, and local
governments, each with their own ideas, it is an enormous problem,
from the HUD point of view, that is.
If the Minneapolis thing works, and we will know shortly, that will
become the national criterion as far as waiving the other requirements
is concerned.
We can do that much from the Federal level. The problem is a prob
lem of intergovernmental relations, and it is a problem that I know
Senator Muskie has dealt with for years. It is not an easy problem.
Chairman M u s k i e . We have not found a way to eliminate it.
LAND M AN AG EM EN T AND PL AN N IN G STANDARDS

Senator C h i l e s . M s . Neuhauser, Secretary Janis stated that HUD
would work with State and local governments to develop reasonable
standards for land management and planning for an adequate supply
of usable land. The task force spelled out a rather specific process for
getting from HUD guidelines for local compliance with sub-State re
gional councils playing the lead role and setting binding standards.
I have heard a variety of criticisms on the ability of regional councils
to enforce compliance. That is that they tend to be dominated by the
same planners who escalate the sets of regulations that we are trying
to reverse.
As a local official, what do you see as a workable way to get local
communities to change their behavior?
Ms. N e u h a u s e r . Senator, 3^011 state the problem very accurately,
and I think I am sorry you asked that question, because I think that
is something we have a lot of difficulty with, trying to come up with
a mechanism to develop these regional standards, if you will.
That was what we hit on, but I think the problems you described
are certainly inherent in it. The sub-State regional councils are not
financed to do what I consider to be an adequate job on just about
anything, frankly, and, secondly, there are political problems that you
raise, that the planners and the people who are going to be affected
by these will, in fact, be the ones actually writing the regulations.
Frankly, I do not have an answer for it. I think you have to— I
guess my feeling is that probably there are going to have to be some
sticks involved as well as some carrots to communities to get them
to comply.
Now, when you talk about things like limiting exclusionary zoning,
I think there are some very clear things you can do there. When it
comes to site development standards, that is much more difficult.
h u d ’s

c o m m u n ic a t io n

w it h

local

governm ent

Senator C h i l e s . Mr. Janis, how do you see getting the information
about H U D ’s model guidelines down to the local governments?
Mr. J a n i s . The problem here, Senator, is leverage. I am not a lawyer,
but as I understand the Constitution, the reservation clause leaves to

40
the States that which they don’t give the Federal Government, and
one of those kinds of powers is the power to police such things as codes
and regulations and standards.
Many of the kinds of local codes and zoning are the purview of
State government. State government then enables local government
to enact local ordinances.
Federal Government, as I understand it, doen’t have a great deal
of leverage on a direct basis, and that has always been one of the prob
lems in this area. So what we have to use is persuasion, and we have
to use education, and what we have got to use is hearings such as these
and other kinds of methods and conferences to try to get State and
local government to care enough about the problem to realize that
there are serious problems here. Then may be we can make some
progress.
Senator C h i l e s . Mr. Smith, you criticized the task force recom
mendations concerning sub-State regional councils, and I tend to side
with you in that criticism. That mechanism is not going to work, I
don’t think, and I think HUD has now said that, too.
What do you see as a practical strategy for trying to get State and
local government to do something in this area?
Mr. S m i t h . Well, certainly the local government is one of the major
concerns here, because we know a local city council has great power
in most of our States, and the persuasion factor is a big factor.
We have, for example, in my community, 33 municipalities outside
the city of Fort Worth that make up the county, which has about an
equal population to the city of Fort Worth. In this area, we have many
multiple zoning and building code differences, and some are exclu
sionary— no doubt about it.
One community tried to pass a minimum square-footage require
ment lately that would keep everyone earning less than $30,000 out
of the community.
Now, once that stood the light of day, once a public hearing was
held on it, and once the informed citizens started getting involved,
they tabled the motion.
I believe that, if H U D and governmental regional agencies were to
take a look at this, and were to investigate and put light on what is
going on, and maybe through future oversight hearings let someone
come up here and tell you why they are doing that, you could frame
it and focus it to the point where you could get something done about
it.
On the other hand, if we allow an agency in Washington to zone
property back home, we are in greater problems than we are today.
A DOPTION OF UNIFORM CODES THROUGH IN C E N T IVE S

Mr. J a n i s . Could I say another word, Senator? I think one way to
get at it is not to beat people over the head at the local level, but I
think what we have to do is provide incentives. We have some now.
One of them is the 701 program where we can fund activities that will
get, that will allow, States to work with local jurisdictions for the
adoption of uniform codes.
Another is the State incentive grants program that is part of Presi
dent Carter’s urban policy, which is $400 million of money that is
available to those States that want to help their urban areas and have a
program for doing so, and reform of local standards, local require
ments is one of the allowable things under that program.

41
Our housing opportunity program is a means of providing extra
incentives by dollar in section 8 funding for those communities which
will get hold of the exclusionary zoning problem.
So we have incentives. Whether we have enough to require local
government to do the right thing is another matter. But there are a
number of incentive programs, and I would recommend that approach
as possibly the most productive.
M IN IM U M PROPERTY STANDARDS

Senator C h i l e s . Mr. Janis, the task force recommended changes in
H U D ’s own minimum property standards. Mr. Smith endorsed that
recommendation. Your statement seems to be kind of vague on that.
How much of a lead is HUD really prepared to take in reducing
the cost of regulations? Could you run down the specific list of regu
lations on page 4 1 / 1 think, of the task force report and tell us which
of those you think are easy to go ahead with and the ones that would
cause problems that might take a couple of wreeks to get done?
Mr. J a n i s . I can do that, Senator. In fact, I am prepared to do it.
I would prefer to do that for the record and make a statement about
your question in general, if I might.
Senator C h i l e s . Fine,
[The following was subsequently supplied for the record by
Mr, Janis:]
I am pleased to submit the following for the record in response to a question
posed by Senator Chiles.
In essence, the Senator wished to know which of the Task Force on Housing
Costs recommendations relating to HU D Minimum Property Standards and Pro
cedures would be easy or difficult to implement.
Although those 16 recommendations of the task force are still under review by
the Department staff, it appears 11 recommendations would be easy to implement,
although 8 would require study or research. The remaining 5 would would be more
difficult to implement. The difficulty with recommendations H, K, L, M and P
stems primarily from the fact that they involve others outside of HUD,
The Secretary , of course, will be making final determinations on the above dur
ing September after the Working Group has submitted its recommendations to
her.

Mr. J a n is . Y o u know. I think there is some misunderstanding of
the question of the MPS and what it has affected. Minimum property
standards, in my judgment, are not the real problem. The real problem,
the problem that is really causing builders concern are the problems of
environmental protection, equal opportunity, affirmative action, A-95,
and that long list I read before. It is those regulations.
In my judgment, the MPS means very little to the builder, I think
if you talk to a builder directly whom you consider to be a good,
sound, honest, competent builder, there is very little in the MPS
that I, for one, would change.
Those are guidelines and are performance kinds of guidelines. They
are entirely different than a building code. I don’t know if you have
1See p. 124.

42
ever had an opportunity to read the M PS’s and the building code. I
have, and have had to, in my field. They are entirely different items.
I must say the MPS, 20-some-odd years ago, taught me how to
build. The building code would not tell me. That would be the thick
ness of the material, or the ATSM, but the MPS taught me the right
way to drain a lot and the right way to design, and taught me a lot
of good things.
There is very little there that I would say is excessive in the MPS’s
themselves. In fact, I would have to say, and I say this, and I have
said this really before I was in HUD, in the 1960’s or the 1970’s that
the MPS’s have probably made the greatest contribution to housing
in this Nation of any document I have every seen. It is a superb
document.
I know there are those who would prefer no regulations at all and
no standards at all, and in terms of providing decent housing people
can rely on it.
The MPS’s come out pretty high. That doesn’t mean we don’t
have to be on top of any changes. You have to keep up on them, and
anything that is restrictive and unnecessary we need to change, and
we do provide for a local waiver of M PS’s for certain conditions
.and standards that require that.
Senator C h i l e s . I would be happy to yield.
M E D IA N COST OF H OUSING IN THE W E S T

Senator D o m e n i c i . Mr. Smith, I had to step out of the room fo r a
minute, and I think you mentioned the State of New Mexico in your
testimony with reference to cost increases. Could you just tell me
again what that was about?
Mr, S m i t h . I think this is an area of statewide restrictions we were
talking about, and I said that in my part of the country, the South
west, including New Mexico and Oklahoma, I have seen less of this
on a statewide restrictive nature than I have seen in my travels in
other parts of the country.
Senator D o m e n i c i . I thought you mentioned land cost increases
specifically,
Mr. S m i t h . I think we were talking about the median cost o f
housing in the West, and I said that this— the new Census Bureau
report comes out and says that the median cost has risen from 65.4
to 75 ,200 . I think it is west of New Mexico, where they say west. I
believe this is normally the Pacific coast figures that have jumped
that much in the last months.
land

costs

Senator D o m e n i c i . Let me first say to Secretary Janis that I really
compliment you on your analysis today and what 1 personally per
ceive as a very good understanding of the problem. 1 think it is per
haps because you were experienced in the field. If I have heard a
witness that is in a high position in one of the major departments
that I thought really understood the problem, it is you today. I think
it is because we weren’t afraid to put somebody in, and the President
wasn’t, who had experience in the private sector in doing the kinds of
things that we have to do now: and I commend you for that.

43
SIG N IF IC A N T IN F L A T IO N FACTORS IN HOUSING

Let me ask you, if I understand the testimony correctly, it is obvi
ous that land costs, that is, the developed lot ready to build a house
on, that the increase there is one of the most significant contributors
to the spiraling cost of housing. Then, if we add to that Mr. Smith’s
testimony, 1 would assume that one would add all kinds of regula
tions, local, State, and Federal, including your list, which is certainly
not generally thought to be a contributor, on affirmative action and
the others.
On land costs, let me ask you this. Is it not true that, actually,
there is, because of certain problems in the communities, an inade
quate supply of available lots, and therefore the price is skyrocketing,
or is it the actual cost itself of the lots? D o you have an opinion
on that?
DEVELOPM ENT COSTS

Mr. J a n is. Yes, sir. There are two aspects of the cost of land. One
is the raw land, and that is determined by speculation, tax policy,
supply, and factors such as those.
The other side of it is the cost of developing that raw land into a
finished lot. That means bringing in the roads, water, sewer, drainage,
electricity, phones, and so forth.
In the latter case, the development costs, it has been my judgment
that the development standards that communities have been imposing
in recent years have been overly restrictive, have been unnecessary
in terms of protection of public health and safety.
Let me give you an example. 1 know of a situation where they used
to require a half inch of asphalt on an 8 -inch rock base as the stand
ard kind of specification for building an internal road in a subdivision.
In my judgment, that is adequate, and certainly with the right
ground conditions and the right climate, namely the Southeast, which
I am familiar with, that is an adequate specification.
Now. I know of a certain public works department, which will re
main unnamed, which, every 6 months, starting in about 1972, added
a half-inch of asphalt to that requirement, and so by the time they
got done they had 3 inches of asphalt up from a half-inch, and the
asphalt, of course, is a petroleum-based product, and there was an
energy implication here as well.
By the time they were done with the 3 inches of asphalt on top of
that road, you must understand the asphalt is just protecting the
rock, that is the technical use of asphalt, and by the time they got
done, that 3 -inch road was the same specification as the interstate
highway system, and this was an internal road in a subdivision.
Now, that is part of the problem on development.
On the other side of it, just the problem of the raw land, of course,
that is supply, and tax policy, and environmental constraints, and so
forth, which tend to keep land off the market for one reason or another
and make it hard to develop.
Senator D o m e n i c i . Let me then ask you a general question.
Is there some role that the Federal Government should play, in
appropriate parts of the country, in making available more developed
lots so the competition will be less?
Mr. J a n i s . I wish I had an easy answer to that, Senator,

44
GROWTH CONTROL— PINBALL TECHNIQUE

Senator D o m e n i c i . The reason I ask you is that I don’t hear any
body saying anything about it. It appears to be something that on the
one hand we know it contributes to the cost, and on the other hand it is
a bad thing to say, that anybody ought to be promoting the availability
of developed lots. We have some sort of strange dichotomy around.
Mr. J a n i s . I know you should never answer a question with a ques
tion, but I have to give you a short story, I was at an environmental
conference once, and the chairman of the county commission of
another county was describing his method of growth control in that
county. He said his method of growth control, and he stood up in a
public meeting sponsored by the Governor of the State, and said his
method was a pinball technique.
He said, in answer to a question, “ What I mean is that we take the
builder when he comes in with his proposal and we bounce him around
from one department to another.”
Now, how do we change that attitude?
I am not sure I know. I know that market forces aren’t working
adequately, and that is what is driving up the price of land. You
don’t have supply and demand really working.
In the 1974 recession, and in 1975, I was amazed to find that land
prices did not fall even though the demand on the part of builders fell
and there was no adequate demand on the part of the home buyer.
Now, why was that? I asked myself that question, because, if supply
and demand were working, then land prices should be fluctuating, but
they in fact were not. They stabilized. You had a ratcheting effect.
They stabilize, and then only go up.
I expect that is caused in large measure by the interference on the
private market and the market mechanism, because when you have
the intrusion of unnecessary environmental and growth controls and
communities that take an attitude of stopping growth at all costs,
then I think you run into a problem.
Let me make clear that there are very needed environmental rules
and regulations and protections and the communities must enforce
those.
The problem, as I said earlier, is striking the right balance.
Senator D o m e n i c i . I have a number o f questions, Mr. Chairman,
but I will yield and get back to them later.
Chairman M u s k i e . Proceed.
FEDERAL GOVERNMENT PINBALLING

Senator D o m e n i c i . Thank you.
Let me ask you this. You talked about pinballing at the local level.
I would suspect that it wouldn’t take us too long to find a developer or
builder who could come in here and say that he thinks the Federal
Government is pinballing, perhaps not with the same audacity as the
county commissioner you spoke of, but when you look at the kinds of
regulations and rules that you were saying are having an impact, they
certainly are not the kind that I would assume would all be found in
one place if the rules and regulations are spread across the Govern
ment. Some of them are not even in your shop. They are in other
departments of Federal Government.

45
Wouldn’t it be appropriate to start right here by saying that maybe
we will come up with an approach to quit pinballing and see if you
can bring the A-95, the affirmative action, the handicapped, and the
others into one focal point in the Federal Government?
They are running all around in my city and the cities in New
Mexico. They don’t get all of their instructions from the Farmers
Home Administration. They have to go all over the place. Isn’t that
pinballing in a sense?
BLANKET ENVIRONMENTAL IMPACT STATEMENTS

Mr. J a n i s . Well, perhaps. It is hard for me to talk for any agency
beyond HUD, and I am sure you understand that. I am here as a
representative of the Department.
We are trying to do our job on this, because we are very concerned
about it, Mr. Simons and I and the Secretary, and Mr. Embry, all
four of us have an involvement in this.
We have gone to such things as blanket EIS’s, where we go to an
areawide EIS as we did in Delaware, where an environmental impact
statement was acceptable for a total area, and no one had to file
individually once there was blanket approval.
We are looking for an early start, where a builder doesn’t have to
process an EIS, where he can go in for 200 lots and then another 200
before he crosses the threshold.
We are looking at the threshold queston, tyring to raise it. We have
made significant changes already.
Senator D o m e n i c i . I understand that, but the same rationale you
used in answering my question is used at the State and local level.
You have a public works department in a city which has as its juris
diction, and you have an environmental agency in the city government
that has its jurisdiction.
You say that you can’t answer for the other programs, and the
ones HUD has you are working on. But the costs and delays don’t
identify themselves as being HUD promulgated as compared with
some other agency. You have total frustration out there when they go
through HUD, and yet they have five other agencies to go through.
It is the same thing you are being critical of at the city level, although
not so much, and maybe the cost imposed is not as serious.
h u d ’s

h a n d l in g

in t e r n a l

a d m in is t r a t io n

Let me switch for a minute and ask you how you handle some
internal things.
I gave you an example in my opening remarks of a project for handi
capped people, nonprofit in nature, which showed a preliminary list
of 26-8 items that are required before they could even seriously
consider the application.
Now, I just ask you this: How often, or what does it take for H U D
to take a look at those 26 for these 8-unit housing clusters for handi
capped and mentally retarded people?
How do they go about seeing whether they still make sense? I
mean I can give you one, and I am going to take it all the way up to
the top and find out how do you go through evaluating, whether you
are going to make soil tests in every part of the country for cluster
housing. I am not being critical of that one.
32- 099— 78------------ 1

46
I am wondering, what does it take to get somebody to see whether
an imposed regulation is still valid? I am sure there are a lot of these
that, it is a nice easy way for the bureaucrat to be sure he is going to
get safe and healthy housing, but maybe it was 6 years old, maybe
it was imposed for reasons that no longer exist, maybe it was imposed
because of a problem in a given area.
Do you have an internal auditing method for those to pop up and
see if they are really worthwhile?
Mr. J a n i s . Was that a FHA or a Farmers Home?
Senator D o m e n i c i . A FHA.
Mr. J a n i s . Y ou are sure? Was it under 2 0 2 ?
Senator D o m e n i c i . Let’s use it hypothetically, then.
Mr, J a n i s . I don’t think that sounded like a HUD project, but at
any rate, how many of the 26 items are Federal versus State?
Senator D o m e n i c i . All these are Federal.
Mr. J a n i s . Curb and gutter wouldn’t be Federal.
Senator D o m e n i c i . That is Farmers Home, a Federal requirement
for self-help housing in the United States right now. It doesn’t matter
where it is now.
Mr, J a n i s . Most curb and gutter requirements are local require
ments. With regard to soil tests, something is obviously wrong there.
I have had soil tests— I would never build a building, by the way.
without soil tests; just so you understand that; but I would say nor
mally I could get any soil test for a small project of that nature for
under $100.
So either they have found something wrong in the initial test, or
something is out of whack. I have done soil tests on 15-story apartment
buildings that I have built for one-tenth of that price.
relevancy

o f r e g u l a t io n s

Senator D o m e n i c i . I will send you that, I don’t want to take a
long time either from the committee or the panel on those specifics. I
can take those up in due course with letters and communication. I am
just wondering, to set an example for the local government, why we
don’t have a regular system internally of auditing the complaints and
the relevancy of regulations.
HUD

T A SK

FORCE

E VA L U A T IN G

SECTION

8 REGULATIO NS

Mr, J a n i s . We continually review our regulations. We continually
change them. You mentioned sidewalks before. They can be waived
in local areas, and I think should be in the case of a rural situation
such as yours.
Septic tanks are permitted under certain circumstances as well,
depending, again, on where they are located.
We are continually reviewing them. We have a task force now
looking at our section 8 regulations, because not only do we have to
get a reduction as a result of our reorganization, but I expect to get a
major reduction as a result of the work of that task force.
One of the problems we encountered was doubletracking. We
found if you were doing a 221-D-4, a multifamily project, you had a
process under that program, and if you were going to add section 8 to
it, and most of them did, then you had a process under that program.
One of the first things Assistant Secretary Simons and Secretary

47
Harris and I did when we arrived at HUD was to eliminate that
doubletrack process by bringing the two of them together. So we are
continually doing that in our own shop.
COMMUNICATION B E T W E E N

F EDER AL AGENCIES

Senator D o m e n i c i . Do the major Federal agencies that are involved
in housing and related matters have a policy of talking to each other?
Mr. J a n i s . The FHA and the VA are together all the time on just
about everything, and they are interchangeable in terms of regulations.
I think that is still the case. I remember when I was building. You
could build under VA and then go get an approval under FHA.
In other words, one takes the other’s 100 percent. Farmers Home is
similar. As a matter of fact, there is a task force involving the three
agencies. We are continually working on standardizing everything.
The agencies have a task force whose work I am familiar with on
condominiums and co-ops, in which they are getting all their forms and
monitoring for us, and I understand by the end of the year they will
be pretty much 100 percent.
acceptance

e n g in e e r in g

and

p l a n n in g

w ork

Senator D o m e n i c i . What about with reference to acceptance of
engineering and planning work? Do the agencies accept that required
by HUD?
Mr. J a n i s . Well, as I said, as far as VA and FHA are concerned, I
know that the two are interchangeable on conditionals, and on the
site development analysis.
Of course, in most cases the builder will come up against local
regulations long before Federal in terms of degree of difficulty.
Senator D o m e n i c i . Thank y o u , Mr. Chairman.
M EDIAN COST OF HOUSES— 1949 V ER SUS TODAY

Chairman M u s k i e . I will ask a couple of questions.
Mr. Secretary, you gave us percentages of costs using 1949 costs and
today. I don’t have any testimony here on what the cost of a median
priced house in 1949 would have been.
M y wife and I bought the first house we ever owned in 1949, and we
paid $8,000 for it, and it was more of a house by far than the house
my oldest daughter bought a couple of years ago for $45,000, and I
think that house is probably worth about $60,000 today.
Now, using that, the experience is $10,000, which is a sound figure
for the cost of a median house for 1949, just so I can relate it?
Mr. J a n i s . M y figure is $8,800, the median for a new house in 1949.
Chairman M u s k i e . So I got an $800 bargain. Then I proceeded to
finish two rooms in the attic and broke my back in the process, so
that house was quite expensive, really, by the time paid off the doctors
and the hospitals.
Mr. J a n i s . Mr, Smith might have suggested that you call in a
licensed contractor, I am sure.
Chairman M u s k i e . Today, what breaks your back may be not
building the house, but paying for it.

48
But applying your percentages, in 1949, the cost of financing was
$500 of a median house, and in 1978, it is $6,000. So, that has added
$5,500 to the cost of the house.
On land, a lot back then cost probably $1,000. Now it costs $16,000.
So that has added $15,000. So those two items have added $20,500 to
the cost of that house, assuming comparable quality and size and all
the rest of it.
Probably you would have to make other adjustments to make these
two items comparable, but for the purpose of our analysis, those two
items have added $20,000.
In the same period, as a percentage, the cost of labor and materials
has gone down 69 to 47, but in actual dollars that menas that labor
and materials in 1949 cost $6,900 and today it is $27,000.
Looking at just these items, then, labor and materials have added
about $20,000, and land and financing have added roughly $20,000.
These are the same.
Now, let’s look at your three overriding costs, costs of regulaton,
costs of cyclicality, and costs of indifference. Which of those increase
in cost of those three has the greatest impact?
Mr. J a n i s . It is hard to say. I have not tried to put a percentage
or a dollar sign next to any of them. The Rutgers study indicates that
the cost of regulation approaches 20 percent of the cost of the house.
I think the problem with the Rutgers study is that it doesn’t
distinguish between good regulations, or put another way, necessary
and reasonable regulations, versus those regulations that I would term
as excessive and unnecessary.
COST OF FINANCING

Chairman M t j s k ie . The cost of regulation appears to have had a
minimum effect on the cost of financing.
Mr. J a n i s . Yes. That is right. The cost of financing is an interesting
one. You would expect that there would be no percentage differences,
because if you have a construction loan and you are paying, let’s say,
you are paying for a construction loan 6 percent interest in 1960, say,
and you are paying 12 percent in 1977, since you are paying it on a
greater price— in other words, you would expect the percentages to
stay the same.
Chairman M t j s k ie . But they haven’t according to your figures.
Mr. J a n i s . They haven’t. The question is wdiy. I would posit the
following as why: Because a construction loan interest charge for a
builder is based on the percentage times the price, the amount of the
loan, times the time— the time.
So, if you have a construction loan for 4 months versus a construc
tion loan for 12 months, you have got a 300-percent increase in the
cost of that construction loan. So it is time.
Chairman M t j s k ie . What you are saying is that the regulation
adds to time, and to that extent, adds to the cost of the house?
Mr. J a n i s . Exactly,
COST OF LABOR AND MATERIALS

Chairman M t j s k ie . Now^, on labor and materials, frankly I am some
what surprised that the cost has not increased proportionately more
than it has.

49
Mr. J a n i s . Something has to decrease if other things are increasing.
In other words, if we are talking about a 100-percent sale price and
we are talking about percentages and relative weights, so if land has
been going up at astronomical rates, and financing has been going up
at astronomical rates, but the costs of materials have just been going
up at very high rates, then on a percentage basis, the costs of materials
would be coming down as a percentage of the total.
QUALITY OF HOUSING

Chairman M u s k ie . I was looking at dollars. Using the median house
again, the price of land and financing has gone up the same amount as
the cost of labor and materials.
The percentage of costs going to labor and materials has gone down.
Does that mean that there has been a reduction in the quality of
workmanship, the quality of materials, the quality of housing services
provided by the median house?
Mr. J a n i s . N o , I wouldn’t say there has been any significant change
in quality. I would’t say that at all.
Chairman M u s k ie . I wouldn’t compare the quality of the first
house we bought with the quality of the first house my daughter
bought.
Mr, J a n is . It depends a lot on the builder and the locality, and
values change a little over time. It is a little hard to talk about quality.
I could talk about it at length.
COST REDUCTION OF HOUSING RELATIVE TO AVAILABILITY

Chairman M u s k ie . Let me get to a question that is really what I
am trying to lead up to. We have been getting into many refinements
of our understanding of the cost of housing, of factors that have added
to the cost of housing, and of the implications of these costs for the
availability of housing to young people, and to some income groups.
I think M r. Smith said, as he analyzes it, only 15 percent of the popu
lace can afford new housing. Is that accurate?
Mr. S m it h . If the figures I saw today on the new census cost, I would
say we sure are bracketing it to a very small amount.
Chairman M u s k i e . But the more you analyze the reasons, it seems
to me less likely that there is much chance of stabilizing the cost of
housing to make it available to lower income groups, let alone reduc
ing that cost.
The central question, it seems to me, is— what can be done prac
tically to reduce the costs of housing or to reduce the increase in these
costs? I am all for simplifying the regulatory process, and I am all
for considering whether some regulation might be eliminated, but we
are not talking about eliminating it all.
I am sure we would all agree there are certain fundamental values
that ought to be protected by regulation. You are not going to be able
to just eliminate regulation and the additional time required to finance
it.
I don’t know how you are going to force down the cost of land. I
have never seen the cost of land go down. It persists because people
hold on to land knowing it is going up sometime. I cannot recall when
the cost of land in my State, which has had a slow growth rate, ever

50
went down. It always goes up. Even when you get into recession, you
don't see land costs reducing. People can hang on to land.
So, I cannot see land costs going down. Financing costs, well, maybe
interest rates will drop sometime in the future, but I don’t see it coming
very fast. So, where are we going to get the reduction in cost that this
hearing is aimed at trying to identity?
HOU SING NEED GREATER TH AN SUPPLY

Mr. J a n i s . Let me suggest. Senator, that in terms o f production
stability— it seems to me that the need fo r housing is greater than
what we are supplying right now,
We are producing about 2 million starts a year at the present time,
but we have been down to as low as 1.1 miilion, and it goes up and
down. The need is actually in the neighborhood of 2.4, 2.5, or 2.6 mil
lion, based on family formation and the amount of substandard
housing.
If we could have, and I mean our Nation, could have some kind
of policy that made it very clear that we were going to try to meet
that housing need and we could allocate the financial resources to do
so both on the subsidized side on a continuing basis to where we had
a steady, known supply of subsidized housing, and if we could make
sure that there were adequate mortgage credit available, and that
housing didn’t suffer when there is a credit crunch in this Nation
generally, as the rates go up, and that housing funds were available,
mortgage funds were available on a stable basis, and we could remove
some of these local, State, and part-Federal constraints that restrict
supply of land and other items, if we had, in short, stability, I think
while we might not reduce housing costs in the absolute, certainly on
a relative basis and certainly in terms of slowing down the increase,
I think we can make a lot of progress.
N A T IO N A L COMMITMENT FOR CREDIT

Chairman M u s k i e . If you could actually establish such a national
commitment that was totally credible, might not that commitment
be inflationary?
In other words, let’s say we made a national commitment to provide
a steady flow of credit, and we were going to build 2.4 million units a
year. Wouldn’t everyone in the housing industry, depending on that,
take advantage of that, and exploit it, to profit from it?
There was an enormous infusion of Farmers Home residential
money into Maine, because of the 25,000 population threshold for
eligibility, and most of our communities are under 25,000.
So we sawr this— when there was a moratorium on H U D ’s housing
programs, there was a tremendous infusion of Farmers Home money
into State, which resulted in a proliferation of developments that were
not examined as closely as they should have been.
New contractors, small ones that you have been talking about,
came into the business, the quality of the housing tended to deteriorate
and become shabby, I am not characterizing all of them, because there
were good developers, too. However, given the commitment of the
assured funding, the tendency was not to produce a better product
for lower prices, but lesser quality at higher prices.
I have an idea that that might be inflationary.

51
CYCLICAL HOUSING STARTS CAUSE PROBLEMS

Senator C h i l e s . I think that proposition you raised might b e a
one shot thing that would happen initially. But I think you could
help things by removing some of the cyclical trend out of this. Well,
what happens when w^e start, in May, we have a boom and a bust
economy. We either overbuild or underbuild.
Right now, we came out of the bust and are starting to boom
What the higher interest rates will do, I don’t know When wTe get a
boom, then tremendous shortages of material come in.
I used to do a little jackleg building myself, or put some money into
some people that did it, and I saw the shortage problems. What you
are talking about now on the price of gypsum board, I have seen it
be asphalt before, and tar paper before, and all kinds of things of
what would happen at the time.
m a t e r ia l

p r ic e s

cause

in c r e a s e

labor

costs

You went out there, you got your permits and your starts, and then
suddenly you had the units sold and then they started telling you what
the material prices were.
Every time that it peaked up, and that is what would eventually
topple it over almost, would be these tremendous increases. About the
time that starts w^ere going up, those labor people on the job would
start seeing what land costs you are paying and they say, “ Wait a
minute, you are paying that price for that kind of material, and it
is time I got something more per hour.” We would see that cost tacked
on— for a while, you got all those people wanting to buy, and the
builder goes ahead, as far as he can go, and then suddenly, whop, it
changes and the builders are bankrupt. Half of them are, and we are
in a recession, and we are overbuilt. It is boom or bust.
Air, J a n i s . Y ou know, Senator, I remember the time in 1971 when
my superintendent came to me on a job and said, “ We are having a
slowdown because we cannot get any water closets,” water closets
are toilets, as you know. I could not believe that.
I had been in the business by that time for almost 20 years, and
I had never heard of a time when you couldn’t get water closets.
“ What do you mean? Let’s try another plumbing house, a different
brand.”
We went all over, and there was a shortage in the industry of water
closets in 1971. That was the year that a lot of shortages started to
occur,
in s u l a t io n

m anufacturers

urged

gear

Now, why is that? I talked to some manufacturers. I have talked to
insulation manufacturers under the President’s energy program and I
have said, “ Can you gear up?”
I have talked to the big three and told them we would like to have
them gear up. We are going to have a retrofit, and the President’s
energy program is going to provide for the refitting of older homes and
there are going to be better requirements on new homes.
“ Can you gear up?”
They said, “ Well, how much can you assure us as far as newr pro
duction is concerned that there is going to be level construction over
the next 10 years to amortize that?

52
“ If we bring new plants on, which costs to increase production 20 or
30 percent, you know, it is hard to warehouse insulation, because it is
not comprehensible. We will be stuck with all that if you have a
downturn like that of 1974.”
To that, there was no good answer, except we have to bring stability
to this marketplace.
M OBILE HOUSING

Senator B e l l m o n . M ay I ask a question?
In looking over the report of the task force, I don’t see any mention
of mobile housing. In our area, it is important, and as far as I am
concerned, a discouraging development.
Is this where people are turning to get housing as the costs go up?
Mr. J a n i s . Well, I have some figures on mobile home shipment
that go back to 1968. Without reading them, I see some high years
from about 1969 to 1973, up around 400,000 to 500,000 as the high,
about 576,000 in 1972, and, then, starting back down again in 1974,
1975, and 1976, down to about 246,000.
I am looking just at the first 4 months of 1978, and I see an
average annualized rate of about 240,000. It is down. Apparently
they are not going to that in the kind of quantities that they did to
mobile homes in the early 1970’s.
Senator C h i l e s . There are some real zoning problems there. In
Florida, you get a piece of land zoned for mobile homes in the right
place and it is worth better than gold.
Mr. J a n i s . We are interested in technology. We even are trying to
develop some better technology for mobile home requirements.
Senator B e l l m o n . The figures you give about the number of units
you give, are you including the mobile homes?
Mr. J a n i s . The figures I just gave include mobile home shipments.
Senator B e l l m o n . But I mean when you said we have had a 2
million unit year, does that include the mobile homes?
Mr. J a n i s . N o , sir, it does n o t.
Senator B e l l m o n . So mobile homes are in addition to that?
Mr. J a n i s . Yes; they are in addition.
factors

c a u s in g

m o b il e

home

co st

in c r e a s e s

Senator B e l l m o n . Are the costs of mobile homes escalating as
rapidly as the other costs?
Mr. J a n i s . I don’t have figures on that. I expect they are, because
they are made from the same t}^pes of components. I don’t know on a
percentage basis.
To the extent they use land, as Senator Chiles pointed out-----Senator B e l l m On . They normally use much less land?
Mr. J a n i s . I think we are using relative costs. The implication o f
your question was the relative cost of land for a mobile home today
versus 10 years ago. That has gone up, I am sure, because of zoning
restrictions against mobile homes
Senator B e l l m o n . Y o u will find mobile home parks don’t add such
things as gutters. In many cases, they don’t have paved streets, or
as good sewer systems and that sort of thing, and I doubt that it is
legal.
I don’t know anything about the mobile home business. But it seems
they buy a pasture and start parking trailers on it.

53
STRICT RESTRICTIONS PLACED ON MOBILE HOMES

Ms. N e u h a u s e r . Could I speak on this?
Mobile homes were not touched on much in this report, but they
certainly ought to be. Certainly, local restrictions against mobile
homes have become more and more strict, mainly, I think, because
of poorly run trailer parks in the past. They are not entirely in the past.
In my part of the country, they tend to put them out in the county
where there are no sewer and water lines, and put in a lagoon system
or something like that, and they simply became slums.
That is one problem that we have had with them.
The other problem is the restrictions that the owners of the parks
put on people who are moving in there, forcing them to buy a mobile
home that they sell, not allowing them to bring their own in there, and
so forth.
So there are all kinds of problems, but they definitely ought to be
addressed in my opinion. I guess off the top of my head I
really shouldn’t say it, but I think it might be Indianapolis, or some
community in Indiana which has very good zoning restrictions to
permit mobile homes and to encourage good use of them. But-----DEVELOPING REGULATIONS ON MOBILE HOMES

Chairman M u s k i e . Y ou have identified one o f the reasons, the
regulations that are developing.
Ms. N e u h a u s e r . Y ou have to have certain kinds of regulations.
We don’t want our communities to turn into slums. But you don’t
want to overdo it.
Senator B e l l m o n . But there are some desirable mobile home de
velopments.
Ms. N e u h a u s e r . Yes; there are.
Senator B e l l m o n . It seems to me that HUD, instead of looking
at mobile homes as an outcast ought to see that these developments
are desirable and serve people who live there.
LIBERALIZED FINANCING OF MOBILE HOMES

Mr. J a n i s . I agree, Senator, and we have just liberalized the financ
ing with regard to mobile homes, as a matter of fact.
They should be encouraged where they are appropriate. Section 8
assistance will now be provided for mobiles, which is a change.
Senator B e l l m o n . The figures you have given seem to ignore
mobile homes.
Mr. J a n i s . I am sorry, Senator. The figures I gave you are national
figures of housing starts, and that is not something that we invent.
That is essentially a census figure.
Senator B e l l m o n . Maybe you need a subparagraph (a) that deals
with mobile homes. You haven’t given us anything about the way
mobile home costs have changed, either,
Mr. J a n i s . That is true. I have not.
COMMUNITY DEVELOPMENT BLOCK GRANTS

Senator B e l l m o n . I want to ask about H U D ’s intentions as far as
community development block grants are concerned.

54
Do you intend to allow advance purchase of plots for development,
and so forth, for low income families?
Do you intend to use these only for public housing, or how about
privately developed areas?
Do you intend that these funds might be used there as well?
Mr, J a n is . No; Senator, It would be for subsidized housing.
encourage

p r iv a t e

use

funds

Senator B e l l m o n , Why, I wonder, not also encourage the private
use of these funds?
Mr. J a n is . It is providing for public housing, section 8, those types
of subsidies. I don’t think it would be appropriate under the concept
of the block grant program for advance acquisition of land.
I don’t think it would make sense. The private sector normally can
acquire land, and should acquire its own land. In terms of subsidized
housing, I think acquiring it out in front makes a lot of sense, because
it will tend to keep the cost down.
I am not sure it would be an appropriate use of block grant funds.
Senator B e l l m o n . But all the time this morning has been that
rising housing costs are a problem not just for low income, but for
middle income as well.
Mr, J a n is . I would prefer, if I had a choice in the matter, that
local government make land available by other means than use of
block grant funds.
We are talking now about unsubsidized. I am afraid they could use
up all their block grant funds on the acquisition of land if that were
not restricted. Communities have other major kinds of needs that
they use the block grants for, and some of those are housing rehabili
tation loans and so forth.
a v a il a b l e

funds

in s u f f ic ie n t

for

p r iv a t e

secto r

Senator B e l l m o n . M y only point here is that the amount of money
available in community development block grants isn’t enough to
make it available to the private sector, and, perhaps we ought to
consider enlarging the size of the grants and in this way bring in
additional development by the private sector.
I think this is a valuable tool that could be used to develop pri
vate housing that maybe you should recommend to Congress
that we use this device.
states

l im it

local g o v e r n m en t

Ms. N e u h a u s e r . Senator, I have one caution on that. This sounds
very good, but most States limit what a local government or any kind
of government entity can give to an individual.
in other words, we could very well wind up with that land, but we
would then have to sell it at a fair market value, and then the benefit
of having acquired it in the first place would be nullified.
So, unless those constitutional prohibitions that States have could
be changed, we would have considerable difficulty, I think.
So, while I think it may be a commendable goal, it is not going to
be quick to achieve.

55
A V A IL A B IL IT Y OF LAND IN LESS R ESTRICTIVE AREAS

Senator B e l l m o n . Let me ask one other question in a different
area.
There is a large market for homes now that exceed the cost-saving
criteria. The question is, how significant are exclusionary provisions
in increasing the costs of houses available to buyers who may not
want a big yard or a brick facade, or a garage, or some of the other
niceties. Are we actually making enough of these less restrictive areas
available for buyers?
Mr. S m i t h . Senator. I think you have touched on one of the prob
lems. Certainly in some of the more affluent suburban areas, where
land is available, but only available for a certain type of house. As
we talk about suburbia, surrounding a city, we talk about land avail
ability being in suburbia rather than in the city, and where we come up
with these restrictive coffee grants, we come up with a factor that
chases the price of land higher and higher.
COMPONENTS OF LAND V A L U E

The Senator from New Mexico asked a question pertaining to de
veloped lots. Although land, dirt itself has gone up, it is what some
times is stacked on top of the dirt that makes the land a developed
lot that causes the real problem. As a very young developer, 25 years
ago, I would take a small tract of ground and develop it, A lot of
builders do this. Today I can count on one hand the major developers
in my whole county, because the staff, and by the way, that is labor,
and when we really start looking at labor that goes into land, some
times we do not allow enough of the labor and other methods to be
attached to the land value we use.
But I have the checkoff list in my local community that my engineers
and staff have to accomplish and bring toward prior development.
A lot of the ideas are very good, I guess. A few I would say were not
necessary. That same development, when I got it to a certain level,
I had to attain a $25,000 environmental impact study,
REGULATIONS CHASE OUT SMALL BUILDERS

It took me 78 months, four college professors, and my interest dur
ing this time was tremendous. I could go on and on with these stacks
of regulations that we were affected with, and, consequently, we
chased out all the little fellows. We don’t have small developers
anymore. They cannot afford it.
In that field we have eliminated the competitive spirit,
Now. testimony earlier showed that until 1972 the increase of
average income was commensurate with the increase of housing costs
since that time, like last year, 7 points in one area, but over 12 percent
on housing.
H O U S IN G

COSTS MORE IN F L A T IO N A R Y T H A N PERSONAL INCOME

What has happened since 1972 that has caused the cost of housing
to be more inflationary than average income of the buyers?
Now, when we start analyzing that, we' start rifle-shooting instead
of bird-shooting. The lot price, because of the items we have men-

56
tioned, is one. The fight to keep inflation down through direct increases
by the Federal Reserve of interest rates is more harmful to the home
buyer, because the long-term mortgage market is the earliest and the
most affected, and we can talk about the items pertaining, for example,
to this one-shot inspection.
PERM ITS AND INSPECTIONS

M y city has a large government refund coming back every year
through revenue sharing. They use it in several departments. I presume
they also use it in the inspection and engineering departments. I am
not sure about that. A lot of the cities do.
W hy not have a qualified department to handle permits for all
agencies?
Let me say this: I think somebody asked earlier when that would
be accomplished. I think that will only be accomplished when Congress
and the administration mandate it. I do not believe that agencies are
going to voluntarily give up duties to other agencies, and I believe
if we look at multilaws written by multicommittees of Congress
handled by multiagencies of Government, until we can bring a focus
back into the problem, it will be more in the area of rhetoric than solu
tion.
COOPERATION OF FE D ER A L AGENCIES W IT H LOCAL GO VERNM ENTS

Senator B e l l m o n . Let me ask a question in three parts. First of
all, can the Feds do this as it affects the local interest; and, second,
I wonder if HUD would run into difficulties if it undertook to get
other Federal agencies to line up and agree to this; and, third, is HUD
willing to make some sacrifices to do this?
Mr. S m i t h . I would have to let HUD speak to the sacrifices, but in
Fort Worth and Dallas, if HUD wanted to cooperate with the local
building department to handle inspections for them, and I might
point out that on page 1 there is a suggestion to reduce duplication in
inspections by field office personnel.
I can readily see where a good inspector, whether he wears the badge
of a local official or county, or Federal or State, is a good inspector or
a bad one. Why have four of them?
I believe, sir, that HUD could contract with a local agency or
some other governmental entity where we do have the one-stop
approach. They could have periodic reviews, if this is abused, if
quality is going dowm, if other things are not acceptable.
Yes, make a change. Don’t make it overall, but I think an important
approach like this is going to be necessary, and again I think that it
is going to have to come from you.
B L U E P R IN T FOR COOPERATION

Senator B e l l m o n . Could your organization lay us out a blueprint
of how this could be done, by legislative mandate— how we could
require it?
Mr, S m i t h . W e w o u ld b e p le a se d to.
Senator C h i l e s . Mr, Chairman, I had other questions, but I think
the panel has been very forthcoming. I think it has been a very
interesting hearing, and I don’t want to belabor them further.

57
Mr. J a n i s . I am wondering if I might say another word, Mr.
Chairman.
Chairman M u s k i e . Of course.
Mr. J a n i s . I realize that this has been a difficult kind of a hearing
sitting on your side of the table hearing this kind of testimony from
all three of us. I recognize how difficult it is to try and find the lever to
do something about something that is obviously a very serious
problem.
I would ask that when you reflect on the hearing, and when you
look at the answers to specific questions or review the testimony,
that you try and put into context some of the things, or put into
proportion, I should say, some of the things that you have heard.
DEAL WITH IMPORTANT ITEMS THAT RAISE BUILDING COSTS

I think it is important to deal with the big things and not the little
things. I think when you talk about inspections, whether they are
local inspections or whether they are FHA inspections, that you
understand that, yes, there are about 16 or 17 inspections that take
place in a single-family house in terms of each stage, plumbing inspec
tion, electrical inspection at four stages, and building inspection, and
I think you need to understand that that has been the case for many,
many years and that hasn’t been the kind of thing that has raised
costs.
In terms of the change as it was in former years and as it is today,
it is the new items that have come in, the serious, big-ticket items.
I looked at the environmental questions. I looked at questions of
financing and cyclicality, the big questions of stability in the industry.
That is what is causing the change.
I hope that you will not get bogged down on some of the smaller
things that occur relative to inspections and so forth.
ESTABLISHING PRIORITIES

OF CONCERN IN

HOUSING IS HUD’s

ROLE

With regard to HUD and H U D ’s role, I might say that we have
only 8 percent of the share of the single-family market in this country
at the present time. HUD regulations as far as single-family buildings
are concerned are a very small part. But we see a major role to play
in the area of leadership, in the area of trying to work with State
and local governments and work with Congress on change, and so,
you know, in a leadership sense we would see our future in this area.
Thank you.
QUALITY OF HOUSING OUTLOOK BLEAK

Chairman M u s k i e . Let me ask you one final question.
It seems to me that these increases in cost may very well lead to
some improvement in regulation, simplification and all the rest of it.
However, it seems to me that one almost inevitable result is smaller
houses, poorer quality houses, perhaps more mobile homes; and that
in terms of quality and space the average American is going to be
more poorly housed, whatever amenities may be added with new
technology, than in the past.
Is that an erroneous assumption?
Mr, J a n i s . I would hope that it is.

58
Chairman M u s k i e . I s that not what has been happening?
Mr. J a n i s . Well, I would hope we would have the intelligence at
all levels, Federal, State, and local, wherever these kinds of decisions
are made, to sort oat the good from the bad, the necessary from the
unnecessary, in order to come up—in order to have regulations that
legitimately protect people’s health and safety and their environment,
But, on the other hand, ones that don’t require costs that are un
needed.
I think it is a matter of government at all levels looking from an
impact point of view at every regulation. You know, we look now at
the impact on inflation by regulations. We look at all other kinds of
impacts. One problem, I would submit, Senator, is that we have not
looked at the impact of some regulations on housing costs. It has just
been one of the things, as I said before, that nobody cared about,
I would hope one of the things that would come out of this hearing
would be that whatever regulations are adopted, at the local, State or
Federal level, that we look at the housing cost aspect, the impact on
housing costs of those regulations in addition to the other impact
that we normally look at.
Chairman M u s k i e . M r . Smith?
LOOK AT F U T U R E REGULATIONS URGED

Mr. S m i t h . Senator. I agree with him 100 percent, and when he
said “ we,” I look at the regulations. I would hope that that also meant
you and your committee ought to relook at regulations that come out
in the future, because we have a problem on the regulations factor.
R E G U L A T IO N -R E L A T E D INFLATION OF COSTS

I do believe that on the local level these are being exposed and can
be exposed, but very frankly we have a better look at this on the local
level than we do through the Federal Register. This is one of the big
item costs, and we can spread it to the little 2x4 that goes into a house.
If wTe trace it back to the truck that delivers it and the forest, we
will find that that has had a tremendous increase in price since 1972,
and I would say that a large amount of that is in multiregulations on
that little 2x4.
The same thing is true with a sack of cement, and we have to take
all the variable items that go in. But if we had the opportunity to do
research, and take a hard look at these regs as they come forth, we
could stop some of that spiraling costs. I hope you will allow us to do
it in the future, and I hope congressional committees will take a hard
look at even changing the present law whereby you have some type
of veto over regulations that are unnecessary.
IN F L A T IO N IMPACT STATEMENTS

Chairman M u s k i e . Y o u may be interested to know that w e have
initiated a request in the Appropriations Committee to add an inflation
impact section to the Congressional Budget Office. Out of it will come
inflation impact statements with respect to major items of legislation.
We can’ t know how effective that will be, but some of us think it
is worth an effort.

59
SUNSET LEGISLATION FACING RESISTANCE

Second, there is our continuing interest in sunset legislation, which
is now on the calendar in the Senate. It is facing some resistance within
the Congress. However, I am hoping that under the stimulus of the
message from California that we may be able to get sunset legislation
enacted.
Mr. S m i t h . We strongly support sunset legislation.
CHANGING REGULATIONS RESULTS---- LOWER QUALITY HOUSING

Ms. N e u h a u s e r . I wanted to make a response to Senator Muskie’s
concern that the changing of regulations would result in lower quality
housing. I don’t think that this is going to happen if it is done with
great care.
Ironically, I think— I don’t know whether I would say the quality
of a house has gone up in the past few years, but certainly the amenities
offered have, and there is a phenomenon that can’ t be adequately
explained, that houses being built today are not for the first-time
homeowners. They are for those already in the market who want
a better house.
I don’t think in Iowa City you could find a new house without a
garage, for instance, whereas at the time you were buying your first
house, Senator Muskie, that was kind of considered a luxury— maybe
not in Maine. People added on a garage after they lived there a few
years.
Lot sizes could be made smaller, clustering, this kind of thing.
Not only with all the costs and regulations, but also the type of houses
being built we have priced that first-time home buyer out of the market .
c r e a t iv it y

h o u s in g

needed

Chairman M u s k i e . In other words, there is room for creativity
within the housing industry?
Ms. N e u h a u s e r . I think there is. It isn’t just a government thing.
It is the housing industry, too, and then there is the whole market.
Mr. S m i t h . I think she is right, on the level of all sources, business
and government, we can look at this, but the same of the fact that
the first home buyer has been priced out of the market for this genera
tion and the generations to come if we don’t turn this cycle around.
The 60 percent American home ownership will be a thing of the
past for the next generation.
PEOPLE PRICED OUT OF MARKET

Senator C h i l e s . That, of course, eventually kind of brings about
the train wreck, because the only way that all of us who own a home
and have been able to cash in or to buy another one— the only way
we have been able to do that is because there have been people coming
in buying. As they are being priced out, and that is not just on new
homes, but priced out of buying the old home now. because those
prices have gone right up with the new homes.

60
HOUSING MARKET AND TURNOVER ABILITY

What you are doing is, you are, at some stage, and I think we may
be reaching it before long, we stop that turnover ability. It is great
and all of us that have enjoyed a home have been able to move up
much more readily, as our incomes have gone up. We have had a
house that has appreciated, and we have been able to move.
But when there is nobody in there to buy the first one, that stops
everything.
SHIFT TO SMALL MULTIFAMILY UNITS

Mr, S m it h . Last year in Dallas, Tex., four-to-one ratio of permits
was in small multifamilies, and it is a tremendous shift and a trend.
The city is worried about it. People are concerned about it, and this
is not a trend only in Dallas, Tex., because that young couple out of
college simply cannot afford a new home.
I think we can do something about it, and by the way, Senator
Sparkman’s bill on housing opportunity has some merit here, as a
lender to the first buyer, not a grantor. It really has some merit that
I would hope you could look at very seriously. For example, in my
area under the old 25 program, the homes sold for $1,500. It is now
reselling for $35,000 or $40,000. If the law had provided a lending
situation there, that loan would already be made back to the Federal
Government of the grant that went in and the subsidy in the begin
ning. You could now be using that as a rollover to help these new
couples we are talking about.
I think it has merit and justifies investigation further.
Chairman M u s k i e . Thank you all very much. The hearing will b e
recessed.
[Whereupon, at 12:42 p.m., the committee adjourned, to recon
vene at the call of the Chair.]
STATEMENT OF THE SIERRA CLUB
Washington, D.C., July 27, 1978.
Re Hearings on Housing Costs and Inflation.
Hon. E d m u n d S. M u s k i e ,
Chairman, Senate Budget Committee,
U.S. Senate, Washington, D.C.
D e a r S e n a t o r M u s k i e : We appreciate the notice you sent us about the hear
ing on housing costs and inflation, to be conducted on July 25, 26 and 27, pre
paratory to Committee action on the Second Concurrent Resolution on the F Y
1979 budget.
The Sierra Club has a deep interest in this subject, because some current pro
posals being made for reducing housing costs suggest a large increase in logging
of the public forests as a possible remedy. Since the public forests have been
established and are managed to produce a variety of services and protect a variety
of important values other than timber production, we are concerned that proposals
greatly increase logging could have serious adverse effects on these other services
and values. Already, as you know, there are thousands of pages of testimony and
evidence before repeated hearings conducted by the Congress over the last eight
years, demonstrating the fact that excessive logging, particularly in the wrong
places, causes severe and often permanent damage to the public forests.
The Sierra Club does not believe that a large increase in timber harvest on the
National Forests would solve the very real problem of increased housing costs,
since by far the overwhelming bulk of such increases in the past decade are attrib
utable to increases in land and financing costs. Finally, we believe that estimates
of increases in softwood sawtimber supply to provide needed lumber for housing
have been overstated, particularly for the years 1981-85.

61
In support of these various points, we ask that the attached paper, “ Timber
Harvest in the National Forests and Its Relationship to Lumber Supply and
Housing Costs” be included as a part of the public record of the hearings now
being conducted by your Committee. The paper was prepared by Mr. Robert
Anderson, a forest economist acting as a consultant for the Sierra Club in San
Francisco. We believe it points out rather well, using figures from the home build
ing industry itself that (1) housing estimates prepared by the Council on Wage
and Price Stability for the period 1981--1985 are unrealistically high; (2) that
therefore, since their methods of projecting lumber and sawtimber demand de
pend heavity upon housing estimates, the projected lumber and sawtimber demand
figures are unrealistically high; (3) that the remaining undeveloped timber lands
on the National Forests which are considered as possible sources of new raw ma
terial production are precisely the areas where, because of soil and watershed
conditions, environmental damage would be greatest; and (4) that the actual
reduction in real housing costs which would be expected from a major (e.g., ten
percent) increase in National Forest cut would be so insubstantial (approximately
$340 for a $60,000 house) that the drastic environmental tradeoffs involved do
not justify such an increased harvest for housing purposes.
We believe this is important information which the Committee should have.
Thank you for your consideration of this request.
Sincerely,
B r o c k E va n s,

Director, Washington Office.
Enclosure.
T

im b e r

a r v e s t in

N a t io n a l F or ests a n d I ts R
S u p p l y a n d H o u s in g C osts

th e

e l a t io n s h ip to

L umber

This paper is, in large part, a response to recent public discussions of short and
long term timber supply and its relationship to changes in lumber prices. The
short-term softwood timber supply will be the main focus of this discussion which
centers on an analysis done by the President’s Council on Wage and Price
Stab ilit}^ (CWPS), entitled, Lumber Prices and the Lumber Products Industry/1
It was published in October 1977. Their analysis will serve as the focus since it is
the most recent, comprehensive study available. It does suffer some serious
shortcomings, including an overestimate of lumber demand in coming years,
and insufficient attention to sources of lumber besides what seems to be a pre
disposition toward increased and dramatic cuts in the national forests.
o u t l in e

the

cwps

method

The CWPS report projects a shortfall in softwood sawtimber supply, the
source of lumber for housing, during the early and middle j^ears of the 1980’s.
Their predicted shortfall ranges from 6 to 10 billion board feet, with, of course, a
concomitant rise in lumber prices. In Table 1, reproduced from their publication,
the CWPS estimates of demand involved two methods. For one method they
updated Bureau of Census estimates of household formations, and these were
used in their own projections of housing starts. From this point the average per
unit use of lumber for the various types of units was used to estimate the amount
of lumber needed for future housing construction. To this was added estimates of
the non-housing use of lumber, which according to the CWPS accounted for 66%
of total lumber consumption in recent years. Since their major concern was lumber
for housing, which would be predominantly softwood, and their only suggested
source of additional supplies were the national forests, which are almost entirely
softwood, they reduced their estimate of lumber demand by 19 percent to elim
inate that portion of demand which historically has been hardwood. This estimate
of softwood lumber demand was then divided by .676 in order to take account
of the non-lumber uses of softwood sawtimber. This includes such use as plywood,
pulp and chemicals. The ratio of .676 was based opon a 12-year average, 1964-75,
of softwood lumber to softwood sawtimber. However, the ratio in more recent,
and relevant, years is, .079, apparently reflecting an increasing proportion of
softwood sawtimber converted to lumber, due probably to the more recent rela
tive higher prices for lumber. The results of the above method were used as the
estimate of the lower limit sawtimber consumption in Table 1. The second method
involved a logarithmic, regression equation which utilized the time trend, housing
start projections, and an elasticity factor of 1 applied to the GNP in 1972 dollars.
The resultant estimates appear as the upper limits of demand in Table 1.
32- 099— 78------------ 5

AND SUPPLY PROJECTIONS, 1976-90

New housing demand (thousands of units).
Softwood sawtimber demand and supply (billions of board
feet):
Demand.
National Forest output L
Other output2.
Net im ports3.
Total supplySupply minus demands

1976-80

1981-85

1986-90

2,169

2,713

2 ,271

55.2

6 1.2 to 65.2

56.8 to 64.4

10.5
4 0.2
4 .0

11.0

3 8.4
4 ,0 to 4 .5

39.3
4 .3 to 4 .6

54.7

54.6 to 54.9

53. 4 to 53. 9

-.5

- 6 . 6 to - 1 0 . 3

- 3 . 4 to - 1 0 .5

1 This assumes sales of National Forest softwood sawtimber at current rates.
2 Based on Forest Service projections for a relative price which is held at current levels.
* Imports are assumed to maintain the share of the market achieved in 1972, the highest share observed thus far, and
comparable to the 1977 share.
HOUSING STARTS AND PER UNIT LUMBER USE

This critique of the CWPS projections primarily focuses on their estimates of
housing starts. Much evidence points to the fact that the housing estimates for the
period 1981-85 are unrealisticallv high. Both of their methods of projecting lumber
and sawtimber demand depend heavily on accurate housing estimates More
recent projections made by organizations directly involved in housing finance or
construction all suggest that the CWPS projections of housing starts for the period
1981-1985 are roughly 400,000 starts too high. Indeed it appear to bo turning out
that the CWPS projections for the period 1976-80 are also too high by perhaps
1000,000 to 200,000 starts. These judgments are based upon more recent statistics
(up to May 1978) but more importantly the latest projections of housing starts
made by such organizations as. Chase Econometrics, The National Association of
Homebuilders, and the Federal Home Loan Mortgage Association. See Figure 1.
In the summary to their study, the CWPS discussed the shift which occurred
in 1 9 7 3 - 7 4 , in the composition of homebuilding toward single family units, which
according to the CWPS require at least three times the lumber per unit than
typical multi-family units. They incorporated this trend toward greater propor
tions of single family units in their estimate of housing and lumber consumption.
However, after a peak in 1 9 7 5 , the proportion of single family units in total housing
starts reached a plateau and appears to be declining, going down 3 percentage
points from 1 9 7 6 to 1 9 7 7 .
T a b l e 2 . — Single

family units as a percentage of housing starts
Percent

_______________________
1972.
__
1973.
.................
..
..................... ........
______ ____________ _______ __________________
1974_________ ____
1975.
____
________ _______________ _____________ _____ ___
1976.
_________ _______ _______ ____________________
1977. __ ....... ...................................................... ............. ............... .....................
1978 (1st quarter).
________ _______ ________ ________ __ _
1978 (M arch)___ ___________________ _______________ _____________ ___ _
Source: U.S. Department of Commerce.

55
55
66
77
76
73
71
69

63
FIG URE

* P u b l i c housing s t a r t s

account

for

less

than

12 o f

total

starts

In r ec c n t

years

In addition, during the first quarter of 1978 the proportion of building permits
for single family units has declined relative to permits issued for multi-family
units.1 These permits have always been a strong indication of building plans in
the months and quarters ahead. To the extent that the shift back to multi-units
continues from 1970, the lumber demand projections of the CWPS will be over
estimated due to improper weighing in housing compositions. Indeed we should
be mindful of this whenever housing projections are examined.
A related factor of some significance is the expected decline in lumber consump
tion by type of unit in future years.
TABLE 3.— PROJECTED LUMBER CONSUMPTION BY U N IT
[In board feet]

..................................
1970............. ...................... .......... ...................................... ......................
1980............................. ............................................................ ......................................................................
1990............................................................. ...........................................................................................

1-, 2-fam ily
units

3 or more
fam ily units

10,840
10,660
10,500

3 ,7 0 0
3,400
3,100

Source: USDA Forest Service, “ The Outlook for Tim beri n the United States,” 1970.

The projected decline in the use of lumber per unit proceeds at a faster rate,
both in absolute and relative terms, for multi-family units than for 1-2 family
units. This lends somewhat of a multiplier effect to the decline in lumber consump
tion per unit in future years which would be due to a shift toward multi-unit
construction. The period of shift to single family housing which occurred in 197475 closely followed a period of stable, then declining, lumber prices in 1973-74.
The mix of single and multiple unit housing seems to shift to a small degree in
response to levels of lumber prices which may help explain the change to multi
units which appears to be occurring now. The expected leveling and downturn in
housing starts as well as the shift to multi-units should significantly reduce the
pressure on lumber prices.
1 TJ.Ss Commerce Department taken from a Wall Street Journal article, Apr. 18,1978;

64
The demand and price of lumber is linked in the long term to housing starts
and household formation. However, on a short-term basis the decision about
exactly when to build is heavily dependent on the price and availability of credit.
Decisions to build can be taken early or postponed in anticipation of the behavior
of the credits markets. In 1969-70 and again in 1973-74, declines in housing starts,
and declines in residential construction as a percentage of BNP, occurred at the
same time as periods of restrictive monetary policy by the Federal Reserve
Board. Conversely, periods of less restrictive policy were periods of greater growth
in housing, 1970-72 and 1975-77.2
A significant reason for the recent projections of a downturn in housing have to
do with the expected and recently, announced, decision by the Federal Reserve
Board to restrict credit.
The Bureau of the Census predicted a rapid rise in net household formation
in the 1970’s that would peak between 1979 and 1982, depending on which series
of projections is used. The table below contains the high series of projections.
T able

4.— Projections in the net increases in households

1978.
1979.
1980.
1981.
1982.
1983.
1984.
1985_
1986.
1987.
1988.
19891990-

1, 645,
1, 675,
1, 681,
1, 714,
1, 731,
1, 715,
1, 692,
1, 651,
1, 605,
1, 581,
1, 559,
1, 572,
1, 545,

000
000
000
000
000
000
000
000
000
000
000
000
000

Source: Bureau of the Census, Department of Commerce.

However the levels of housing starts attained in 1977 and so far in 1978 are well
above the net projections by the Bureau of Census. In addition, the rate of change
that occurred in housing starts between 1975 and early 1978 is much greater than
any rate of change in any previous period of rising household formation or any
rates of change that can be observed in the future projections in Table 4. The sug
gestion here is that in the period 1975 to early 1978, a period of relative easy
credit, a large investment was made in housing in anticipation of the expected peak
in household formations. To some degree this phenomenon occurred during the
housing start peak in the early seventies. In the past, housing starts have been
much more volatile than the actual level of net household formations, swinging
both below and above the actual level of household formation The Census Bureau
projected levels of household formation in Table 4 have been criticized for not em
phasizing sufficiently the expected increase in one-person households. In recent
years, over 20 percent of existing households contained only one person.3
This proportion has been growing steadily for the past several years. The C WPS,
on page 54 of their publication, touch on the fact that rising personal incomes,
especially among young people, and the changing social environment lead to the
likelihood of more people living alone. An additional characteristic is that these
people as a whole are freer in electing when to live alone i.e., set up a separate
household. Many may have elected to do so previous to the time that the peak
in Census Bureau household projections would imply, and thus contributed to
the housing boom of 1976-77, since they are freer to respond to periods of easier
credit than are the other types of potential household formations.
ADJUSTMENTS TO THE CWPS METHODS

The following section will involve adjustment to the CWPS estimates of timber
demand and supply found in Table 1, incorporating much of the material dis
cussed above, especially involving more up to date housing data.
If the estimate of softwood sawtimber demand on Table 1, 55.2 bbf (billio
board feet) had utilized the more recent relationship between softwood lumber,
and softwood sawtimber, .709 instead of .676, the estimate of softwood sawtimber
3 Data Resources Inc. taken from a paper on housing price inflation prepared for the Sierra Club by Susan
Mulloy.
* B u r e a u of the Census, U.S. Department of Commerce.

65
demand would be approximately 52.6 bbf for the period 1976-1980.4 In addition
upon examination of the annual housing starts levels of 1976 and 1977 in Figure 1,
and the various projections for 1978, 1979, and 1980, it is apparent that there
will be an overestimate by the CWPS of private housing starts of probably from
100,000 to 200,000 units for this period. Adjustment for either of these two factors
would change the predicted shortfall of sawtimber in Table 1 to a situation of
adequate supply for the period 1976-80.
Most attention should be focussed on the predicted shortfall for 1981-1985.
Adjusting the figure for housing starts for this period down from the CWPS
2,713,000, to a more relevant 2,313,000 and carrying this through the same calcula
tions used by the CWPS would result in a correction to their lower limit figure of
61.2 bbf to a figure of 57.4 bbf. This does not include the effect of the change in
recent years in the composition of housing to multi-unit from single-family, which
would reduce further their estimate of demand. One measurable factor which
does reduce this corrected estimate still further is the adjustment for the more
relevant ratio .709. This further reduces the estimate of demand for this period
to 54.6 bbf or equivalent to the CWPS estimate of the lower limit of supply.
Changes in the levels of sawtimber consumption are closely linked to changes in
housing starts. After the peak in housing starts in the early seventies softwood
sawtimber consumption dropped in one year approximately 8.3 bbf from 54.7
in 1973 to 46.4 in 1974.5
The upper ends of the range of projections used by the CWPS were made using
a regression equation in logarithmic form, based on annual data since 1959. The
three major components of the equations are: the time trend, GNP in 1972 dollars,
and the level of housing starts. The log of the GNP has as a coefficient the elasticity
figure of 1. This assumes that the demand for softwood sawtimber would increase
in the same proportions as the increase in real GNP.
Although the Sierra Club is not in a position to construct a precise alternative
elasticity factor, the factor for recent years is likely to be significantly less than 1.
The CWPS factor is possibly based upon data going back to 1959, and the rela
tionship between real GNP and the demand and pricing of lumber is likely to be
substantially different in recent years. From 1972 to 1974 residential construction
as a percent of actual GNP dropped from about 5 percent to 3 percent, in relative
terms a 40 percent drop.6 This came at a time when the private non-farm GNP
in 1972 dollars rose about 4 percent.7 This demonstrates the apparent short term
volatility of the relationship. Over the longer term, the growth in 1972 private
non-farm GNP seems to be much greater than the growth in consumption of
softwood sawtimber. The private, non-farm GNP in 1972 dollars grew from a
five year average, 1961-1965, of about $680 billion to about $1,000 billion in
1971-75, over a 40 percent increase.8 While a comparison of respective five yea
averages for softwood lumber and softwood sawtimber shows an increase of less
than 10 percent, indicative of an elasticity relationship significantly less than
perfect.9 The Council of Economic Advisors has predicted a leveling and probable
decline in housing starts for 1978 (housing annually consumes about 40 percent
of total softwood sawtimber), while at the same time projecting an increase in
GNP in 1972 dollars of between 3.3 and 3.8 percent.10 Finally, the apparent
turnaround in housing starts composition toward multi-family units at a time of
record lumber prices, with real GNP rising, is a further indication of less than
perfect elasticity.
The predominant criticism however, of the method based upon the regression
equation is that it includes as an important factor, the same overestimate of hous
ing starts as utilized in method number 1. Indeed, the same problems with the
wrong composition of housing starts would also contribute to an over-estimate of
sawtimber consumption.
4 Based on CWPS Data, 7 years average, 1970-76, of the ratio of softwood lumber consumption to softwood
sawtimber consumption.
5 Estimate utilized the ratio .709 applied to the actual levels of softwood lumber consumed in these two
years, 38.3 bbf and 32.2 bbf respectively. Taken from USDA Forest Service Publication, “ The Demand
and Price Situation for Forest Products, 1976-77.
6 Mulloy—Data Resources, Inc., op. cit.
7“ Annual Report of the Council of Economic Advisors” (CEA), January 1978.
*Ibid , p. 263.
9“ The Demand and Price Situation for Forest Products, 1976-77, U.S.D.A. Forest Service.
10“ CEA Annual Report” , op. cit.

32-099 O ■ 78 . 6

66
A consideration of these factors: type, composition, elasticity and, most im
portantly, the overestimate in housing starts, suggest a reduction of the CWPS
upper limit estimates of a magnitude at least equivalent to reductions in the lower
limits which amounted to about 6.6 bbf. That would leave an upper limit of de
mand in Table 1 for the period 1981-85 of 58.6 bbf.
SAWTIMBER SUPPLY

We will examine the supply side of the CWPS estimates leaving the national
forest timber harvest at the given levels. However, a number of differing assump
tions and adjustments can be made concerning the “ other output” and “ net
imports” categories of Table 1. A minor correction to “ other output” in Table 1
would be an upward adjustment of 39.3 to 39.7 and 38.4 to 38.8. The Forest
Service estimated “ other output” production for 1980 and 1990 of 40.2 and 38.4
bbf respectively. The CWPS averaged these for 39.3 bbf in 1985, but should also
have averaged 1985 with 1980 and 1990 to obtain these more relevant estimates
for the periods 1981-85 and 1986-1990.
The category of “ other output” includes not only production from forest
industry held lands, but also from an ownership group entitled, “ Farm and
Miscellaneous Holdings,” which accounts for the second largest inventory of
softwood sawtimber in the United States.
It appears from the production figures available in Table 5 that the average
annual domestic production of 50.7 bbf of softwood sawtimber for the period
1976-80, projected by CWPS, will easily be met, and probably exceeded. The
50.7 figure is a total of 40.2 bbf from the “ other output” category and 10.5 bbf
from the National Forests. Considering that the actual level of recent National
Forest harvests have been somewhat below the level of 10.5 bbf, the “ other out
put” category appears to have been exceeding the CWPS production projection
of 40.2 bbf. Historically, National Forest timber is not harvested for about 3 years
after the sale of the rights to harvest. Considering that sales are projected to
start turning back upward (see Table 5), eventually harvest levels should also,
this will help support the level of softwood production in the 1980’s.
TABLE 5.— TOTAL DOMESTIC PRODUCTION
[Billion board feet]

1970.
1971.
1972.
1973.
1974.
1975..
1976..
1977.
1978....

Softwood
lu m b e r1

Softwood
saw tim ber2

2 7.5
3 0.0
31.0
31.6
27.7
26.7
3 0.8
34.6

46.2
4 6.9
5 1.4
3 4 9.9
3 45.4
3 4 3.5
3 4 9.5
4 (5 5 .0 )

Softwood
National Forest
harvest * sawtimber s a le s 3
11.0
9 .8
11.4
12.1
1 0.4
8 .4
9.1
5 (8 .7 )

3
3

13.1
10.3
9 .9
9 .7
9 .5
9 .9
9 .8
10.4-11
10.4-11

1 USDA, "Dem and and Price Situation,” op. cit.
2 Taken from the CWPS report. Opinion varies as to the accuracy of any available data on softwood sawtimber production.
Reporting methods vary from place to place involving actual counts and measurements of logs to estimating the amount
of sawtimber consumed based upon the amount of tim ber products obtained. The softwood sawtimber production for
1973-76 was estimated by the CWPS staff. Any comments or adjustments to their report involving softwood sawtimber
utilized their figures.
3 Estimate.
4 Estimate based upon previous ratios.
s USDA, Forest Service.

It is sometimes suggested that some of this National Forest timber sold and not
scheduled to be harvested for two or three years, could be harvested early to meet
a situation of an unusually rapid increase in demand. However, when a sale is
made from a National Forest, it usually involves relatively inaccessible acreage
and time is needed to plan and build the necessary roads before harvesting can
begin. A second, and perhaps more important, problem is that lumber companies
that customarily base their operations on timber from National Forests often
cannot obtain the necessary operating capital unless their financial backers are
assured that the loggers and mills have a steady source of sawlogs available for
more than just the current year. In addition, in some cases, there may be prob

67
lems with inadequate sawmill or logging operation capacity which would prevent
“ early” harvests.11
MILL STOCKS

Up to and including recent months gross mill stocks of softwood lumber have
remained at levels equivalent to the average for the past nine years, about 4.3
bbf.12 In 1972, stocks dropped to 3.6 bbf in response to the highest recorded de
mand for softwood lumber, 38.8 bbf. Variations in mill stocks, over 1 bbf in
recent years, does provide some cushion for short term increases in demand.
T able

6.— Gross mill stocks softwood lumber (bbf)

1964.
1970.
1971.
1972.
1973.
1974.
197519761977

4. 7
4. 9
.
..........

4.3
3. 6
4 .0
4.3
4. 2
4. 2

4. 2

Source: Fingertip Facts and Figures, monthly, National Forest Products Association, 1619 Massachusetts
Ave., Washington, D.C,
EROSION AND OWNERSHIP

Much of the softwood sawtimber inventory in the U.S. is found in the Pacific
Coast states, and much of this is in the National Forests. Most of the National
Forest land is located along the north coast of California, and in the Cascade
range extending from southern Oregon through Washington to the Canadian
border. The north coastal area of California, including the National Forest
area extending up along the Oregon coast, has one of the highest potential and
actual erosion rates in the world. This is due to very high annual precipitation,
structurally unstable base, and the cumulative human impact. Even though the
erosional effects of logging on fragile slopes can be quite serious, taken as a whole
the erosional effects of roads and trails in this area far outweight the effects of
logging per se.13
The Cascade range, which is further inland than the coastal ranges discussed
above, generally speaking has an erosion potential only slihgly less than the
coastal ranges. The harvestable softwood that is in the National Forests of the
Cascade range is predominantly found in the more unstable areas with the greatest
potential for erosion. In a recent study done in an experimental area of Oregon’s
Willamette National Forest, it was determined that roads were an extremely
significant factor, perhaps the most important in causing erosion damage. Along
right of way erosion was estimated to be 30 times greater than in comparable
forested areas. Clear-cutting caused an estimated 3 times as much erosion damage
as in comparable forested areas. According to the study, the experimental area
was “ representative of much of the western cascade terrain.” 14
Mean annual precipitation in the experimental area is approximately 95 inches,
roughly equivalent to much of the north coastal area of California.15 Not many
areas of the United States have this combination of steep slopes, unstable base,
and unusually high precipitation, which creates very serious erosion problems, as
does northern California and the Cascade range. Watershed destruction should
be of particular importance to the people living in the recently drought stricken
areas of the west coast, since it fosters less even flow of runoff. This contributes
not only to flooding but is a form of loss of storage capacity which results in less
usuable water available to reservoirs during the course of a year, aggravating dry
season or drought conditions.
u Based on an interview with Lloyd C. Irland, Bureau of Forestry, Department of Conservation, Augusta,
Maine, and interviews with various staff of the Pacific Northwest Forest and Range Experiment station at
Portland, Oregon, including David Darr and Roger Fight.
12According to the National Forest Products Association, gross mill stocks include “ finished product in
mill yards awaiting sale or delivery” and does not include sawlog stock, logs in process, drying lumber, or
any lumber which eventually will be discarded.
13 Robert Coats, “ The Road to Erosion” Environment, vol. 20, no. 1 January/February 1978.
n F. J. Swanson and C. T. Dyrness, “ Impact of Clear-cutting and Road Construction Soil Erosion by
Landslides in the Western Cascade Range, Oregon,” Geology, vol. 3, no. 7, July 1975.
is Ibid.

68
The costs of erosion are indirect and are often delayed for several years. There
exists very little in the way of accurate indicators of current and past erosion
similar to those indicators in use to measure the CPI or GNP, and of course,
even less in available method of projecting potential erosion. However, it is
obvious that the effects of watershed destruction can be massive and long term.
The fact that measurement and projection is difficult, and the erosional effects
can be so great, means that great care must be exercised when choosing an area,
or type of timber ownership, in which to build roads and harvest timber. According
to the Forest Service, in 1970 there was approximately 129 bbf of softwood sawtimber inventory under the farm and miscellaneous holdings category in the Pacific
Coast states.16 Of equal importance is the fact that this timber is, according to
the Forest Service, “ readily accessible from existing roads and is relatively close
to timber markets.” 17 The areas of the National Forests that are being sought
for additional timber harvests tend to be quite undeveloped areas. It is therefore
likely that much more road building, and concomitant watershed destruction
would have to take place to harvest timber in the Pacific Coast National Forests,
than if more emphasis were placed upon other sources such as the farm and miscel
laneous holdings. The Forest Service has for many years been suggesting greater
utilization and development of this neglected source of timber. With the increase
in stumpare prices in recent years, these smaller lot ownerships should be much
more interested in marketing their timber to meet any “ bulge” in timber demand
that could occur in the 1980’s. The existing structure of the logging industry
would lend itself well to harvesting timber from these smaller ownerships. Most
of the logging done in the U.S. is done by small, independent contractors, who
are used even by most of the large integrated companies. According to the CWPS,
there are approximately 12,000 to 13,000 of these companies, whose number has
remained quite constant in spite of consolidation and decline in the number of
saw mills. In addition, the timber lands held by the forest industry are likely to
have a substantially greater existing road system than the National Forests.
PRODUCTIVITY AND OWNERSHIP

The Forest Service used productivity classes to rank the potential of U.S
Commercial timberland. These are based on potential annual growth in cubic
feet per acre. The categories include: 20-50, 50-85, 85-120, and 120+ cu. feet.
Acreage in the top site class is potentially 6 times as productive as in the first
category. About 50 percent of the commercial softwood acreage in the Pacific
Coast states is found in National Forests.18 Much of this involves land that is
likely more remote, definitely less productive and hence with a lesser capacity to
accept reforestation, and very ecologically fragile. While only about 19 percent
of the 59.1 million acres of commercial softwood timberland on the Pacific coast
is under the Farm and Miscellaneous ownership, a much higher proportion of
their sites are in the top productivity class, 37 percent, compared to 21 percent for
the National Forests. About 51 percent of the National Forest acreage is in the
lower two categories and 42 percent of the Farm and Miscellaneous holdings.
The Pacific Coast forest industry lands total 17 percent of the softwood acreage,
but have 55 percent of that in the top category and only about 27 percent of their
acreage in the lower 2 classes.19
If the Forest industry acreage in the top two productivity classes is combined
with the top two classes of Farm and Miscellaneous acreage, it will total about
14 million acres, roughly equivalent to the acreage of the National Forests in the
top two classes. The Rocky Mountan area has about 55 million acres of com
mercial softwood timberland, however 75 percent of this is in the two lowest
productivity classes. The majority of the land is in the National Forests. This
large area contains just over 15 percent of the nation’s softwood sawtimber in
ventory.20
The northern forests in the U.S. contain relatively little softwood inventory.
The South on the other hand contains just over 15 percent of the nation’s com
mercial softwood sawtimber. These inventories in 1070 amounted to 276 bbf with
is “ The Outlook for Timber in the U.S.", U.S.D.A. Forest Service, July. 1974.
i7 ibid.
i* Ibid.
10“ Outlook for Timber”
op . cit.
20Ibid.

69
57 percent of that under the Farm and Miscellaneous holdings ownership. The
forest industry held 29 percent and the National Forests about 10 percent. In the
Farm and Miscellaneous ownership growth exceeded removals in 1970 by 2 bbf.21
About 67 percent of the softwood acreage in the South is under the farm and
miscellaneous ownership with 38 percent in the upper two productivity classes.
The forest industry held 24 percent of the acreage with 44 percent of that in the
upper two classes.22
Considering the costs of roadbuilding in Pacific Coast National Forests, and
the rapid rise in costs of transporting lumber and wood products to the East
from the Pacific Coast, and considering previous discussions about the nature of
the logging industry, an intensified effort could be made to locate and harvest
softwood on the farm and miscellaneous holdings in the South as one source to
provide sawtimber for any peak in demand in the eastern markets in the next
few years. This is especially recommended when one considers the greater potential
for ecological damage, in the Pacific Coast national forests, and what the real cost
of lumber would be is a true accounting were made for the effects of watershed
destruction.
OTHER COSTS

Railroads by far are the predominant carriers of lumber from the sawmill
areas to the market areas of the U.S. All railroads are subject to essentially the
same set of rates for similar cargo between the same points. The cost of trans
porting a typical load of lumber from the Pacific Northwest to the Philadelphia/
New York area has increased from about $1.68 per hundred pounds in mid-1970
to about $3.28 in mid-1978.23 This is about a 95 per cent increase and comes at a
time when the GNP nonfarm price deflator rose about 70 percent.
Along with costs of transportation, changes in the average hourly earnings of
forest industry employees have contributed to the rise in lumber prices. During
the period 1967 to 1976 average hourly earnings rose in the lumber and wood
products industry by about 100 percent. Even considering that domestic lumber
production was 10 percent higher in 1976 than 1967, after much interim variation,
and considering a reduction of about 10 percent in the number of employees in
this industry, this rate of increase was still well above the growth exhibited in the
GNP non-farm price deflator.24 The changes in part reflect historical average
hourly earnings lower than other manufacturing industries and reflect efforts to
equalize wage levels.
Other, perhaps substantial, pressures on lumber prices that could be explored
further include the CWPS statement in their summary that profits as a percent
of gross sales in the lumber operations of the timber companies, will be higher in
1977 than any previous year this decade.
IMPORTS AND EXPORTS

Although at this point, the corrections made to the CWPS projections of soft'
wood, sawtimber demand, and to a lesser extent the adjustments to the supply
projections, would result in little if any shortfall in sawtimber supply in the next
decade, much more attention needs to be given to the role of net imports than
was given by the CWPS in their analysis.
In Table 1, the CWPS erred significantly in projecting the net imports at a
stable level for the next ten to 15 years. As will be discussed in the following para
graphs, there is great potential for upward adjustments to this figure. Decreases
in our substantial exports of timber and/or increases ii> our imports would be quite
sufficient in meeting any forseeable timber or lumber shortfall in domestic supply.
To merely use a “ net import” figure obscures the substantial amounts that are
involved in both imports and exports and the related substantial effect that these
have on lumber supply and pricing. In addition, to only speak of a stable level of
“ net imports” gives a false impression of the importance the national forests would
have in any potential timber shortfall situation.
2i ibid.
22 ibid.

23 Telephone interview with the freight rate section of the Burlington Northern Railroad in St. Paul, Minn.
24“ The Demand and Price Situation"
op. cit.

70
TABLE 7.— SOFTWOOD LUMBER IMPORTS AND EXPORTS (EXCLUDES LOGS)
[Billion board feet]

1967..................
196 8 ...
196 9 .....
1 97 0 ...
...
1 9 7 1 ....
1972.................................... .
1973. .
1974................................
1 97 5 .. .
1 97 6 .. .
..........................
1 9 7 7 ....

...

Imports

Exports

4 .8
5 .8
5 .9
5 .8
7 .2
9 .0
9 .0
6 .8
5 .7
8 .0
10.4

1 .0
1 .0
1 .0
1 .2
.9
1 .2
1 .8
1 .6
1 .4
1 .6
1 .4

Source: “ The Demand and Price Situation for Forest Products," 1976-77, USDA, Forest Service, December 1977.

In the last 11 years, consistently, 99 percent of our softwood lumber imports
came from Canada, predominantly British Columbia. Thirty-three percent of our
lumber exports in recent years have gone to Japan, the other lesser but important
recipients of our softwood lumber exports include: Canada, Europe, and Latin
America. The important element of this table is that imports increased dramat
ically during the years of our two peaks in housing starts, 1972-73 and 1976-77,
and fell dramatically during the interim years. No inverse trend is discernable
for the export column. Obviously, the supply of lumber from Canada is very
closely tied to changes in housing starts in the U.S. Imports of softwood lumber
from Canada in 1977 will amount to almost 30 percent of domestic production of
softwood lumber estimated at 34.6 bbf.
TABLE 8.— SOFTWOOD PLYWOOD IMPORTS AND EXPORTS
[Million square feet, ? s-in basis]
Imports
....
3
1967____
1 9 6 8 ....
10
64
1969........................................................................................................................................................................................... 15
1970...............
2
1971..
3
1 9 7 2 ....
6
1 9 7 3 ....
9
4
1974..
197 5 ...
7
1 9 7 6 ....
.
.
.
.
12

Exports
85
199
114
99
220
462
542
791
218

Source: “ The Demand and Price Situation for Forest Products.”

While imports of plywood are virtually non-existent, exports have been steadily
increasing and the trend appears unaffected by changes in U.S. housing starts.
However, exports in recent years have accounted for only about 5 percent of
domestic production, which has varied significantly over the past ten years,
generally following the level of housing starts with an annual average during this
period of 15,500 million square feet.
Since 1970, domestic production of pulp wood has averaged about 73 million
cords. Pulpwood consists of roughly % softwoods. Imports of pulpwood have
averaged 1,032,000 cords but has been generally declining since 1970. Exports of
pulpwoods have been increasing since 1970 and have averaged 2,349,000 cords.
The export of pulpwood equivalents (paper and board) have remained relatively
steady in recent years with an annual average since 1970 of 8,300,000 cords.
Imports have also been steady with an average of 16,100,000 cords.25
A major additional factor that is often overlooked in discussion of imports and
exports of lumber, is the substantial and increasing amount of softwood lumber
exports in the form of logs. However, before consideration of the following table
dealing with the trade in logs, a clarification is necessary. Logs measured in the
“ long log scale” are not equivalent to board feet measurements in the conventional
lumber scale. An “ overrun” is involved where the board feet of obtainable lumber
“ The Demand and Price Situation"

op. cit.

71
from a given log will exceed the board foot measurement in the long log scale.
The Forest Service estimates that there is usually between 25 percent and 30
percent more board feet in the lumber scale than the long log scale for any given
log.26 Other sources indicate that most of the particular types of wood exported
to Japan have an “ overrun” factor closer to 1.40.27 Considering both of these
estimates, 1.35 was used in Table 9 to adjust exported logs to equivalent lumber
cale.
TABLE 9.— SOFTWOOD L 0 G S -E X P 0R T S AND IMPORTS
(Billion board feet]
Exports
Long log
scale
1967.............................
1968..
1969..
1970.
1971.
1972.
1973..
1974..
1975..
1976..
1977.

1.9
2 .5
2 .3
2 .7
2 .2
3 .0
3.1
2 .5
2 .6
3 .2
NA

Equivalent
lumber
scale
2.6
3 .4
3.1
3.6
3 .0
4.1
4.2
3 .4
3.5
4 .3

Imports
0 .03
.0 4
.0 4
.11
.0 6
.01
.01
.0 5
.0 7
.0 7
NA

Source: "The Demand and Price Situation.’

Two factors stand out in the adjusted exports column, one is the increase in
volume over time, but of perhaps greater significance is the peak in log exports
coming at the same time as the peaks in demand for lumber in the U.S. This of
course puts extra pressure on domestic lumber supplies and prices at the most
inappropriate time. In 1976 the lumber volume of softwood logs exported was
about 14 percent of the volume of the softwood lumber produced in the entire
U.S. At 10,000 board feet of lumber per house, this amounts to a rough equivalent
of 430,000 single family houses exported in 1976. If the amount of actual softwood
lumber exported were combined with the log equivalent exported in 1976, it
would have been equivalent to roughly 570,000 single family houses exported
in that year alone.
In the last ten years 80 to 85 percent of these exports have gone to Japan and
are used in Construction there.28 The increasing flow of lumber to Japan may be
important to our balance of payments accounts, but the lumber consuming public
should be aware of the tremendous impact this has on prices and supply, and
that the environmental movements efforts to preserve wilderness timber areas is
not the prime factor in the complex lumber and housing supply equation.
If restrictions in the flow of timber to Japan were considered, we should realize
that Japan has other sources for lumber for the immediate future and, potential
sources of a greater magnitude than we would ever be able to provide.
TABLE 10.— 1972 FOREIGN SUPPLY OF TIM BER FOR JAPAN
[Million cubic feet, roundwood equivalent]

United States.
U.S.S.R.
C a n a d a ...
_ _
South Seas Lauan
New Zealand.
Other.
Total.

...........................

Logs

Lumber

366
280
10
636
64
122

52
6
56
8
6
15

1,478

143

Source: "The Outlook for Tim ber.”

26 U.S.D.A. Forest Resources Economics Research Staff, Washington, D.C.
27"Utilization Estimates for Western Softwoods—Trees, Logs, and Residue” , Gedney and Henley, PNW
158, July 1971, PNW Experiment Station, Portland, Oreg.
¡28 “ The Demand and Price Situation” , op. cit.

72
The magnitude of supply from other sources is such that restrictions on ex
porting of logs, especially if established gradually, would not disrupt the Japanese
supply to a great degree. They may elect in the next few years to take much more
lumber from Canada which, as will be discussed, has a great unexploited export
potential for lumber. An even greater long term potential source are the vast
softwood forests of eastern Russia, estimated to contain 54 percent of the world’s
standing softwood inventory.29 The Soviet Union has in the past expressed a
desire to develop their Eastern Siberian timber resources and export markets.
It is apparent from the above table that contrary to the situation for other sources
more lumber was taken from Canada than logs. This is due to existing restrictions
on the exportation of logs from British Columbia to protect jobs and the timber
processing industry. The increase in log exports also has to have a substantial
effect on the closing of sawmills, and the decline in jobs in our Pacific Coast
timber industry. It could be noted here also that the lumber companies that the
CWPS estimated in their publications as having the best profit margin in re
cent years, are the companies that are heavily involved in exporting logs. While
exporting timber from their private lands, the timber industry has a significant
role in a movement to cut increasing amounts of timber from the public domain
“ to provide affordable housing for the American public.”
In recent years softwood sawlog cuts have exceeded net growth nationally.
As such, the current levels of exports should not be permitted until we are at a
sustained yield basis nationally. According to the Forest Service, there are ample
opportunities for increasing growth. In 1970 the forest industry’s 67 million acres
of commercial timberland, which includes a very high proportion of high produc
tivity classes, averaged only 52 cubic feet of timber harvest per acre, about 60
percent of the average attainable in fully stocked natural stands.30
One source of lumber imports in the past, Canada, has been quite responsive
to the fluctuations in our lumber demand. This was recognized by the CWPS
but again no details were given. Canada actually has a production pattern that
matches quite closely the variations in our levels of housing starts and our demand
for lumber. It’s obvious that they have the processing capacity to meet even sub
stantial short term increases in our demand.
T

able

1 1 . — Softwood Lumber Production in Canada (bbf)

1967.
1968__.
1969___
1970_.
19711972__

9.
10.
11.
10.
12.
13.

7
8
0
8
3
4

1973_...
1974.
1975.
1976,
1977.

15.
13.
10.
14.
16.

0
0
9
8
0

Source: “ The Demand and Price Situation for Forest Products” , (1977 Estimated by Forest Service).

A comparison of the variations in Table 11 and Figure 1 will demonstrate the
close relationship between our changes in housing demand and Canada’s varia
tions in production.
Canada desires to develop its timber resources and export markets to a much
greater degree. Exports at present are much greater than Canadian domestic
consumption. The Canadian softwood timber harvest in 1970 was less than half
of the sustainable allowable cut for the year, which was 8.2 billion cubic feet.31
If the CWPS’s conversion factor of .124 were used to convert softwood logs from
cubic feet to board feet this would work out to 66 bbf annually. Of course not all
of this is sawtimber suitable for lumber, but the major portion would be, con
sidering that domestic Canadian consumption currently accounts for less than
half of domestic production (the population of Canada is about one tenth that
of the U.S.), the Canadian export potential is extremely great and will remain so
for several years, if not decades. The best projections of housing starts and lumber
demand-supply relationships should demonstrate to the Canadians the long term
importance of developing the processing capacity to meet this more gradual growth
in demand. In addition, this would help alleviate any supply problems during
short term cyclical variations.
When considering imports for the more immediate future the continued lower
relationship of the Canadian dollar versus the U.S. dollar should help mitigate
2» “ Outlook for Timber” . . . op . cit.
Demand and Price Situation” . . op. cit.
«i “ The Nations Renewable Resources—An Assessment” , 1975, USDA, Forest Servicc, June 1977.

30“ The

73
the pressure on lumber prices. Indeed, the relationship of the two currencies
underscores the fact that there has been a continuous and growing trade surplus
with Canada i.e., they have purchased more from the U.S. than we have purchased
from them. In recent years this surplus has been about four billion dollars. This is
a net figure and includes our payments for the importation of lumber.32 The rela
tionship of the currency and the continuing surplus is a strong indication of the
propensity of the Canadians to rapidly return dollars to the U.S. economy through
purchases in U.S. markets, a process supported by our purchases of lumber in the
Canadian markets. Considering the very favorable trade and currency relation
ships with Canada, a relationship that has existed for several years, their huge
supply, and their desire to export more lumber, their timber would be an excellent
source of wood products to meet any rapid, or gradual, increases in demand in
future years.
If the Russians and Japanese cooperated in developing timber processing in
ecologically appropriate areas of eastern Russia, Japan could over the long term
shift all or part of its timber demand to Russia. The proximity of the two countries
would eventually result in savings in shipping costs; transportation being a very
significant factor in the price of lumber. In recent years the U.S. has annually
exported about 400 million cubic feet of softwood logs to Japan. At the same time
they have taken about % that amount from Russia. A gradual shift to Russia
as the major source of logs may, with appropriate preparation, cause few problems
within Russia since they have the largest softwood sawtimber inventory in the
world. In 1972 the inventory was estimated at about 2,345 billion cubic feet.33
Both Russia and Canada have ratios of population to softwood inventory much
less than in the U.S. Consideiing the ecological fragility of the National Forests
along our Pacific Coast, timber harvest in either Canada or Russia is more likely
to occur in areas that can better sustain harvesting. In recent years most of the
timber harvested in Biitish Columbia has come from the interior and not the
coastal areas, which likely means from areas of less erosion potential.34
TABLE 12.— SIERRA CLUB ADJUSTMENTS TO CWPS PROJECTIONS
AVERAGE ANNUAL DEMAND AND SUPPLY PROJECTIONS, 1976-90
1976-80
New housing demand (thousands of units).
CWPS estimates.
Softwood sawtimber demand and supply (billions of board
feet):
Demand_____
CWPS estimates.
National Forest output
CWPS estimates.
Other o utput2__.
CWPS estimates.
Net imports 3___
CWPS estim ates.
Total supply 4_
CWPS estimates.
Supply minus demand.
CWPS estimates.

1981-85

1986-90

2,000 to 2,100
(2 ,1 6 9 )

2,313
(2 ,7 1 3 )

2,271
(2 ,2 7 1 )

52 to 53
(5 5 .2 )

54.6 to 58.6
(61.2 to 6 5 .2 )

5 6.8 to (?)
(5 6 .8 to 6 4 .4 )

10.5
(1 0 .5 )
40.2
(4 0 .2 )
1 .3 to 2 .3
( 4 .0 )

(1 1 .0 )
39.7
(3 9 .3 )
3.9 to 7.9
(4 .3 to 4. 6)

(1 1 .0 )
3 8.8 to (?)
(38. 4 )
7 .0 to (? )
( 4 .0 to 4 .5 )

52 to 53
(5 4 .7 )

54.6 to 58.6
(5 4 .6 to 5 4.9 )

56.8 to (?)
(5 3 .4 to 5 3 .9 )

0
(-■ 5 )

0
( - 6 . 6 to - 1 0 . 3 )

0
( - 3 . 4 to - 1 0 . 5 )

11.0

* This assumes sales of National Forest softwood saw tim b er at current rates.
2 Based on Forest Service projections for a relative price which is held at current levels.
3 Based upon th e m aterial discussed in this paper, net im ports are assumed to fluctu ate in response to saw tim ber d e m a n d .
4 In the period 1986 -90 technological changes in log processing and lum be r use could significantly increase levels o f

supply.
LONG TERM PROJECTIONS

Projections of timber supply and demand in the period 1985-90 are difficult to
discuss. Predictions that far ahead are very difficult even if housing starts settle
at the level projected by the CWPS. Changes in such things as the composition
32 Survey of Current Business, U.S. Bureau of Economic Analysis.
33“ Nations Renewable Resources/' . . , op. cit.
34 “ Report of the Forest Service". Department of Lands, Forests, and Water Resources, Province of
British Columbia.

74
of housing by type and per unit uses of lumber could significantly effect demand
for timber. The huge nonhousing demand for timber could change due to technical
developments and conservation efforts. In any event, what shortfall that would
occur in the long run could obviously be made up through changes in net imports.
There is great potential for increasing the usable lumber from existing levels
of timber harvest. The Forest Service estimates that perhaps one third of all
timber harvested in the United States is still being wasted.35 They are involved
in a number of research efforts and programs to utilize logs more efficiently. These
include such things as development of a computer programmed method of deter
mining the best position for the initial cut of a log to maximize the amount of fullsized lumber. They suggest that up to 15-20 percent more lumber can be obtained
from smaller logs, and somewhat less from the larger logs. Another project in
volves making high quality 2x4’s by bonding particles from waste wood to a solid
wood backing. The potential here is to double the usable wood from each log proc
essed. Improved drying operations can save millions of dollars annually in grade
and footage losses. Development and utilization of thinner saw blades can also
make a significant contribution to reducing waste.
Obviously, a number of factors involving timber use, technical changes in lum
ber use and production, as well as changes in sources of supply make timber supply
projections 10 to 15 years in the future tenuous at best.
THE EFFECT OF LUMBER PRICES ON HOUSING COSTS

The CWPS analysis includes a statement that “ an increase in the output of
the national forests would have some effect on the average price of timber prod
ucts.” However, they did not follow through completely to estimate the effect on
a typical home buyer.
Based upon elasticity factors from the Forest Service and the “ Report of the
President’s Timber Advisory Panel,” (April 1973) they suggest that a 10 percent
increase in timber harvest from public lands (over 80 percent of which are National
Forests) would effectively result in only about a four percent decrease in the whole
sale price of timber products in the long run. A further important consideration
(according to the CWPS) is that an increase of about 10 percent in National Forest
Harvest, would decrease the harvest on private land by about 1.8 percent and
decrease net imports by about .4 percent.
Lumber and wood products account for 14 percent of the total structure cost
(including land) of the average single-family home, (all materials account for
about 30 percent).36 Hence, the lumber cost in a $60,000 house would be roughly
$8,500 (60,000X.14). A 10 percent increase in National Forest cut then would
have the rough potential of reducing cost of the $60,000 house by about $340
(8,500X .04=340). This reduction is about .5 percent of the structure cost. How
ever, if total housing costs including debt service were considered, it would at
least double the effective housing cost for the great majority of home buyers,
and the lumber price savings of $340 would amount to only about .25 percent of
total cost, probably less. This is an insignificant amount, especially when con
sidered over the life of the house. Only about 70 percent of new housing units
are single-family, and multi-unit construction usually consumes much less than
half the lumber and wood on a per unit basis compared to single-family units.
Hence, for about 30 percent of future new housing units, the figures of $340 and
.25 percent would likely be cut to at least half on a per unit basis.
Two forest economists, utilizing more recently developed elasticity factors
relating the price of lumber to National Forest timber harvests, have arrived at
equally pessimistic estimates of what effect increases in National Forest timber
harvests would have on lumber prices. In work done in 1977 they estimated that
if current harvest levels were doubled in National Forests it would reduce the
expected trend in price increases by only $50 per thousand board feet by 1980.37
In early April of 1978 standard 2 X 4 ’s sold at western mills at about $228 per
thousand board feet.38
A recent newspaper article quotes Mr. Thomas M. Lenard, economist in charge
of the CWPS report, as saying that an average American home would be $3,563
cheaper today if lumber prices had not risen since 1974.39 The average value used
35" Stretching the Nations Timber” , USDA, Forest Service, Oct. 1975.
36According to National Association of Homebuilders. The 14 percent figure is also cited in the CWPS
publication.
37"Public Forest Policy-Wood Prices and the Consumer,” Roger Fight and Douglas Youngday, "Journal
of Forestry” , Nov. 1977 (elasticity factors in article taken from an econometric analysis by Darius Adams,
Forest Research Laboratory, Oregon State University).
38Wall Street Journal, Apr. 7 , 1978 .
39 "Multipulps,” Washington Post, Apr. 2,1978.

75
was not given in the article. However, according to the Commerce Department,
the average value of a new single-family house in the U.S. in the 3rd quarter of
1977 was $54,000.*° Assuming that the value of lumber and wood in that new
house in 14 percent of the value, a percentage cited in the CWPS publication, the
value of wood used in that new house would be about $7,560. According to data
on changes in the wholesale price index for softwood lumber found on page 9 in
the CWPS report, this price increase, 1974— 1977, was about 27 percent. Hence,
the value of the wood used in that new house in 1974 would have been about
$6,000. This means the value of the wood for an average house went up about
$1,600. The difference between $1,500 and Mr. Lenard’s $3,563 would largely be
attributable to financing costs and not directly to lumber. The costs of obtaining
financing, and the availability of credit are much more significant than the costs
of lumber as factors in determining whether or not housing construction takes
place.
A further relevant point is that the GNP nonfarm price deflator went up during
this period of a magnitude roughly half the rise in lumber prices. Hence, the rise
in price during this period of lumber used in the construction of an average
single-family house, went up only about $800 in excess of the general rise in prices
for the economy as a whole. Although lumber is rising at a faster rate than other
materials, total material costs have been rising at a rate of about 7-8 percent
annually, and labor costs have been rising at about this rate also.41 These two
items are largely responsible for total direct construction costs of housing. Ac
cording to the National Association of Homebuilders, these costs account for less
of the total cost of housing in 1977 than in 1967, 47 percent now versus 55 percent
in 1967. Instead, the Association believes that land and development costs, and
the costs of financing were the areas that had the greatest impact on the increase
in housing costs in the last ten years. Other studies and sources indicate that in
some parts of the country profits of builders and developers is the most significant
single factor in the increase in housing costs over the last decade.42
If the President’s Council on Wage and Price Stability were really intent on
doing something about housing inflation, their attention should be directed
toward the areas of speculation in land, development costs, financing costs, and
the profit levels in the building industry. If the President’s Council fears coming
up against entrenched building industry interests, and the forest industry lobby,
it should consider the fact that the public retains strong views about forest and
wilderness area preservation. In a recent nationwide survey done for the American
Forest Institute (a timber industry public relations group), the Opinion Research
Corporation found that 62 percent of the people surveyed said they would rather
have the Forest Service preserve trees than increase timber yield and sales. A larger
proportion in the West favored preservation than in the East. Only 7 percent
feel that there is too much wilderness, 33 percent say there is too little, and
42 percent are satisfied with present levels. These preservationist-favorable
results were obtained with questions generally biased toward the timber industry.
Opinion Research Corporation concluded: “ we do not find sufficient latent
support among the American people to warrant a mass communications program
to increase public support for greater harvesting on Federal lands.” Their sugges
tion instead was to skip the American public, and apply persuasion directly to
“ Washington thought leaders,” i.e., the elected representatives.43
[From the Wall Street Journal, July 10, 1978]

BOON OR BOTTLENECK?
H

ome

B u il d e r s A

ssert

G o v e r n m e n t a l R u l e s R a i s e P r ic e s N e e d l e s s l y — L o c a l ,

S t a t e , F ederal D e l a y s

and

Other W

o es

L is t e d ; B u t H

A bout B e n e f it s ?

(By James Carberry)
Five years ago the median price of a new single-family house was $32,800.
Today it is $53,500.
The main reason is the rising cost of labor, land and materials. Builders and
buyers can’t do much about that but shrug. But among other reasons, builders
say, is the high cost of regulation. Builders aren’t shrugging about that; they’re
hollering.
40 U.S. Commerce Department Bureau of the Census, “ Construction Reports Series C-27".
41 “ Engineering News Record, December 1977.
42 Taken from the housing paper presented to the Sierra Club by Susan Mulloy.
43“ Public Participation in Outdoor Activities and Attitudes Toward Wilderness—1977," Research
Recap, No. 10, Dec. 1977, American Forest Institute, 1916 Massachusetts Ave., N.W., Washington, D.C,

76
The builders assert that badly written, poorly administered or just plain un
necessary laws and regulations— at all levels of government— cause delays and
other problems that increase their costs and thereby add to the cost of housing.
According to a recently published nationwide study by Rutgers University,
the price of a house increases 1 percent to 2 percent for each additional month
needed to complete a project. Thus, a $50,000 house delayed six months becomes
a $53,000 to $56,000 house.
As usual, there are two sides to this. Builders’ critics say the builders tend to
ignore the benefits of regulation while complaining about the cost. Tough regula
tion, the critics say, assures that buildings are properly constructed, promotes
orderly economic growth and protects the environment. In the absence of stringent
regulation, they say, builders are prone to scatter housing projects all over the
landscape.
Time lag grows

Still, talks with builders and community officials indicate that the housing
industry has some valid complaints. The Rutgers study says that largely because
of regulatory delays, the average time from initial application to completion of
construction increased from five months in 1970 to 13 months in 1975. At present,
builders say, the average time lag is two to three years.
The builders’ complaints are falling on attentive ears, thanks largely to the
steep increase in the price of single-family houses. A Department of Housing and
Urban Development task force, composed of HU D officials, builders, consumers
and others, has recommended that H U D take the initiative in helping “ to elimi
nate cost-inducing standards and regulations” in housing. Similar studies are be
ing carried out by several congressional committees and by private researchers
in Texas and in other states.
One way of cutting costs, builders say, would be to overhaul building, plumbing
and electrical codes. Many cities and states, the builders complain, base their
codes on the standards of national model-code organizations dominated by
building-products manufacturers and building-trade unions. A spokesman for the
Council of American Building Officials replies that city and state building officials
are also represented on the model-code groups and that the groups have been
working to cut costs in the administration of the codes.
Plastic versus cast iron

Builders say the codes prohibit the use of newer, cheaper building materials
that are just as good as those already being used. Plastic pipe, for instance, while
gradually being permitted under local building codes, is barred by about 30%
of the communities surveyed in the Rutgers study. The study says that the
plumbers’ union and manufacturers of cast-iron pipe have resisted plastic pipe,
which is not only cheaper but also easier to install; the homeowner can install it
himself.
William Cavanaugh, managing director of the American Society of Testing
and Materials, a Philadelphia-based organization that helps to set standards for
the testing of building materials, says, “ In my view, there’s no question that some
people who didn’t want to see plastic pipe introduced worked through our struc
ture to prevent this innovation.” He adds, however, that the slowness in adopt
ing plastic pipe also reflects necessary caution in approving any new material for
use.
Many of the codes, the builders say, are unnecessarily cautious. One example:
The Florida Homebuilders Association says that the number of ground fault
interrupters required in a house to prevent electric shock could safely be reduced,
at a saving of $60 to $135 a house. A spokesman for the National Fire Protection
Association comments that home builders were represented on the NFPA com
mittee that drafted the requirements for the devices.
A lot of steps

Another way of paring costs, builders say, would be to cut down the number of
steps required for regulatory approval. A Rutgers survey of 21 south New Jersey
communities finds an average of 85 steps in the process.
Fred E. Case, professor of real estate at the University of California at Los
Angeles, believes there are ways to help builders surmount their problems with
the bureaucracy without diluting the benefits of environmental and other regula
tion. One way, he says, is to set up a “ one step” system whereby a developer
deals with a single government agency in obtaining all the permits for a project.
He adds that the agency should appoint a single official to be clearly accountable
for its actions. As things now stand, he says, public officials tend to pass the buck.

77
Builders suggest, in fact, that government disorganization is as much to blame
for delays as is the sheer number of regulations. “ In a lot of places, land-use plan
ning is done on an ad hoc basis,” says Michael Towbes, a builder in Santa Barbara,
Calif. “ They wait for a developer to walk in with a proposal.” Emmett Clifford
a California builder, agrees. Communities, he says, should make the “ tough
political decisions” about land use in adopting their general plans rather than
wait until developers come in with their proposals.
Also in agreement is Robert Levenstein, president of Kaufman & Broad, one
of the biggest U.S. home builders. Mr. Levenstein further urges communities to
stick to their decisions once made. All too often, he says, they change their minds
after a builder has begun to develop a property.
In many communities, development standards for subdivisions aren’t clearly
defined. “ The standards are in the heads of local officials” who use their power
to make excessive and costly demands, asserts George Sternlieb, director of
Rutgers’ Center for Urban Policy Research. Mr. Sternlieb says, for example,
that developers are sometimes required to provide and pay for recreational and
other public facilities in new subdivisions. But the cost of these facilities, he
contends, should be shared by the city treasury because they are open to the
entire community.
Another example, from a federal housing official: Some developers are required
to put in streets “ that meet the specifications of the interstate highway system” —
although the streets will never carry the heavy traffic load for which they were
designed.
Builders also criticize the so-called growth-management plans of some com
munities. Such plans, devised to control population growth, tie the rate of housing
production to the availability of public services. Instead of letting developer
build wherever they want to and providing public services virtually on demand,
these communities permit development only where and when they are willing
to provide the services. “ Good growth-management planning ultimately saves a
developer time and money because he knows exactly where and under what cir
cumstances he can build,” says Robert H. Freilich, a University of Missouri lawschool professor.
Another criterion
Mr. Freilich, who helped write growth-management plans for Ramapo, N .Y.,
and San Diego, says the community also benefits from more orderly growth, but
builders say a growth-management plan should be judged by whether the public’s
need for adequate, affordable housing is satisfied. By this standard, they say,
many growth-management plans fail.
One of these critical builders is Robert E. Brennan of Chevy Chase, Md. Ac
cording to Mr. Brennan, about 2,500 houses are built annually in Maryland’s
Montgomery County, near Washington, D.C., but “ demand could easily support
6,000 or more housing starts a year.” He blames the county’s growth-management
policies for a housing shortage and resulting high housing prices that make it
difficult for people of modest means to live in the county.
Eugene Sieminski, Montgomery County’s director of housing, says the county
has overemphasized environmental and other considerations, and he agrees “ we
are woefully short of meeting the housing needs of the county.” Mr. Sieminski,
a former building-industry executive, adds, however, that even if the regulatory
climate were more conducive to home building, builders probably would concen
trate on higher-priced housing because of bigger profit margins, and a shortage
of housing for low- to middle-income families would persist.
Across the country, San Francisco economist Claude Gruen examined the
records of two San Jose, Calif., builders and found that the price of housing pro
duced by one builder rose 80 percent from 1967 while the other’s prices jumped
121 percent during the same period. Mr. Gruen, who did the study for the Urban
Land Institute, a research organization, attributes 20 to 30 percentage points of
each builders’ price increases to San Jose’s growth-management policies. “ San
Jose is doing to housing prices what OPEC is doing to oil prices,” he says.
Gary Schoennauer, San Jose’s planning chief, notes that the city’s voters have
consistently turned down bond issues to finance new parks, libraries, street
improvements and other services. Consequently, he says, the city simply lacks
the resources to provide services in every area where builders might want to go.
(If San Jose has injured housing construction in the city, last month it added an
insult. Reacting to Californinians’ approval of Proposition 13 limiting property
taxes, the city passed a tax on new construction. The rate for residential construc
tion is 2% percent of valuation.)
Builders also blame the federal and state governments. Their slowness in
disbursing funds for, say, sewage treatment plants has contributed to shortages

78
of facilities, builders say, and builders have therefore been forced to trim back
or even abandon some housing projects.
One builder, Nathan Shapell, chairman of Shapell Industries, believes that
more housing would get built where it is needed if regulatory agencies were more
flexible. In particular, he advocates less stringent zoning laws.
Breckenridge, Colo., a former mining town that is booming as a ski resort,
abolished its zoning laws entirely and substituted a one-step “ conditional-use
permit system” that guarantees a decision within 40 days. It requires a developer
to meet certain “ absolute” policies, such as health regulations, and adds or sub
tracts points depending on the degree of compliance with “ relative” policies— e.g.,
a policy encouraging Victorian-style architecture in certain neighborhoods of
Breckenridge. If a builder attains a certain number of points, he gets the permit.
One man’s experience

The multimillion-dollar Lake Merced Hill condominium housing project in
San Francisco provides a good illustration of some of the things builders have to
put up with. The project was begun in early 1973 and was scheduled for completion
by the end of that year. But the site, near the ocean, was challenged by environ
mentalists in hearings before a commission that regulates California’s coastline
development. The challenge was settled when developer Gerson Bakar paid nearly
$100,000 into an environmental, fund. He could then proceed with the condo
miniums.
Because of the hearings, the project wasn’t completed until June 1974, six
months late. Because the delay came at a time of rising interest rates, the de
veloper says, his cost per condominium increased to $70,000 from $60,000, but a
softening real estate market prevented him from passing on his full cost increase
to home buyers. Consequently, he says, he lost money on the project.
Mr. Bakar blames his woes squarely on the state law that led to the hearings.
The law, he says, failed to spell out clearly the coastline commission’s jurisdiction
and administrative procedure. “ That law was an annuity for lawyers until the
courts decided what it meant,” he says, adding that the law has since been revised
and now is “ livable.”

U.S. Department of Housing and Urban Development
W ashington, DC.

Final Report of
the Task Force on
Housing Costs

D E P A R T M E N T O F H O U SIN G AND U R B A N D E V E L O P M E N T
W A S H IN G T O N , D.C . 20410

N E W C O M M U N IT Y D E V E L O P M E N T C O R P O R A T IO N
O F F IC E O F G E N E R A L M A N A G E R

May 25, 1978
Honorable Patricia Roberts Harris
Secretary of Housing and Urban
Development
Washington, D.C.
20410
Dear Madam Secretary:
I am pleased to transmit to you today the Final Report
of the Task Force on Housing Costs.
When you created this Task Force late last summer, you
requested that we deliver a comprehensive and realistic
program of actions for the Federal Government, HUD and others
I to implement now to help reduce or stabilize housing costs to
| the consumer.
We believe that we have succeeded.
We have
finished our deliberations within the nine-month period
established by our Charter.
This Report contains highly
significant findings of fact, and major recommendations which
deserve Administration as well as Departmental review.
The Task Force on Housing Costs and its predecessor group
have conducted more than 20 meetings in a public process which
has enabled the members to generate and review more than 400
specific ideas for cost-reducing actions.
Through committees
and in general sessions, we have developed a coherent and real
perspective which underlies the recommendations contained in
this Report.
We believe all of these recommendations have
merit, and are convinced that they comprise a relevant and
feasible method for helping to lower the housing cost burden
for most Americans.
I wish to pay special tribute to the members of this Task
Force and to the Task Force Staff for their dedication and
hard work. This Task Force has performed its task in a
distinguished manner.
I
also want to thank you and Under Secretary Janis for
your continued support and encouragement during this process.

on Housing Costs

Final Report of
the Task Force on
Housing Costs
"The Department of Housing and Urban Development
and any other departments or agencies of the
Federal Government having powers, functions, or
duties with respect to housing, shall exercise
their powers* functions or duties under this or
any other law
in such manner as will
encourage and assist (1 ) the production of housing
of sound standards of design, construction,
livability, and size for adequate family life;
(2 ) the reduction of the costs of housing without
sacrifice of such sound standards; (3) the use of
new designs, materials* techniques, and methods
in residential construction, the use of standardized
dimensions and methods of assembly of home-building
materials and equipment, and the increase of
efficiency in residential construction and
maintenance; (4) the development of well-planned,
integrated, residential neighborhoods and the
development and redevelopment of communities ; and
(5) the stabilization of the housing industry at a
high annual volume of residential construction."

[Excerpt from Declaration of
National Housing Policy in
Section 2 of the Housing Act of
1949 , as amended, Public Law 171,
81st Congress; 6 3 Stat. 413;
42 U.S.C. 1441]

32-099 O • 78

82
TASK FORCE ON HOUSING COSTS

William J, White* ~ Chairman
Task Force Members
Geno C. Baroni*
Robert C. Bates
Howard M. Benedict
Walter L. Benning
Mary E. Brooks
Joseph Burstein**
Edward T. Calnan
Truland H. Carter
John Crosland, Jr,
George W. DeFranceaux
Charles L. Dixon, Sr.
Cushing N. Dolbeare
A. Carleton Dukess
David G. Fox
Robert A. Georgine
Constance B. Gibson
Don L. Gilchrist
Bertrand Goldberg
Daniel B. Grady
Mary A. Grigsby
Theodore R. Hagans, Jr,
Robert G. Healy
Patsy K, Hennin

Ralph J. Johnson
James M. Kinney
Edward L. Lashman, Jr,
Richard Matuschek
Chester C. McGuire*
David S. Miller
Mary C, Neuhauser
Donald C. Parker
Gerald F. Prange
Donald E. Priest
James S. Robinson
Donna E. Shalala*
Philip Sherburne
Lawrence E. Simons*
Glenda G. Sloane
Arthur P. Solomon
Donald L. Stull
H. Ralph Taylor
Franklin A. Thomas
R. Joyce Whitley
Dale A. Whitman
Nadine Winter

Participants from the Federal
Barry P. Bosworth
Richard N. Brandon
Robert Ethington

Deborah Norelli Matz
Grace Milgram
Thomas H. Stanton

TASK FORCE STAFF
Edward J. Cachine, Chairman
Margaret Cooper
Earl L. Flanagan
E. Lawrence Killilea
John A. Maxim, Jr,
Beverly Miller

Judith Morris
Marian C. Palmer
Elizabeth Seifel
Jane Silverman
Stevenson Weitz

*Assistant Secretaries from the Department of Housing and
Urban Development
**Counselor to the Secretary

Table of Contents
Page
CHAPTER ONE - INTRODUCTION.

.........

The Scope of the Housing Cost Crisis. ........
Scope of Inquiry. w „„* . , ,
....
Nationwide Policy Problems.
,
Major Solutions........
,
..........
The Need for Action.
.........
CHAPTER TWO - LAND SUPPLY AND DEVELOPMENT.
Land Supply.
Findings.
Recommendations,
Land Development.
Findings.,
Recommendations.
„
,
...
The Process of Governmental Review and Approval.
Findings..
,
Recommendations.
CHAPTER THREE - BUILDING AND TECHNOLOGY.
State and Local Building Code Requirements
and Administration.
Findings.
Recommendations.
„
. .
„
HUD Minimum Property Standards and Procedures.
Findings.
Recommendations.. .„
.
Support for New Technology and Building Codes.
Findings.
Recommendations.
Materials and Labor Costs.
Findings.
Recommendations.
.
Operating and Maintenance Costs.
Findings.
Recommendations.
CHAPTER FOUR - FINANCING, MONEY MARKETS
AND MARKETING.

1
2
4
6
9
10
13
16
19
20
23
25
26
28
29
30
35
36
37
38
40
41
41
43
44
45
46
48
48
49
50
50
51

National Economic Policies and Financing.
54
Findings.......... ................................ 59
Recommendations.
60
HUD Loan Processing.
.... .................62
F
i
n
d
i
n
g
s
63
Recommendations.
............. 64

vii

Page
viii

Financing and Money Markets,
,
69
Findings. .
,
...... ............. 69
Recommendations.
v „u„, ....
„
70
Financing for Special Housing Needs.
, ........ 71
Findings.
73
Recommendations. , .. ,u ,. ..
73
Consumer Protection: Marketing, Settlement
and Transaction CostüT
!
~
:„..... .... 77
Findings.
79
Recommendations.
80
CHAPTER FIVE - A NATIONWIDE HOUSING COST
REDUCTION PROGRAM.
The Need for Cooperative Action.
Leadership and Coordination.
Findings.
Recommendations.
APPENDIX I - BACKGROUND.
History of the Task Force on Housing Costs.
Interim Task Force and Working Group.
Field Comments.
_
Task Force on Housing Costs.
HUD's Authority.
APPENDIX II - PARTICIPANTS.

Task Force on Housing Costs.
Task Force Members.-! "T7\. ,
.. ’
Participants from the Federal Government.
Committee on Land Supply and Development.
Committee on Building and Technology.
Committee on Financing, Money Markets
and Marketing.,
Task Force Staff.
Liaison Observers.
Special Contributions.
Interim Task Force.. ..,
„_ _ ..
Interim Task Force Staff and Working Group.

83
.

84
84
85
86
93
93
93
93
93
95
97
97
97
101
102
103
103
104
104
104
105
105

85
Chapter one
Introduction
The high cost of housing is now a major problem for millions
of American families.
Costs of acquiring or occupying decent
housing have increased dramatically in recent years. While
it is true that many owners of existing homes have benefited
from inflation and have moved on to improved housing without
major financial strain, others have not been so fortunate.
They include the young couple of limited means buying its
first home, the lower-income family, the elderly on fixed
incomes, and many Americans with special housing needs. For
these households the high cost of shelter is not merely
serious, it is too often an insurmountable crisis.
The housing cost problem is nationwide.
It is not limited
to a few cities or regions.
When so many families cannot
afford to fulfill so basic a human need as shelter, it is
clear that the country has failed them. All Americans are
entitled to enjoy housing that is decent, sanitary, and aafe—
and affordable— as a matter of right.
Bluntly, the Nation is
morally obliged to take concerted action to reduce housing
costs for all of its citizens,
This national imperative for
action requires dynamic and cooperative leadership from all
elements of government, the business community, and the
general public.
The moral imperative falls most clearly and sharply on the
Department of Housing and Urban Development (HUD)
Congress
has delineated the Department's authority to assert a leader
ship role in addressing housing cost problems.
Secretary
Patricia Roberts Harris has assumed such authority and leader
ship. The HUD Secretary must continue to serve as a forceful
and effective advocate at the Cabinet level for national poli
cies to reduce and stabilize housing costs.
This leadership starts with HUD but it does not end there.
Other government agencies— Federal, state, and local— all
have resources and strengths which are unique and critically
important to a resolution of the problem.
Only through people
working together in a sustained effort involving all levels of
government, the private sector, and the public at large can
the critical problem of rising housing costs be overcome.
The members of the Task Force on Housing Costs represent a
broad cross-section of the Nationrs leadership, with members
appointed to represent the private housing sector, consumer
interests, academic institutions, and all levels of government.
Our consensus, as evidenced by the conclusions in this report,
is that a serious crisis is upon us and that it can be resolved
through concerted nationwide action.

The Scope of the Housing Cost Crisis
During the past 2 5 years housing costs have been of continual
concern to the American people. They have been the focus of
many Congressional actions and the subject of Presidential
commissions.
In very recent years, the cost of building,
buying, and operating a decent home has increased faster than
family income.
This is true for new, existing and rehabili
tated housing, and for renters and owners alike* The rising
cost of shelter is a nationwide problem which affects all of
us*
It is exacting a heavy toll which must be measured not
just in statistics but in human costs.
Housing costs to the consumer have been increasing faster than
prices generally (as measured by the Consumer Price Index)
during both the 1960s and the 1970s. During the 1960s this
was not a serious problem for most families, because their
income kept pace with housing prices, the overall costs of
homeownership (which include loan amortization and operating
costs). and rents.
The accompanying table shows that median
family income increased at an average annual rate of 6.60 per
cent between 1963 and 1972, while the price index of the me
dian new single-family house of constant size and quality rose
at an average rate of only 4.23 percent per year
The index
of homeownership costs increased at 5,17 percent per year
Rents rose at only 2.55 percent during the same period.
During the 1970s, however, the picture changed dramatically.
Between 1972 and 1976, family income lagged well behind hous
ing inflation and did not even keep up with the Consumer Price
Index.
Income rose annually at an average annual rate of 7.05
percent, compared to a rate of 9.94 percent for the price of
new single-family homes of constant quality and 12.49 percent
for the median price of homes unadjusted for quality.
During
the same period, the costs of homeownership rose at an average
annual rate of 8.15 percent.
Trends in resale prices of exist
ing homes followed a similar pattern.
While rents have not increased as fast as incomes, nonetheless
they have risen twice as fast since 1972 as in the preceding
decade.
The human dimension of increasing rents appears espe
cially urgent to the millions of poor people who pay what for
them are excessive rents. According to recent testimony by
the Ad Hoc Low-Income Housing Coalition before the Senate
Budget Committee, 2 5 percent of all renter households— concen
trated at the bottom of the income scale— paid more than 35
percent of their incomes for rent in 1975, when payment of 25
percent of income is the accepted norm. As all housing costs
rise, existing Federal subsidies do not stretch as far to help

87
TRENDS IN INCOME, PRICES AND HOUSING COSTS, 1963 - 1976
(Data indexed to 1967 base year, where appropriate)
Item

Year_________

Average Annual
Rate of Increase

1963

1967

1972

1976

1963-1972

1972-1976

Median Family Incane

78.8

100.0

140.0

184.0

6.60%

7.05%

Consumer Price Index

91.7

100.0

125.3

170.5

3.53%

8 .00%

Median Sales Price, New
One-Family Homes d'
79.3

100.0

121.6

194.7

4.86%

12.49%

Price Index, New OneFamily Homes of
Constant Quality (U

90.2

100.0

131.0

191.4

4.23%

9.94%

100.0

138.4

197.5

9.30%

Cost of Homecwnership
(CPI series)

89.0

100.0

140.1

191.7

5.17%

8.15%

Rent (CPI series)

95.0

100.0

119.2

144.2

2.55%

4.97%

Boeckh Residential
Construction Cost
Index

85.1

100.0

145.8

198.6

6.16%

8.03%

Site Value, New
One-Family Hanes (D

$5500

$8900

12.79%

Median Sales Price,
Existina One-Family
Homes M

Effective Mortgage
Interest Rate, New
Homes (FHLBB)

5.89%

6.46%

7.60%

9.00%

2,87%

4.32%

Operating Expenses,
Median Priced New
Home'2'

74.7

100.0

140.0

?18.7

7.23%

11.80%

(1)

Data from the Bureau of the Census

(2) Operating expenses are based on actual experience under the HUD/FHA
Section 203(b) program and include insurance, property taxes,
maintenance and repairs, and fuel and utilities.

these citizens most in need.
In many areas both new and
rehabilitated rental housing are becoming commercially infeasi
ble without subsidies,
The underlying costs of producing, financing, and operating
housing have all risen more rapidly in recent years than in
the 1960s.
As the accompanying table shows, residential
construction costs grew at a rate of 8 percent per year between
1972 and 1976, compared to slightly more than 6 percent be
tween 19 6 3 and 19 72, The cost of improved lots increased at
almost 13 percent per year during the most recent period.
Higher mortgage interest rates, when applied to higher sales
prices, have increased the typical monthly loan amortization
costs for the buyer of a median priced single-family home by
80 percent between 19 72 and 19 76t or an average annual in
crease of 15.9 percent,
Operating expenses increased almost
12 percent during the same period.
The statistics cited above are nationwide figures and the
housing cost experience will vary, sometimes sharply, depend
ing on the particular market area studied. Housing markets
are local rather than national,
Nevertheless, there is grow
ing evidence that rising housing costs are a problem in the
vast majority of markets in the United States and pose an
urgent situation in those high growth regions where more
Americans increasingly are choosing to live.
In some areas,
developed lots are not available at any price, while in others,
site availability is not as crucial an issue as access to
financing or to skilled labor and needed materials.
There is abundant evidence that the housing cost problem has
accelerated in recent years*
Some observers have concluded
that this means that rising housing costs are but a short-term
problem.
We have determined otherwise. Certain structural
problemst most notably the cyclical nature of the housing
industry, have contributed to rising housing costs in both
the long and the short term. Since the early 19 70s, however,
the problem of rising housing costs has been greatly exacer
bated by two other factors— growing environmental and land-use
regulation and the fiscal difficulties of many American communi
ties*
Communities have slowed their growth and new housing
development has been restricted. These new factors that have
quickened the pace of rising housing costs portend a long-term
problem for the future unless major steps are taken.
Scope of Inquiry
The Task Force's mandate has been to analyze and understand

89
the extent to which costs truly have risen for reasons other
than general inflation and to develop specific solutions to
the problems which HUD and other institutions can act upon.
Such other institutions include other Federal agencies, state
and local governments, and the broad range of private firms
involved in the housing industry.
Our purview has included housing production, renovation, and
upancy costs for single-family and multifamily housing,
ial units as well as homes for sale. We have considered
¿Iter needs in urban, suburban, and rural areas. Although
:e emphasis in this report is on specific measures to
duce or at least to stabilize new housing costs, we also
*qgest ways to make rehabilitation more affordable.
In
edition, we include recommendations to reduce operating
costs.
We recognize that, in some measure, rising housing costs are
a result of demand and supply factors endemic to the
national economy. A major portion of the housing cost
problem, however, is caused by people and can be solved
by people. The recommendations in this report represent
a practical and aggressive program for addressing these
problems. Most recommendations can be implemented quickly
and none requires large budget increases.
There is no single recommendation that alone will solve the
problem of rising housing costs even though many will have
substantial cost-reducing effects. We believe that the
Department should respond positively to all recommendations.
When implemented, they will have a very significant, cumula
tive impact upon housing costs.
There are several major issues which the Task Force has not
addressed. The most obvious of these is housing subsidies
or income transfers.
In large part this is because there
are others charged with addressing subsidy issues more
directly. Nevertheless, we affirm that subsidy mechanisms
are legitimate and should be regarded as complementary to
the recommendations contained in this report.
The lowering
~>f housing costs overall can help to facilitate the proviion of subsidized housing and enable available subsidies to
*** De spread to a greater pool of needy consumers.
We strongly
support the unique role played by major providers of lowincome housing such as public housing agencies, nonprofit
sponsors, and entrepreneurs.
For many low-income families,
subsidies may be the only way decent housing could be afford
able under current conditions.
But recommendations to deal

90
6

with the special problems affecting these important sources
of housing for the very poor were beyond the mandate of this
Task Force.
Similarly, we recognize that the lack of equal opportunity
continues to prevent many members of minority groups from
living where they choose or in some cases acquiring shelter
they can afford. Although we have addressed red-lining by
lenders, we have not directly dealt with other issues of
equal opportunity.
Nevertheless, we strongly believe that
vigorous enforcement of fair housing statutes can have a
significant impact on reducing housing costs for many members
of minority groups by increasing their housing choices.
Finally, we recognize that speculation in both buildings and
land may contribute to rising housing costs in many locations.
This report does not contain specific recommendations which
directly address speculation.
In large part this is because
speculative activity is viewed by many as a normal market
place phenomenon, and we do not feel confident in recommend
ing specific measures for nationwide adoption at this time.
In analyzing the housing cost question, the Task Force is
acutely aware that many recommendations in this report have
their potential debit sides.
It would be useful to have the
results of cost-benefit analyses. But such data are not cur
rently available.
For example, in order to reduce operating
costs, it may be necessary to increase initial capital costs.
Alternatively, efforts to remove some of the burdens of paying
for community services from developers and hence the consumer
mean that they will be borne by the community as a whole.
Although an awareness of the need for these trade-offs is
essential, we believe that the benefits of moving ahead to
solve the housing cost problem far outweigh the costs.
Nationwide Policy Problems
In analyzing the housing cost problem, the Task Force has
identified several major problems which have nationwide cost
impacts and which require national leadership if they are to
be solved.
The following listing does not imply a ranking
of problems. All of the issues are critical and must be
addressed if housing costs are to be reduced.
(1)
Housing Industry Cycles and National Monetary Policy.
The cyclical nature of the housing industry, which is

91
exacerbated by countercyclical national monetary policy,
increases housing costs to the consumer k There is persuasive
new evidence, however, that a more stable housing industry
would better serve national economic goals. The impact of
countercyclical national monetary policy and housing industry
cycles pervades every aspect of housing construction and
rehabilitation— the inhibition of long-term capital invest
ment, the interest paid on financing, the cost of land, and
the cost of equity and working capital— as well as most
occupancy costs. It affects stability, availability, and
cost of funds in the money market.
(2) National Tax Policy. The Internal Revenue Code has a
major impact upon the housing sector and the cost of housing
to the consumer.
Tax policy affects the flow of equity and
working capital; the flow of financing in terms of stability,
availability and cost; and the need of investors in volume
housing production or renovation for predictable tax treat
ment of their investments. The threat of proposed changes
in the Code has created an unstable investment environment
for housing development and renovation.
The process of tax
policy formulation, particularly with respect to tax treat
ment, incentives and subsidies for the housing sector, rarely
includes HUD at the highest levels of decisionmaking.
These
issues should be studied and housing concerns must be given
adequate consideration.
(3) Increased Government Regulation. Regulation by all
levels of government is a major factor in increasing housing
costs through both substantive requirements and processing
delays. The proliferation of government regulations, many of
which are unduly burdensome, affects all areas studied by the
Task Force.
Increased and excessive standards are a factor
in escalating the costs of financing, land development, hous
ing construction and rehabilitation, and the provision of
supporting amenities, as well as occupancy costs.
Many lo
calities impose burdensome fees and impact taxes on newly
developed lots, in an effort to shift the cost of facilities
from the community to the new homebuyer.
Time-consuming and
expensive review procedures and lengthy processing exact a
heavy cost in terms of overhead, inflation, reduction in the
return on investment, and fees and charges from construction
or rehabilitation delays.
(4) Unstable Money Supply. Instability in the money markets
affects the flow of financing and causes increased financing

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8

costs. A more stable money market is essential,
In addi
tion to revised national monetary and tax policies, other
measures to stabilize the money market should be implemented.
(5) Constrained Land Supply. A dearth of developable sites
is a major factor in increasing housing costs.
The problem
is not so much a shortage of raw land but a shortage of ser
viced sites.
Inadequate facilities, particularly for water
and sewer, seriously restrict land supply,
Land-use, environ
mental i no-growth and exclusionary zoning regulations have
also constrained land supply severely, particularly for lowand moderate-income housing.
These are regional problems
and appear to be most severe now in high growth areas.
But
because of local slow growth measures and difficulties in
funding infrastructure costs, constrained land supply will
become a nationwide problem unless these problems and con
cerns are addressed now.
(6) Resistance to Innovation. In every area studied by the
Task Force— building, land, and financing— resistance to new
ways of doing business may impede the use of new techniques
to reduce or stabilize housing costs.
Innovations in regu
latory processes, materials, financing procedures, and
technology all offer great potential,
But the nation lacks
adequate mechanisms to test, demonstrate, and market feasible
new ideas.
The housing consumer suffers higher costs as a
result,
(7) Special Housing Needs. Many Americans, such as large
families, the handicapped, migrant workers, and rural nonfarm
households will not have access to marketable housing designed
and financed to meet their needs unless specific actions beyond
those recommended for general housing cost reduction are initi
ated. A major portion of the population will be denied access
to decent housing at reasonable cost unless special remedial
steps are taken.
(8) Utility Charges, Taxes, and Hazard Insurance. Occupancy
and operating costs in general have risen even faster than the
production cost of new housing in recent years.
Particularly
burdensome are escalating utility charges, local property
taxes, and hazard insurance* With the energy crisis and ris
ing costs confronting utility companies, the fiscal incapacity
of many local communities, and growing risks to property,
these elements of operating costs appear especially intractable
and are cause for major concern.

93
(9) Inadequate Basic Research. The Nation is losing many
opportunities for housing cost reduction because of a lack
of support for basic research.
Scientific data are not
available for many issues of hardware and materials, fire
and life safety, and standards for land development and
building.
Major Solutions
The Task Force urges immediate action upon the following rec
ommended solutions to the national policy problems described
in the previous section:
(1) An immediate and comprehensive review of national mone
tary policy and the economy, researching the impact of
countercyclical policy both upon the housing sector and costs
to the housing consumer, and upon the entire national economy,
so as to resolve a needless conflict between the needs of the
economy generally and the needs of the housing sector speci
fically.
New econometric research suggests that this is
feasible and desirable. The Secretary should be a forceful
and effective advocate at the Cabinet level for HUD to play
a major role within the Administration with respect to
setting national monetary policies that include stabilizing
the housing sector among national economic goals.
(2) An immediate and comprehensive review of national tax
policy with special emphasis on ensuring stability and pre
dictability of funds for housing under the Internal Revenue
Code. Again, HUD through the Secretary should be a forceful
and effective advocate at the highest levels of government
in setting national tax policy that takes into account the
needs of the housing sector. The use of tax incentives and
indirect subsidies for the housing sector should be examined.
(3) A blunt attack on poorly conceived and cost-inducing
regulation to eliminate unnecessary standards and cut down
on time-consuming processing.
Regulations that deal with
financing, land development, housing construction and re
habilitation, and the provision of supporting amenities
should be streamlined. There should be a concerted effort
at all levels of government, with HUD playing a leadership
role, to make the regulatory framework efficient, fair and
rational,
This includes timely publication of regulations
and better coordination at all levels.
(4) An increase in the flow and stability of funds for hous
ing and a reduction in the cost of such funds through various

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10

other measures such as increased secondary market support
and an expansion of sources of funds for housing finance
infrastructure purposes.
(5) Intergovernmental advice, assistance, and encourage
ment for local governments to help them provide an adequate
supply of land for housing development, supported by the
potential partial or total withholding of Federal urban
development funds from communities that do not voluntarily
make a reasonable effort to remove regulations with an un
justified, cost-increasing, or exclusionary impact,
(6) Mechanisms for creating new techniques, and for the
testing, demonstration, and, where viable, the adoption and
encouragement of promising new methods— whether they be in
building technology, land development, or financing.
A
capability and mechanism at HUD for fostering new building
technology and codes policies, and for appropriate testing
and demonstration should be established and adequately
funded through the creation of a major Office of New Techno
logy and Codes Policy.
(7) A concerted effort to develop mechanisms to meet the
housing needs of those Americans for whom housing costs are
an especially intractable problem, including modified design
and financing techniques to support the development or reno
vation of marketable housing for them.
(8) A broad attack on the high cost of utilities, local taxes,
and hazard insurance, three major factors in operating costs,
through analysis of the potential benefits of energy conser
vation, study of the cost impact of local property taxation
and hazard insurance fees, and exploration of innovative
utility, property tax, and insurance practices.
(9) A major research agenda to provide the necessary scienti
fic data on aspects of housing construction and rehabilitation,
such as materials and hardware, fire and life safety, the many
standards now in use but unsupported by basic research analy
ses, and other critical land, building, and financing issues.
The Need for Action
The housing cost problem is really two problems*
The first
is the obvious problem confronting millions of Americans who
cannot now afford reasonable shelter. The second problem is
much more basic.
It is a crisis of leadership.

95
The housing cost problem is everybody's problem
one must be part of the solution.
Nothing less
joining together by the Nation's leaders at all
government, industry and the general public— in
attack on housing costs will solve the problem.

and everythan a
levels—
a concerted

Government alone cannot solve the problem. Nor can the
private sector working by itselfr Very simply we must all
work together
The catalyst for involving the Nation's
leaders should come from the Federal Government and in parti
cular HUD.
The Federal Government cannot expect state and local govern
ments to improve their methods of operation, nor can it hope
for massive private participation until HUD and its companion
agencies sweep their houses clean of excessive requirements,
dilatory processing, and inefficient management.
Immediate
implemention of the recommendations in this report will be a
signal to others to act equally forcefully and expeditiously.
The issue of housing costs will be a recurrent one for America
unless the steps recommended in this report are taken.
The
Task Force believes the benefits of moving ahead with such a
program are considerable and could have an impact well beyond
the housing sector— in terms of increased employment, recla
mation of urban areas, and expanded tax revenues, to cite a
few of the benefits.
Thus, these measures could not only
reduce housing costs; they could have a vast and salutary
impact on many areas of American life. We challenge the
Nation's leaders from all walks of life to work together to
solve our housing cost problem.

96
Chapter Two
Land Supply and Development
Much of the increase in housing costs is directly attri
butable to a steady rise in the cost of the serviced site.
A survey by the Urban Land Institute of developer members
in seven metropolitan areas found an average increase in
urban land prices between 1970 and the spring of 1974 of
100 percent.
This is an average annual rate of increase of
20-3 0 percent for the period, compared to an increase of
8-10 percent between 1958 and 1970. The Department of
Agriculture found that the average value per acre of farmland--a prime source of developable lots— had almost trip
led between 1967 and 1977.
Nationally, the developed lot
now accounts for about 20 percent of the cost of a typical
single-family house with FHA mortgage insurance, compared
to about 15 percent in 1960.
In areas with stringent land
use regulations, ratios of 30 percent are not uncommon
for conventionally financed development.
Discounting
inflation, consumers are getting less housing for their
dollar because they are paying proportionately more for the
site.
There are three major reasons for this increase in the
cost of sites:
(1)

Constraints in the supply of developable land;

(2)

High site development costs; and

(3)

Procedural delays.

In many areas the supply of developable land has been
constrained in part by limitations in the capacity of
public facilities— especially water and sewer— and by
restrictions on the use of land through zoning and related
controls.
Rapid increases in site development costs have
been caused by higher governmental standards and fees.
Procedural delays have resulted from the proliferation of
governmental regulations affecting land development,
Each
of these problems is discussed in greater detail in a
separate section of this Chapter,
There are many reasons for the governmental policies which
have been a major cause of increased land costs. Much
Federal, state, and local regulation stems from strong
environmental protection grounds.
Similarly, there is a
desire to give citizens and other public agencies the
opportunity to comment on publicly assisted developments.

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14

it would be easy to characterize many local regulations as
purely exclusionary. Many communities, however, are
responding to the reality of fiscal strain and environmental
degradation. Unfortunately, whether the intent is exclu
sionary or not, the impact is the same. The excluded are
no longer only low-income families and racial minorities.
In more and more communities, they include many first-time
homebuyers, elderly residents looking for apartments and
an increasing number of middle-income families. Says
John Goldsmith, editor of House and Home, "Self interest
is what we are talking about here. The last guy in wants
to be the last guy in."
A choice of housing types and locations can bring substan
tial economic and social benefits to individual communities.
Shutting out such development creates major economic,
environmental and social inequities.
It exacerbates urban
sprawl by pushing development further into exurbia, it
hinders the development of a balanced property tax base,
and it prevents the housing consumer from exercising
choice as to where he or she will live.
There is a national interest in achieving a balance between
necessary environmental and fiscal concerns on the one hand,
and adequate housing at a reasonable cost on the other,
A more rational, efficient and fair system of regulation
and infrastructure investment will have enormous impact on
lowering land costs. That will be translated into lower
housing prices for the consumer and greater locational
choice.
Federal, state and regional programs all have an influence
on land use.
Their impact is small* however, compared to
local regulations which stem from state authority. Never
theless, as the involvement of all levels of government
increases, so does the opportunity for a viable nationwide
partnership to exert a salutary impact on those regulations
which have been increasing housing costs. Most of the
recommendations in this chapter follow a two-phased
approach.
Phase 1. In the first phase, which would take one and onehalf to two years, HUD would undertake the following
actions immediately.
(a)
Develop brief, minimal standards for use by HUD
field staff in evaluating local land-use controls.

32-099 O

78 • 8

98
This recommendation is specified later on in the section on
Land Supply, although such standards may pertain to land
development requirements as well,
(b) Develop technical information and advisory guide
lines to assist local* regional and state entities in
planning for an adequate supply of developable land* setting
reasonable standards for land development* and administer
ing the regulatory process efficiently.
Specific recom
mendations for this element of the approach are provided in
all three sections of this Chapter
This effort must be
supported by research.
(c ) Seek to minimize cost inducing impacts of Federal
environmental and land-use programs, such as those
administered by the Environmental Protection Agency (EPA),
by identifying and measuring such effects and developing
alternative approaches which would minimize cost impacts
without compromising national objectives.
(d) Sponsor multi-state regional conferences, in
cooperation with the states to focus the attention of elected
and top appointive governmental officials on the cost of
land-development regulation.
States should be recognized
as the source of land-use regulatory authority.
They should
be urged to examine the cost impacts of enabling legislation
and regulatory practices.
These conferences should be held
while HUD is developing information and advisory guidelines
and investigating Federal programmatic problems.
A specific
recommendation for this element of the overall approach is
included below in the Land Supply section, although it
pertains to the objectives of all three sections.
Phase 2 . In the second phase of the overall approach
proposed in this Chapter, HUD would:
(a)
Encourage and where possible require substate
regional councils to develop regional standards on land
supply and land-use regulations and to make findings of
local compliance or noncompliance with such standards.
Substate regional councils should provide technical assis
tance to local governments to foster voluntary compliance
with these standards.
States should be invited to
participate in standards setting and technical assistance
and should be informed of findings of compliance and noncompliance.
Specific recommendations are provided in
later sections of this Chapter,

99
16

(b) Support these compliance efforts by partial or
total withholding of Federal urban development grants from
noncomplying communities if all voluntary efforts at
compliance fail.
Other Federal agencies should be encour
aged to participate in this enforcement effort* A process
should be established whereby a finding of local compliance
or noncompliance can be challenged and reviewed.
The Task Force realizes that the proposed strategy calls
for some increase in bureaucratic authority at a time when
skepticism about the effectiveness of big government is
widespread, but there is no satisfactory alternative.
The information and advisory guidelines are intended to be
advisory, and they will have significant impact by them
selves, without direct implementation. When it comes to
the development and enforcement of standards, we look to
the only existing institutions with the appropriate
information, planning expertise, and geographic jurisdiction:
substate regional councils. The Federal Government has long
supported these organizations to plan and program on an
areawide basis for housing, transportation, sewer and water
and other functions, and to review and comment on applica
tions for Federal grants.
It is natural and appropriate to
turn to them now.
We recognize that regional councils are in most cases
creatures of their member local governments and that there
fore we are actually calling on local governments to police
themselves with Federal encouragement.
There is much to be
said for this approach. We recognize that state governments
provide the statutory authority for local control of land
use and therefore encourage state involvement in this
process.
Such involvement, however, must be at state
initiative.
The need for reform of policies and procedures at the Federal
level is fully recognized. We do not expect state and local
governments to accept Federal leadership in land-use matters
unless the Government takes significant steps to put its own
house in order.
Land Supply
When an item is in scarce supply in relation to demand,
sellers will tend to ask higher prices.
This law of the

100
market is driving up land prices in many areas of the
country. A recent report by Advance Mortgage Corporation
notes that one-third of the major metropolitan markets in
the United States will suffer a severe shortage of develop
able lots in 1978.
In the Chicago area, it is predicted
that a dearth of improved lots will raise the price of
developable sites by 20 percent this year alone. Constric
tions in the supply of developable land may result from a
complex interaction of factors.
For example, natural
features of the terrain and concentration of ownership
both limit the supply of potential building parcels.
But it is governmental action— through regulation and
investment decisions— which, more than any other factor,
has constrained land supply,
Limitations in the capacity
of infrastructure, such as sewers and roads, can preclude
development in certain areas.
Supply can also be limited
by zoning or other special ordinances which effectively
prohibit development in designated areas.
In addition,
property tax practices, either by design or inadvertence,
sometimes work to keep raw land off the market,
This problem is likely to get worse, not better.
Fiscal
problems of local government as well as higher environ
mental standards will continue to restrain the expansion
of sewage treatment capacity and other infrastructure
vital for opening up developable sites.
Local governments
are dependent on Federal matching funds for the construc
tion of sewage treatment facilities, but the source of such
moneys is finite and the need is great.
Furthermore, the
Environmental Protection Agency (EPA) is placing restrictions
on the extent to which the Federal Government will fund
sewage treatment capacity beyond existing needs, a factor
which could further inhibit supply. Moratoria on new
sewer connections put a premium on lots with hookups.
In
Montgomery County, Maryland, where a moratorium covering
large areas of the county existed for several years, a
quarter-acre lot with a hookup would sell today for more
than $40,000.
In the early seventies, before the mora
torium, it would have brought $10,000-$12,000.
In addition to the problem of the overall supply of
developable land, there is the specific problem of finding
desirable sites for higher density housing which could be
developed for families of low, moderate and middle income.
Many local zoning ordinances severely restrict the variety
of housing within their community's boundaries. A recent

101
18

report by an American Bar Association commission notes that
in the New York metropolitan area 99.2 percent of the
undeveloped land zoned for residential use is restricted to
single-family housing*
In Connecticut* the ABA report
observes, more than half of all vacant land zoned for resi
dential use is for minimum lots of one to two acres.
Such restrictions make the development of housing for low
and moderate-income families very difficult if not pro
hibitive and also contribute to excess costs for middleincome residents.
In addition to outright restrictions on the use of sites,
the process of administering zoning itself has had a con
straining effect and has contributed to cost increases*
In
theory, local governments are supposed to maintain sufficient
amounts of suitable land in zoning districts for various uses
and densities to accommodate development needs at any time.
In practice, however, many local governments have not been
able to do this. Suburban jurisdictions often have a scar
city of small-lot and multifamily zoning; older cities often
have an excess of high density zoning.
Thus, there is a
mismatch between the demand and the availability of sites
zoned at various densities.
As a result, the zoning process
is usually dominated by a series of rezoning actions in which
developers, not the planning authorities, request amendments
to the zoning map. Many communities have zoned their resi
dential land for large-lot, single-family detached homes,
assuring that the cost of the houses will be relatively high.
The rezoning process is often made sufficiently difficult to
discourage or deny the availability of adequate amounts of
land at higher density.
It is generally acknowledged that vacant land in growing
areas is often underassessed for property tax purposes.
This reduces the owner's cost of holding the land in an
undeveloped state in the hope of receiving a larger capital
gain on the parcel at a later time* From the perspective of
government, the underassessment of vacant land does tend to
retain sites for temporary open space but is a deterrent to
its use for housing.
Also, in response to taxpayer complaints, some state govern
ments are placing artitrary restrictions on the growth of
local property tax levies.
Unless this is done very skill
fully, it can drastically reduce local capacity to meet
capital and operating needs (including the construction

102
of facilities needed to support new or revitalized neighborhoods). and it can cause inequities in assessments among
existing and new properties.
Most of this discussion has focused on issues most commonly
found in suburban areas. Considerable land exists within
our cities and older suburbs which has not been developed
or which could be redeveloped. Most of these properties
are already provided with the costly public investments to
support residential development— sewer, water, roads and often
community facilities.
In the urban core the problem is often that the areas avail
able for redevelopment are considered unattractive for
residential use or are difficult to develop. The urban
centers and older suburban areas often share another problem
which stymies development.
The owners of vacant or un
developed land are unable or unwilling to develop or sell
the property. Thus, the land remains unavailable even
though it is designated for residential use and large sums
of public funds have been spent on its development.
The
result is to restrict housing opportunities in the urban core
and to push development further out into suburban areas.
Federal surplus land in urban areas is often suitable for
housing for families of low-and moderate-income.
However,
it has rarely been used for this purpose because the law
requires that when housing is the new use, the property must
be purchased for value rather than transferred for use, as
is the case with parks, schools or airports.
In addition,
the housing must be provided through a Federal program for
housing subsidy.
Findings;
The Task Force finds that in many market areas the supply of
developable land for a range of housing types and densities
is being constrained by governmental policies. As a result,
land costs are being driven up.
We recognize that efforts of local governments to control
the timing, location and character of development often
derive from such worthy goals as fiscal responsibility and
environmental protection. Clearly, the challenge is to
strike a reasonable balance between these valid community
objectives and the provision of enough opportunities for
housing development.

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Recommendations :
HUD should act now to:
A. Develop and promulgate brief, clear, minimal standards
for the residential elements of local land-use regulations.
These standards should be designed to assist Departmental
staff in easily identifying land-use controls having costincreasing and exclusionary effects which are clearly con
trary to Federal housing and community development policies.
1
While some variations may be appropriate among
communities of differing degrees of urbanization, such
standards should require in the text of zoning ordinances
or related development controls (as opposed to requiring
it in the map) the following:
a. A minimum lot size for single-family detached
houses which is at least as small in square feet as has
been used typically for small-lot development in the
relevant market area.
b. Provision for housing at a density commonly
associated with row houses or garden apartments.
c. Interior dwelling size requirements which are no
greater than those in the state health, building, or housing
code.
d.

Elimination of requirements for garages.

The above requirements are not exhaustive.
Resulting
HUD standards should be confined to those aspects of landuse regulation that are very straightforward and easily
interpreted.
2. The primary burden of administering these standards
should be on HUD stafft HUD should notify applicants for
Community Development Block Grant funds that such standards
exist and will be used by HUD in monitoring performance
under the program. The standards should leave little room
for argument.
If a problem arises, however, its resolution
should not hold up approval
3. The Department should promulgate these minimal stan
dards no later than December 31 * 1978.

104
B. Sponsor, in cooperation with state governments, multi
state regional conferences to focus the attention of elected
and top appointed government officials on the cost of landdevelopment regulation.
These conferences should discuss
ways to provide an adequate supply of developable land, set
reasonable standards for site development, distribute the
burden of public facilities costs equitably, and manage
the regulatory process efficiently.
The states should be
encouraged to examine the effects of their respective
enabling statutes and regulatory mechanisms on the cost of
housing.
C. Undertake a phased intergovernmental effort as out
lined in the introduction to this Chapter to advise,
assist and encourage local governments in the provision of
an adequate supply of land for housing development.
This
effort should include the following elements:
1.
Immediate development and dissemination by HUD,
after appropriate research, of information and advisory
guidelines on:
a.
The following four aspects of local land-use
regulations as they affect the supply of developable land.
(1) The variety of types and densities of
housing which should be provided for in the text of zoning
ordinances or other land-use regulatory mechanisms.
(2) The amount of vacant land which should be
developable at any time for different types and densities
of housing by virtue of designation on a zoning map or
other geographic delineation.
(3) The relative locational characteristics and
other qualitative characteristics of land which should be
developable for various types and densities of housing,
including such considerations as distribution throughout
the community; proximity to existing or planned facilities;
and environmental suitability of the site.
(Existing HUD
criteria may be used.)
(4) The characteristics of the process which
local governments should use to make land developable under
land-use regulations for various types and densities of
housing.

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22

b. Planning for facilities to support an adequate
supply of developable land (including coordination with
regional sewer and water planning under EPA's Section 208
program) in locations where the demand exists, and monitor
ing and interpreting trends in land prices, locational
choices of developers, type and quality of product, and
industry characteristics.
2.
Investigation by HUD of Federal programmatic issues
affecting the supply of developable land, e .g p o l i c i e s of
EPA on water and sewer facilities, and HUD flood-plain
management policies.
3* Development by substate regional councils of regional
standards based on the advisory guidelines called for above
but sensitive to local conditions.
Regional councils should
then make periodic findings as to the extent to which each
municipality meets the standards.
The setting of such stan
dards and the findings of compliance or noncompliance should
be required of all regional agency recipients of grants under
the HUD 7 01 Comprehensive Planning Assistance Program. Where
there is no appropriate multi-jurisdictional regional council,
counties or states should be encouraged to develop the stan
dards.
If the standards developed and adopted by a regional
body (or county or state) address the principal issues stressed
in the advisory information and guidelines developed by HUD,
they should be presumed by HUD to be legitimate.
4.
Partial or total withholding of funds for urban devel
opment from noncomplying jurisdictions by HUD and other
Federal agencies with such programs if all voluntary efforts
at compliance fail.
HUD should establish a process under
which a finding of local compliance or noncompliance can be
challenged and reviewed.
D. Encourage local governments to use Community Development
Block Grant funds to acquire, in advance, sites for subsidized
housing for the purpose of reducing the cost of such housing.
Sites should be made available to private developers of sub
sidized housing as well as public authorities.
If the law
of any state impedes this practice, HUD should seek change
or clarification of the relevant law.
E. Assist cities in the development of passed-over or
surplus land by taking the following actions:

106
1. Wake resources available to central cities to
redevelop underutilized land for new or expanded residen
tial communities.
Funds will be required to overcome en
vironmental or social detractions in these areas, to sub
sidize the price of housing to attract middle-income per
sons and to limit the risks of housing developers in these
areas. A redefined Title VII new communities program could
be used as a vehicle to accomplish this effort, as could
Community Development Block Grants and Urban Development
Action Grants,
2. Undertake research into alternative means to en
courage and possibly require that land serviced at public
expense and designated for residential use be made avail
able for development.
The research could focus on taxing
policies, penalty payments, use of eminent domain powers
and any other appropriate public action. With regard to
taxing powers, local governments should be encouraged to
assess vacant, passed-over sites at the required percent
age of full market value.
3. Develop a program to assure that information on
surplus property suitable for low- and moderate-income
family housing is made available to appropriate govern
mental and private groups in a timely fashion to enable
them to secure the necessary financing and the HUD commit
ment which will allow them to obtain the property* The
Federal law should be amended to permit the transfer of
surplus property on the same basis as is now provided for
parks, airports and educational uses.
Land Development
Site development costs have been one of the most steadily
increasing components of housing costs generally over the
past ten years. This has happened because higher, more
costly standards have evolved and because costs formerly
the responsibility of local government and not included in
the purchase price of housing have now been shifted to the
developer, who passes them on to the housing consumer.
Site development may include the costs of grading and
clearing; construction of on-site and off-site streets;
installation of on-site or off-site utilities (water, sewer,
gas and electricity); storm water management; dedication of
land for on-site community facilities, such as schools and
parks; payments in lieu of dedication; and various fees,
charges, and other assessments.

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24

Many standards are outmoded and excessive* They include
unnecessary access road requirements, sidewalks, and unduly
wide streets. Virginia now requires a 7 percent grade on
residential streets instead of the previous 10 percent*
This means more cutting and filling and the removal of more
trees.
The regulation was intended for highway development
and is totally unnecessary on local streets*
Yet it applies
uniformly to both. Measures such as these have increased
housing costs by thousands of dollars.
Many of these
requirements have little justification in terms of health,
safety or general welfare and are on the books largely for
reasons of value and amenity.
Standards such as these may
be more than the general public can afford.
In addition to the cost of complying with high standards,
the developer is often subject to a host of fees and assess
ments, which have been steadily increasing over the past
few years.
In 19 72, water and sewer fees were $1530 for a
new single—family house in Fairfax City, Virginia.
In 19 78,
they were in the $2600 range.
Some of these charges are keyed to local governmental
costs of processing applications, conducting inspections,
or performing necessary on-site mechanical work.
Others,
however, are designed to finance capital costs normally
borne by the community at large.
In a national study of state and local governmental capital
demand, George Peterson of the Urban Institute found that
"as much as $4 to $5 billion per year is probably contrib
uted to the public capital stock by developers who must
install community facilities at their own expense." He
estimates that this breaks down on an average to a cost of
$4652 per housing unit and includes minor subdivision roads,
half of the cost of collector roads, sanitary sewage
collection systems, storm drainage collection systems,
water distribution systems and park and recreation space.
Increasingly the newcomer is being asked to bear a dis
proportionate share of the cost of local growth. Although
local taxes may be kept down, the result is to increase the
cost first of new housing and then, through the market, of
existing housing as well,
Unquestionably growth imposes a cost on communities.* But
new housing also creates social and economic benefits, and
it is in the interest of communities to encourage reason-

108
able growth and opportunities for all segments of the
population when possible,
It may be fair for the consumers
of new housing to pay the cost of site improvements
internal to the site which are necessary to protect their
basic health, safety and property, but it is not fair for
new development to bear all the costs of growth, including
the cost of new community facilities and higher standards
which will benefit property values in the community at large.
Some have argued forcefully that the community as a whole
should pay for all the streets, sewers and water lines
internal to a subdivision.
Indeed some local governments
do this and others are considering it. This is a laudable
practice where feasible, but impractical as a national
policy because most communities simply could not afford it.
Pressure to do so would fuel anti-growth attitudes,
Many of the costs discussed in this Chapter could be
reduced through more cost-effective site planning.
In
a handbook on tJiis subject, the National Association of
Home Builders estimates that street pavement would cost
$521 a dwelling unit in a cluster development as compared
to $831 a dwelling unit in a conventional subdivision;
clearing and grubbing would cost $175 per dwelling unit
in a cluster configuration, compared to $250 a dwelling
unit in a conventional project; and storm sewers would cost
$381 a dwelling unit as compared to $659 for their con
ventional subdivision counterpart.
Communities could
encourage cost-effective site planning through more
flexible ordinances, especially those that encourage
compact land-use configurations.
Developers and government
have a mutual interest and responsibility in encouraging
such practices.
Findings:
The Task Force finds that governmental standards for
internal infrastructure and environmental-control require
ments during site development have increased steadily over
the past several years and have raised the cost of site
development substantially.
In some areas these require
ments and standards are above and beyond what is necessary
to protect basic health, safety and general welfare.
Although there is a need for government to specify reason
able standards, government requirements which exceed such
minimums should be reduced.
We find that local governments are steadily transferring

109
from the community at large to the developer, and thence
to the new housing consumer, a greater share of the public
capital costs of arowth. This is being done through the
imposition of fees and charges as well as through require
ments for construction and dedication*
In many areas
this trend has proceeded beyond what is equitable and
reasonable.
There is a need to specify and enforce a
fair allocation of costs.
Recommendations:
HUD should act now to:
A. Undertake a phased intergovernmental effort, as out
lined in the introduction to this Chapter, to advise,
assist and encourage local governments to address the
problems of high site development costs.
This effort
should include the following elements:
1.
The immediate development and dissemination by
HUD of information and advisory guidelines for use by
local governments in setting requirements, fees and charges
relating to site development.
This material should contain:
a. Specific minimum requirements for the protection
of basic health, safety, and environmental quality.
Addi
tional information should show the cost of amenities
beyond these minimum requirements*
Performance standards
should be encouraged where explicit criteria exist and
where their implementation would facilitate substitution
of materials and innovative design without contributing
to procedural delays and undue local staff discretion.
b. Criteria for those requirements, costs, fees
and charges which may fairly be charged to the new home
buyers or renter (via costs passed on by the developer)
versus those which should be borne by the community at
large through taxes or other forms of governmental revenue.
These guidelines should reflect the following policy:
(1)
The consumer of new housing should be re
quired to bear no more than the cost of site improvements
internal to the site which can be justified as necessary
to protect the basic health, safety and property of future
residents of the site, protect environmental quality of
the community and ensure that only normal maintenance will
be required over the generally accepted economic life of

110
streets or utilities to be dedicated to the government.
(2)

The community at large should bear the

cost of:
(a) Governmental requirements which are
of a standard higher than the minimums specified by HUD
to protect health, safety, property, air and water quality,
and assure reasonable maintenance costs;
(b) Extra-sized pipes or streets on the
site,, or off-site streets, sewage treatment capacity and
interceptor lines needed to serve primarily existing and
future residents living off the site; and
(c)

Schools, parks, libraries and fire

stations.
2. Investigation by HUD of Federal programmatic issues
affecting site-development costs, e.g. HUD Minimum Property
Standards and EPA policies for funding sewer collectors.
3, Development by substate regional councils of
regional standards for local requirements, fees, and
charges related to site development.
Such standards
should be based on the HUD advisory guidelines and be
sensitive to local conditions.
Regional councils should
then make periodic findings as to the extent to which each
municipality meets the standards. The setting of standards
and findings of compliance should be required of all
regional councils receiving funds from the HUD Comprehensive
Planning Assistance (701) program.
4;' The partial or total withholding of funds for urban
development from noncomplying jurisdictions by HUD and
other Federal agencies with such programs if all voluntary
efforts at compliance fail.
HUD should establish a process
under which a finding of local compliance or noncompliance
can be challenged and reviewed.
B. Encourage recipients of Community Development Block
Grants to use such funds to provide internal infrastructure
and other community facilities for housing developments
serving families of low- and moderate-income. If the law
of any state impedes this practice, HUD should seek change
or clarification of the relevant law.
C. Work to remove legal impediments to the use by commu
nities of locally raised revenue to provide internal

I ll
28

infrastructure and other community facilities for housing
developments serving families of low- and moderate-income.
D. Develop and publish guidelines on ways local govern
ments can facilitate and encourage cost-effective site
planning without imposing counter-balancing costs of proce
dural delay and administrative burdens.
HUD should also
review its own standards and practices with the objective
of facilitating and encouraging cost-effective site planning.
The Process of Governmental Review and Approval
The American developer is confronted with a bewildering and
time-consuming proliferation of regulations at virtually
every level of government.
The cost of meeting the myriad
requirements a developer now faces is less in preparation
of the documenting materials and more in the cost of delay
itselff These costs are passed through to the consumer in
the form of higher housing prices.
Costs to the developer as a result of unscheduled regulatory
delay can include increased carrying charges for land, in
creased overhead cost, increases in the cost of labor and
materials due to inflation, and a loss of sales from changes
in the market.
Researchers at the Rice Center for Community
Design and Research estimate that "at a 12 percent interest
rate, a six-month unscheduled delay increases interest pay
ments on a $1 million loan for a parcel of land by as much
as $60,000--and many developments face 18 to 24 month delays."
Every level of government is involved in the processing maze.
At the Federal level, Federally-assisted housing projects
above a certain threshold size must be reviewed for potential
environmental impact.
HUD Noise Assessment Guidelines, Army
Corps of Engineers dredge and fill permits, and various EPA
requirements and permits are among the other Federal regula
tions which affect development.
The impact of programs such
as EPA's 208 areawide water quality management planning and
the Department of Commerce's coastal zone management program
is yet to be felt, for these programs are just entering the
implementation stage.
On the state level, coastal zone management acts, critical
area legislation, environmental impact requirements, marsh
land protection laws, and special siting statutes are common
new features in the regulatory structure.
Regional controls,

112
such as Federally-mandated A-95 review and comment procedures, are among the hurdles a project must clear,
And those
are in addition to the myriad local permits and reviews which
have been standard for developers.
These regulations are by
no means limited to suburban areas or fragile lands.
They
apply equally to urban areas and have prevented or slowed
down as much construction in the inner city as they have in
suburbia.
Many of these regulations have protected the public from
significant environmental degradation and development on
inappropriate sites.
Environmental impact statements have
given the public a much needed opportunity to comment on
project impacts.
Local development can have important
regional, state, and national impacts which might not be
considered by local reviewers.
But the process has gotten
out of hand.
The objectives of government should be to
develop and administer review processes efficiently, fairly,
and in a manner which encourages rather than discourages the
development of less expensive housing by private enterprise.
By any reasonable standard, this is not being done now in
many, if not most, jurisdictions.
There have been some efforts to simplify the regulatory
maze.
For example, Washington State has passed the Environ
mental Coordination Procedures Act which makes an optional
procedure available to applicants seeking coordinated state
review of their proposals.
Dade County, Florida, encourages
pre-application negotiation between the developer and the
permitting agencies to iron out difficulties before the
developer expends costly funds on plans and applications.
A similar process is followed under the New Jersey coastal
zone management program.
Significantly lacking, however,
has been major regulatory streamlining at the Federal level
Findings:
The Task Force finds that the entire multi-level system of
regulating residential land development is becoming extremely
complex and time consuming.
This has measurably increased
holding costs, the costs of risk, and the potential for un
fair treatment.
To ameliorate this problem, top government
officials should continually insist on efficient management
of the regulatory process.
Review requirements and proce
dures should be rationalized, clarified, and streamlined.
Multi-level and interagency reviews should be coordinated
and where possible eliminated.
Staff should have the capac
ity to perform in a timely manner.

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30

Recommendations:
HUD should act now to:
A. Undertake a phased intergovernmental effort, as outlined
in the introduction to this Chapter, to advise, assist, and
encourage local governments to address the problems of pro
cedural delay and their related costs.
This effort should
include the following efforts:
1. The development and dissemination by HUD of informa
tion and advisory guidelines for use by local governments in
rationalizing and streamlining regulatory procedures.
This
activity should include:
a* Research, carried out by HUD,
and analyze procedural problems related
by type, source and context of problem,
potential for ameliorative action*
The
this research should be case studies of
tories of actual developments which are
national experience.

to clearly define
to land development
cost impact, and
core approach to
the processing his
representative of

b.
Draft advisory guidelines, developed by HUD, for
the local review and approval process as it relates to land
development.
2. Investigation by HUD of Federal programmatic issues
affecting the governmental review and approval process.
3. Development by substate regional councils of regional
standards for local and regional review processes.
Such
standards should be sensitive to local conditions and should
be based on the HUD guidelines.
Regional councils should
then make periodic findings of the extent to which each
municipality meets the standards.
The setting of standards
and findings of compliance should be required of all regional
councils receiving funds under the HUD 701 program.
4. The partial or total withholding of funds for urban
development from noncomplying jurisdictions by HUD and other
Federal agencies with such programs if all voluntary efforts
at compliance fail. HUD should establish a process under
which a finding of local compliance or noncompliance can be
challenged and reviewed.
B. Adopt new recommendations on the "thresholds" for a full
Environmental Impact Statement— the number of housing units

32-099 O

78 ■■ 9

114
in a project above which a full Environmental Impact Statement is automatically required. The new regulations should
be based on the concept that the threshold should vary with
the population of the urban area or the county in which the
project is located.
Thus, counties with a resident popula
tion of over one million would have a much higher threshold
(perhaps 2,000 units) than counties with only 50,000 resi
dents (for which the existing 500-unit threshold might be
retained)
Also, to discourage so-called "leapfrogging,"
higher thresholds in more populous counties might only apply
within a perimeter of a certain distance (perhaps two miles)
from the edge of the "urbanized area" as delineated accord
ing to Census Bureau criteria.
C. Urge the Council on Environmental Quality to take the
lead in having uniform procedures and standards for environ
mental reviews adopted by the three Federal housing agencies:
HUD, the Veterans Administration, and the Farmers Home Admin
istration.
Each of the agencies should agree to accept prior
reviews by the others.
This should be accomplished no later
than January 1, 1979.
D. Join with the Veterans Administration and the Farmers
Home Administration to establish uniform policies and proce
dures with regard to those aspects of subdivision analysis
not covered under environmental reviews, so that processing
by one agency will be fully acceptable to the others. The
Congress should require a single set of regulations for the
three agencies within a specified period of time.
E. Cooperate, to the maximum extent possible, with state
and local governments to avoid duplication and delay in
environmental and site-design reviews of all relevant housing
and land development programs.
To this end, HUD should-:
1.
Urge the Council on Environmental Quality to propose
an amendment to the National Environmental Policy Act (NEPA)
permitting HUD and other Federal agencies to accept, for the
purposes of NEPA, environmental reviews prepared by state
agencies which follow standards and procedures concurred in
by the Federal Government.
2, As an interim measure, pending the amendment of NEPA,
join with other Federal housing agencies to prepare and pub
lish by January 1, 1979, guidelines for field staff and
state and local officials on ways to facilitate the joint,
Federal-state or Federal-local preparation of Environmental
Impact Statements, the sharing of information, the holding

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32

of joint hearings, and other methods of curtailing wasteful
intergovernmental duplication and delay in environmental
reviews.
HUD should actively invite state and local govern
ments to participate in such cooperative efforts.
Joint
preparation of an Environmental Impact Statement with a
state or local agency would only be acceptable provided the
Federal agency is involved in such essential phases as iden
tifying critical issues, determining analytical methods,
specifying data, and interpretation.
3. Disseminate guidelines and procedures whereby HUD can
accept an environmental review prepared by a local govern
ment in conjunction with a project financed in part under
the Community Development Block Grant program. This should
be done pursuant to Title I of the Housing and Community
Development Act of 1974 whereby the Secretary of HUD dele
gates to the Block Grant recipient her responsibility for
reviewing the environmental impact of projects assisted with
Block Grant funds.
If a housing project has been adequately
reviewed (according to the guidelines) under this procedure,
HUD should not have to duplicate the effort when it receives
a request to subsidize the project.
4. Encourage local governments and regional agencies
to prepare an "areawide EIS"— an environmental review of
expected development in a large area, such as a central
business district, an entire municipality, a growth corridor,
or an entire metropolitan area.
If HUD were a partner in the
process and issued the areawide EIS itself, environmental
reviews of large housing projects within the area could be
done at a much less time-consuming level of clearance than
a full EIS.
If HUD were not a partner and if the areawide
EIS were not issued by HUD or another Federal agency, under
existing law, an EIS would still be required for large pro
jects, but it could be done very quickly by using information
from locally prepared areawide reviews.
5. Develop and promulgate guidelines and procedures for
certifying the standards, procedures, and capability of local
governments for local review of proposed subdivisions; and,
after certifying a local government, eliminate all affected
subdivision-analysis and environmental-review requirements
for that jurisdiction.
Such certification procedures should
be followed by the Veterans Administration and the Farmers
Home Administration as well as HUD.
F. Cooperate to the fullest extent possible with developers
who may wish to prepare an environmental review either jointly

116
with HUD or independently,
Issue guidance material by
January 1, 1979, explaining how such efforts by developers
can be most effective in eliminating procedural delay.
This
guidance material should be similar in content to that pre
pared for cooperative efforts with state and local govern
ments but should be directed at developers.
G. Amend regulations no later than October 1, 1978 to elimi
nate the requirement that environmental assessments be con
ducted for single-family mortgage insurance applications in
existing subdivisions, i.e., subdivisions with streets and
utilities already in place. Normal underwriting procedures
are adequate in such situations. Minor deficiencies in, for
example, streets or storm drainage in a subdivision for which
a local government has accepted internal infrastructure for
maintenance, can simply be reflected in lower HUD valuations.
H. Develop, by January 1, 1979, standard documents and for
mats to speed up the preparation of EISs. This could save
up to 30 working days in preparing a full EIS.
I. Take the necessary action to make trained staff or ade
quate contract funds available to field offices to assure
that when an EIS is necessary, it is done promptly.
J, Establish guidelines for optimal environmental processing
in field offices, monitor processing times, and identify and
eliminate bottlenecks.
K. Join with the National Science Foundation to conduct
research designed to evaluate the benefits and costs of
environmental reviews of those Federal actions directly
affecting housing costs, establish better guidelines on
differentiating between significant and trivial issues, and
generally devise better ways to achieve the purpose of NEPA.
One objective should be to experiment with different formats
to determine how simple they can be without resulting in
serious deficiencies.
L. Accelerate HUD processing of subdivisions by maintaining
current lists of developers with demonstrated capabilities
and waiving certain reviews of qualifications for such devel
opers.
Once a developer has successfully completed the HUD
process, he should not have to establish his credibility again
unless he has not followed through on his commitment * The
purpose of this recommendation is to reduce paperwork.
It
is not intended in any way to exclude participation in HUD

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34

programs by any builder or developer or to favor anyone.
Such lists must be updated frequently.
They must be pub
lished and be subject to challenge and prompt review.
M. Identify one or more affirmative action plans as accept
able in an immediate neighborhood marketing area and allow
developers and builders working in that area to adopt such
a plan. The objective should be to reduce the frequency with
which a developer/builder must develop a new plan and obtain
HUD approval,

118
Chapter Three
Building and Technology
Material and labor costs are the largest portion of the price
of housing, and also affect operating and maintenance costs.
These costs are primarily the result of consumer expectations,
building techniques, supply processes, and government regula
tions.
The Task Force estimates that improving these major
components of the building process could reduce the cost of
housing construction by as much as $6000, and twice that
amount over the term of an average mortgage. This estimate
is based on cost-saving measures recommended in this chapter,
none of which is large, but all of which add up to a cumula
tive impact that is significant,
Many of these recommended measures are at hand now to reduce
the cost of housing.
The use of what we already know, how
ever, is hampered by the lack of any conscious effort to
encourage the voluntary acceptance of proven cost-reducing
housing techniques that are based upon satisfactory experience
and wide use.
The balance of these measures must await will
ful efforts to improve building techniques, supply processest
and government regulations.
Government regulations in partic
ular have increased sharply in recent years and continue to
vary unnecessarily,
Such regulations are primarily imposed in the form of state
and local building regulations
such as zoning, subdivision
and environmental controls, many of which are dealt with in
Chapter Two.
In this Chapter, state and local building regu
lations are defined as those codes that regulate building,
electrical* plumbing, heating, mechanical energy, fire safety
and gas installations, as well as other codes such as housing,
maintenance, rehabilitation, and fire prevention codes that
regulate existing structures and that affect processes of
renovation. We estimate that half of the approximately 20,000
jurisdictions with code authority now have such codes and that
the majority of all housing must meet such requirements.
This
uncoordinated system of differing and increasing regulation
is slowing down the building process and making the adoption
of current and new potentially cost-saving ideas more diffi
cult and expensive,
Although some contend that the building industry has gone as
far as possible towards reducing housing costs through pro
duct substitution, mechanization, and industrialization, it
seems probable that increased use of such techniques could
also produce additional cost savings if Federal, state, and
local regulatory systems allowed the creation of volume mar
kets for fabricated housing components. Through added re
search and development, it should be possible to demonstrate

119
cost savings to the housing consumer from existing or new
technology, methods, and materials,
In considering past efforts and future needs, we have concen
trated on excessive costs associated with present building
and technology processes, improvements in those processes to
better serve objectives of consumers, and new methods and
materials that could better serve the marketing of housing.
These are discussed in the following sections:
(1) State
and Local Building Code Requirements and Administration; (2)
HUD Minimum Property Standards and Procedures; (3) Support
for New Technology and Building Codes; (4) Materials and
Labor Costs; and (5) Operating and Maintenance Costs,
State and Local Building Code Requirements
and Administration
State and local building codes are increasingly based on one
of the four nationally recognized codes.
Three of these na
tionwide model code organizations are made up of state and
local building officials, and the fourth is an insurance
trade association. Few jurisdictions can afford to write
and keep current locally authored codes. For example, a
recent National Bureau of Standards study shows that two
states have adopted unmodified model codes as a mandatory
code. There is a general need, however, throughout the code
system for better coordination, basic research, education,
certification programs,and dissemination of information at
the national level.
It is clear that model codes provide variety in building code
requirements to accommodate regional differences,
In addition,
local control over the model code change process suggests that
local code changes, which in most cases are cost excessive and
inhibiting to developers who build in more than one jurisdic
tion, are unnecessary.
In part, model codes reflect the state of the art of building
rather than scientific engineering data and are therefore
easily amended by localities with differing views on the state
of the art. The model codes for the most part lack funds to
support all their provisions with sound engineering data, and
in some cases even urge local deviations,
A report by the
National Association of Home. Builders observed that ’'instead
of accepting these model codes intact, many communities began
making revisions, additions, deletions, and amendments which

120
in an overwhelming majority of cases are restrictive in
nature,” One Task Force member has noted that about 30 per
cent of the present provisions in model codes lack substan
tiating research.
Evaluation of these provisions may support
their continued use, but the study has yet to take place.
However, funds to undertake such research and coordination
with the National Institute of Building Sciences do not yet
clearly exist,
The Task Force has discussed the need for such study and the
need for the model code organizations to be recognized as an
institution which, if improved to maximum effectiveness,
could significantly assist in the reduction of housing costs.
We have also given special attention to a companion need for
a regular and accredited curriculum for codes administrators,
as well as a need for an inter-jurisdictional program to
certify their competence.
Findings:
The Task Force finds that housing cost increases attributable
either to excessive and differing code requirements or to
maladministrative practices are more likely to occur in com
munities which have developed and promulgated their own build
ing codes.
By contrast, localities which have adopted a
modified model code and have acted periodically to assure
that their version of the model code is up-to-date, appear
less likely to cause unjustifiable cost increases in housing
through code requirements or reviews. We do not recommend
that Congress and the Administration act to pre-empt states
and localities in the building codes area by Federally re
quiring a national building code.
But we do find much that
all levels of government can do, together and in concert with
major private codes organizations, to assure that housing
costs to the consumer are not increased needlessly as a con
sequence of state and local building codes.
We further find that incentives are lacking at the present
time to encourage uniformity in state and local building code
requirements and administration, and that prior national com
missions' recommendations for reducing housing costs through
code uniformity and coordination have not been fully imple
mented,
HUD's programs relating to state and local building
codes have been discontinued, and new programs that could
use HUD's experience have not been substituted. Although
the model codes organizations have cooperated in jointly
developing a single nationwide building code for one- and
two-family dwellings, differences between it and HUD Minimum

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38

Property Standards need to be resolved to achieve more uni
form nationwide standards.
Efforts to resolve differences
among model code standards for multifamily housing and other
types of buildings have proceeded about as far as possible
without basic research.
Finally, we find a need to support
more vigorously programs to train codes administrators, tech
nicians, and inspectors.
There is also need for their com
petency to be reviewed and certified by appropriate public
bodies.
Recommendations:
HUD should act now to:
A. Promote consistency of requirements and administrative
procedures among the principal model building codes, and
should strongly encourage states and localities to adopt
model codes and keep them updated.
HUD should implement this
recommendation through actions such as the following:
lt Work with the nationally recognized model codes orga
nizations, the Council of American Building Officials, and
the National Conference of States on Building Codes Standards,
as well as with other interested institutions such as the
National Institute of Building Sciences* to support the
preparation of a revised One- and Two-Family Dwelling Code
as a nationally recognized consensus code.
2. Offer funding incentives for mandatory state code
systems that adopt unmodified and promulgate for state-wide
use the proposed revised One- and Two-Family Dwelling Code
and an updated version of one of the other nationally recog
nized model codes for multiple dwellings and other buildings.
3. Offer funding incentives for code systems that (a)
train, certify and license code administrators( technicians,
and inspectors* and (b) administer codes in a consistent and
rapid manner.
4. Support basic research in the areas of life and pro
perty safety requirements to determine the costs and benefits
of such requirements when included in building codes.
5. Work with the model codes organizations, industry and
other interested bodies to study the principal model building
codes now widely used and to prepare recommendations for the
elimination of cost-increasing requirements that are not justi
fied in terms of sound data and technical information derived
through basic research.

122
6, Work with and support the National Academy of Codes
Administration's efforts to create and implement an accredi
tation program for certifying organizations at the inspector
level, and a certification process for codes administrators,
using both institutions of higher learning and non-degree
granting institutions as sponsors.
7. Support the development and promulgation of rehabili
tation codes for single-family and multifamily housing, using
a consensus mechanism involving the model codes organizations,
the National Institute of Building Sciences, the National
Conference of States on Building Codes and Standards, and
other interested parties.
These new nationally recognized
rehabilitation codes should be written so as to permit unli
censed and nonskilled persons to perform rehabilitation work
that complies with life and property safety requirements.
HUD should offer funding incentives to states and localities
that adopt these nationally recognized consensus'codes,
B. Amend the Community Development Block Grant and Urban
Development Action Grant regulations to require that communi
ties applying for entitlement and discretionary grants demon
strate that their local building codes support the proposed
"comprehensive strategy" for meeting "identified community
development needs." Specifically, the applicants' Housing
Assistance Plans should show that:
1. Local building codes are unmodified versions of the
latest nationally recognized model codes;
2. Administrative procedures are in effect to uniformly
and effectively administer code provisions; and
3. Any local provision does not unnecessarily increase
the cost of housing to the consumer.
C. Join other Federal agencies and the National Institute
of Building Sciences in encouraging the use of nationally
recognized model codes and standards procedures for the
rapid review and approval of new technology, methods, and
materials for building and housing codes and standards.
D. Join with or otherwise support the Federal Trade Commision in investigating whether contractor licensing practices
restrain trade and unnecessarily add to the cost of housing
to the consumer.
E.

Expand opportunities for qualified HUD representatives

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to participate in consensus efforts leading to model codes
and standards development,
F, Staff field offices with personnel qualified to provide
limited technical assistance to localities with respect to
the maintenance and administration of building and housing
codes.
HUD Minimum Property Standards and Procedures
The Minimum Property Standards (MPS) were developed by the
housing industry and the Federal Housing Administration (FHA)
to assure that FHA-assisted housing is decent, safe, and sani
tary, and that the mortgage is protected by continued market
ability. For many years these pioneering housing standards
served FHA and the industry well, because there were few con
flicting local standards and 50 percent of all housing starts
were FHA-assisted. The MPS still apply to thousands of ju
risdictions without codes, as well as to the 10,000 or so
jurisdictions with codes. Many of these codes excuse oneand two-family dwellings from their purview or are archaic.
In the last 20 years, however, many jurisdictions have adop
ted variations of the MPS as local regulations applicable to
all housing.
Subsequently, the national model codes organi
zations developed a model One- and Two-Family Dwelling Code.
Concurrently, Federally assisted housing starts declined to
only 10 percent of the market,
In 1973, FHA published re
vised MPS.
In many cases, the MPS now differ from local
codes, and subject the builder to the problem of meeting at
least two sets of regulations.
At a minimum, the MPS should be reconciled with a revised
nationally recognized consensus version of the One- and TwoFamily Dwelling Code. Furthermore, a housing unit which is
structurally and mechanically sound and which conserves
energy, can be more basic in terms of space and amenities
than current MPS allow.
Such a modest home, which could
also immediately offer shelter measurably superior to other
housing options, cannot be built under current MPS as admin
istered.
Restrictions at both the Federal and local level also impede
housing conservation and rehabilitation,
In most localities,
if the cost of proposed structural rehabilitation is more
than 50 percent of the current value of the unrehabilitated

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building, the entire building after completion of rehabilitation must comply with local codes for new construction,
This
is a significant cost increasing factor and an unnecessary
one* Similarly, Federal, state, and local requirements still
inhibit the use of self-help housing techniques for housing
construction, conservation, or rehabilitation when the Nation's
attention is turning to citizen initiatives in neighborhood
preservation.
Findings:
The Task Force finds that HUD itself is responsible for impos
ing building requirements and review procedures for both new
construction and rehabilitation that increase costs and cause
unnecessary delays.
We further find a widespread though not universal belief that
the design requirements imposed through the Minimum Property
Standards (MPS) are excessive or inflexible.
It is clear
that the MPS, as currently written and interpreted, do not
enable developers to construct or renovate housing to meet
the marketable shelter needs of all possible consumers.
The
MPS should allow housing designed to accommodate broad vari
ations of custom and taste that is otherwise marketable to
qualify for HUD financing. We also find it desirable for HUD
to explore ways of adjusting the MPS to the provisions of a
revised One- and Two-Family Dwelling Code as well as to the
multiple dwelling requirements that are common to all of the
national model codes.
It is also desirable that HUD support
housing rehabilitation more vigorously, particularly in older
neighborhoods of the Nation's cities and towns.
Recommendations:
HUD should act now to:
A. Revise the MPS to allow the design and construction or
renovation of otherwise marketable low-priced basic, starter,
unusual or different types of housing, both single-family and
multifamily.
Such homes could be constructed or renovated
with the use of various techniques including self-help methods,
for purchase or use by young families and first-time buyers
of limited means, as well as by others.
As so revised, the
MPS should be implemented flexibly so as to meet the market
needs of a broad segment of the American people,
B, Work with the model codes organizations, the Council of
American Building Officials, and other interested parties in

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order to recognize in the M P S , to the maximum extent consis
tent with the national interest, the requirements of a revised
One- and Two-Family Dwelling Code and any national consensus
requirements that may be developed for multifamily dwellings
or other buildings.
C. Adopt national consensus requirements for single-family
and multifamily housing rehabilitation to be developed through
a national consensus mechanism, for inclusion in the MPS and
for application to all housing rehabilitated with HUD loan
insurance or financing assistance.
D. Encourage the conservation and rehabilitation of existing
housing, both by professionals, owners and other occupants,
and by nonprofit organizations created for this purpose.
E. Study the feasibility of revising the MPS so that costincreasing requirements for energy conservation and other
items will be justified in terms of initial capital cost,
amount of downpayment, and life cycle cost.
F. Encourage informed and competent self-help construction
and rehabilitation of single-family and multifamily housing
through amendments of design, inspection and other MPS review
requirements, and through programs of education, training
and technical assistance.
G. Revise MPS provisions that appear to approve local ordi
nances, codes, and regulations pertaining to single-family
and multifamily housing construction and rehabilitation that
are not justified by nationally recognized standards.
H. Establish mechanisms to assure similar contents, enforce
ment and reciprocity of MPS by FHA, the Farmers Home Adminis
tration and the Veterans Administration.
I. Study current MPS requirements and immediately remove
unjustifiable cost-increasing technical and design require
ments from the MPS.
J. Explore ways of revising the MPS requirements and review
procedures through examination of completed new construction
and rehabilitation efforts, using such techniques as post
occupancy evaluation procedures, so as to eliminate unneces
sary cost-increasing requirements,
K. Reduce planning and design processing time by relying on
architects and engineers to certify that plans, drawings, and

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specifications meet HUD's MPS requirements for single-family
or multifamily construction or rehabilitation.
L. Reduce duplication of construction and rehabilitation
inspections by field office personnel through reliance upon
the architect or engineer for inspections of work in progress,
and by encouraging the use of Home Owner’s Warranty inspec
tion services in place of HUD inspections.
M. Identify and encourage the use of technically sound ways
of making site improvements at less cost, without impairing
health, safety, and marketability of housing sites,
N. Modify the MPS requirements for planned unit developments
and subdivisions to authorize types of housing such as apart
ments and townhouses that permit greater density, land-cost
savings, utility savings, and the conservation of heating and
cooling energy.
0. Consider the size and amenity level of the lower-cost
and expandable homes of the 1950s and early 1960s to deter
mine whether this type of home has a place in today's lowerincome or "first-home" market, and if so, whether HUD should
orient its housing programs to provide incentives to builders
to encourage higher production of marketable homes in this
category.
P. Modify current regulations to assure the elimination of
double charges to the homebuyer for utilities, water and
sewer services for any homes financed with HUD-insured or
assisted loans. Currently such service charges often may be
imposed both during site development and later during housing
construction.
Support for New Technology and Building Codes
Many proposals to cut housing costs over the last several
decades have focused on American technological ingenuity.
New concepts, ideas, products, and production processes could
lower housing costs through less costly materials and methods,
reduced work time, and enhanced durability.
What is often forgotten in discussions of new technology is
how mechanized the housing industry already is* Many of the
components of the house are now produced by highly sophisti
cated assembly lines.
Large segments of the bathroom and the

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kitchen, for example, are often fabricated off-site. Industri
alized production is a fact of life in the homebuilding sector.
Yet structural, enclosure, and mechanical components that
exist are not adequately integrated. Such integration is a
prerequisite to developing new processes of manufacture and
erection.
There is room for improvement in housing construction and
rehabilitation processes, whether in the production methods
now being developed by the housing industry or through the
use of promising technologies which are evolving out of other
areas. The extent to which such new technologies could cut
housing costs is a controversial question. There is a need
to test and demonstrate the cost implications of such inno
vations .
At the moment, responsibility within HUD for the promotion
of adequate building codes and advanced housing technology
in housing construction, conservation, and rehabilitation is
diffused among several program offices. The Department's
codes policy as implemented through the Workable Program,
Operation Breakthrough's effort to test and market industri
alized housing, and the short-lived Office of Advanced Housing
Concepts are all no longer operational.
The developer of an innovative product or production method
can take his idea directly to the consumer via the market
place only with difficulty.
This is obviously the test which
all such ideas have to pass and which many have already failed.
Nevertheless, the constraints can be enormous, with front-end
capital and building code approval just two of the most obvious.
Findings:
The Task Force finds that, at present, responsibility within
HUD for the promotion of new technology and building codes
policy is diffused among several program offices. There is
no one office to which public and private codes and building
process organizations can relate for assistance and the identi
fication, development, and improvement of building codes and
technology. We also find that new building technology may offer
major ways of reducing housing costs to the consumer, particularly
if the Federal Government, after being convinced of its poten
tial, were to promote the acceptance of new technology by
government agencies and promote its use throughout the country
by the housing industry. We find a strong need for the

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Department to provide a cohesive, coordinated focus to Federal Government efforts to promote the use of worthy new
building technology in the American housing industry, and
for the use of cost-effective procedures, methods and mate
rials in place of or to complement conventional technology
in housing construction, conservation, and rehabilitation.
Recommendations:
HUD should act now to:
A. Implement Section 2 of the Housing Act of 1949* as amended,
by establishing a major Office of New Technology and Codes
Policy, using existing HUD personnel as much as possible, to:
1. Sponsor, guide and coordinate Departmental building
codes policy, and to identify needed basic codes related
research.
2. Promulgate a program through which worthy new techno
logy, methods, and materials can be fostered throughout the
country in reducing housing costs to the consumer.
3. Work with the codes organizations and other institu
tions such as the National Institute of Building Sciences
to assure that new technology and codes policies are recog
nized by other governmental agencies that regulate housing
construction, conservation, and rehabilitation.
B. Work aggressively to explore ways of determining and
adapting worthy new technology, methods, and materials, and
other techniques from commercial and industrial sectors, in
housing construction, conservation, and rehabilitation; de
vise a program for promoting the use of such innovations by
the American building and renovation industry; and work with
the National Institute of Building Sciences, Federal agencies,
state officials, and private organizations to legitimize the
use of new technology and innovations throughout the country.
C. Expand current levels of funding for research and demon
strations of worthy new technology, methods, and materials
in housing construction, conservation, and rehabilitation.
D. Institute a program to encourage the voluntary accep
tance of proven housing technologies, methods, and materials
at all levels of government based upon satisfactory experience
and wide use. The program should demonstrate lower costs in

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housing construction, conservation, and rehabilitation with
out sacrificing sound standards or value,
E. Amend the 7 01 and Community Development Block Grant pro
grams so as to offer funding incentives for program activities
that establish building code procedures for the acceptance of
building technologies, methods, and materials, whether fac
tory-built or conventional, that are approved by nationally
recognized organizations and the National Institute of Build
ing Sciences,
Such approved building technologies, methods,
and materials would be deemed acceptable for housing construc
tion, conservation, and rehabilitation.
F.
Study the impact that metrication of the American housing
industry can have on the cost of producing and marketing hous
ing .
G. Support added research and demonstrations of improved
techniques for small-scale and large-scale housing rehabili
tation, with particular emphasis upon developing low-cost
means and procedures for housing rehabilitation condition
analysis and cost-estimating purposes.
Materials and Labor Costs
The cost of materials, as a share of the total average new
house price, has dropped since 1945.
It is now about 30 per
cent, whereas at the end of World War II materials accounted
for around 4 5 percent of the share of a new dwelling.
Items
such as paint, plumbing fixtures, heating equipment, water
heaters, and clay tiles have increased at a slower rate than
average for all commodities over the last 20 years, according
to Michael Sumichrast, Chief Economist of the National Asso
ciation of Home Builders. Concrete products, millwork, and
asphalt roofing have increased at about the average rate.
This is in contrast to plywood, brass and fittings, and brick
which have all increased about one-third more than other types
of materials, says Sumichrast,
In the summer of 1977, the housing industry faced severe pro
blems in buying critical building materials.
From July to
October 1977t lumber price increases varied nationally from
12-28 percent* according to HUD, During the same period,
increases in the price of insulation varied between 5-15
percent nationally.
Together they raised the cost of a new
home between $700-$1500.
On August 26, 1977, the Secretary

32-099 o

130
of Housing and Urban Development requested the Council on
Wage and Price Stability to investigate and report the reasons
for the rapid increase in lumber prices. According to the
report published in October 1977 by the Council, lumber prices
are victim to the alternating periods of high and low demand
which characterize the homebuilding industry more generally.
Furthermore, the report asserts, "lumber demand has been
sharply influenced by the shift in the composition of homebuilding toward single-family units which require approxi
mately three times the amount of lumber as a unit in a multi
family housing complex." The report also notes that since
1975, lumber prices have been affected by constraints to
logging on Federal timberlands controlled by the Bureau of
Land Management and the U.S. Forest Service,
As with building materials, direct labor costs also have
decreased in the last four decades* Today the labor share
of direct construction costs is only 16 percent, roughly
half of what it was forty years ago,
Increased productivity
and wide-spread use of industrialized methods in construction
and rehabilitation have helped to lower labor's share of
on-site costs.
Factory labor and mechanization have reduced
the need for on-site labor in such processes.
Unfortunately,
no good data exist to show the cost of factory, or other offsite labor used specifically for the production of building
materials and related components either alone or as reflected
in the price of materials delivered to the site.
For approximately eight years, HUD has been performing resi
dential wage payment- data surveys as an assist to the Depart
ment of Labor in making Davis-Bacon wage determinations
properly reflective of residential wage practices.
Prior to
HUD's involvement, most wage decisions for residential con
struction were commercial (or union) in nature.
Following
HUD's involvement, most are now residential (or open shop)
in nature— much closer to the actual wage practices in the
industry and in consonance with the purposes of Federal
legislation.
Despite the success of this effort, HUD's survey activity
has fallen off sharply.
The resultant impact has been con
struction start delays, imposition of inappropriate wage
determinations, and increased contractor/consumer complaints.
Some of the Occupational Safety and Health Administration's
rules also have a cost-increasing effect upon housing, espècially when the rules for one class of commercial structures
are applied to a different class, such as low-rise housing.

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Findings :
The Task Force finds a need to monitor price trends for crit
ical building materials, fixtures, and applicances*
In parti
cular, the impact of otherwise legitimate Federal timberlands
policies upon the cost of wood products should be studied.
We also find that it would be useful to study the way resi
dential wage surveys are conducted, wage determinations are
maçle, and the resultant impact on the cost of housing devel
oped under HUD programs.
Such a study should include labor
productivity in the housing sector, and ways to expand job
opportunities for minority youth, women, the unskilled, and
others employed by minority owned and small business firms.
Recommendations :
HUD should act now to:
A. Support continued monitoring by the Council on Wage and
Price Stability of price trends in critical building materials,
B. Work with the Forest Service and the Bureau of Land
Management, within the framework of comprehensive programs
of renewable resource planning, to ensure a perpetual and,
where possible, increasing supply of timber for lumber and
wood products. Among the actions that might be taken to
increase the long-term supply of timber are: (1) evaluation
of the effect of current harvest level policies, (2) full
funding and staffing of Federal resource programs consistent
with applicable environmental and economic objectives, and
C3) encouragement of greater production from presently undermanaged private timberlands,
C.
Study the pricing of housing-related materials, fixtures,
and appliances to determine if trade practices are occurring
that cause increased housing costs to the American consumer.
D. Cooperate with the Department of Labor in a study to
analyze the HUD/DOL data-sharing arrangement to assure that
wage-rate determinations properly reflect housing industry
wage payments.
E. Study the methods and means of improving productive and
efficient use of labor in housing construction, conservation,
and rehabilitation.

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F. Study the impact of the Occupational Safety and Health
Administration's work rules on costs of site development,
housing construction, and rehabilitation to support recom
mendations for the modification or elimination of work rules
that increase costs without safety and health justification.
G. Increase the access of minority owned and small business
firms to housing construction and rehabilitation work, partic
ularly those that employ large numbers of younger minority
workers and others, through liberalized credit, bonding, «and
capitalization requirements.
Operating and Maintenance Costs
The operating and maintenance costs of owner-occupied and
rental housing have increased sharply in recent years.
For
example, between 1972-1976, operating expenses for the new
median-priced, single-family house increased 56 percent.
In
particular, fuel and utilities rose by 52 percent during this
period.
Costs associated with hazard insurance against fire,
burglaries, and vandalism have also increased at a rapid rate.
Local property taxes have also increased sharply, as is dis
cussed in Chapter Four.
The consumer obviously feels the impact of increased operating
and maintenance costs most sharply in monthly housing outlays.
But there is another more subtle impact on the consumer, the
loss of housing choice.
Rising trends in abandonment, fore
closure, and apartment conversion are in large part the result
of burdensome increases in operating and maintenance costs.
Reducing operating and maintenance costs is not an insurmount
able problem.
The technology to reduce such costs already
exists in many instances. Nevertheless, lower operating and
maintenance costs will require an in-depth analysis of trade
offs and the rendering of difficult policy decisions.
In
almost all instances where operating and maintenance costs
have increased sharply, these trends could have been reversed,
but not without increased construction costs in some cases.
Furthermore, building regulations have focused correctly on
standards for fire protection and structural hazard mitigation.
It is time now for such regulations to give adequate consid
eration to operating and maintenance costs associated with
building techniques and materials to enable consumers to
judge and afford the construction, rehabilitation, and con
tinued use of housing.

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Findings :
The Task Force finds that increases in operating and mainte
nance costs have imposed heavy burdens on the consumer and
diminished available housing choices.
We believe that there
is potential both in the present regulatory system and in the
technological state of the art to reduce such costs. What is
lacking is the requisite leadership to define and advance con
sumer needs in reducing maintenance and operating costs. We
think the Department should develop policies to help control
the costs of utilities and hazard insurance.
Recommendations :
HUD should act now to:
A. Propose and support the development of a nationally recog
nized system for determining the short- and long-term operating
and maintenance costs of alternate design, materials and
techniques used in housing construction, conservation, and
rehabilitation.
Such support should include a continuing
public information program.
B. Revise HUD regulations for housing construction, conser
vation and rehabilitation to include a system for user selec
tion of appropriate design, materials* and techniques in
terms of operating and maintenance cost benefits.
C. Support an early revision of all housing regulations in
terms of operating and maintenance cost criteria.
D. Institute new policies to help control increases in
utility charges and hazard insurance, and sponsor applied
research to develop water and energy conservation techniques,
and acceptable independent utility systems.

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Chapter Four
Financing, Money Markets and Marketing
The Task Force has studied problems of financing the costs
of acquiring and occupying single-family and multifamily
housing, including newly constructed, rehabilitated and
existing housing.
Financing for land development, housing
construction and rehabilitation, and supporting community
amenities, is a major component of the cost of housing to
the consumer.
Effective mortgage interest rates have
risen from approximately 6.5 percent in 1967 to about 9.0
percent in 1976, an increase of 38 percent.
Obviously,
it costs far more to finance the purchase of housing
today than 10 years ago. The renter of housing also pays
more than in the past since investor-owners pass increased
interests costs through to the renter.
Thus, many middleclass families that could have afforded then to buy or rent
homes of a given size in 1967 are unable to afford today's
higher costs.
Financing costs to the consumer include not only the direct
borrowing charges paid by the housing producer but also
indirect costs— what suppliers, subcontractors and other
businesses involved in homebuilding or renovation must pay
to borrow.
Inflation is only one reason why financing
costs have increased. Other factors are equally
significant.
The cyclical nature of the housing industry is well known.
It appears that construction cycles, themselves in great
part a reflection of national countercyclical monetary
actions, have a significant impact on housing costs.
They
affect costs and activities associated with land acquisi
tion and development, housing construction and rehabilita
tion, privately developed community amenities, and housing
acquisition and occupancy. Construction cycles and counter
cyclical monetary policies have effects that cut across
every issue studied by the Task Force. The consumer pays
an enormous price for the cyclical nature of the housing
industry— higher land costs, higher wages, more expensive
building materials and higher interest rates.
In order to
stabilize the housing economy, certain modifications in
national monetary and tax policies must be addressed.
There is a need also for basic reform in the Nation's
lending and financing programs to make them more efficient
and effective. The flow of financing to support housingrelated activities must be stabilized, with an increase in
mortgage and interim loan funding, at lower costs to the

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borrower.
Streamlined loan processing procedures and
expanded secondary mortgage market activities must be
implemented.
Some special housing needs can only be met through
innovative financing approaches.
These include the
development or renovation of marketable housing in rural
locations as well as in urbanized areas to meet the needs
of large families and of households just entering the
homebuyer cycle. Special financing is needed both to
spur residential construction in older urban areas where
conventional lending resources appear insufficient and to
encourage the conservation and rehabilitation of our vast
existing housing stock.
The impact of consumer regulations upon housing costs to
the consumer should be studied.
Such regulations include
the Real Estate Settlement Practices Act, foreclosure laws
and usury statutes. Where warranted, changes to streamline
such rules should be sought.
Their complexity.should be
reduced and increased competition in the marketplace among
firms that provide services to the housing consumer should
be stimulated.
We have identified ten major problems in the areas of
financing, money markets and marketing for which solutions
are of critical importance.
Some of these were highlighted
in Chapter One.
In addition, there are other major problems.
All of these are treated at greater length in later sections
of this Chapter.
The ten problems and a capsule description
of their solutions are:
(1) National Monetary Policy's Impact on Housing Costs:
New evidence presented by Arthur Solomon, Director of the
MIT-Harvard Joint Center for Urban Studies and a Task Force
member, supports an immediate public review of the relation
ship of national monetary policy to the economy and particu
larly the housing sector, with expanded research into the
impact upon housing costs to the consumer, so as to resolve
a needless conflict between meeting other economic goals
and helping to stabilize the housing sector.
The Secretary
should have, as a matter of right, a major role at the
Cabinet level in helping to set national monetary policy.

136
(2) National Tax Policy*s Impact on the Money Market;
Frequent changes in the Internal Revenue Code create an
unstable investment climate and affect the flow of financing
in terms of stability, availability, and cost. HUD and its
Secretary should be forceful and effective advocates of
national tax policy that takes the needs of the housing
sector into account,
(3) Unstable Money Supply: Instability in the money
markets affects the financing flow. Apart from modifica
tions in national monetary and tax policies, it is
desirable otherwise to stabilize the money supply and to
increase the flow of funds to make more money available
for the financing of land development, housing construc
tion and rehabilitation, supporting community amenities,
and housing acquisition and occupancy.
(4) Financing First-Time Home Purchases: The first-time
homebuyer of limited means has difficulty financing the
pruchase of a home. Families returning to the home-purchase
market after a long absence may face similar difficulties.
HUD should encourage the expanded use of graduated payment
mortgage loans and request increased Federal and state
support for their use to alleviate this problem.
(5) Costly Loan Processing Requirements and Delays: The
substantive and procedural aspects of loan processing add
to financing costs.
HUD and other agencies should simplify,
improve and coordinate the procedures for processing loans
relating to housing.
(6) Escalating Settlement and Transaction Costs: These
costs are increasing to the detriment of the homebuyer
and the renter who pays higher monthly rental bills as
a result. HUD and other agencies should encourage price
competition and innovation in brokerage, settlement and
transaction services to make them more efficient and less
costly.
(7) Financing Special Housing Needs: Many Americans have
especially intractable financing problems. HUD and other
agencies should revise financing requirements to expand
financing opportunities for such families.

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(8) Large-Scale Financing: Particularly in older urban
neighborhoods* housing construction and rehabilitation on
a small-scale basis may prove costly to the consumer
HUD
and other agencies should support large-scale land and
housing development and rehabilitation activities including
the creation of new-towns-in-town and satellite communities,
whose scale results in economies of planning, development
and financing so as to produce housing at lower costs and
prices to the consumer,
(9) Need for Uniform Financing Techniques and Instruments:
The lack of uniformity of financing documents and techniques
adds to the cost of preparing loan applications and may
cause disparate treatment of otherwise meritorious loan
requests. HUD and other agencies should develop and promote
the use of uniform mortgage loan processing instruments and
forms for use by all lenders involved in housing-related
financing.
(10) Constrained Interest Rates: Federal and state
restrictions on mortgage loan interest rates impede the
flow of financing for housing purposes and may add to the
cost of financing.
HUD should deregulate the FHA interest
rates on housing-related financing and encourage states to
repeal or modify state usury laws applicable to housing
mortgages and home improvement loans.
National Economic Policies and Financing
Housing has been held hostage to the growth in real Gross
National Product (GNP). the diminishment of unemployment and
the lessening of inflation— all national economic goals
which the Task Force affirms are essential to the national
economy for reasons that are evident*
It is well recognized
that housing construction is one of the most cyclically
unstable sectors of the United States economy,
There have
been seven major cycles since World War II, and in the most
recent one, housing starts fell from a peak annual rate of
2.5 million units in the first quarter of 1972 to a low of
953,000 in the second quarter of 1975.
Given the presence of Regulation Q and the imbalance in the
maturity structure of thrift institutions, whenever the
Federal Reserve Board restricts the money supply in order
to restrain inflationary pressures, short-term interest
rates rise. Depositors take advantage of the competitively

138
higher yield from Treasury Bills and other short-term debt
instruments by withdrawing their savings deposits* This
outflow of funds (disintermediation) leaves the thrift
institutions, the nation's primary residential lenders,
with fewer funds to support mortgage loans. With fewer
funds available, housing starts decline. Although the
recent growth of longer-term certificates of deposit and
expansion of the secondary mortgage market have mitigated
this problem somewhat, residential construction still
remains the roller coaster of the economy.
The housing sector has been cast in the role of leading the
nation's countercyclical monetary actions throughout the
postwar period.
Because construction responds quickly to
the cost and availability of credit, housing starts are
choked off during cyclical expansions and are chosen to
lead the way out of recessions.
This constraint has been
deemed by policy-makers to be inevitable, yet new evidence
indicates that this is not necessary and may further increase
housing costs to the consumer.
While it is universally
accepted that a reliance on monetary policy to promote
general economic stability leads to severe housing construc
tion cycles, the conventional wisdom is grounded upon the
view that these sharp fluctuations in housing starts are a
necessary cost that our economy must accept in order to pro
mote more stability in output and employment for the general
economy.
The prevailing economic view, however, has not taken
sufficient account of the cost to society of the excessive
burden assumed by the housing sector.
First, the sharp
cyclical fluctuations in housing starts increase housing
costs because of their pervasive effect on the efficiency
of the construction industry.
Moreover, the presumed
conflict between the housing sector and other macroeconomic
objectives is grossly overstated, and possibly incorrect.
The impact of the residential construction cycle on housing
costs should be examined.
The underlying instability in
housing production has a pervasive effect on the basic
technology, structure, and organization of the industry.
The extreme cyclical instability that characterizes housing
production raises the cost of all real and financial
factors— land, labor, building materials, financing, and
profit.
In the short run, housing slumps lead to idle
plant and construction equipment, to underutilized material

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manufacturing capacity, to homebuilder bankruptcies, and to
unemployment of construction workers. But it is the longrun effects of the housing cycle that create the inefficien
cies in homebuilding which are so costly to the American
homebuyer.
The constant need to adapt to wide fluctuations
in production levels leads homebuilders and building
material producers to use less efficient technology so that
they can minimize their fixed costs in plant and equipment
over a wide range of output levels.
Builders and producers
are also less capital intensive so as to minimize the cost
of underutilized plant capacity during slack periods.
Lumber prices and other building materials follow these
cyclical ups and downs, and the industry invests less in
job training to cut down on the cost of uncertain demand
and labor turnover,
Also government and the unions are forced to adopt restric
tive jurisdictional and other industrial relations rules in
order to provide more job security for construction workers,
who similarly bargain for relatively high hourly wages to
assure a reasonable income when averaged over periods of
intermittent unemployment.
Land developers and builders,
moreover, require a relatively high rate of return on their
equity in order to compensate for the risk and uncertainty
associated with their investments.
Finally, financial
institutions set higher prices for items such as construc
tion loans, title insurance, and settlement charges to
offset the risk and to attain the flexibility required to
adapt to cyclical swings in business volume. Although it
is difficult to quantify these costs, it is clear that the
price that Americans pay for their housing is far higher
than would be necessary under more certain production out
put levels. Because more housing is built during the peak
of the cycle, when prices are at their highest, new homebuyers have to pay much of the premium for what is, in
effect, instability insurance.
By having to spend more
income on housing acquisition and occupancy costs, house
holds have less to spend on goods and services.
The general
economy may thus suffer as well
These high housing costs might be justified if it were clear
that the sharp fluctuations in residential construction are
necessary to achieve more stable output and employment in
the overall economy.
While this alleged conflict between
the housing sector and monetary stabilization policy is
generally accepted, there has been little systematic

140
evaluation of the historical record and minimal analysis
of the impact of a more stable housing sector on other
national economic objectives such as the growth in real
GNP, the rate of inflation or the aggregate unemployment
rate.
In what is probably the most important study* of this issue
to date, it was found that stable housing and a stable
economy are not necessarily competing goals.
Through
controlled experiments with the large-scale quarterly
econometric MPS model** two earlier housing cycles, in
1969-1971 and 1974-1975, were studied.
The results indicate
that with less severe swings in housing starts (a reduction
in the amplitude of the fluctuations) real GNP would have
been higher and the unemployment rate would have been lower,
Under the optimal control policies inflation would have been
slightly higher, but this seems a small price to pay for a
far more significant improvement in real economic growth
and employment.
The major finding of this study is that
stabilizing the housing sector does not include additional
"costs" to society in terms of the other goals of national
economic policy.
In fact, one can contend that not only
does instability in residential construction add to the
cost of housing, but its presumed benefits in terms of other
economic objectives are questionable.
While the conclusions regarding the role of housing in
economic stabilization policy must be regarded as

* Thomas Cooley and Carol Carrado, "Competing Goals of
Stabilization Policy: A Reassessment of Policies Toward
Housing," MIT-Harvard Joint Center and National Bureau of
Economic Research, December 1977,
** The MPS model is an abbreviation for the MIT, University
of Pennsylvania, and Social Science Research Council Model

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tentative,*** the results are so strong that further study
of this important issue is clearly warranted.
If additional
investigation corroborates these results, then there are
several approaches that may be taken by the Federal
Government to moderate the most extreme fluctuations in
residential construction.
There probably always will be cycles in the business
economy. However, if the burden of countercyclical policy
were to be shared by a number of business sectors instead of
primarily by the housing sector, housing costs to the
consumer should be reduced.
It is not possible to predict
the distributional effects of sharing the countercyclical
policy burden.
It will probably be spread unevenly, with
state and local investment affected more than corporate
plant and equipment investment.
But even without such
predictability, it seems clear that having most of the
economy share the burden means that housing costs would
increase at a lower rate. With a stabilized housing
industry, everyone would pay less for housing in the
long run.
Just as Federal monetary policy has had a major impact upon
shelter costs paid by the consumer, so has Federal tax
policy.
Uncertainty over tax policy can dampen the
willingness of developers and investors to undertake multi
family housing construction or rehabilitation.
Such lack of
predictability affects the use and cost of both equity
capital and borrowed funds for single-family production
and purchasing as well as for multifamily development and

*** The results of the Cooley/Corrado study place the
standard view of the relatinship between the housing sector
and countercyclical stabilization policy in serious doubt.
As the researchers indicate, however, the results are
conditioned by the specific characteristics of the MPS
model, the cycles studied and the planning horizon chosen.
Accepting these caveats, the results of this systematic
analysis are so important to national economic policy that
they strongly suggest the need to reconsider the standard
view of this relationship.

142
occupancyc
Some argue that HUD's record in addressing the
impact of Federal tax policy under housing shows a need for
its role within the Administration to be strengthened* HUD
should be prepared to demonstrate an understanding of the
legitimate financial requirements of housing producers and
homeowners, and of the need for predictability of tax
results in processes of housing construction and rehabilita
tion, including local property tax effects as well,
For too
long, national tax policy has been formulated with little
regard for meeting the needs of the housing sector or the
housing consumer.
HUD has been excluded from a policymaking
role.
It is essential that more research be initiated on
the effects of Federal, state and local taxation upon housing
investors and owners including the use of tax incentives and
subsidies offered through taxation processes.
Findings:
The Task Force finds that the conflict between the cyclical
nature of the housing sector and economic stabilization
goals may be unnecessary— a conflict that imposes dispro
portionate burdens on the housing sector and severe costs
on consumers as well as the rest of society. The economy
will always suffer fluctuations, but it is reasonable for the
burden of national monetary countercyclical policy to be
shared by all sectors of the economy and not imposed
primarily upon the housing sector.
The Cooley/Corrado study
cited above must be treated as a preliminary though appar
ently authoritative review of the relationship between
national monetary policy and the housing sector. We find
an immediate need for further study of this important issue.
Many policies have been advanced to moderate extreme fluc
tuations in residential construction and rehabilitation.
These include secondary market support, revisions in
financial institution regulations, innovative mortgage
instruments, expansion in sources of funds, and deregula
tion of interest rates. All of these approaches should be
reappraised in the light of this new evidence from the
Joint Center study, if after additional review and study
a shift in monetary policy is warranted. Moreover, we
believe that the Secretary should join with the Federal
Home Loan Bank Board (FHLBB) and the Federal Reserve Board
in helping to set national monetary policy.
We further find a need for HUD to strengthen its capacity
to assess and to respond to the implications of proposed
changes in Federal tax policies for the housing sector.

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We take no position with respect to the appropriateness of
using tax incentives and tax subsidies.
But since the
Internal Revenue Code contains them, we believe they should
be studied.
It would be useful for HUD to examine the
effects of local property taxation upon the housing
consumer and to take appropriate action to inform localities
and the general public of the results of such an examination.
The impact of taxation upon housing investors and owners,
through incentives and subsidies, also should be studied.
Recommendations:
HUD should act now to:
A. Urge the Administration with HUD participation to con
duct an immediate public and comprehensive review of
monetary policies employed in the past 40 years and their
relationship to the housing sector and to shelter costs to
the consumer.
The research underway at the Joint Center for
Urban Studies should be examined and expanded, and addi
tional studies should be initiated to test the thesis that
holding housing starts reasonably constant nonetheless
enables other economic goals to be attained (an acceptable
growth in real GNP, lower aggregate unemployment and an
insubstantial increase in inflation) while lowering the
cost of housing to the consumer*
If this thesis is proven
valid, the Administration should invite HUD to join with
the Federal Reserve Board and other agencies to review the
implications of Federal actions to moderate the most
extreme fluctuations in residential construction in terms
of revised monetary posture that such study could suggest.
In any event, the Secretary of HUD should be a forceful and
effective advocate at the Cabinet level for HUD to play a
major role within the Administration with respect to setting
national monetary policies that include stabilizing the
housing sector among national economic goals.
The Secretary
should have the opportunity to strongly indicate the effects
of the national monetary policies on housing productivity
and costs. HUD and the FHLBB should meet with the Federal
Reserve Board to determine such policies. The Task Force
takes no position here with respect to the merits of
possible Federal actions (some of which are addressed in
later sections of this Chapter)
except to note that the
following suggestions appear to warrant additional
scrutiny during this review.

144
1. Expanded Secondary Market Support: The private
secondary mortgage market is in the process of considerable
expansion.
This activity could be encouraged, and the
government's financial institutions (FNMA, FHLMC, GNMA,
FHLBB) could reinforce the countercyclical activities of
the private secondary markets.
2. Altered Financial Institutional Regulations: This
approach assumes that the basic cause of cyclical instabili
ty in the mortgage and credit market is the inability of
thrift institutions to compete for funds when short-term
interest rates go up. Thus, Congress has been considering
reforms that would allow the thrifts to diversify their
assets and liabilities structure, so that the asset and
liability maturities would match.
The lending powers of
the thrift institutions could be expanded to include
construction loans, community development loans, commercial
paper, and some corporate debt, while expanded services
could include checking accounts and consumer loans. Consid
eration has also been given to the elimination of the
Regulation Q ceiling on the interest rates for passbook
accounts.
3. Nonstandard Mortgage Instruments: Thrift institu
tions rely on short-term liabilities as their major source
of funds for long-term, fixed interest rate investments, but
they often cannot earn a return that allows them to be
competitive with other short-term market instruments.
To
alleviate this problem, the long-term, fixed interest
standard mortgage could be supplemented by one that allows
a maturity, interest rate, and/or outstanding principal
to adjust in response to changes in the cost of funds.
Possibilities include rollover variable rate and graduated
payment mortgages.
4. Expansion in Sources of Funds: This approach
assumes that the most effective method to stabilize the
flow of mortgage credit for housing is to increase the
participation of pension funds and life insurance companies
in the residential mortgage market.
Thrift institutions
must compete for household savings on a continuous basis,
but the net flow of pension fund and life insurance reserves
comes in on a contractual basis and is therefore more stable.
The Federal Government could also use tax incentives and
modified regulations to increase the funds that these insti
tutions supply to the mortgage market.

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5. Deregulation of FHA Interest Rate; This approach
assumes that settlement and transaction costs such as
discount points charged by lenders would be reduced if
HUD were to deregulate the FHA interest rate for insured
mortgage loans.
B. Urge the Administration with HUD participation to con
duct an immediate and comprehensive review of national tax
policy with emphasis upon ensuring stability and predict
ability of tax treatment of funds for housing-related
purposes under the Internal Revenue Code. HUD should
create a mechanism to coordinate HUD's response to proposed
changes in the Internal Revenue Code, and to address the
implications of Federal, state, and local income taxation
for housing production, conservation, and occupancy costs.
HUD should study particularly the housing cost implications
of current tax shelter provisions under the 1976 Tax Reform
Act, and the effectiveness of employing tax incentives and
subsidies for the housing sector* HUD should review the
impact of growing local property taxes upon shelter costs
and upon the elderly and others of limited means, and devise
a program for publicizing innovative local tax-sharing
approaches. HUD and the Secretary should be forceful and
effective advocates at the highest levels of government in
setting national tax policy that takes into account the
needs of the housing sector.
C. Support revised monetary, tax, and fiscal policies at
the national level to increase the flow of funds for the
financing of land development, housing construction and
rehabilitation, and supporting community amenities, to
stabilize the flow of such funds, and to reduce the cost
of such funds imposed through interest rates, discount
points, fees, and charges.
HUD Loan Processing
HUD's loan insurance, financing, and assistance programs,
born out of the needs of the sixties, must be reoriented to
the needs of the seventies and eighties. Today's priorities
include helping to solve the problems of cities and towns,
supporting the provision of increased housing opportunities
for everyone but particularly the disadvantaged, and
financing activities to support the production of a major
amount of newly constructed or rehabilitated housing, both
single-family and multifamily.

32-099 O ■ 78 ■ 11

146
Many housing cost increases under HUD's loan insurance,
financing, and assistance programs result from delays and
processing inefficiency.
The time-consuming nature of HUD
loan processing is not really news, but the potential
dimension of economies to developers as well as to HUD
itself, should loan processing be streamlined, is sobering.
It also appears desirable for additional support to be
given to the reorganized field offices involved in various
facets of loan processing*
It would be useful, too, for
substantive requirements in published regulations affecting
processing to be modified.
We have originated many of the
recommendations in this section. Many others are the result
of comments and suggestions originally proposed by HUD field
office personnel,
Findings:
The Task Force finds that HUD's own loan processing pro
cedures are a factor in raising the cost of housing to the
occupant of housing developed or rehabilitated under HUD's
loan insurance, financing, and assistance programs.
By
streamlining processing to eliminate red tape, standardizing
documentary requirements, and encouraging complete loan
submissions, field offices could speed the processing of
applications under these programs.
Increased efficiency
in the utilization of scarce technicians and judicious
reorganization of program and management elements (in part
now contemplated by the Department's pending field reorgan
ization) could lead to reduced processing time and hence to
savings to the housing producer, the consumer, and the
Department itself.
We also find that one of the problems HUD faces is a general
public perception that the effectiveness of the Federal
Housing Administration and its programs has declined. While
we do not agree with this perception, we note that the
addition of housing subsidy programs to FHA's other mortgage
insurance programs may have imposed additional burdens upon
already overworked technical field staff. Members of the
Task Force note that current staff levels, particularly in
large field offices serving rapidly growing communities,
appear inadequate and that the technical staff is spread
thin.
Thus, we find a need for the number of certain
technicians in field offices to be increased, in addition to
the contemplated reallocation of field office personnel

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proposed in the Department's pending field office reorgani
zation, if this public perception is to be modified or
reversed.
Though each of the steps recommended below may seem small
when viewed individually, their cumulative effect could
have a major impact on a large portion of the housing
produced in the Nation.
Furthermore, many of these steps
can be implemented expeditiously by HUD without major new
legislation merely through modest changes in published
regulations and operating procedures.
Recommendations:
HUD should act now to:
A. Add substantially to field office technical staff to
enable the reorganized field offices to handle increased
program loads and added processing requirements, and modify
and streamline administrative procedures and furnish sup
porting facilities to promote the expeditious processing
and review of applications for loan insurance, financing,
and assistance.
In implementing this recommendation, HUD
should act now upon the following supporting changes in
staff and administrative procedures:
1. Implement a complete review of all facets of under
writing now to update currently used approaches for
assessing the condition of housing and financial markets,
and to revise principles and integrate procedures to include
consumer protection, equal opportunity, and environmental
concerns, so as to eliminate multiple reviews that cause
processing delays.
2. Continue efforts to combine Section 8 subsidy
analysis and underwriting reviews under insuring programs
in a streamlined, coordinated single-track processing and
review procedure (e.g., Section 8/Section 221(d)(4)
applications)
3. Place additional computer terminals in the under
writing section of each local office to enable technical
staff to use computer underwriting processing more
effectively (the terminals often are located within spaces
controlled by the Administrative Division and are inaccessi
ble to others) , and assure that field office technicians

148
with a demonstrable need have access to hand-held calculators
to expedite the performance of routine underwriting calcula
tions .
4. Review procedures for allocating subsidy funds or
contract authority under the Department's operating plan
to field offices to give them more lead time to plan their
1 2 -month workload.
5. Implement nationwide HUD/FHA training programs for
technical personnel in field offices.
6 . Reduce the use of fee-paid consultants by hiring
additional full-time staff appraisers, inspectors, and
mortgage credit examiners, to reduce processing time and
to save HUD administrative costs, but authorize the employ
ment of temporary fee-paid professionals for these services
when work load peaks occur or for special needs (to service
outlying areas, to handle peaks of loan applications and
building cycles, and during vacation seasons)
Field
office technical staff should be increased to the point
of being able to process most of the current and projected
case load if properly managed.
I,
Achieve HUD/FHA savings and reduce processing and
review time and costs to housing producers by developing
a functional, detailed index to HUD statutes, regulations,
and handbooks which can be updated periodically with ease,
and by reviewing forms and required exhibits to eliminate
redundancy.
8 . Develop model application submissions for various
programs to assist sponsors and applicants to make complete
submissions and to reduce processing and review time now
consumed in requesting and reviewing additional exhibits
piecemeal,
9. Have field office staff provide increased technical
assistance to developers at the proposal stage concerning
required exhibits, to eliminate the need for costly re
visions of completed exhibits.
10. Accelerate procedures to publish, correct and revise
HUD handbooks and manuals, and streamline HUD's internal
clearance and issuance system for such publications, to

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eliminate confusion about instructions and to reduce delays
of up to a year in resolving technical and administrative
problems.
11,
Help to reduce housing costs attributable to
processing delays or errors of HUD staff as a consequence
of inept management and inadequate competence by supporting
proposed changes in the Federal civil service system insofar
as they promote greater efficiency and productivity from a
better-managed HUD staffr
B. Amend and simplify current processing and underwriting
requirements, collaboratively prepare and distribute model
mortgage and loan instruments and forms, and negotiate their
acceptance by various Federal, state and local financing and
secondary market agencies.
In implementing this recommenda
tion, HUD should act upon the following supporting changes
in processing requirements and lending techniques:
1. Eliminate current methods for calculating professional
fees as a percentage of construction costs or mortgage amount
and substitute different bases for professional fees, such as
per dwelling unit compensation or fixed fees subject to an
upset amount set through negotiation, with savings to be
reflected in the mortgage amount.
2. Study the implications of introducing fast-track
multifamily processing for use by sophisticated developers,
when the site or property is straightforward, by eliminating
Feasibility and Conditional stages from AMP, substituting a
preapplication conference and an application for Site
Appraisal Market Analysis/Conditional Commitment (SAMA/CC)
determination. Have one application based upon the field
office comments at the preapplication conference, which the
field office can respond to with a SAMA/CC letter that gives
the applicant/sponsor expense and maximum mortgage calcu
lations. Costly exhibits not relating to the SAMA/CC
determination would be deferred until the Firm Commitment
application. Change the filing fees from current $2.00 per
$1000 to $1.00 per $1000 of mortgage amount at SAMA/CC
application. At Firm Commitment application the fee paid
would be $2.00 per $1000 of mortgage amount* Use this
approach for both new construction and rehabilitation of
multifamily housing developments.
3.
Prescribe a general certification form that the
mortgagor and contractor will use to evidence compliance with

150
all existing regulations rather than separate documents
(similar to IRS tax form certification)
4. Simplify previous participation clearance procedures,
perhaps by having the Central Office issue and withdraw
clearances annually.
5. Issue reasonable and workable guidelines for approving
financing plans and for controlling costs of Section 8
housing to be constructed or rehabilitated without FHA
insurance (e.g.. by state or local housing finance agencies
or local public agencies, financed with proceeds of taxexempt bond sales; or by private lenders with or without
private mortgage insurance)
6 . Change statutes and regulations to permit single
family processing for projects containing eight or fewer
dwelling units (instead of current one to four units) if
justified by market analyses, but for more than three units
held for rental, enable the use of the standard exculpatory
clause to remove personal liability.
7. Provide for preapplication review of project drawings
and specifications when the architect does not have experi
ence in designing HUD projects, to enable field office staff
to provide guidance and to reduce the possibility of later
required revisions attributable to ignorance.
8 . Encourage the Veterans Administration to accept
conversion of the commitments made by FHA as FHA does for
Veterans Administration CRVs (Certificates of Reasonable
Value), thus reducing Veterans Administration processing
time and costs.
9. Develop uniform mortgage and loan processing instru
ments and forms, for use by all lenders (public and private)
for all financing transactions involving land development,
housing construction and rehabilitation, and supporting
community amenities. Negotiate their acceptance by various
Federal, state and local financing agencies, private lenders,
and secondary market agencies (i.e., as with the FNMA/FHLMC
forms)
10. Modify FHA mortgage insurance processing of all
rehabilitation loans by using appraisals to special
rehabilitation code or housing code requirements (not to
Minimum Property Standards for new construction) with such

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appraisals to include detailed condition analyses, and by
permitting a HUD-approved negotiated agreement about the
nature, extent, and timing of repairs scheduled for comple
tion after closing, with escrows in appropriate amounts and
with enforcement procedures providing for release of escrowed
funds only upon inspection.
IX. Eliminate permission-to-occupy procedure and accept
certificates of occupancy where issued.
12. Continue the new policy to increase Section 235
subsidy amounts by further lowering the maximum interest rate
charged to the homebuyer*
Implement effectively Section
106(a) (2) of the National Housing Act providing for coun
seling to homebuyers as a means of preventing losses to
uninformed homeowners.
13. Make nonprofit multifamily projects "lump sum" by
elimination of cost certification by "arms length" contrac
tors. For all multifamily projects other than such nonprofit
projects which have an arms length relationship among princi
pals, revise processing to use a simplified cost certifica
tion procedure that preserves BSPRA (Builders Sponsors Profit
and Risk Allowance) as an identifiable item in the estimate
of mortgage value.
14. Encourage the combination or consolidation of interim
and permanent financing for single-family housing construc
tion and rehabilitation as one transaction, and encourage
the use of "take-out" commitment procedures to eliminate
professionals' ¡fee featherbedding for such items as recording
fees, survey fees, appraisal fees, and attorneys' fees.
15. Revise Accelerated Multifamily Processing (AMP) to
eliminate the mandatory requirement that field offices, at
HUD's expense, order all personnel and commercial credit
reports and instead revert to requiring the mortgagees to
supply credit reports, paying the costs out of their 2
percent Initial Service Charge. However, allow field offices
to order additional credit reports at H U D 's expense if the
need for such reports is warranted by the mortgage credit
examiner.
C. Support legislative amendments to streamline the pro
cessing of housing loan applications, with particular
attention to the following:

152
1* Eliminate the requirement under Section 213 of the
Housing and Community Development Act of 1974 for local
government approval of construction of subsidized housing
consistent with the community's Housing Assistance Plan in
locations with current zoning and codes approvals, to
preclude politically motivated disapprovals.
2.
Make Section 235 more workable by allowing use of the
program for up to 100 percent of the units in a new subdivi
sion rather than for only 40 percent, in areas where concen
tration problems are minimal and where justified by market
analyses, and by raising mortgage limits to reflect real
estate acquisition costs.
Financing and Money Markets
The consumer ultimately pays for all the developer's
financing costs, including the interest and fee payments on
the land development loan, the interim or construction loan
interest, fees and charges, the commitment fees and charges
for permanent mortgage financing, and special financing
charges at settlement.
The consumer also pays for permanent
mortgage loan interest, sometimes accompanied by term
insurance on the mortgagor's life, for the life of the
mortgage.
The consumer pays for these costs at the time of
settlement and during the mortgage if the consumer is a buyer,
or in a portion of each rental payment if a renter.
Some of
these financing costs are affected by Federal and state
supervisory agencies that regulate lending activities.
Others may be affected by secondary finance market agencies'
requirements, notably those of the Government National
Mortgage Association (GNMA), and the Federal Home Loan
Mortgage Corporation (FHLMC)
Some can be affected through
HUD's general financial requirements.
Findings;
The Task Force finds a need for HUD to take action to modify
certain of its general financial requirements with respect to
various classes of loans, and to induce changes in require
ments imposed upon lenders by secondary market agencies.
We also find that HUD should explore statutory and regulatory
changes in the Department's authority to support innovative
financing techniques and to provide last resort insurance for
performance and payment bonds where private insurers will not
do so.

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Recommendations:
HUD should act now to:
A. Consider the marketing, cost, and investment implications
of requiring nonprofit and entrepreneurial developers to fund
or collateralize the developer's share of the financing
risks of multifamily rental housing construction and rehabil
itation in an amount to be based upon the developer's manage
ment track record and upon the mortgage amount.
B. Support state and metropolitan housing finance agency
efforts to require nonprofit and entrepreneurial developers
to share the financing risks of multifamily rental housing
construction or rehabilitation through a funded or collat
eralized obligation in an amount based upon the developer's
management track record and upon the mortgage amount.
C. Cause GNMA regulations to be modified, and encourage FNMA
and FHLMC to change their rules, to enable all three agencies
to purchase all types of secured loans relating to land
development, housing construction and rehabilitation, and
supporting community amenities, including subdivision and
planned unit developments.
By expanding the market for such
secured loans, including uninsured loans and those publicly
or privately insured, the availability of capital to public
and private lenders originating such loans would be increased.
With an increased supply of funds, the interest rates charged
for such loans might drop.
D. Study the implications of broadening statutory authority
under Section 245 of the National Housing Act and of encour
aging greater use of existing authority to establish special
insurance for experimental financing loans to be tested or
demonstrated on a pilot basis prior to national adoption.
FHA loan insurance could be provided to public and private
lenders willing to experiment with new financing techniques
(e.g., that involve unusual security, credit, amortization,
payment, and other features) to augment other forms of
security for loan repayment, and to induce the conduct of a
valid marketplace test or demonstration.
E. Request statutory and regulatory authority to expand the
mandate of HUD's Federal Insurance Administration so that it
could insure performance and payment construction bonds for
the development of newly constructed or rehabilitated
housing, in situations when the private insurance industry
will not do so.

154
F. Encourage rapid acceleration of the use of graduated
payment mortgage loans# and request increased Federal and
state support for their use through the Federal Home Loan
Bank Board (FHLBB) and other Federal lender regulatory
agencies, so as to increase access to capital for home
mortgage purposes available particularly to first-time
homebuyers of limited means.
G. Deregulate the FHA Interest Rate on all insured mortgage
and other loans for any housing-related purpose, including
loans for land development, housing construction and
rehabilitation, supporting community amenities and other
activities involved in single-family and multifamily
housing development, renovation and acquisition.
Financing for Special Housing Needs
Even with changes in Federal monetary and fiscal policies,
with revisions in HUD's loan processing and with increased
secondary market support, certain special housing needs will
continue to be unmet. Particularly critical are the shelter
needs of large families in both urbanized and rural
locations, and others, such as the handicapped, migrant
workers and rural nonfarm households.
A major and highly visible unmet need is that of young
families, especially those with limited means, who desire
to obtain financing for the purchase of their first home.
It is clear that even currently experimental innovative
financing techniques may not help the first-time homebuyer
who lacks sufficient savings to afford a downpayment and to
defray settlement costs and furnish the new home within a
reasonable time after occupancy.
The Task Force is aware of considerable concern that the
design and space requirements of all these families be met.
It seems equally clear that unusual financing techniques must
be evolved to support specially designed housing which meets
those needs in a marketable way.
In addition to the need for financing to meet these special
housing needs, there are large areas of American communities
where conventional lenders cannot or will not provide fi
nancing for reasons other than "red-lining." Promising
techniques to revitalize these areas such as infill
rehabilitation, large-scale development and rehabilitation,

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and "new-towns-in-town" so as to provide housing at
reasonable costs to current residents will require special
assistance.
There is strong evidence that homebuyers who want to obtain
financing for home purchases in red-lined areas can get loans.
This financing appears to be from nonconventional sources and
at greatly increased interest rates.
Red-lining, thus, not
only contributes to urban decay, it also contributes to
increased housing costs for certain homebuyers.
The Federal
agencies regulating lender activities can help ameliorate
this situation by modifying their regulations to require
lenders to provide financing to credit-worthy borrowers at
interest rates reflecting the real risks of housing loans
in high-risk locations.
Another dimension of special urban housing needs is that
posed by efforts to conserve viable neighborhoods through
such programs as Urban Homesteading and Neighborhood Housing
Services, as well as other renovation and substantial
rehabilitation activities.
There is a large and valuable
housing stock in older communities, much of which is suitable
for recycling and reuse.
A Task Force member active in
volume rehabilitation writes:
An owner/developer interested in restoring his currently
occupied multifamily building to code complying, decent
housing is victimized by the historical difficulty of
obtaining financing which will allow him to treat his
tenants as human beings. He must first obtain a
building loan which requires the completion of all
specified improvements within an arbitrary limited
time, following which the loan will convert to
"permanent" financing.
The failure to complete
the improvements creates a default under the building
loan, the inevitable result of which is foreclosure.
Large-scale development and the creation of "new-towns-intown" are other promising mechanisms for reducing shelter
costs in urban as well as rural areas. HUD estimates that
site planning savings attributable to a reduction of street,
sidewalk and utility rights-of-way amount to 3 to 5 percent
of land development costs alone, or 1 to 3 percent per
dwelling unit. Many cities have vacant land condemned for
urban renewal, highways or other purposes*
HUD's Title X
land development insured loan program and Title VII new
community program both with some revisions provide tools

156
to support large-scale development activities where useful
and marketable.
These programs provide for cost savings
through economies of scale.
Findings;
The Task Force finds an urgent need for financing techniques
to be specially expanded or evolved to support the provision
of new and rehabilitated housing for persons and families
with special housing needs.
It is particularly important
to assist the first-time homebuyer with limited means to
finance the purchase of housing, and to provide financing
for marketable housing designed to accommodate the special
housing needs of large families, the handicapped, migrant
workers and rural nonfarm households.
Some of these needs
can be met through an expansion of current state and metro
politan housing finance agency programs. Others require an
expansion of HUD program assistance such as that afforded by
a revised Title X land development insured loan program and
a revised Title VII new community program, as well as through
special financing provisions for large-scale housing develop
ment and rehabilitation.
Recommendations:
HUD should act now to:
A. Support amendments to statutory and regulatory require
ments to enable the development, pilot testing or demon
stration, and operational implementation of viable new
financing approaches to support the provision of housing for
families with special needs in both urbanized and rural
locations, such as large families, the handicapped, migrant
workers and rural nonfarm households.
B. Modify current loan processing regulations to enable the
provision of insured loan financing with appropriate under
writing and marketability criteria for basic, starter,
unusual or different types of homes which have been deter
mined to be marketable in the areas in which they are
located. Such homes could be constructed or rehabilitated
with the use of various techniques including self-help
methods, for purchase or use by young families and first-time
buyers of limited means, as well as by families with special
housing needs.
C. Modify FHA statutes to permit the option of 35-year, no
downpayment mortgage loans for single-family home purchases

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by creditworthy borrowers, to improve financing for first
time homebuyers as well as for those returning to the home
purchase market.
D. Support expanded use of innovative financing techniques
through alternative mortgage instruments such as graduated
payment mortgage loans coupled with sharply reduced down
payments to enable younger families with lesser incomes to
finance their first home purchase in an affordable manner,
E. Streamline its own processing of land development,
subdivision and planned unit development loans insured
under Title X and other HUD programs, and to assure that
FNMA makes funds available for Title X loans on a realistic
basis.
F. Create a permanent mechanism to process and support
large-scale land and housing development applications for
locations in high density urban centers and in other
marketable locations. The financial and technical assis
tance required to plan, design and support the development
of large-scale communities, whether conceived primarily as
large housing projects with ancillary commercial facilities
or rather as complete satellite communities or new-towns-intown, entails special training, sophistication, and inno
vative methods to assure that such communities are viable.
This mechanism could use such programs with some revisions
as the Title X land development insured loan program and
Title VII new community program, as well as grants-in-aid
under Community Development Block Grants (CDBG) and Urban
Development Action Grants (UDAG)
G. Support an increase in the loan limits for large-scale
developments that are newly constructed or rehabilitated
in major urban and other locations with critical unmet
market needs to $1 0 0 ,0 0 0 , 0 0 0 to assure that, if otherwise
marketable, such developments can be planned, designed
and developed in a manner which passes on savings from
economies of scale to the housing consumer,
H. Revise regulations to enable large-scale developments
with insured loans to include increased commercial spaces
to generate perhaps as much as 50 percent of the gross
rental income. Rents from such commercial facilities
should be utilized to (1 ) assure the success of the
development as a whole; (2 ) reduce the apartment rents
charged; and (3) support the service amenities which

158
otherwise would become an additional burden which local
government could only meet through increased taxation.
I, Develop a special program of insured loans for site
acquisition and development by the small homebuilder/
developer,
J. Expand the use of short-term home improvement financing
under available programs such as Title I home improvement
loans, to enable moderate income homeowners and the owners
of small rental properties to finance major repairs, replace
ments and alterations other than those involved in substantail rehabilitation.
Such financing could be expanded
through currently proposed programs utilizing Title I
Community Development Block Grant funds through partici
pating state and local agencies to subsidize interest rates
on such loans to lower-income borrowers.
K. Establish a program of secondary financing for the cost
of moderate rehabilitation of larger multifamily properties
in cases that do not require substantial rehabilitation.
L. Explore the implications of implementing special
rehabilitation financing programs to be used by investorowners to finance the rehabilitation of multifamily rental
properties which are fully or substantially occupied, in a
manner that reduces relocation problems and costs, with
long-term secured financing loans to include immediate
advances for the major structural and common areas of
rehabilitation and deferrable periodic advances for the
rehabilitation of individual apartment units as they become
available through tenant invitation or vacancy, with such
programs to include the following:
1, Immediate rehabilitation of "nonpossessory" items
such as roofs and exterior wall surfaces, interiors of
common spaces, boilers, burners, furnaces, site work,
elevators, wiring, plumbing, and other shared facilities.
At the conclusion of this nonpossessory mortgage rehabili
tation, amortization of the permanent mortgage loan would
begin, with rents set to cover the owner's nonpossessory
rehabilitation costs as advanced by the lender,
2. Deferrable rehabilitation of "possessory" items that
are located within the confines of individual apartments
such as bathroom fixtures, kitchens, individual heating and
cooling units, and interior walls, ceilings and floors, to
be accomplished periodically as apartment units become

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available through tenant invitation or vacancy.
The funds
for such deferrable possessory rehabilitation would be
included in the overall mortgage commitment, to be advanced
as needed. Upon the conclusion of any possessory apartment
rehabilitation, additional amortization of the funds
advanced for its financing would begin, to be added to
the owner's monthly amortization payments under the mortgage
and covered through appropriate increases in the rent of the
unit rehabilitated.
3. Financing charges to the investor-owner for a special
fixed-rate, long-term mortgage loan would be equal to those
for more conventionally styled rehabilitation loans except
for any additional commitment fee(s) required by the lender
to compensate for the uncertainty of when the possessory
rehabilitation funds would be drawn down.
Alternatively,
the permanent mortgage financing commitment could be fixed
for the funds required to finance the nonpossessory rehabili
tation activity, and variable for those funds committed for
possessory rehabilitation expenses.
4. Since the fluctuating market cost of money could make
lenders unwilling to make an unlimited commitment for the
possessory rehabilitation portion of the mortgage amount,
the mortgage would contain language for a maximum term for
all amortization (25-40 years) and a shorter term for
drawing down and amortizing the possessory rehabilitation
funds (5-7 years)
In addition to special commitment fee(s)
for the latter, and the more conventional financing charges
imposed by the lender, it may be desirable for HUD to insure
and/or subsidize this special rehabilitation financing
approach to assure lenders of their required yield.
5. Any local
allow the lender
rents would rise
investor-owner's

rent control powers would be modified to
to enforce rent control guidelines so that
or fall in valid economic balance with the
financing costs.

M. Expand support for financing programs offered by state
and metropolitan housing finance agencies, and sponsor or
induce the increased secondary market activities by FNMA,
GNMA and FHLMC to increase the flow of affordable funds for
financing to meet special housing needs.
N. Extend Title II financing to mobile homes situated on
occupant-owned sites, with appropriate underwriting judgment
of market feasibility.

160
O. Seek Administration encouragement for all Federal agencies
regulating the lending industry with respect to red-lining to
(1 ) establish uniform rules and procedures to assure that
lenders give creditworthy borrowers access to affordable
housing mortgage and construction or renovation funds;
(2 ) study the real risks and marketability issues of loaning
such funds in locations currently considered high-risk and
non-marketable; and (3) require that the costs of such
financing be commensurate with the real risks perceived.
Consumer Protection:
Costs

Marketing, Settlement and Transaction

Consumer protection efforts have played an important role in
enabling the homebuyer to receive fair treatment in the
marketplace.
Consumer legislation has been enacted to deal
with settlement costs, foreclosure proceedings and usury
ceilings.
Despite their legitimate objectives these
statutes, either because of substantive requirements or
because of administrative interpretations, may have imposed
unnecessary housing costs.
Settlement costs--including real estate sales commissions,
loan-related fees including points, attorneys' fees, title
search, examination and insurance fees and recordation fees—
can aggregate about 10 percent of the selling price of a one
to four-family residence, according to informal HUD staff
estimates.
Real estate sales commissions normally constitute
5 to 7 percent of the sales price. Although paid by the
seller, it is assumed they are factored into the sales price.
Loan-related fees and charges, normally shared between the
seller and buyer, and attorney's fees constitute the next
largest component of settlement costs and equal anywhere
from 3 to 5 percent of the sales price.
Title search,
examination, insurance and recordation charges make up the
remainder.
Informal experience in some locations where
local real estate professionals have offered to reduce
commissions if sellers undertake some of the sales work,
and similar impressions from the impact of limited lawyers'
advertising, appear to support a premise that both real
estate sales commissions and attorney's fees can be reduced
with substantial savings to the homebuyer and seller.
Title search, examination and insurance charges are generally
considered to be susceptible of reduction to produce a
further saving to both the homebuyer and seller even though
these fees constitute the smallest share of total settlement
costs. The techniques involved in the process of searching

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and examining titles coupled with the issuance of title
insurance have undergone a great deal of evolution since
World War II,
In many parts of the country it is still the
custom for a practicing attorney to search and examine the
title from the public record on behalf of the seller or
buyer, lender, or all of them.
In other parts of the country
there has been a strong trend toward the use of mass-production techniques by commercial title companies. These
techniques, encouraged by the pressures of the marketplace,
have functioned to hold title search and examination costs
down with savings to homebuyers and sellers.
The Task Force believes that extending the use of massproduction techniques in the title search and examination
process can reduce these costs where such techniques now are
not used and can stabilize these costs throughout the country.
In addition, state regulation of the pricing of title
insurance has markedly increased in recent years and further
growth can be anticipated.
State regulators can be very
effective in assuring that the rates charged by commercial
title insurers are justified and held to reasonable levels
based on their operating costs and fair return on their
investment.
The Real Estate Settlement Procedures Act (RESPA) of 1974
and its 1975 amendment require full disclosure to the homebuyer of settlement costs on many types of mortgages.
Although the law has redressed some major abuses, some
complain that compliance with its administration has
been burdensome and time-consuming.
HUD is now studying
the impact of RESPA, and both HUD and the Federal Trade
Commission are investigating ways to further reduce
settlement costs.
Mortgage foreclosure is currently a matter of state law
and procedures vary considerably from state to state. A
1969 survey by the American Bar Association found that
foreclosure time might then vary from 21 days to 20 months
and that its cost then could range from $35 to more than
$1900.
The cost of foreclosure is largely a function of
time necessary to complete the process.
Foreclosure
practices have an indirect but important bearing on housing
costs. Quicker and cheaper methods of foreclosure could be
a cost-saving factor and would possibly make lenders more
eager to make loans under certain conditions. Currently,
for example, GNMA and other forms of mortgage-backed
securities are less attractive to investors when secured
by mortgages in states with complicated foreclosure laws.

32-099 0 - 7 8

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The revival of the concept of the Uniform Federal Mortgage
Foreclosure Act and the adoption of an appropriate Uniform
Act by Congress should be supported. Any such act should
be applicable to all one- to four-family residential
mortgages to the extent legally and reasonably possible.
In addition it should provide for a speedy completion of
the foreclosure process and elimination of unrealistic
redemption rights, all within the framework of the applicable
provisions of the U. S. Constitution. A uniform approach to
foreclosure practices should have a significant positive
effect on the availability of mortgage money in jurisdictions
now requiring complicated foreclosure procedures.
It should
also result in reducing lender and title processing charges
over the long term.
State usury laws also may have had a housing cost impact upon
the consumer.
Usury laws place a ceiling on the allowable
interest rate which can be charged on mortgage loans and as
such are commonly perceived as a valuable protection for the
homebuyer.
However, to the extent that usury ceilings cause
less mortgage money to be available, they work to the detri
ment of the consumer.
Depending upon the state, the market
place may substitute points and discounts or impose special
fees and charges for mortgage loan commitments to replace
that portion of yield denied the lender by the impact of
usury legislation.
Such extra charges impose a heavy burden
upon the homebuyer and, as in the case of VA or FHA-insured
mortgage loans, sometimes upon the seller as well.
There
is very little evidence that mortgage interest rates are
higher in states without usury laws than in those with such
regulations.
Findings:
The Task Force recognizes the legitimate desire to protect
consumers but also acknowledges an equally valid need to
encourage and enhance actions by investors to make funds
available for the benefit of consumers. We find that some
lenders may be confused or deterred from making loans to
homebuyers by the number of recent consumer protection
pronouncements at various levels of government.
Therefore,
we find a compelling need for the Federal Government, states
and localities to avoid the development of more complex
consumer legislation and to simplify statutory and regulatory
requirements so that more effective protection can be pro
vided to the consumer without interfering with the flow of
affordable financing for home mortgage financing purposes.

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We further find a need for HUD and other Federal agencies
to accelerate efforts to reduce settlement and transaction
costs.
It is similarly desirable to support more uniform
mortgage foreclosure laws at the state level, and to
consider the implications of possible Federal legislation
in the foreclosure area.
Finally, while not recommending
Congressional action to address state usury laws, we note
that the adoption of new usury legislation or the extension
of existing usury laws by the states is not desirable unless
such legislation demonstrably benefits the consumer and
enhances the flow of affordable funds for home purchase
mortgage loan purposes.
Recommendations:
HUD should now act to:
A. Support current efforts to develop an efficient land and
property title recordation system for permissive adoption by
all states and jurisdictions.
B. Encourage and support current Justice Department and
Federal Trade Commission efforts to promote vigorous
enforcement of laws relating to illegal real estate
sales and marketing practices.
C. Follow the negotiating process previously used by HUD
with the title insurance industry to induce lower fees for
the professional services of attorneys and real estate
brokers involved in the sale of HUD-acquired properties.
D. Accelerate current research pursuant to the Real Estate
Settlement Procedures Act to find ways of reducing loanrelated fees and charges, title search and recordation
charges, title insurance charges, realty brokerage
commissions, attorney's fees and other settlement costs,
and ways of improving the efficiency of existing land
recordation practices in the absence of a model national
land and property title recordation system.
E. Participate actively in the recently created joint staff
task force with the Federal Trade Commission to assure
cooperation in inquiries to examine real estate brokerage
practices and develop appropriate regulations if needed.
F. Support current research efforts to yield data about
the "lender-pay" concept envisioned by RESPA and its impact
upon housing costs to the consumer of one to four-family

164
residential properties.
Study also the implications for
such housing consumers of encouraging "seller-pay" activities
with the seller paying the cost of title evidence establishing
the validity and marketability of seller's title, with the
buyer paying only a small charge for title evidence to
satisfy the buyer's mortgage lender.
G. Revive the concept of the Uniform Federal Mortgage
Foreclosure Act by developing a new bill for support in and
adoption by Congress. Any such model Act should be applica
ble to all one- to four-family residential mortgages to the
extent legally and reasonably possible.
It should provide
for a speedy completion of the foreclosure process and
elimination of unrealistic redemption rights, all within
the framework of the applicable provisions of the U. S.
Constitution.
H. Research the impact of existing state usury legislation
upon housing costs to the consumer.

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Chapter Five
A Nationwide Housing Cost Reduction Program
This report advises the Department where to direct its attention, identifies key roles for other Federal, state and local
government agencies, and indicates ways for government to work
with private firms and the general public to assure that hous
ing is available and affordable to American families. Members
of the Task Force have worked carefully to ensure that all of
the recommendations in this report are real, relevant, and
politically feasible. They are concerned lest anyone think
that HUD alone can solve the housing cost problem. They wish
to acknowledge the innovative steps already taken by other
government agencies at all levels and by the housing industry
to help control escalating housing costs.
The logic and organization of this report reflect the struc
ture of the housing industry rather than the Department's
institutional perspective.
The Task Force has taken its broad
mandate seriously, necessarily focusing upon problems that are
industrywide and that affect most housing consumers. This
extensive inquiry has led to some startling findings and major
recommendations for action * Some recommendations cut across
virtually every area of HUD activity.
They range from nation
al policy concerns to be addressed by the Administration,
through important interagency and Departmental policies, to
program-level recommendations that could be implemented readi
ly by existing program offices in HUD. They involve action
by state and local governments and by private organizations
and firms.
The sheer number of immediate steps which HUD and others can
take to help reduce or stabilize housing costs to the consumer
is almost overwhelming.
In fact, part of the housing cost
problem— at least from the Department's vantage point— is
that to act as an effective leader of a national cost reduc
tion effort HUD must create an administrative process capable
of dealing with the great bulk of these recommendations.
The valuable work of many task forces and commissions was
lost or ignored in the past after initial publicity had faded,
simply because programs and mechanisms to implement their
recommendations were lacking. This Task Force would be sorely
disappointed— in fact, we would consider our work to be of
little avail— if the Department appears indifferent and does
not act to implement these recommendations soon. We urge
the Department to initiate and lead a nationwide housing cost
reduction program that involves other levels of government in
cooperation with the housing sector and with broad public
support.
We also urge the Department to create an effective

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mechanism within HUD to coordinate the many policy and pro
gram initiatives contemplated by these recommendations.
The Need for Cooperative Action
It cannot be overstressed that this proposed nationwide hous
ing cost reduction program cannot be implemented by only one
segment of American society. The support of all elements is
required for a national effort to be successful,
The private
sector alone cannot reduce or stabilize housing costs, partic
ularly in the older urbanized and more industrialized commu
nities of the Nation.
Too many factors are beyond the control
of any one firm or part of the housing industry.
Much of the
problem results from government regulations and policies
created to address national goals other than the country's
housing goals.
Many of the factors contributing to higher housing costs are
directly or substantially under the control of Federal, state,
or local government.
No agency or level of government alone
has the resources to ameliorate the impact of such factors,
though each has unique strengths at its disposal,
At the
least, government agencies should modify their own policies
and programs that increase housing costs.
If all levels also
cooperate and channel their activities, their combined assets
may prove sufficient to resolve those problems attributable
to government actions.
Other factors are influenced by the private sector as a whole.
While no individual firm can take much action alone, by work
ing together business and industry can act responsibly to
solve problems they currently cause.
To be effective their
concerted actions require the informed support of government
and of the American people. Private interests must join with
public agencies to attack other problems which long have re
sisted their individual efforts at resolution. With support
from the public, a nationwide housing cost reduction program
could be highly effective.
Leadership and Coordination
It will take time to implement these many recommendations.
Yet it would be folly either to move too timidly or to delay
further. There must be action and leadership at the Federal
level.
To be effective, a nationwide housing cost reduction

167
program must be sensitive to and administered through existing
agencies, with the cooperation of business and industry firms
active in regional and local marketplaces, in a manner sup
portable by the average citizen.
The agency to lead and coordinate a nationwide housing cost
reduction program most logically is HUD.
In the Housing Act
of 1949, as amended, Congress directed that HUD assume this
role by acting to reduce housing costs without sacrificing
sound standards.
Some argue that after the mid-sixties the
national impetus for housing cost reduction lapsed. However
accurate such accounts, this Task Force believes that it is
timely for HUD again to assert this leadership.
In addition to HUD's national role, many of these recommenda
tions require coordination within the Department.
Some can
be effected immediately by existing program offices, but
many cut across current institutional and programmatic lines.
One of the major challenges confronting HUD is that of assur
ing coordination of HUD's programs with the activities of
others outside the Department.
To administer a nationwide housing cost reduction program
effectively, HUD must act now to Create an internal mechanism
to coordinate the use of all Departmental resources in support
of the program. We do not attempt to advise the Department
about the form of such a mechanism, in part because there are
several approaches which could work and also since issues of
overall Departmental organization are internal matters. But
we do believe that to overcome indifference an implementation
mechanism is absolutely necessary, however structured or
organized.
Findings:
The Task Force finds that active HUD leadership of a national
cost reduction effort is essential to the implementation of
these recommendations.
Such an effort should take the form
of a nationwide housing cost reduction program, with all
levels of government acting in concert with the business
community and the general public.
To initiate and lead such
a program, HUD should create an implementation mechanism capa
ble of providing coordination within the Department and for
other agencies and firms active in the program.
We believe that a nationwide housing cost reduction program,
in addition to being anti-inflationary, supports the Adminis
tration's national urban policy.
As the recommendations in

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this report are implemented, their impact would be apparent
in central cities and suburbs, older and younger communities,
and towns and villages throughout the country.
These recom
mendations assume current budgetary projections and build
upon currently announced reorganizational changes within the
Department.
We recognize that in the foreseeable future many low- and
moderate-income households will not gain access to acceptable
housing at affordable prices. Therefore, we find a strong
need for housing subsidy mechanisms to be continued and per
haps even expanded.
Recommendations;
HUD should act now to:
A. Create and lead a nationwide housing cost reduction pro
gram in coordination with other agencies of Federal, state,
and local government, and in cooperation with the business
community and the general public, to reduce or stabilize the
costs of new, rehabilitated and existing housing to the con
sumer.
This national program would implement the recommenda
tions in this report.
B. Create an implementation mechanism within the Department
to initiate and administer HUD's participation in a nation
wide housing cost reduction program, to coordinate internally
the needed policy and program changes to assure that all HUD
program resources are made available to the program, and to
coordinate with the other government agencies, housing sector
firms and members of the general public active in the program.
C. Revise Departmental policy goals and program objectives
to assure that the recommendations in this report are imple
mented, to include specific reference to reducing or stabiliz
ing housing costs for the benefit of all Americans, using
language similar to the following:
Reduce or stabilize the costs of new, rehabilitated,
and existing housing to the American consumer in
coordination with other Federal, state, and local
agencies and in cooperation with the business com
munity and the general public, using the resources
of all HUD programs which affect financing, land
development, housing construction and rehabilitation,
supporting amenities, housing conservation, and
housing acquisition and occupancy costs.

169
D. Institute appropriate procedures to amend Departmental
regulations to assure that program administrators set
management targets for achievement with respect to opera
tional measures to reduce or stablize housing costs to the
consumer.
E. Continue to support subsidy mechanisms for low- and
moderate-income households to help them afford decent,
sanitary, and safe housing.
F.
Implement a program of supporting research and studies
in the following areas:
Land Supply and Development Inquiries:
a. Develop techniques for regional planning for
an adequate supply of developable land including the monitor
ing and interpreting of regional land supply, land prices
and related trends.
b. Create regional standards for zoning and related
controls as they affect the variety of housing allowed, the
amount and location of land for various types of housing, and
the process of administering such controls.
c. Study effects of various Federal policies, programs,
and procedures on land supply* land development costs, and the
costs of government reviews.
Particular attention should be
given to the activities of the Environmental Protection
Agency.
d. Examine alternative means to encourage the devel
opment of underused land already serviced at public expense
and designated for residential use.
Research should consider
taxing policies, penalty payments/ eminent domain powers, and
other appropriate public actions.
e. Develop acceptable, minimal governmental require
ments for site development standards and fees in market areas
with various physical conditions.
This research should
emphasize site development standards for street width and
construction; storm water management, residential water dis
tribution systems, residential sewer systems, and other
utilities.
This should include analysis of the issue of
what share of the governmental costs of growth should be
borne by consumers of newly developed or rehabilitated housing
versus the community at large.

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f< Study laws that affect the ability of local
governments to acquire sites for private as well as public
development of subsidized housing and to provide internal
infrastructure and facilities for such projects.
g. Examine governmental processing of land develop
ment applications.
Research should define and analyze
procedural problems by type of development, source of pro
blem, cost impact and potential for ameliorative action and
should identify ways localities can improve the management
of the governmental review and approval process.
h. Determine the benefits and costs of environmental
reviews of Federal actions directly affecting housing costs.
Research should establish better guidelines on differentia
ting between significant and trivial issues, and should
generally devise better ways to achieve the purpose of
.lational environmental policy.
i. Develop ways to minimize the cost impacts of
land-use policies and procedures by holding multi-state
regional conferences in cooperation with state governments,
to foster the exchange of information among federal and
state officials, business representatives, and civic groups,
and to produce cost-reducing strategies for demonstration
and evaluation.
2.

Building and Technology Inquiries:

a. Provide basic research to identify and inaugu
rate the most effective program for continuing public infor
mation that will support the objective evaluation and local
acceptance of sound building standards which can reduce the
cost of housing.
Proven materials and technology already
in wide use should be given immediate priority.
b.
Conduct research and demonstration of worthy new
technology, methods and materials in housing construction,
conservation and rehabilitation.
c. Sponsor basic research to identify all procedures
used to develop, adopt, accept, and administer state and
local building codes and standards; and suggest ways to elimi
nate those procedures that unnecessarily increase the cost
of housing.
Such research should include suggestions, for
example, to reduce time delays caused by multiple permit and
approval processes.

171
d. Sponsor basic research in the areas of life
and property safety requirements to determine the costs
and benefits of such requirements when included in building
codes and standards.
e. Foster applied research to develop rehabili
tation codes for single-family and multifamily housing,
using a consensus mechanism involving the model codes
organizations, the National Institute of Building Sciences,
the National Conference of States on Building Codes and
Standards, and other interested parties.
These rehabilita
tion codes should be written so as to permit unlicensed and
nonskilled persons to perform rehabilitation work that com
plies with life and property safety requirements.
f. Perform research and demonstrations of cost
effective techniques for small-scale and large-scale housing
rehabilitation, with particular emphasis upon developing
low-cost means and procedures for condition analysis and
cost estimating.
g. Sponsor basic research to develop a nationally
recognized system which can be incorporated in state and
local building codes and public information programs that
will promote choices of design, materials and techniques in
terms of operating and maintenance cost criteria.
h. Sponsor applied research to develop cost effec
tive site improvement techniques, such as foundation designs
for by-passed difficult building sites with expansive clays
or other adverse environmental conditions.
i- Undertake applied research to develop water and
energy conservation techniques that reduce costs.
Such
research should include reclamation and recycling, and heat
and moisture transfer associated with building contacts with
the soil,
j . Sponsor applied research to develop acceptable
independent utility systems for an individual residential
building or small developments, including water supply and
sewerage disposal systems that do not need municipal services.
k. Study the pricing of housing-related materials,
fixtures and appliances to determine if trade practices are
occurring that cause increased housing costs to the American
consumer.

172
90

1- Study in cooperation with the Department of
Labor the HUD-DOL data-sharing arrangement to assess
whether wage-rate determinations properly reflect housing
industry wage payments.
m. Study the methods and means of improving pro
ductive and efficient use of labor in housing construction,
conservation and rehabilitation.
n. Study the impact that metrication of the
American housing industry can have on the costs of producing
and marketing housing.
o. Study the Occupational Safety and Health
Administration work rules' impact on costs of site develop
ment, housing construction and rehabilitation to support
recommendations for the modification or elimination of work
rules that increase costs without safety and health justifi
cation.
3.

Financing, Money Markets and Marketing Inquiries:

a.
Initiate and participate in an Administration
study of the relationship of national monetary policies to
the housing sector and to shelter costs to the consumer.
The Cooley/Corrado research underway at the Joint Center
for Urban studies should be examined and expanded, and
additional studies shold be initiated to test the thesis
that holding housing starts reasonably constant nonetheless
enables other economic goals to be attained Can acceptable
growth in real GNP, lower aggregate unemployment and an
insubstantial increase in inflation) while lowering the cost
of housing to the consumer.
If warranted by such study,
review the implications of possible Federal actions such
as:

(1)

Expanded secondary market support,

(2)

Altered financial institution regulations/

(3)

Nonstandard mortgage instruments,

(4)

Expansion in sources of funds, and

(5)

Deregulation of FHA interest rate.

173
b. Initiate and participate in an Administration
review of national tax policy with emphasis upon ensuring
stability and predictability of tax treatment of funds and
for housing-related purposes under the Internal Revenue
Code. Study the housing cost implications of current tax
shelter provisions, and the effectiveness of employing
tax incentives and subsidies for the housing sector,
Review the impact of growing local property taxes upon
shelter costs and study innovative local tax-sharing
mechanisms.
c. Develop a new Uniform Federal Mortgage Fore
closure Act and support its adoption by Congress.
d. Research the impact of existing state usury
legislation upon housing costs to the consumer.

174
Appendix I
Background
History of the Task Force on Housing Costs
Three consecutive steps, representing a broad spectrum of
experience and views, resulted in the series of recommenda
tions contained in this report.
Interim Task Force and Working Group:
The first step was accomplished by an interim Task Force es
tablished in the spring of 1977 at the request of Secretary
Patricia Roberts Harris by Under Secretary Jay Janis to
develop specific recommendations on what the Federal
Government in general and HUD in particular could do to
reduce or stabilize housing costs to the consumer.
The
interim Task Force consisted of Donna E. Shalala, Assistant
Secretary for Policy Development and Research; Lawrence B.
Simons, Assistant Secretary for Housing-Federal Housing
Commissioner; Geno C. Baroni, Assistant Secretary for
Neighborhoods, Voluntary Associations, and Consumer
Protection; and William J, White, General Manager of New
Community Development Corporation, who served as Chairman.
A Task Force staff and a Central Office Working Group, under
the leadership of Edward J. Cachine, Staff and Working Group
Chairman, were assembled to evaluate cost-reducing ideas.
The staff compiled a list of some 80 cost-reducing ideas,
including suggestions made by working group members and
recommendations derived from the general public and the
literature. After the working group evaluated these ideas
in four meetings, the Task Force Chairman transmitted
conclusions and 65 preliminary recommendations in an Interim
Report to the Secretary in July 1977.
Field Comments:
The second step of the process was to distribute the Interim
Report to HUD field personnel for their review and comments.
The Task Force staff received several hundred additional
cost-reducing ideas from HUD Regional and Area Offices as a
result. These recommendations came from people who represent
a wide variation of professional disciplines and experience.
Equally important, they reflect the major regional and local
issues affecting housing costs and the working relationship
that HUD field personnel have with local public and housing
officials.
The Summary of Field Comments reviewed by the
Task Force contains 204 specific recommendations.
Task Force on Housing Costs:
The third step of this inquiry was the creation of this Task
Force. On August 31, 1977, Secretary Harris filed the

175
94

Charter creating the Task Force on Housing Costs to
explore ways of reducing housing costs to the consumer.
The Task Force on Housing Costs includes 39 distinguished
representatives of the private sector, consumer interests,
and state and local government.
It also includes 12 members
of the Department and other Federal institutions, and is
balanced in terms of women, minorities, and geographical
representation.
The Secretary requested William J. White
to serve again as Task Force Chairman. The Scope of Inquiry
states that the Task Force will
attempt to define the problems themselves, more speci
fically to analyze and understand the extent to which
costs truly have risen for reasons other than general
inflation and to develop specific solutions to such
problems
The Task Force divided into three committees, each of which
had a specific scope of inquiry:
(1) Land Supply and Devel
opment; (2) Building and Technology; and (3) Financing,
Money Markets and Marketing.
The land committee agreed to
examine "the elements that influence the availability of
land or properties for housing construction or rehabilita
tion," as well as the "relative cost impact of various
factors affecting land-related costs for each step of pro
cesses of land supply, acquisition and development." These
include land-use and environmental controls, tax policies,
the provision of infrastructure facilities and services,
and public fees and charges.
The building committee agreed
to identify "constraints to the building process, including
both construction and rehabilitation." These include "ways
of making building and housing codes, including HUD's Mini
mum Property Standards, more responsive to housing needs and
to the capabilities of the industry in different locations
of the country" and "ways of increasing the use and accep
tance of cost-effective new technology by the housing indus
try and the public." The finance committee agreed to study
the "availability, stability and cost of financing in the
marketplace" as well as specific tax, processing, and money
market policies which affect the cost of housing.
Between October 1977 and May 1978, the Task Force and its
committees held 17 public meetings.
They reviewed comments
from the general public, the recommendations in the Interim
Report, the Summary of Field Comments, and numerous costreducing suggestions generated by the Task Force members
themselves.
The Task Force members also received and

177
96

were avoided by the locality, with some cost savings to the
developer or consumer,
Under the program more than 30,000
Breakthrough housing units were produced in 36 states.
The
development of this housing was facilitated in most instances
by this landmark legislation. A 1976 report on the Impact of
Operation Breakthrough on the Nation's Housing Industry, pre
pared by the Real Estate Research Corporation, observes that
greater uniformity of building code acceptance (of manu
factured housing) procedures exists today because of the
increased use of model codes by states and cities over
the past five years,
From 1968 to 1974, HUD staff continued to monitor urban renew
al applicant building codes, but required that costly devia
tions from model codes which could not be supported with
sound engineering data be replaced after 1971 with nationally
recognized provisions found in model codes.
These reviews ceased after enactment of the Housing and Com
munity Development Act of 1974, Title I of which established
the Community Development Block Grant program.
There is
language in the conference report that states that the HUD
Secretary retains no authority to impose specific code re
quirements on jurisdictions.
However, there is nothing in
the Act which requires HUD to accept local code provisions
without question. Nor does the 1974 Act require HUD to re
frain from exercising its responsibility under the 1949 Act
to encourage code or land-use control revisions which cut
the cost of housing.
With respect to granting or withholding Community Development
Block Grant funds under Title I of the 1974 Act, Section 111
provides that the Secretary shall terminate, reduce, or limit
the availability of payments to a recipient if, after reason
able notice and a hearing, the Secretary finds that the re
cipient has failed to comply substantially with any provision
of Title I, Such partially or totally withheld payments may
not be reinstated until the Secretary is satisfied that there
is no longer any such failure to comply.

32-099 O ' 78

178
Appendix II
Participants
97

TASK FORCE ON HOUSING COSTS
William J* White - Chairman

General Manager,
New Community Development
Corporation
Department of Housing and
Urban Development
Washington, D.C,

Task Force Members
Geno C . Baroni

Assistant Secretary for
Neighborhoods, Voluntary
Associations and Consumer
Protection
Department of Housing and
Urban Development
Washington, D.C.

Robert C. Bates

Executive Vice President
Chicago Title Insurance Company
Chicago, Illinois

Howard M. Benedict

Chairman, Mortgage Finance and
FHA Operations Committee and
Chairman, Real Estate Securities
Committee of the National
Association of Realtors
President
The Benedict Companies
New Haven, Connecticut

Walter L. Benning

President
Manufactured Housing Institute
Arlington, Virginia

Mary E . Brooks

Director of Planning and Research
Suburban Action Institute
New York, New York

Joseph Burstein

Counselor to the Secretary
Department of Housing and
Urban Development
Washington, D.C.

176
discussed cost-reducing ideas in recent research documents,
including several as yet unpublished manuscripts.
This re
port and its recommendations are the results of this process.
HUD's Authority
HUD has ample authority, dating back to the Housing Act of
1949, as amended, to take strong, positive action to reduce
housing costs.
Section 2 of the Housing Act of 194 9 requires
the Secretary to encourage and assist "the reduction of the
costs of housing without sacrifice of
. sound standards."
FHA developed the Minimum Property Standards (MPS) in part
to encourage the use of cost-saving materials and methods.
Section 101(a) of the 1949 Act, as amended, which created
the Urban Renewal Program, requires the Secretary to con
sider, in any contract for advances under this title,
the extent to which
local public bodies have
undertaken positive programs (through the adoption,
administration, and enforcement of housing, zoning,
building and other laws, codes, and regulations
,)
for
encouraging housing cost reductions through
the use of appropriate new materials, techniques and
methods
and the elimination of restrictive
practices which unnecessarily increase housing costs.
Subsequently, Section 101(c) of the 1949 Act, as amended in
1954, established the Workable Program for Community Improve
ment and provided the Secretary with a mechanism for consid
ering and reviewing the housing and other codes of local
jurisdictions.
This proved to be effective, especially in
the codes area.
From 1949 to 1968, HUD staff reviewed the
codes of local jurisdictions and encouraged those jurisdic
tions to amend and update their codes in accordance with the
nationally recognized model codes. As a result, 4000 juris
dictions modified their code provisions to conform to nation
al standards or explained why local deviations were needed in
particular instances.
In addition, HUD created the Operation Breakthrough Program
in 1969. Under that program, HUD sought to create mass mar
kets for factory-built housing.
Before the program was
terminated in 1975, HUD persuaded 31 states to enact legisla
tion providing for state review and approval of such housing
systems. After such state reviews, developers could use these
systems throughout the state, notwithstanding local building
codes. As a result, in many instances local processing time
was substantially reduced, and expensive distance inspections

Edward T. Calnan

Executive Director of the
Department of Community
Development
City of Lynn
Lynn, Massachusetts

Truland H, Carter

Executive Director
International Conference of
Building Officials
Whittier, California

John Crosland, Jr.

Chairman, Housing Cost Committee
of the National Association
of Home Builders
President
The John Crosland Company
Charlotte, North Carolina

George W. DeFranceaux

Chairman of the Board
National Corporation for
Housing Partnerships
Washington, D.C.

Charles L. Dixon, Sr.

President
Charles Dixon Real Estate
Company
Kansas City, Missouri

Cushing N. Dolbeare

Chairperson, Ad Hoc Coalition
on Low-Income Housing
Washington, D.C.

A. Carleton Dukess

President, National Rehabilitation
Association
Executive Vice President
Continental Wingate Company, Inc.
New York, New York

David G. Fox
(Resigned November 7, 1977)

President
Fox and Jacobs
Carrollton, Texas

Robert A. Georgine

President
Building and Construction Trades
Department, AFL-CIO
Washington, D.C.

180
Constance B. Gibson

Director, Division of
Development and Management
New Jersey Mortgage Finance
Agency
Newark, New Jersey

Don L. Gilchrist

President
National Association of Home
Manufacturers
Washington, D.C.

Bertrand Goldberg

President
Bertrand Goldberg & Associates
Chicago, Illinois

Daniel B. Grady

President
Sanfric, Inc.
San Diego, California

Mary A. Grigsby

President and Chief Executive
Officer
Houston First Savings and Loan
Houston, Texas

Theodore R. Hagans, Jr

President
Fprt Lincoln New Town Corporation
Washington, D.C.

Robert G. Healy

Senior Associate
Conservation Foundation
Washington, D.C.

Patsy K. Hennin

Shelter Institute
Bath, Maine

Ralph J. Johnson

President
NAHB Research Foundation, Inc.
Rockville, Maryland

James M. Kinney

President
Guild Mortgage Company
San Diego, California

Edward L. Lashman, Jr,

Chairman, Massachusetts Housing
Finance Agency
Director of External Projects
Harvard University
Cambridge, Massachusetts

181
100

Richard Matuschek

Vice President and Chief
Executive Officer
Cresthaven Corporation
Traverse City, Michigan

Chester C. McGuire

Assistant Secretary for Fair
Housing and Equal Opportunity
Department of Housing and Urban
Development
Washington, D.C.

David S. Miller

President
David S. Miller and Associates,
Inc.
Cleveland, Ohio

Mary C. Neuhauser

Council Member (formerly Mayor)
Iowa City, Iowa

Donald C. Parker

Vice President
La Clede Town
St. Louis, Missouri

Gerald F. Prange

Vice President
Technical Services
National Forest
Products Association
Washington, D.C.

Donald E. Priest

Research Director
Urban Land Institute
Washington, D.C.

James S. Robinson

Attorney at Law
Houston, Texas

Donna E. Shalala

Assistant Secretary for Policy
Development and Research
Department of Housing and
Urban Development
Washington, D.C.

Philip Sherburne

Director of Physical Planning
City of Seattle
Seattle, Washington

182
Lawrence B, Simons

Assistant Secretary for
101
Housing - Federal Housing
Commissioner
Department of Housing and Urban
Development
Washington, D.C.

Glenda G. Sloane

Supervising Attorney
Center for National Policy Review
School of Law
Catholic University of America
Washington, D.C.

Arthur P. Solomon

Director
Joint Center for Urban Studies
of MIT and Harvard University
Cambridge, Massachusetts

Donald L. Stull

President
Stull Associates
Boston, Massachusetts

H. Ralph Taylor

Executive Vice President
Fort Lincoln New Town Corporation
Washington, D.C.

Franklin A. Thomas

Attorney at Law
New York, New York

R. Joyce Whitley

Vice President
Whitley and Whitley
Shaker Heights, Ohio

Dale A. Whitman

Professor of Law
Brigham Young University
Provo, Utah

Nadine Winter

Council Member
D.C. City Council
Washington, D.C.

Participants from the Federal Government
Barry P. Bosworth

Director
Council on Wage and Price
Stability
Washington, D.C.

183
102

Richard N. Brandon

Council to Senator Lawton Chiles
Senate Budget Committee
Washington, D.C,

Robert Ethington

Director of Forest Products and
Engineering Research
U.S. Forest Service
Department of Agriculture
Washington, D.C.

Deborah Norelli Matz

Economist
Joint Economic Committee
The Congress of the United
States
Washington, D.C.

Grace Milgram

Specialist in Housing Economics
Division
Congressional Research Service
Library of Congress
Washington, D.C.

Thomas H. Stanton

Deputy Director of the Office
of Policy Planning
Federal Trade Commission
Washington, D.C.

William J. White - Chairman

General Manager, New Community
Development Corporation
Department of Housing and
Urban Development
Washington, D.C.

COMMITTEE ON LAND SUPPLY AND DEVELOPMENT
Mary C. Neuhauser - Chairperson
Richard N. Brandon
Mary E . Brooks
John Crosland, Jr.
Robert G. Healy
Grace Milgram
Donald E. Priest
James S. Robinson
Philip Sherburne
Franklin A. Thomas
R. Joyce Whitley
Cushing N. Do1beare *
Glenda G. Sloane *
Donald L. Stull*
Nadine Winter *
David G. Fox - Chairman, October 5 - November 7, 1977
(Resigned Task Force November 7, 1977)

184
Stevenson Weitz
James E, Hoben

Task Force Staff Representative
Liaison Observer - Policy Development and
Research
William Zook - Liaison Observer - Neighborhoods, Voluntary
Associations, and Consumer
Protection
* Served as a member of each Committee
COMMITTEE ON BUILDING AND TECHNOLOGY
Ralph J* Johnson
Chairman from January 1, 1978
Walter L. Benning
Edward T. Calnan
Truland H. Carter
Charles L. Dixon, Jr,
Robert Ethington
Robert A. Georgine
Don L. Gilchrist
Theodore R. Hagans, Jr.
Patsy K. Hennin
Richard Matuschek
Deborah Norelli Matz
David S. Miller
Donald C. Parker
Gerald F , Prange
H. Ralph Taylor
Chairman until December 31, 1977
Cushing N. Dolbeare *
Glenda G. Sloane *
Donald L. Stull *
Nadine Winter *
Earl L „ Flanagan
Task Force Staff Representative
Duane McGough
Liaison Observer
Policy Development and
Research
Kathleen Bishop
Liaison Observer
Neighborhoods, Voluntary
Associations, and Consumer
Protection
* Served as a Member of each Committee
COMMITTEE ON FINANCING, MONEY MARKETS AND MARK" TING
Lawrence B. Simons
Chairman
Edward L* Lashman, Jr, - Vice Chairman
Robert C* Bates
Howard M. Benedict
George W. DeFranceaux

103

185
104

A. Carleton Dukess
Constance B. Gibson
Bertrand Goldberg
Daniel B. Grady
Mary A. Grigsby
James M. Kinney
Arthur P. Solomon
Thomas H . Stanton
Dale A. Whitman
Cushing N. Dolbeare *
Glenda G. Sloane *
Donald L. Stull *
Nadine Winter *
John A. Maxim, Jr. - Task Force Staff Representative
Robert M. Buckley - Liaison Observer - Policy Development and
Research
Charles G. Field - Liaison Observer - Neighborhoods, Voluntary
Associations, and Consumer
Protection
Chester C. Foster - Liaison Observer - Housing
* Served as a Member of each Committee
TASK FORCE STAFF
Edward J. Cachine - Chairman
Margaret Cooper - Staff Assistant
Earl L. Flanagan - Building Committee Staff Representative
E. Lawrence Killilea - Assistant to the Staff Chairman
John A. Maxim, Jr, - Coordinator for Legal and Policy Support;
Finance Committee Staff Representative
Beverly Miller - Staff Assistant
Judith Morris - Secretary
Marian C. Palmer - Executive Assistant to Task Force Chairman
Elizabeth Seifel - Staff Assistant
Jane Silverman - Staff Consultant
Stevenson Weitz - Research; Land Committee Staff Representative
LIAISON OBSERVERS
Kathleen Bishop - HUD Neighborhoods, Voluntary Associations,
and Consumer Protection
Robert M. Buckley - HUD Policy Development and Research
Charles G. Field - HUD Neighborhoods, Voluntary Associations,
and Consumer Protection
Chester C. Foster - HUD Housing

186
James E. Hoben - HUD Policy Development and Research
Duane McGough - HUD Policy Development and Research
William Zook - HUD Neighborhoods, Voluntary Associations,
and Consumer Protection
SPECIAL CONTRIBUTIONS
The Task Force on Housing Costs acknowledges with gratitude
the many people who contributed significantly to the success
of this inquiry. We thank two members of the Task Force for
preparing and submitting unpublished papers: Dr. Arthur P.
Solomon for supplying the text and argument in Chapter Four's
section on National Economic Policies and Financing, and
Richard Matuschek for supplying many of the ideas in support
of the recommended major office of New Technology and Codes
Policy discussed in Chapter Three. We also thank the many
members who submitted draft text for recommendations and
editing comments,
We also,thank the several members who provided firm and
inspired leadership for Task Force Committee meetings: Mary
C. Neuhauser and David G. Fox of the Land Supply and Develop
ment Committee, Ralph J. Johnson and H. Ralph Taylor of the
Building and Technology Committee, and Lawrence B. Simons
and Edward L. Lashman, Jr. of the Financing, Money Markets
and Marketing Committee,
We wish as well to thank the Task
Force staff people who supported the work of these committees,
and to acknowledge the contributions of several liaison ob
servers to committee discussions,
We are pleased to record
the dedication of Roger Halle, an architect in Pound Ridge,
New York, who presented an unpublished paper to the building
committee and who attended and participated in all Task Force
and Committee meetings at his own expense.
We recognize also the extraordinary response from more than
200 staff personnel in HUD's Regional, Area and Insuring
Offices, who submitted more than 350 specific cost-reducing
ideas for our consideration. We also thank the members of
the Interim Task Force and Working Group whose efforts last
summer produced the Interim Report which formed the basis
of our initial discussions.
We also thank Augusta Day Moore for her valuable editorial
assistance.
Finally, we give special thanks to William J, White, Task
Force Chairman, and to all members of the Task Force staff
under the leadership of Edward J. Cachine, for their constant

105

187
106

work and assistance to us. Without their help, we could not
have produced this Final Report,
INTERIM TASK FORCE
William J. White - Chairman; General Manager, New Community
Development Corporation
Geno C. Baroni - Assistant Secretary, Neighborhoods, Voluntary
Associations, and Con
sumer Protection
Donna E. Shalala - Assistant Secretary, Policy Development and
Research
Lawrence B. Simons - Assistant Secretary for Housing-Federal
Housing Commissioner
INTERIM TASK FORCE STAFF AND WORKING GROUP
Edward J. Cachine, Chairman
Earl L. Flanagan, Community Planning and Development
Milton J, Francis, Housing
George A. Karas, Community Planning and Development
Duane E. Keplinger, Housing
Charles G. Field, Neighborhoods, Voluntary Associations, and
Consumer Protection
James R. Kozuch, Government National Mortgage Association
Orville G. Lee, Policy Development and Research
John M. Longo, Housing
Monica MacAdams, New Communities Administration, Staff
John P. McGrath, Housing
John A. Maxim, Jr., Policy Development and Research, Staff
Margaret Miller, New Communities Administration
Marian C. Palmer, New Communities Administration, Staff
Dean 0. Popp, Policy Development and Research
Joel N. Segal, Community Planning and Development
William Sorrentino, New Communities Administration
Joyce Walther, Community Planning and Development
Michael K. Stamper, Government National Mortgage Association
Stevenson Weitz, Policy Development and Research, Staff
Robert E. Wiebler, Policy Development and Research
William A. Wisner, Policy Development and Research
Leonard M. Wolin, Office of Inspector General

INDEX
Financing:

Page

Availability of.
23, 29
C o s ts ..............
3 ,4 8
Credit, national commitment for.
50

Housing costs— Continued
page
H U D Task Force on...............
16
Increase, components of___ .. 21, 28
Labor costs, material prices cause
increase in.... .....................
48, 51
Land costs....................................
42
42
Median cost of, in the W e st.....
Median home sales prices and
family income, ratio of_..........
14
16
Monthly increase______________
More inflationary than personal
income...... ........ .........................
55
Out of sight. .............
.......
7
Outstrip affordability.
_____
5
People priced out of m arket-,
59
Shift to small multifamily units- 60
Single-family homes,
median
price increasing-..... .................
8
Today’s
breakdown
versus
1 9 4 9 - ............... ......
10,47
Traditional view of. .................
10

Housing construction:
Community development block
grants.
1 3 ,5 3 ,5 4
Cyclical starts cause problems.
51
Cyclic fluctuations i n . .............
29
Growth control— pinball tech
nique__________________
44
Increased demand for____
21, 28
Insulation manufacturers urged
to gear up_.......... .................... ......
51
Lack of sufficient, decent, and
34
affordable...................
Land, availability of, in less re
strictive areas....... .........
55
Land value, components of.
55
Need greater than supply.
50
Pinballing, Federal Government.
44
Population projections- .
22 Housing inflation:
Quality of. ........................
49, 57
A leading area.............. ...........Rehabilitation programs.
35
Construction materials and re

sources, availability of.

22, 25, 31

13
Housing costs___
Economy, inflationary trends
Affordable______
35
o f.............................
23,
A recent problem___
15
Factors affecting.
Construction materials and re
Factors in_..................
Relationship of costs to .
sources, availability of.
28
Cost reduction of, relative to
Severe trend o f_____
availability-...
49
Creativity needed.
59 Mobile housing.
__
D efin ed ...............................................
8
Cost increases, factors causing.
Development costs.
43
Developing regulations on_
Factors threaten decent housing.
11
Liberalize financing o f.................
Cyclicality_____
._
12, 18
Strict restrictions placed on____
Indifference_____
12, 19
Regulation.
...............
11 Regulations :
Blanket environmental impact
Federal involvement in control
ling..........................__.................
23
statements....................
......
Building code requirements, New
Fiscal policy________________ 24, 30
M exico______ _______ __ ..
Monetary policy. ................ 24, 30
Building costs, deal with impor
Tax policies. .......................... 2 4 ,3 1
tant items that raise---------Federal policies affecting.............
3

(189)

30
2
43
9
9
52
52
53
53
53

45
6
57

190
page
Regulations— Continued
page Regulations— Continued
Changing results in lower quality
H U D Task Force Report critical
of present p o licy................. ......
7
housing. ___ _____
59
Chase out small builders.
55
Inflation impact statem ents. ..
58
Communication between Federal
Internal administration, H U D ’s
handling o f _ ............................ ..
45
agencies. ....................
47
Consolidation of multiple.
36
Interstate land sales regulation..
26,
Construction cost components. _
17
32
Land management and planning
Cost increases due to Govern
standards................ ......................
39
ment regulations.
5
Land-related
costs
and
re
Cost o f . ........................
17
18
strain ts................. .........................
Costs, regulation-related infla
Land supply and development..
27,
tion o f................. .......
58
33, 34
Economic goals and housing,
Land use cost-beneflt studies
balancing with environmental
........................
13
agreed on.
25, 32
considerations____
One-stop service o n _ _ ............ .
37
Engineering and planning work,
38
Cost-beneflt study..... .......... . _ ^.
acceptance of.
47
Has intergovernmental rela
Environmental protection and
tions problem s............... ...
38
housing,
balance
between
Permits and inspections..........
56
needed.
___
13
Property standards, m inim um ..
41
Excess governmental.
23, 29
Relevancy of......................................
46
Farmers Home thermal perform
Section 8, H U D task force eval
ance standards.
26, 33
............. .................
46
uated.
Federal agencies, cooperation of,
Single-family homes, construc
with local governments.
56
tion taking lo n g e r.......... ........
9
Blueprint for.
56
Site development standards_____
35
Government, impact of.
25, 31
Sunset legislation facing resist
H U D ’s communication with local
ance.
...................
59
government___
__ 39
Uniform codes, adoption of.
.
40
H U D minimum property stand
Zoning and site development
ards.
33
standards, Federal guidelines
................................ ..........
4
for.
H U D ’s processing procedure.
31

Full text of Housing Costs and Inflation : Hearings Before the Committee on the Budget, United States Senate, Ninety-Fifth Congress, Second Session, July 14, 1978

FRASER