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.

Professor CLAPP. Thank you. Thank you, Frank.

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 afflicted 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

Professor CASE. Let me say something from the lender's viewpoint. First, let the lender have a tax write-off if he turns over an abandoned house equal to the amount of unpaid mortgage. Secondly, don't let the home loan bank, Federal Savings and Loan Corp., get in the act by requiring the lenders to put up special reserves for property which appear near abandonment or in areas where there may be some special problems. Just let a savings and loan make the loan and not ask him to put up these other things so he can make his normal profit, and I think you'll get along a lot better with savings loan people. Senator CRANSTON. Do you have any advice to us on the conflict between, on the one hand, the view of the Administration that we should not set up new entities like the Neighborhood Corps., and on the other hand the dismayed advice by the previous witnesses over the idea of leaving this in the hands of the present HUD operation? Professor CASE. Yes, definitely. If we are going to get more housing in the United States, we are going to have to save the stock we have. Each year we lose around a million to a million-and-a-half units. If we can create an organization whose only goal is to keep at least 5 percent of that stock from being abandoned, we have a good reason for a new organization.

If you look at FHA, VA, TRA, THA, the whole array, they are not dealing with the existing inventory in an effort to keep it from becoming abandoned. They want simply to improve it, and they want to provide new houses.

Yes, I think there is a need of an agency whose only goal is to save what there is. It has no other function except that. Let us keep from losing in 1 year more units than are financed new by all the Government agencies combined.

Senator CRANSTON. Well, what about the administration's pretty firm position against setting up more agencies?

Professor MITTELBACH. Perhaps our full testimony evidences more skepticism than was shown in the summary. I do feel that it would add an additional layer of complexity.

I think there is something that became quite apparent this morning in the discussions and that is the extraordinary constraints and institutions that surround housing. I mean, it is a morass, and the question comes up as to what would another layer do; particularly, when the problems, perhaps, are not so much in the physical property per se but have to do with the social conditions and income and neighborhood situation where much of this housing is.

Now, it is our contention in the testimony-and I would sustain this idea that by itself, strictly looking at the property without serious concern with the people that are currently living in there or which have lived in there or that might live in there, would be a very serious mistake.

We must orchestrate a variety of efforts in order to preserve and maintain older neighborhoods. It is not strictly a housing problem at issue of abandonment, and I think we would stress this and emphasize as much as we can.

Senator CRANSTON. Thank you.

Professor CASE. Senator, specificially I would take the FHA, and I would make it into a private operation. I would make it somewhat,

perhaps like the Home Loan Bank operates or one of those organizations, where those who participate in the FH program buy stock in the organization. The Treasury finances it additionally, and then you buy stock and participate in it that way. There are enough private mortgage guaranty insurance companies around that the functions of the FHA could be well performed by them.

The FHA is now constituted and responding to conditions of 1932 and 1938. It is still responding to an outdated housing policy. It's the housing policy that has to be changed. There are several of these housing agencies that I would suggest ought to be returned to the private sector so that the Federal Government can spend its resources where its most urgently needed for the one-third of the population that continues to be unhoused, although in 1932 we said that we were going to solve that problem.

Professor MITTELBACH. Let me make an additional comment.

We are somewhat concerned, also, about the fact that this particular bill tends to, once again, emphasize the property and production site as contrasted to the question of increasing the demand and the capability of people for housing and a demand in specific neighborhoods.

I think we have had a most unfortunate experience in the production of homes, and we would hope that any steps that are taken would not perpetuate this situation.

Professor CLAPP. I'd like to say that, once again, under the Housing Community Development Act of 1974, new organizations to deal with the abandonment problem are quite possible, but they would be locally based organizations and not another layer of Federal bureaucracy, and I think the Administration would find this acceptable. Senator CRANSTON. Yes, I think that is a good proposal.

I want to thank you very, very much for coming. Despite your skepticism about the value; it was of value to us. [Complete statement follows:]

STATEMENT OF FRANK MITTLEBACH, PROFESSOR AND JOHN CLAPP,
ASSISTANT PROFESSOR

In our presentation at these hearings, we are mindful of one of the key purposes, namely, to consider S-1988 which is intended to support corrective actions to alleviate housing and other property abandonments in many areas of our cities and to generally enhance housing and community environments. We note with interest a reference in S-1988 to selected federal mortgage insurance and guaranty programs. The contention seems to be that these program made a contribution to aggravating housing abandonment problems. We would like to examine this contention presently, but if, correct, troublesome questions are raised. These very programs also were designed with the best of intentions, and the assumption prevailed at the time of enactment that they would significantly improve housing and the residential environment of low-and moderate-income populations, especially in innercity areas.

The point we wish to stress is that often there is a wide disparity between the intent of many of our housing programs and their final effects. Past experiences witn housing programs suggest that efficiency, equity and other goals are often compromised although, at the time programs were initiated, expectations were high that the goals would be advanced. In part, our failures of the past resulted from the fact that insufficient attention was paid to the expected behavior of self-interested consumers and producers in contact with these programs. Presumably, we would like to avoid or reduce the risk of unanticipated and undesirable side effects in structuring

programs for the future. Therefore, it is incumbent tnat we realistically evaluate implications of proposed programs.

Our prefatory remarks may serve to place what we have to say in perspective. We do not challenge the goal of facilitating conditions which will reduce the abandonment of housing especially when the quality of units is not substandard and undesirable neighborhood effects are experienced in combination with abandonment. Also, we do not challenge the proposition that low-income populations and areas occupied by low-income populations are particularly affected by abandonment. Our primary concern is with the proposed measures partly designed as an antidote to the medicine we prescribed and administered in earlier periods. If we appear unduly skeptical, this is attributable to a concern we have that policies and programs at least move us in the desired direction at a reasonable cost.

In this context we note with relief the experimental character of S-1988. It indicates an appropriately cautious posture and offers the opportunity to evaluate failures and accomplishments periodically should the Bill be enacted. Some, of course, may deplore such a statement as supportive of hesitant action where stronger steps are called for. But past policies and programs provide sufficient clues that significant budgetary support, without substantial preknowledge on prospective outcomes, may carry with it wastefully or inappropriately applied resources.

FACTORS IN ABANDONMENT

In general one may agree with the proposition that abandonment in many cities "is affected by a combination of neighborhood degradation, absentee ownership, racial antagonism, tenant vandalism, landlord abdication, and credit shortages." It identifies the multi-dimensional and complex character of the abandonment problem.

1

Of course, in many areas, and Los Angeles offers illustrations, one observes single-family formerly owner-occupied housing where abandonment is substantially associated with selected federal programs. The scenario is familiar. Low-income families have been induced to purchase often poorly repaired homes with low down payments and attractive payment schedules (including subsidies). With low equity in their homes, a decline in income, and little promise of selling the homes at advantageous prices, the loss experienced in walking away is relatively small. Lenders on insured homes, in turn, will be prone to foreclose rapidly with defaults and delinquencies rather than to work with clients, because the federal insurance or guaranty is more readily exchangeable into cash than the promise of borrowers. Access to these programs, of course, transfers risk from private institutions to the general taxpayers. Thus, incentives are present to use these programs where possible. However, to place responsibility for abandonment on those programs and the general behavior of suppliers ignores the fact that FHA and VA programs have played a very significant role in building the American suburb. In these areas low down payments and attractive terms have provided the opportunity for large numbers of people to leverage their limited equities into handsome gains at the time of sale as housing prices skyrocketed.

Obviously, there is a difference between (1) vacant but not abandoned housing, (2) housing vacancies with abandonment, and (3) vacant abandoned housing that has been vandalized to the point where it is unfit for occupancy requiring either demolition or substantial capital investment for rehabilitation. In determining which of these conditions is likely to prevail, it may be well to consider the alternatives faced by the many participants in the process. An owner-occupant, let us say, who considers movng has an incentive to either find a tenant or to sell the home. In the face of weak demand which is expressed in anticipated low rents or low-sales price and sluggishness in finding a tenant or buyer, this owner-occupant would examine the cost to him of holding a normal vacancy. If the costs of holding a normal vacancy are high and expectations of future rents or sales price are unfavorable in relation to the costs, then he may be encouraged to abandon. Also, the decision

1 George Sternlieb, et. al., "Housing Abandonment in the Urban Core," Journal of the American Institute of Planners, Vol. 40, No. 5, September 1974, pg. 331.