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Professor Case. Thank you, I'm sure. I think I've known you quite awhile.
Senator CRANSTON. Thank you. [Complete statement follows:]
STATEMENT OF FRED E. CASE, PROFESSOR, REAL ESTATE AND URBAN LAND ECONOMICS, GRADUATE SCHOOL OF MANAGEMENT, UNIVERSITY OF CALIFORNIA
I am speaking as a private person although I was on the Los Angeles City Building and Safety Commission for 6 years, working on code enforcement and neighborhood rehabilitation. I have been a member of the Planning Commission for two years, one year as its President. Four more years are remaining in my present term. My emphasis has been on providing low-cost housing through effective landuse planning. I have been involved in research on housing for more than 20 years, I am submitting a research report with these comments representing more than three years of research in nine American cities for the purpose of determining what programs succeeded and what programs failed in providing better, lower-cost housing for inner-city families. (InnerCity Housing and Private Enterprise, Frederick E. Case, (ed.) Praeger Press, New York, 1972.) My testimony will reflect these experiences and studies.
1. THERE IS A NEED FOR HOUSING CONSERVATION, REHABILITATION AND IMPROVEMENT
The intent of the bill is very much in tune with future directions in which the housing industry must move for the next decade at least. The prcie of new housing places it beyond the reach of all but about 30-40 percent of all American families. Each year, we lose from the market place through abandonment and other means about two percent of the existing inventory, or approximately 1,400,000 housing units. The resources needed to save even one-half of this number are considerably less than those needed to build an equivalent number. If modestly priced homes and rental units are to be made available, more attention must be paid to saving the existing units.
2. THERE IS A NEED FOR AN INDEPENDENT AGENCY
HUD, and particularly the FHA, is burdened with such a broad array of housing programs, some conflicting in purpose, that it should not be asked to supervise this program. More importantly, neither agency has demonstrated a capacity to deal with programs or concepts which are somewhat foreign to the basic purposes of either providing new subsidized housing to low-income families or insured home loans to middle- and upper-income families. Further. the manager and administrators of these agencies should not be asked to participate in the operation of the new agency, although they could undoubtedly give some useful advice on its operational policies.
The Neighborhood Protection Corporation (NPC) should be given goals and objectives which are precise, measurable and related to definite time periods. Annualy, the agency should be required to spell out its goals in terms of accomplishments, cost and manpower and, at the end of the year, report on the differences between what it planned to accomplish, what it failed to accomplish, and what it intents to do about it. One of the major weaknesses in the 1949 Statement of National Housing Policy is that the goals are generalized and the programs supporting policy so indeterminate, that there is no way of getting a useful cost-effectiveness measure of the programs. This is not to say tnat the program should pay for themselves or necessarily be measured against some type of economic yardstick, but NPC should be held responsible for productivity according to the goals Congress has in mind when it creates the agency.
3. A POTENTIAL OF CONFLICTING OBJECTIVES COULD CREATE PROBLEMS
Rehabilitating abandoned housing now does not mean that this housing would be suitable for low-income families. Improving abandoned housing and the adjacent neighborhood can create a complex of expenses that would make the cost of the improved housing too high for any but middle-or upper-income families. There is no reason why dealing with abandonment and providing low-cost housing could not be handled in one agency, but the two should not be tied together. Both needs exist- save the abandoned housing and provide centrally located housing for low-income families.
If providing housing for low-income families is the objective then subsidies, family counseling, flexible loan arrangements and a host of other things are needed which have little to do with recovering abandoned housing. One of the reasons for much abandoned housing is the failure to deal with the peopleproblems associated with providing the housing to low-income families.
On the other hand, saving abandoned housing when coupled with neighborhood rehabilitation and improvement of existing public facilities and programs can halt deterioration. Some subsidy is involved in this program but the housing should be made available to those who can afford it, particularly if the effort results in a better class neighborhood for the minority families earning $10,000 to $20,000 annually. Some would say this is gilding the lily, but the realities are that many neighborhoods with predominantly middleincome families, particularly minority families, could be saved with great benefit to the families involved. There are simply not enough older neighborhoods or housing at modest prices available to minority families. If NPC has to repay its Treasury debt, it cannot accept FHA-VA values. FHA-VA should be required to accept losses arising from inflated appraisal values. Perhaps FHA-VA should be asked to use their “insurance" resources to absorb their losses on abandoned property. In some ways the legislation has the aspects or urban removal.
4. WE SHOULD USE WHAT WE ALREADY KNOW ABOUT HOUSING ABANDONMENT,
REHABILITATION, ETC. Over the years, HUD has contracted for hundreds of studies about all kinds of housing problems. Some evidence of this is found in tne materials provided by Mr. Schechter for inclusion in the Congressional Records. There is no need for additional research or studies on the subjects of this legislation. Before the NPC begins operations it should be required to submit a full detailed analysis of all studies undertaken by HUD which relate to the subject. Further, it should list and evaluate all suggestions that have been made about rehabilitating housing and use them as a basis of developing their own operational policies, programs and goals. One of the persistent inabilities of federal housing agencies is to learn from all of the studies that they commission. Too frequently they use selective learning to hasten the failures of the programs they administer. Clear differentiation between individual abandoned units and areas of abandoned properties.
5. WHAT IS THE MARKET FOR THE HOUSING TO BE SAVED ?
One of the sad facts about providing low-cost housing is that those for whom it is being provided are seldom asked what they want or need in housing. Any private corporation planning to undertake the kinds of activities envisioned for the new agency would first do an extensive market study to determine who would want the housing, what physical characteristics would they want in the housing—i.e., bedrooms, baths, privacy, neighborhoods, etc., how much can the families afford in price of rents, what kinds of financing terms would be needed, what kinds of other help would the families need to move into the housing.
Another market factor about the abandoned housing is that there is a lack of real understanding of why the housing was abandoned. Circumstances vary widely from community to community, so that the reasons for abandoned housing in Newark or New York, Memphis or Indianapolis or Atlanta or Los Angeles are not the same. In Los Angeles, for example, housing has been abandoned in Pacoima not because the families did not want the housing nor could not afford the payments, but because the houssing was so remote from employment sources that the breadwinners could not afford the time and expenses of getting to their work. On the other hand, in south-central Los Angeles, experiments with rehabilitated housing indicated no one would buy the homes even at bargain prices because of the high crime rate in the surrounding area. Recently the Bank of America agreed to cooperate in helping rehabilitate housing near the downtown area, but before this could be done, the Planning Commission had to declare the area a special planning area, so that more restrictive aspects of building and zoning code enforcement could be mitigated. Lenders sometimes foreclose on property and create abandonment because numerous types of regulatory controls make foreclosure the more economic way of handling a housing problem, rather than making a serious effort to work with the family in trying to save the housing.
FHA-VA values are too distorted for the NPC to be able to pay those values and accomplish its objective.
6. CLOSE COORDINATION WITH LOCAL AND STATE GOVERNMENT IS A MUST
As the NPC operates it will find that help is needed in the form of legislation, services, or programs from the city, county, and state governments. Some form of continuing coordination should be integral to the agency's operations.
More importantly, agency operations should be carefully related to local planning and zoning programs. In Los Angeles, we have 35 separate community plans, with each community requiring a slightly different approach to its housing and neighborhood conservation problems. Too frequently actions by federal agencies are at cross purposes with the local community needs and objectives. In fact, the actions of FHA have been a major factor in encouraging the flight to the suburbs and the abandonment of the inner-city.
7. PRIVATE INDUSTRY AND THE LABOR UNIONS SHOULD BE ASKED TO HELP
Federal housing agencies do not make effective use of the services, the expertise which exists in the private sector. Serious thought should be given to ways in which builders, contractors, Realtors, mortgage lenders, labor unions can be used to advise and assist NPC in implementing its programs. Lenders, for example, could suggest ways of solving mortgage-lending regulations. Labor unions could counsel in improving labor productivity. In other words an advisory counsil, with some powers and responsibilities, might provide an effective advisory service to the board of directors of NPC. Basically NPC will have to face the tradeoffs between social objectives needing subsidies and financial goals related to Treasury financing and neighborhood and property rehabilitation to market standards.
Senator CRANSTON. Professor Mittelbach, please be as brief as possible.
STATEMENT OF FRANK MITTELBACH, PROFESSOR AND JOHN
CLAPP, ASSISTANT PROFESSOR, UNIVERSITY OF CALIFORNIA Professor MITTELBACH. My name is Frank Mittelbach. I'm on the faculty of the grad school of management at UCLA. As part of my professional work I specialize in housing, eliciting urban studies, and I have been research coordinator for a Governor's Housing Commission on Housing here in California and also a consultant to President Johnson's Committee on Urban Housing, as well as HUD and other agencies.
I'm accompanied by Prof. John Clapp this morning, and he asks to join me in the statement, and he will quickly present a summary of our full paper which we have submitted for the record in advance.
Senator CRANSTON. Thank you very much.
I might say that my expertise in this area stems from a year-long study which I have recently completed on housing abandonment in New York City.
Research on housing abandonment has succeeded in compiling a list of factors which are causally interrelated with each other and with abandonment. Some 45 logically distinct factors were enumerated in my recent study and review, so it might be said that the research 'establishment in the academic establishment, in its infinite wisdom, has determined that almost everything contributes to housing abandonment and that housing abandonment contributes to anything that is left over. We are given to understand that housing abandonment is a special case of the general proposition that everything is related to everything else.
Now, for a crime-related view on housing abandonment. Despite this distressing situation concerning the research and literature, we feel that some progress has been made in distinguishing the most important variables which are causally related to abandonment. Almost every study of the subject has found that crime-particularly vandalism, which falls heavily on the communities aicted with abandonment--strongly discourages both landlords and tenants.
Tenants with sufficient income move to safer communities, communities which may have offered more attractive housing even in the absence of the crime problem.
Landlords don't see the sense of investing in a property which is frequently vandalized and stripped of valuable parts. You have heard this in the previous testimony here today. Thus, basically sound housing becomes vacant and valueless; it stands ready to house further criminal activity, to send fear through neighboring residence, and to signal to others outside the community a declining neighborhood.
Many very low-income families cannot afford to escape the neighborhood experiencing high rates of crime and abandonment, so a strong association is observed between abandonment and the ability to pay for housing services. The low ability to pay for services is associated with the high rate of abandonment.
When landlords become discouraged about their buildings, lenders, bankers, savings and loans, and others become petrified with fear, so neighborhoods experiencing abandonment are usually found to be redlined. The redlining of a whole neighborhood because it contains some abandonment may reflect racial prejudice, just as the flight of white tenants and the discouragement of white landlords may reflect prejudice. Well, that's a crime-related view.
We might interpret the same inference from other points of view like an income-related view. There are many variations on the abandonment process, and more importantly, there are other ways to interpret the process.
For example, the process may begin with the inflow of low-income tenants and the exodus of those with the ability to pay for newer, more attractive housing. The resulting high vacancy, or at least a high turnover rate with attendant costs associated with turnover, and cost of low-rental return causes abandonment.
Ironically, the ability of our economy, aided by numerous government subsidies, to produce new housing opportunities may account for the abandonment of the less attractive housing stock. The abandoned housing then facilitates crime, causing part of the observed association between abandonment and crime.
Finally, we have some comments on the neighborhood protection corporation. We visualize several ways in which the neighborhood protection corporation might work, but none of them would seem to lead to a satisfactory resolution of the abandonment problem.
One possibility is that the corporation will arrest abandonment by investing large sums in the rehabilitation of housing in a given neighborhood. But we know from Mike Salzman's testimony and other testimony that rehabilitation is an expensive process of $7,000 or $8,000 for rehabilitation, so we think that it is unlikely to occur on a scale grand enough to attract tenants who can repay the government's capital and repay bondholders with interest.
We certainly would not bank on special circumstances such as the favorable movement in interest rates which bailed out the Homeowners' Loan Corporation in the 1930–40 period.
There is another possibility which operates on the assumption that abandonment spreads like a contagious disease. The neighborhood protection corporation may somehow contrive to acquire housing early in the abandonment process before it is vacant and vandalized. By injecting a relatively small amount of capital in the housing thus acquired, the spread of abandonment may be arrested.
However, we have grave doubts about the contagion theory of abandonment, even when viewed in the context of a more sophisticated theory of neighborhood effects. These theories rest on the most casual observations of the way the world works; we suspect that the difficulty in offering such evidence either pro or con in relation with the contagion theory accounts for the popularity of the theories.
We think that a prudent approach to the abandonment problem demands that confidence be placed in the views, such as the crimerelated view and the income-related view presented earlier, which have withstood rigorous analysis. In capsule form, solutions must address the inability to pay for housing, and they must address the high rate of crime and vandalism.
We do think that there are viable alternatives to the neighborhood protection corporation. For example, appropriations can be increased to the housing allowances portion of title II of the Housing and Community Development Act of 1974. These additional appropriations might carry the stipulation that they should be provided on especially favorable terms to tenants in neighborhoods experiencing abandonment. The resulting improvement in the ability of lowincome tenants to pay for housing services in the afflicted neighborhoods, accompanied by the requirement of title II that landlords provide well-maintained housing, will surely slow the abandonment process.
If housing allowances were provided in sufficient volume to neighborhoods experiencing abandonment, we believe the abandonment process might be reversed; and in this respect, we are in basic agreement with Mike Salzman. However, such a step would have to be accompanied by measures to reduce crime and vandalism, including its sources.
Finally, I have one other comment. Basically, I agree with the testimony of Michael Salzman, and I agree with modifications that he suggests to the Housing Community Act of 1974. These modifications would deal greatly with the abandonment problem, and in addition I have the suggestion that I made that some of the housing