Segment 1 Of 4     Next Hearing Segment(2)

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HOUSING AFFORDABILITY AND AVAILABILITY

THURSDAY, MAY 3, 2001
U.S. House of Representatives,
Subcommittee on Housing and Community Opportunity,
Committee on Financial Services,
Washington, DC.

    The subcommittee met, pursuant to call, at 9:35 a.m., in room 2128, Rayburn House Office Building, Hon. Marge Roukema, [chairwoman of the subcommittee], Hon. Mark Green, [vice chairman of the subcommittee], and Hon. Sue W. Kelly, presiding.

    Present: Chairwoman Roukema; Representatives Green, Kelly, Ney, Miller, Cantor, Grucci, Frank, Carson, Lee, Schakowsky, Jones, Capuano, Waters, Sanders and Watt.

    Mr. GREEN. [Presiding.] At least for the next few minutes, I am Marge Roukema, the Chairman of the Housing Committee. Our Chairwoman will be delayed slightly. She is in a mark-up right now in the Committee on Education and the Work Force. I understand it is her amendment that is up, and she will be there obviously for the conclusion of that, and then she will be joining us I believe shortly.

    In my capacity as Vice Chair of this subcommittee, she asked that I begin the hearing on time so that the Members and witnesses will have an ample opportunity to discuss this very important issue of housing affordability.
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    Today is merely the first in a series of hearings that will take place on this complex issue of affordable housing. Mrs. Roukema and I and many others in this subcommittee have expressed our desire to have hearings that would allow a variety of viewpoints, observations and suggested approaches and solutions to our housing crisis.

    It is no secret that some of our most needy families, typically defined as earning 30 percent or less of an area median income, have the most difficult time finding suitable and affordable housing.

    I am alarmed, as I am sure many others are here today, at some of the statistics that we have seen in today's testimony. More than 220,000 teachers, police, and public safety officers across the country currently spend more than half of their income for housing; 13.7 million Americans pay more than half their incomes for housing or still live in sub-standard housing.

    These are just a few of the statistics that I personally find alarming. We are very fortunate today to have a number of distinguished experts in the field of housing as witnesses. Their testimony will begin to outline the problem among various income sectors, and lay out some of the perceived causes.

    Additionally, issues such as local barriers to development that increase the cost of housing and other factors affecting the supply of housing will be explored.

    I also hope to hear testimony on the role of HUD's multi-family housing programs in providing affordable housing.
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    On a personal note, at the State legislature back in Wisconsin, I worked in housing issues and was instrumental in enacting a State statute to require a review of policies and legislation that affects the cost and supply of housing.

    I am very interested in the testimony today that proposes a housing impact statement for Federal regulations. I think it is a first step in addressing the issue of affordable housing.

    At this time, the Chair would recognize Mr. Frank, Ranking Minority Member, for an opening statement.

    Mr. FRANK. Thank you, Mr. Chairman.

    We face a very serious crisis in housing in much of the country. It is one of those issues which, because of the physical nature varies, to some extent, from region to region.

    And there are, I am sure, regions where existing housing programs make a very useful addition to the goal of helping people find housing affordably.

    But in much of the country, market forces have had the effect of driving up housing prices. The housing area is probably the best example of the inadequacy of the notion that the rising tide, which is supposed to lift all boats, can't be trusted as the way to deal with our social problems.
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    Some people can't afford boats. And the rising tide is not good news for them. In fact, it is not only that some people are not helped by the rising tide, they are damaged by it.

    If you are standing on tiptoes in the water, the rising tide is not good news. And that is what has happened. I represent an area, the Greater Boston area, where the combination of globalization, deregulation, technological change, have had wonderful economic effects.

    Much of the Greater Boston area, the wide Greater Boston area is prospering as a result of these trends, but not everybody in the region prospers. And what happens is that the general prosperity from which most people benefit drives up the price of housing.

    And those who are not direct beneficiaries are not only left out of the general increase, they are worse off. We have had a problem.

    The Ranking Member of the Full Committee and I and others on the Republican side joined last year in the House, to try to make some special provision for teachers, police officers, firefighters.

    People said ''Well, why should they get special provisions in terms of the eligibility requirements for the Federal Housing Administration?'' The answer is that in many municipalities, certainly in the part of the country that I represent, these employees are, by local ordinance, required to live in the city where they work, but they can't afford to live there.
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    That is why we singled them out. There are teachers and firefighters and police officers who have not benefited from the general prosperity, and in fact, where you have high housing costs and a very tight supply of housing, the voucher program has two effects.

    One, it does add to equity. There is no question. People who were too poor are now allowed to get into the mix to some extent.

    But it has another effect. The voucher program is, as a result of the actions of this Congress, very strictly a year-by-year program with the exception of those efforts where we are taking care of expiring use contracts where there are prior commitments.

    Any new voucher comes with only an annual requirement. No one builds housing, no one gets a loan to build housing based on an annual stipend. Any bank which gave a developer a loan, based on a series of 1-year Section 8s, with no assurance whatsoever of renewal, would probably be up before another one of our subcommittees for improvident lending.

    So what we have done is this: We have added to the demand for housing through the voucher program, but in a way that is very, very unlikely to add to the supply.

    And the free market economic answer is very simple; we raise the price.

    So the voucher program has both the good effect of adding equity, but the negative effect of raising price. In some parts of the country, that may not be a problem. In parts of the country where there is relatively slack demand for housing—and I don't think there are too many of those—it will have less of an impact.
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    In the parts of the country where there is a very, very tight situation, where housing demand already has pushed prices up because it has outpaced supply and demand has increased in a number of ways, and one of the ways demand is increased is, when the incomes of a certain sector of the population go up, they can bid up the price. Their capacity has gone up.

    What we do is we exacerbate the situation to some extent. So I think it is absolutely essential that we begin to get into a housing production program.

    I think the results of an objective study would be very clear. That the voucher program is a useful but hardly a sufficient nationwide solution to the problem of affordability.

    Indeed, there is one production program that is still going on, other than the limited one for housing for the elderly, and that is the Low Income Housing Tax Credit, one which this subcommittee does not have jurisdiction over.

    And that is a very popular program. The popularity of the Housing Tax Credit, the demand we are getting here from States to increase the allocation of tax credits, demonstrates, I think, the importance of a housing production program.

    So that is what I will be making my goal, and I think the goal of many of us on our side, namely, to make it clear that we need, at least in parts of the country, a housing production program and to move forward to shape one.

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    Thank you, Mr. Chairman.

    Mr. GREEN. I thank the gentleman for his thoughtful comments. I think there is much that we can work on together to meet these challenges.

    Without objection, all Members' opening statements will be made part of the record. Hearing no objections, it is ordered.

    I would turn at this time, to the gentleman from California, Mr. Miller, for any opening remarks that he might have.

    Mr. MILLER. Yes. Thank you very much, Mr. Chairman.

    Mr. Frank said many things that I have to agree with, and that is dealing with market forces driving up housing costs, and dealing with the rising tide, those who are not helped by that, and the concept of prosperity drives up the cost of housing. Teachers and firefighters and law enforcement agencies are not living in their local communities.

    But I think the point at which we disagree and where we go in different directions is that what we do in Government, especially with vouchers and Section 8, is we see a sore on an individual and we place a bandage over that sore, rather than determining what caused the sore.

    I have been a developer for over 30 years, and Government housing is a very, very small part of the overall marketplace. And when you are dealing with market forces, and what causes housing prices to increase by market forces, it is not what we think it might be; it is Government regulations and red tape in many cases that drives up those costs, and impact the overall marketplace.
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    When you have a community that is providing housing, new housing costs directly impact the cost of resales. Whatever a new home is selling for in an area, you will notice that in the community around it, their housing prices tend to move up into the same price range and price bracket of those new homes that are being sold.

    And when you consider the outrageous costs of housing, due to the Government costs imposed upon contractors and builders, those Government-related costs have a direct impact on the affordability of the market overall.

    And when we are talking about a rising tide, the tide is rising because of the heavy weight of Government at the bottom end causing it to rise. For example, if you take a glass of water and you drop a bucket of ice in it, the water in that glass is going to rise.

    The ice in this example is the cost of Government. Yet, Government provides options for itself that it does not guarantee for the private sector. As an example, you can have a piece of property in the community that can be denied the right to develop under local ordinance and local criteria. Yet, that individual property owner can make application to the U.S. Department of Housing and Urban Development to build a HUD project.

    That means you are going to rent or sell to the low-income levels that meet HUD criteria. In HUD, the Federal Government has the authority to usurp local control and they can actually permit a project that has been denied locally, and they will even inspect the project, certify the project, and issue occupancies on the project.

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    And yet, when we try to look at it legally and say we need to provide some nexus between the cost of Government and the service that is supposed to be provided based on the fees being charged to the developer, we all say, well that is a local issue, we should not get involved in local issues. But, yet, through HUD, we do get involved in local issues.

    The problem with housing affordability, if you are trying to provide entry level housing that is affordable, is that it is impossible to do if the market forces keep driving up the overall cost of housing in other areas.

    I mean, you could have an individual move into a low-income house, and never be able to move out of that, because the price of the next home up is so great. This example, due to the cost of legality dealing with such States as California, Arizona, and Nevada, it is impossible to build attached housing anymore.

    In California, for the last 10 years, you have seen an absolute exit of condominiums and town homes, because tort reform is so out of control that if you build a condominium or town home, you are going to end up in court, no doubt about it.

    And those entry level houses that we should otherwise be providing by building condominiums and townhomes are not being provided and thereby we are creating, in and of itself, a housing shortage.

    We want to deal with vouchers, we want to deal with HUD programs that are Section 8, yet we are unwilling to deal with the base problem that is causing the housing shortage and the crisis in housing affordability in this country, which is Government regulation and the concept of property rights having been thrown out the window. For example, people buy a piece of property and they are unsure whether they can even develop that piece of property.
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    I agree with Mr. Frank. We need to deal with the problem and we need to deal with it outside of Government.

    Mr. GREEN. Mr. Miller, if you would sum up, please. Thank you, Mr. Miller. Thank you for your comments.

    The Chair, at this time, would recognize Ms. Carson, for any opening comments that she might have.

    Ms. CARSON. Yes, thank you very much, Mr. Chairman.

    In the absence of the Chairman in terms of giving us an opportunity to explore ways that perhaps we can impact the growing demand for affordable housing among American citizens, I think added to that, it would be wise if the subcommittee could probably examine ways in which this crisis has been accommodated in some parts of the country, in terms of whether there are self-help opportunities where persons attempting to acquire homes can use a little sweat equity in terms of obtaining homeownership, and whether hopefully this subcommittee would be willing to underscore, in a bipartisan way, the need for the policymakers at our level of Government would underscore the need for the continuation of supportive type vouchers and supplements to enable to assist families live in affordable and decent housing.

    Of course, the challenges are myriad, and I am sure that as time goes on, we are going to have to raise a cry on behalf of the many families in America who seek housing opportunities, both purchase and rental.
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    I know as a Member of Congress, Mr. Chairman, I am finding it increasingly difficult to afford rental housing right here in Washington, DC., and I have a fairly decent salary that far outpaces that of Americans across this country. And for Members of Congress not to be able to afford rental property here in the Washington, DC. area, I mean, gives rise to the belief that there is, in fact, a problem that we need to be addressing.

    Thank you very much.

    Mr. GREEN. Thank you.

    The Chair at this time, would recognize Mr. Nye for any opening comments he might have.

    There is none at this time.

    And the Chair then turns to Ms. Jones, please, for any comments she wishes to make.

    Ms. JONES. Good morning, Mr. Chairman, Members of the subcommittee. I am glad to be here to discuss the issue of housing affordability. For me, housing is probably one of the most important issues that people in our communities across this country face, and they have different issues based on their geographical or regional areas.

    Coming up next week, the Congressional Black Caucus Foundation will be hosting a housing summit in New York. Last year we hosted one in Oakland, the year before, North Carolina.
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    And each of the areas that we go to present different issues for housing affordability. I hope that through the speakers that we will have this morning, they will give us different information to help us continue to set the policy that will be important for developing affordable housing across this country.

    One of the things I would ask them to do is to present matters that might help us think outside the box. Because many times, when we start talking about housing, we think of traditional ways of providing housing for folks.

    I was talking with my colleague, Marcy Kaptur the other day, and we began to discuss the import of housing, how it affects children going to public schools and how the transition of people moving from place to place may cause students not to perform appropriately when they move from one school system to another.

    And maybe what we need to consider, in the course of dealing with housing, is the possibility of vouchers to families to get them to stay in a location to allow their children to complete a year in one school system, rather than moving around and around.

    I appreciate the opportunity to be a part of this hearing, Mr. Chairman, and look forward to the statements of the various witnesses who will present this morning.

    Thank you.

    Mr. GREEN. For further opening statements the Chair at this time would recognize Mr. Watt, if he would have any opening comments?
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    [No response.]

    Mr. GREEN. Thank you.

    At this point, the Chair would ask unanimous consent to submit for the hearing, statements that have been submitted by three organizations: The National Leased Housing Association; The National Affordable Housing Management Association; and The National Association of Realtors.

    Seeing no objections, it is done.

    Mr. GREEN. At this point, we will move to our first panel of witness.

    Panel 1 has Ms. Kathy Nelson, an economist with the U.S. Department of Housing and Urban Development; Mr. Robert Reid, Executive Director of the National Housing Conference; Ms. Sheila Crowley, President of the National Low Income Housing Coalition; and Mr. Michael Rubinger, President and CEO, Local Initiatives Support Corporation.

    Ms. Nelson, would you care to begin, please?

STATEMENT OF KATHRYN P. NELSON, ECONOMIST, OFFICE OF POLICY DEVELOPMENT AND RESEARCH, U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
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    Ms. NELSON. Thank you. I am delighted to be here.

    I am going to summarize the three main conclusions of my written testimony in six charts. If somebody could put the charts up, please.

    Basically, I am here because I spoke on the same panel as Clinton Jones, and he asked me to basically repeat the testimony I gave then before the National League of Cities.

    The question they posed was, what do we know about shortages of affordable rental housing? As the press claims, are supplies affordable to low-income renters dwindling, and are shortages of affordable housing worsening? That is basically my question.

    The six charts summarize my three main conclusions.

    First, that during the 1990s, the number of units affordable to low-income, as is it usually defined for HUD rental assistance programs, actually increased. But the number of units affordable to extremely-low-income renters dropped.

    Mr. FRANK. What is the percentage of median income that is low? I think it would help at the outset if you gave us what the numbers are for low- and extremely-low.

    Ms. NELSON. Right. The first chart basically has four ranges of income that are all under the so-called low-income cutoff which is below 80 percent of area median income.
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    When I talk of ''low '' income, I am talking about incomes between 50 percent of median and 80 percent of median, and those are the two left-most bars on the chart. As you can see, numbers of units affordable to those incomes grew during the 1990s.

    What I am talking about as ''very low'' is incomes below 50 percent of median. ''Extremely-low'' incomes are below 30 percent of median income.

    When I say that the main loss was in units affordable to extremely-low-income renters, I am referring to the right-most bar there, where, as you see, there was a loss of almost a million units during the decade of the 1990s.

    That is my first conclusion. I will go back to it in a minute, but I wanted to start off by summarizing my three main conclusions.

    First, that losses in affordable units were for extremely-low-income renters, not for ''low-income'' renters.

    Second, that the worst shortages of housing that are affordable to renters come among housing affordable to extremely-low-income renters, below 30 percent of median.

    And third, that the extent of these shortages varies greatly around the United States.

    As I said, my first chart is basically the basis for my first statement. You will see there that during the 1990s, the fastest growth, a gain of about 600,000 rental units came in the range between incomes of 50 percent of median and 65 percent of median.
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    This is the range for most housing supplied by HOME (HOME Investment Partnerships Program) and the Low Income Housing Tax Credit, which are our two major supply programs.

    The two bars on the right show changes in housing affordable to very-low-income renters. As I said, it is for the housing affordable to extremely-low-income renters where there was the sharpest decrease in the 1990s.

    Now if you could turn to the second chart. So far, I have just talked about changes in numbers of rental units. The issue is often phrased in terms of shortages, i.e., comparing numbers of units affordable below an income cutoff to the numbers of renters in that income group needing them.

    And this chart summarizes shortages as the relationship of supply to demand below four different income cutoffs; 80 percent of area median income, 65 percent, 50 percent, and 30 percent of area median income.

    As the two left bars show, below incomes of 80 percent of median income and 65 percent of median income, there were, on average, wide surpluses of affordable housing compared to renters. The chart shows the number of affordable units per 100 renters below an income cutoff.

    For incomes of 80 percent of median and 65 percent of median across the United States, there were more than 140 units for every 100 renters below those income levels. So rather than a shortage, there was, at least technically as it is usually measured, extreme surpluses of housing.
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    This occurs in part because almost all rental housing stock—85 percent—is actually affordable to 80 percent of the median.

    Mr. GREEN. Ms. Nelson, if you could wind your testimony up, we would appreciate it.

    Ms. NELSON. OK.

    Mr. GREEN. Thank you.

    Ms. NELSON. The bar on the right shows that the only income range in which there is a shortage of affordable housing is for extremely-low-income, below 30 percent of median. In that income range, there are only three affordable units for every four renters needing them.

    The next chart shows that extremely-low-income renters—on the left—are the income group most likely to have severe housing problems.

    And the follow-up charts show that the shortage of housing affordable to those extremely-low-income renters has been worsening during the decade of the 1990s.

    Thank you.

    Mr. GREEN. Thank you very much for your testimony.
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    Next we will turn to Mr. Robert Reid. Welcome.

STATEMENT OF ROBERT J. REID, EXECUTIVE DIRECTOR, NATIONAL HOUSING CONFERENCE AND THE CENTER FOR HOUSING POLICY

    Mr. REID. Thank you, Mr. Chairman.

    I am here representing both the National Housing Conference, commonly referred to as NHC, and its research affiliate, the Center for Housing Policy.

    Last year, NHC released a study called ''Housing America's Working Families.'' That study tested a simple premise——

    Mr. GREEN. Excuse me, Mr. Reid. Could you pull the microphone a little bit closer to you?

    Mr. REID. Yes. Thank you.

    That study tested a simple premise that working families should have access to decent, affordable housing.

    With the Chair's permission, I would like to submit a copy of that report for the record.
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    For most of the last 20 years, Federal housing policy has implicitly or explicitly linked the housing problems of American families to issues of poverty and welfare dependency.

    In 1997, nearly 14 million families had a critical housing need. Either they spent more than 50 percent of their income for housing, or they lived in substandard housing.

    By 1999, that figure had grown to over 15 million families. Twenty-two percent of those families, over three million households, are working families earning between the minimum wage, which is about $10,700 a year, and 120 percent of the area median income.

    These working families defy the stereotypes that too often surround discussion of housing policy. Over half were homeowners. More than half lived in the suburbs. This group included police officers, firefighters, teachers, as well as service workers.

    The number of working families with critical housing needs grew by 17 percent between 1995 and 1997, or about 440,000 households.

    Between 1997 and 1999, the number of families grew another 500,000, or an additional 17 percent. So the problem continues to grow.

    Now please don't misunderstand, this is not a zero sum game. NHC is advocating the need for more resources, not a reallocation of current meager resources.

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    Let me suggest some solutions.

    Programs and tools that have proven records for producing and preserving affordable housing must be strengthened and provided with significant additional resources. Low Income Housing Tax Credits, private activity bonds, and HOME are proven winners.

    Better use of other proven tools which can work in conjunction with the aforementioned programs, such project-based Section 8 vouchers would facilitate the expansion of mixed-income projects.

    FHA must improve its programs, particularly multi-family. The Community Reinvestment Act must be preserved and appropriately strengthened. NHC supports stronger roles for the Government Sponsored Enterprises. Exit tax relief for owners of assisted properties would ensure preservation of valuable affordable housing stock.

    We should make better use of the tax code for lower income homeowners.

    NHC's recent publication ''Expanding the Dream of Homeownership,'' examines various proposals for expanding access to affordable homeownership opportunities.

    With the Chair's permission, I would like to submit a copy of this report for the record.

    Mr. GREEN. Without objection.

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    Mr. REID. Ultimately, it is local taxing, planning, and zoning decisions that determine what is done or not done about affordable housing. We must fashion Federal incentives that will encourage communities to support the production and preservation of affordable housing.

    In conclusion, this Nation faces unprecedented affordable housing shortages and challenges. Some would contend that current conditions rival those faced by this Nation's leaders over 50 years ago, when the landmark 1949 Housing Act was passed.

    After 50 years, we know what works to produce and preserve affordable housing. We are not lacking in programs or expertise. What we are lacking is sufficient resources. What we are lacking is the will to meet this challenge head on.

    Mr. Chairman, on April 2nd of this year, 20 of NHC's corporate and association members, who are key players in providing affordable housing in this Nation, and some of whom are testifying here today, sent a letter to you and your colleagues in the House and the Senate calling on the Congress and the Administration to provide the necessary resources and incentives to encourage expansion of the affordable housing supply.

    With your permission, I would like to enter a copy of that letter in the record.

    Mr. GREEN. Without objection.

    Mr. REID. Thank you.
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    Mr. GREEN. Thank you for your testimony.

    At this time, I would like to introduce and welcome Ms. Sheila Crowley.

STATEMENT OF SHEILA CROWLEY, PRESIDENT, NATIONAL LOW INCOME HOUSING COALITION

    Ms. CROWLEY. Thank you, Mr. Chairman. I am happy to be here today. Thanks very much for the invitation to come and talk about what the National Low Income Housing Coalition refers to as the problem of housing unaffordability.

    Mr. GREEN. Please speak into the mike. I cannot hear you.

    Ms. CROWLEY. Oh, OK.

    The National Low Income Housing Coalition is dedicated solely to ending the affordable housing crisis in America, and we believe that this is a solvable problem.

    We believe that Americans have the knowhow and the ingenuity to do this. It is simply a matter of putting the resources to work.

    Housing policy can be unnecessarily complicated, but housing is quite straightforward. Everyone needs a basic, stable, safe, fair and clean place to live and the capacity to pay for it. Some may need additional services to assure stability. That is the social minimum.
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    In the absence of a national commitment to this standard, we think it is foolhardy to expect people to succeed as workers, as parents, as citizens, or as students, because without attending to the social minimum in housing, we undermine the potential to achieve other desired social objectives, and we undermine the foundation of our housing system.

    The dimensions of the affordable housing crisis are well documented and widely known, and each of us today will offer our way of how we see the numbers, but at the end you will come to the same conclusions.

    I would like to place in the record, if it is possible, a report from the National Low Income Housing Coalition called ''Out of Reach.''

    Mr. GREEN. Without objection.

    Ms. CROWLEY. This report documents the gap between income and housing costs in every jurisdiction in the country and is the source of what has become a much-cited refrain by housing advocates and by public officials and that is, there is no jurisdiction in the country where a full time minimum wage worker can afford to pay the fair market rent.

    We examined a variable that we call the housing wage and that is what wage a full time worker must earn in order to afford the fair market rent.

    In Sussex County, New Jersey, where Mrs. Roukema is from, the housing wage is $16.77 an hour. Looking at it another way, a household in Sussex County must bring in 130 hours of minimum wage work a week to afford a modest two-bedroom unit. That is the equivalent of 3.25 minimum wage jobs per household.
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    Mr. Green, in Green Bay, Wisconsin, the housing wage is $10.46 an hour and one must work 81 hours a week at minimum wage work to afford the fair market rent.

    In Massachusetts, the housing wage is $18.83 an hour.

    The most expensive region in the country is San Francisco, where the housing wage is $28.06 an hour.

    I would like to add to Ms. Nelson's analysis about where the housing gap shortage is with a second analysis from the National Low Income Housing Coalition that I would also like to place in the record.

    Mr. GREEN. Without objection.

    Ms. CROWLEY. And these are from 1999 National Housing Survey Data, and they don't tell the story of every community because they are national data.

    But here quickly we will run through it.

    Of the 34 million renter households, 7.7 million have extremely-low-incomes. That is 30 percent of the area median or less, or in Sussex County, New Jersey, that is $22,000 a year.

    In the aggregate, there are only 4.9 million units of rental housing that are affordable to these households, thus an absolute shortage of 2.8 million units.
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    However, only 2.3 million of these 4.9 million units are actually occupied by households within this range. The rest are occupied by higher income households. So therefore there is a shortage of 5.3 million units affordable for the poorest renter households.

    Further, when we apply this analysis up the income scale, we find that we do not lack units of rental housing that are affordable for households in the upper tier of the definition of low-income, that is, 50 to 80 percent of area median, or $36,000 to $58,000 annually in Sussex County, New Jersey.

    Indeed, there are 7.3 million renter households in the 50 to 80 percent of median income range, and 13.9 million units. Nonetheless, there is an overall shortage of units affordable to this income group of 1.2 million, again because half of the units affordable to them are occupied by people in other income groupings.

    That is, either higher income households who pay much less than 30 percent of their income for their housing, or lower income households are paying a higher amount.

    Mr. GREEN. Ms. Crowley, if we could ask you to sum up, please.

    Ms. CROWLEY. OK. Investment in more housing that is affordable for the more prosperous, but nonetheless low-income households would expand the household supply but not alleviate the shortage of households at the lowest level.

    However, if we expand housing for the lowest income households, we can expand it for everybody.
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    I would like to close by saying that the National Low Income Housing Coalition supports a multi-pronged housing strategy that includes increasing income, expanding housing vouchers, preservation of our existing housing stock, but also moving into the production of new housing.

    And we support the establishment of the National Housing Trust Fund which would provide the resources to supply 1.5 million new units of housing for the lowest income people over the next 10 years.

    Thank you, Mr. Chairman.

    Mr. GREEN. Thank you very much for your testimony.

    There is a vote on the floor, apparently a motion to adjourn has been called. Assuming it isn't successful, we will be back here.

    Mr. FRANK. But if it is successful, Mr. Chairman, we can be back and be——

    Mr. GREEN. That is true and perhaps serving refreshments. But I would ask Members to return as quickly as possible.

    Mr. Rubinger, my apologies. We will pick up with your testimony at that point.
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    We stand in recess.

    [Recess.]

    Mr. GREEN. I thank everyone for their patience. Obviously, we have not adjourned, and we may have votes coming up. We are in recess subject to the call of the Chair. It is regarding the budget resolution, so we may get called out without warning.

    I appreciate the patience of the panelists.

    What I would like to do is resume the testimony of panel one, and at this time turn to Michael Rubinger for his testimony.

    Mr. Rubinger, welcome.

STATEMENT OF MICHAEL RUBINGER, PRESIDENT AND CHIEF EXECUTIVE OFFICER, THE LOCAL INITIATIVES SUPPORT CORPORATION

    Mr. RUBINGER. Thank you very much, Mr. Chairman.

    And I would like to thank both you and the Members of the subcommittee for inviting me here this morning.

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    I do head an organization called LISC—the Local Initiatives Support Corporation—and we are in the business fundamentally of assisting locally based, non-profit development organizations in their efforts to revitalize their neighborhoods. And we do that through a variety of ways of providing financial and technical resources.

    Mr. FRANK. Mr. Rubinger, I think maybe you ought to push the mike away a little bit.

    Mr. RUBINGER. Oh, OK. I am just trying to learn from experience. Obviously, I got it wrong.

    I would like to make three points this morning. One you have already heard, and that is that America's housing shortage is getting worse.

    Second, that affordable housing, while desirable in its own right, has also been very much the driver in a great deal of the rejuvenation of low-income communities that we have seen throughout the 1990s.

    And third, the good news is that we do know how to expand the affordable housing supply. We just need to do more of what works.

    For the past 20 years, we at LISC have been privileged to at least be a part of that solution. Over those two decades, LISC has provided $4 billion in private capital to Community Development Corporations, building over 110,000 affordable homes, 14 million square feet of commercial and community space of all kinds, and creating over 40,000 jobs.
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    Last year alone, we provided over $600 million to these locally based, non-profit organizations to develop nearly 10,000 affordable homes.

    The result is that for the first time in a generation, in the community development world, we are not talking about anecdotes any more, not just about a successful project here, or a renovated block there, but rather the transformation of entire neighborhoods.

    And the impact is clearly demonstrable in physical revitalization, and I am sure many of you have seen that in your own cities.

    But in addition, the data shows clearly that crime is down, employment is up, property values are up, investment of all kinds, public and private, is up.

    In community after community, there is a demonstrable improvement in the quality of life. And this, we believe, is a powerful story of hope and accomplishment. And affordable housing production has been very much at the core of that story.

    And yet, ironically, as you have also heard, this hot economy has contributed to a growing housing crisis by driving up rents and sales prices.

    The good news is, on the other hand, that the Federal budget surpluses make it possible to invest more in affordable housing.

    And let me suggest three areas of possible recommended action.
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    First, we must preserve existing rental housing whose affordability is increasingly threatened. Federal subsidy contracts are expiring on well over a million privately owned apartments and many other affordable apartments are aging and need rehabilitation.

    Preservation of existing stock needs to be a central priority at the Federal and State levels, as well as the local, in order to prevent displacement of long-term existing residents and the rolling back of so much progress over the past decade.

    Second, we must produce more new housing to offset worsening shortages, rising rent and price inflation, and revitalize low-income communities.

    Two programs that we believe have been particularly effective in this regard are the Low Income Housing Tax Credit and the Home Block Grant program, and we would recommend that both of those be expanded.

    Taken together, they have very much been at the heart of this stunning neighborhood rebirth that I described earlier.

    And third, we must expand homeownership and use it to build individual assets and strengthen low-income communities.

    We therefore enthusiastically support the Bush Administration's proposal to create a new single-family housing tax credit modeled on the Low Income Housing Tax Credit for rental properties.
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    In short, during the past 10 years, America has learned an historic lesson about how to help communities build back up from abandonment, neglect, underinvestment, and decay. At the center of that process has been the production of high quality, affordable housing.

    Today, we have both the opportunity and the responsibility to reinforce our commitment to developing and preserving affordable housing, both for its own sake and as a vehicle for bringing about broader community revitalization.

    Thank you very much.

    Mr. GREEN. Thank you, Mr. Rubinger.

    The Chair will begin with questions.

    Mr. Rubinger, for you, you talked about three steps that we should, as policymakers, take, and I think certainly in the abstract we are very supportive of them and the goals you have outlined.

    I am particularly interested in the area of housing production. You talked about the Low Income Housing Tax Credit and the Home Block Grant. What other ideas would you like to see considered as we talk about a new production style program, A; and, B, can you tell us what the scope of the need is in the area of housing production? What kind of numbers are we talking about?

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    Mr. RUBINGER. Well, I think in the first instance, in terms of numbers, I think some of the other panelists cited that.

    Clearly, we are, at the moment, losing more than we are producing. I think that is the message for me. As we look at the expiring use issue, expiring Federal subsidies and the like, the possibility is that we could lose as many as a million units over the next 5 years of affordable housing.

    And when you look at the total production from organizations like ours and others working in this area, it is considerably less than that. So I think we are talking about, from our point of view, a considerable expansion, perhaps even a doubling of the availability of tax credits and HOME resources.

    I think, in terms of other programs, I think this new recommendation for a tax credit for homeownership is one of the more interesting proposals that we have seen in the past several years, because it moves beyond the rental into homeownership.

    And I think what we find, in terms of revitalizing neighborhoods and the agendas of the non-profit groups that we work with, that increasingly, as they have rebuilt the stock, using the Low Income Housing Tax Credit, is a desire now to bring in more mixed income and provide homeownership opportunities for lower income people as well.

    So I think in terms of a new program, that would be the one that we would want to push for the most.

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    Mr. GREEN. You haven't spoken much about efforts to decrease the cost of producing new homes. And the builders that I talk to, whether it be single-family or multi-family, are constantly complaining about the regulatory barriers, the holding costs that they have that make it impossible for them, in their minds, to produce affordable housing, low-income affordable housing.

    Have you taken a look at that at all? Does your organization have any recommendations on how we might tackle that side of it, the cost side?

    Mr. RUBINGER. We certainly take a look at it as an organization. I didn't mention in my remarks that we are active today in 38 cities and some 60 rural communities.

    And on the ground—I think Bob Reid mentioned this before—a good deal of these issues are local. And we find a large number of the factors that drive up prices are on the local level, like land assembly, for example, can be a very difficult and time-consuming, heavily bureaucratic and political process that drives up costs at the local level.

    So that is an area, for example, where many of our local staff on the ground in different cities, are working to try to reform land disposition processes at the local level, and other kinds of regulatory issues at the local level.

    And that is where we see the real potential for bringing prices down.

    Mr. GREEN. Is there anything that we can do on the Federal level to attack those costs? I mean, my concern is that unless we get our arms around those types of costs, what we may undertake at the Federal level may have diminished effect.
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    The intentions may be good coming out of Washington, but if the costs of production remain as high as they have been, we will fall short in meeting some of the targets that you and other panelists have outlined.

    Do you have any recommendations for what could be done at the Federal level?

    Mr. RUBINGER. I don't off the top of my head, but I will certainly look into that, and I would ask my fellow panelists if they have any.

    Mr. GREEN. Ms. Crowley.

    Ms. CROWLEY. One of the ideas that has been surfacing, of late, because this is obviously a serious concern of folks who work on housing for the very lowest income people, because we hear, as you said, that there is a very difficult time siting that kind of housing.

    One of the ideas that we have had, and it is in the very beginning stage, is how is it that you link the receipt of Federal dollars to progressive practices at the local level?

    So, for example, if a community has enacted an inclusionary zoning ordinance, which will then help move to make sure that affordable units are included in all housing developments, then there is some value that can be added to that.
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    Or other kinds of things that localities should do. I think that from our perspective, some of the proposals that would get at what people perceive as Federal regulatory barriers, like environmental issues or, in some cases, civil rights issues, I think it is a mistake to start to whittle away at those things. But I do think that the Federal Government can incentivize local government to do a better job.

    Mr. GREEN. Thank you. I appreciate your comments.

    At this time, Mr. Frank, questions you might have?

    Mr. FRANK. Thank you.

    Ms. Nelson, I have had a chance to read the rest of your testimony, and I realize you didn't get a chance to present all of it.

    When you talk about affordable units, that is based on the notion that 30 percent of your gross income, including utilities, is the cutoff for affordability.

    So I have a couple of questions.

    You talk about geographical disparities here, but you talk about geographical disparities in your written statement essentially with regard to extremely-low-income shortages.

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    And I have this concern. With regard to low-income people particularly in the 50 to 80 range, you don't here talk about regional variations. And my strong view, based on the knowledge of the area I represent, and in Ms. Lee's district at her request, and I think it is true certainly out there, I believe we have shortages, as defined here, in the low-income as well. Below 80 and very-low-income.

    Now, what do you have about regional variations with regard to low-income and very-low-income?

    Ms. NELSON. Actually, in the very next chart——

    Mr. FRANK. I need you to pull the mike closer too.

    Ms. NELSON. Sorry. There are regional variations in supply versus demand as well in the higher income categories.

    Mr. FRANK. Excuse me. But those are extremely-low-income, ELI. I understand that. I have read your statement.

    I want to know about low-income and very-low-income.

    Ms. NELSON. Yes, but in the chart the lowest bars are extremely-low-income shortages; the intermediate bars compare very-low-income units to renters, showing that in each region except the west, there are more units than renters; and the highest dark bars show that in every region there are many more units affordable below 80 percent of median than renters with these low incomes.
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    And as you see, there are regional differences in each of the bars.

    Mr. FRANK. Ms. Nelson, if I could see that from here, I could do a lot of other things too.

    Ms. NELSON. Oh, I am sorry.

    Mr. FRANK. Unfortunately, the charts are not in with your presentation. I recommend you add them in the future, because I didn't get a copy in here.

    Ms. NELSON. Oh, well I am sorry. They were in the presentation I gave to the Congressional——

    Mr. FRANK. Yes. They didn't manage to incorporate the change. Oh, I take it back. They are scattered within.

    Ms. NELSON. Yes. The short answer is that the same patterns of differences across regions and States tend to occur. For instance, in Massachusetts, shortages are worse than average.

    Mr. FRANK. I understand that, but here I want to get to—your testimony is basically that the only problem is with extremely-low-income on the whole.

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    Ms. NELSON. My testimony's basically that those with extermely low income have the worst problem, but it is not the only problem.

    Mr. FRANK. But you know we are not here only to deal with the worst problem. You don't characterize whether there is a problem or not, and yes, we all agree there is a terrible problem with extremely-low-income.

    But what I find lacking is an analysis of the problem for low- and very-low, particularly with regional variations, because that is really the crux of the policy question we face.

    I believe that there are many areas of this country where, certainly for very-low and probably for low-income people, vouchers aren't going to do it. And that is what I don't see here.

    So what have you got in terms of, for instance in Massachusetts, is there some indication what is the shortage of rental units, or what is the status of rental units for people in low-income and very-low-income, say in the Greater Boston area? Would I be able to find that somewhere?

    Ms. NELSON. I don't have Boston with me, but in Massachusetts, where there were only eight affordable units for ten renters below extremely-low-income in 1990, supply and demand were almost evenly balanced for very-low-incomes, with 104 units per 100 renters.

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    And there were 140 units per 100 renters below low-income.

    Mr. FRANK. 1990?

    Ms. NELSON. Well, these data come from the decennial census.

    Mr. FRANK. Are all these data from 1990?

    Ms. NELSON. No. All of my regional data are from 1999.

    Mr. FRANK. Will I offend you if I tell you I don't much care about 1990, it being 2001. And someone calls me up and says, ''Geez, I haven't got a home.'' I can't tell them to move to 1990. I don't have a time machine.

    Let me be very clear. I think you are underestimating, in your testimony, by omission, the severe pattern of shortage in many regions for low- and very-low-income renters.

    You concede there is a problem with extremely-low, and you give a national view that says there is not a problem for low, but I believe there are severe regional problems that I don't see adequately discussed here.

    Ms. NELSON. Problems are not as severe for households with low- and very-low-incomes as they are among households with extremely-low-incomes. In the longer work I have done, I have looked at all the income levels. As Sheila Crowley correctly said, in many cases there are problems for very-low-income.
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    Mr. FRANK. But let me turn to Ms. Crowley. If you have got further data, I would ask you if you could submit some data on particularly the regional problems, because some regional problems work out, but telling people to move isn't too easy. So I would be interested in your analysis of the regional problem in that regard.

    Mr. GREEN. Ms. Crowley, if you could answer quickly, then we will have to move on.

    Ms. CROWLEY. Part of the dilemma is that we are talking about data from the 1999 American Housing Survey, which is our latest source, and that does not get us down to very small, jurisdictional kinds of questions.

    So that is part of the problem.

    But the other piece—and go back to my testimony and the Low Income Housing Profile that the National Low Income Housing Coalition submitted, the other problem is that you are right, there is a lack of units when somebody goes out to actually try to find a place, there is a shortage.

    But if you look at the number of units that actually exist that are affordable to people within that income range, once you get up to 50 to 80 percent of AMI, there is, in fact, a surplus of those. They are simply not occupied by people in that income range, they are occupied by higher income people.

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    And they are occupied by lower income people who are paying much higher percentages of their income than 30 percent for their housing.

    So our thesis is that if you expand the supply, if you are going to make strategic decisions about expanding the supply, if you expand the supply for people at below 30 percent AMI, then you will, in fact, expand the supply all the way up, because that group of people is now occupying something and it is housing that they can't afford.

    So I hope that explains——

    Mr. FRANK. Well, the suggestion is that we should only be worrying about expanding production for people below 30, I think it is a seriously mistaken view socially, politically, and economically.

    Ms. CROWLEY. Well, we are not saying that solely, but we are saying that if you are going to say that there is a limitation on what you can do, and you want to move it all——

    Mr. FRANK. Well, from your example, you shouldn't be buying into that too soon. We are cutting taxes by $1.3 trillion.

    Mr. GREEN. Let us move on. Thank you, Mr. Frank. Thank you for your testimony.

    At this time, Chairwoman Roukema has joined us. She has the dubious distinction of being in two places at once today, so you will see her jumping back and forth, but we welcome her back.
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    Mrs. ROUKEMA. [Presiding.] Thank you. I want to especially thank Vice Chairman Mark Green for doing this for us today and doing it so well. And I apologize for not being here, but the Elementary/Secondary Education Act has had some rather remarkable high profile amendments that had to be voted on this morning, and I will be leaving again.

    I apologize for not hearing all the testimony and perhaps, oh, Mr. Frank has just left, Barney. I am going to follow up with perhaps questions that you have already asked, but it has to do certainly with what the reaction is to the legislation that Mr. Frank and I have presented, the FHA Multifamily Housing Mortgage Loan Limit.

    Mr. FRANK. Would the gentlewoman yield?

    Mrs. ROUKEMA. Yes.

    Mr. FRANK. I appreciate that. My problem, as yours is, the Government Affairs Committee is dealing with an FBI matter involving Boston, and I am supposed to be there for at least a few minutes.

    So I have, I appreciate that, and I am glad that the gentlewoman will be doing that. I will be back in about 20 minutes.

    Mrs. ROUKEMA. All right. Well, I just wanted to see if there was any reaction that you have to that principle of raising the loan limit, the Adjustment Act, and it would go along with inflation, and so forth, but it is an FHA Family Housing Mortgage Loan Limit Adjustment Act.
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    And, by the way, the initiative is supported by Secretary Martinez. However, I don't think they have the capacity, either financially or at this point, the administrative capacity to deal with the problem.

    But I was wondering if one of you, any one of you could make a comment or an observation on that subject. And if not, you better go and study it.

    I am sorry. Is there anyone? Mr. Reid, did you have a comment?

    Mr. REID. Well, certainly we would support the direction that you are going on it, and so there is no question about that.

    Mrs. ROUKEMA. Yes, go ahead.

    Mr. REID. We have a lot of concerns, currently, as far as FHA, we have a lot of concerns on the multi-family side where we think there is a lot more room for improvement, and certainly their asking for a 25 percent increase in the limit was helpful. It is not nearly enough.

    And at the same time, they are also raising some fees which I think is going to be counterproductive.

    And the credit, the expiring credit, or the running out of the credits on the FHA is a very, you know, I believe somebody said we are out of business as of May because of lack of credits on the FHA multi-family.
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    Mrs. ROUKEMA. Did I know that? Did I know that? Did I?

    Mr. REID. I am sure some of the later, the next panel will probably have more to say on that.

    Mrs. ROUKEMA. We know that FHA has received a focus from our subcommittee studies and staff work and the Administration as well, but we will have to work together on this.

    But I do believe that this is a goal that we have in mind. I don't know whether or not we have to wait until March of 2002 and review the Millennial Housing Commission Report.

    Mr. REID. I would hope not.

    Mrs. ROUKEMA. Pardon me?

    Mr. REID. I hope you don't wait for that.

    Mrs. ROUKEMA. I hope we don't wait for that, not singularly, and that we can move ahead in some of these areas.

    Anyone else have a comment to make on this, particularly the HUD?

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    Ms. Nelson.

    [No response.]

    Mrs. ROUKEMA. Anyone, any comment?

    Ms. NELSON. I am a civil servant so I really shouldn't be commenting on the policy issues. I believe that HUD is supportive of it. I would like to mention though that it is my understanding that in many locations, the higher FHA limits would support apartments whose rents would still be below the fair market rent.

    And I think, as an analyst, I would say that it is, in terms of Federal responses, it is very important to increase the availability of housing that is below the existing fair market rent because it helps keep down everything else on the cost scale.

    Mrs. ROUKEMA. I am sorry. I have been notified that there is a vote going on in the committee, and I will have to leave now, but if there are further comments you would like to make, I am sure Mr. Green would permit it, or you could put it in writing for the record on this subject.

    Thank you very much. I will be back shortly, I hope.

    Mr. GREEN. [Presiding.] Thank you and good luck.

    Next for questions, Ms. Stephanie Jones, please.
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    Ms. JONES. Good morning.

    Ms. Nelson, how are you?

    Ms. NELSON. Fine, thank you.

    Ms. JONES. My question is, when you define affordable, what do you mean by affordable?

    Ms. NELSON. It isn't what I truly consider affordable, but the rule of thumb is paying 30 percent of income for housing, and basically that comes from the fact that in the 1981 Reconciliation Act, the expected contribution of assisted tenants to their rent was raised from 25 percent of gross income to 30 percent of income. And so that is the approach that is used.

    Ms. JONES. What do you really think?

    Ms. NELSON. I really prefer an approach called ''shelter poverty'' which tries to take into account how much a family needs for all of its other expenses. That approach shows that many extremely-low-income households, particularly large families with children, cannot afford to pay 30 percent or even 25 percent of income for housing. Instead, for housing to be really affordable, they should pay less than 25 percent.

    The recommendations of the National Academy of Sciences with regard to changing the poverty level try to take this problem into account. And I think it is something that should be pursued.
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    Ms. JONES. So when you make the statement that almost all rental—something to the effect that almost all rental property was affordable, when you factor in what you think really should be considered, what does that do to whether all rental property is affordable or not affordable?

    I mean, that is your statement or something similar to that, right?

    Ms. NELSON. I said that almost all of the rental inventory is affordable to the incomes of 80 percent of median. And that means almost all of those rents are less than 30 percent of 80 percent of median.

    Ms. JONES. OK. I don't want to put words in your mouth. So what does that do to that statement if you look to what you now—just for purposes, I am not trying to jackpot you or anything—for purposes of our discussion about affordable housing, and using what you said should be used to determine what is affordable, what does that do to that statement?

    Ms. NELSON. Well, the implication would be that a much lower proportion of units with many bedrooms are affordable, because my preferred statement is basically that since families with children can afford only to pay less and families with children need large units. Rents on two or three bedroom or more units already tend to be higher, not surprisingly. There is more pressure on that part of the rental stock.

    Ms. JONES. Thank you very much, and lest I be accused of being engaged in a tirade, I want to just cut your questions and go to the next witness.
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    Thank you very much for your statement.

    Mr. Rubinger, my question to you goes to the issue that I raised with regard to schools and housing and the movement of students or families such that students tend not to be in any school system for any period of time, because they are moving around.

    Do you have any position, one way or the other, about what housing vouchers might do to stabilize students in school?

    I know it is a new concept I am throwing out here, but I am just curious as we walk down this road.

    Mr. RUBINGER. It is not altogether that new, and I think most people in my side of the business, which is more generally speaking community development, as opposed to housing per se, believe that schools, in the long run, are going to be the answer as to whether or not these neighborhoods survive or not.

    I think our position on this is that if you can—whether it is with vouchers or whether it is with tax credits, or however you do it, if we can increase the supply of affordable, decent housing in these neighborhoods, and begin to deal with the school issues as well, I mean, I guess my belief is that good schools are the result of stable neighborhoods, not the other way around.

    And if we stabilize those neighborhoods in any way we can, the schools are going to get better.
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    Ms. JONES. I would like to let all of you know that the next Congressional Black Housing Summit in 2002 is going to be in Cleveland, Ohio. And if you have any interest in participating, I would like to invite you to participate.

    We have a significant community development—I am almost done with my statement—we have a significant community development of opportunity and network in the City of Cleveland that I would love to be able to showcase some of the things we have done. But look to move forward to covering a lot of things we have not accomplished in the City of Cleveland.

    Thank you, Mr. Chairman.

    Mr. GREEN. Thank you.

    At this time, the Chair recognizes Mr. Miller.

    Mr. MILLER. Thank you, Mr. Chairman.

    I really enjoy these type of hearings because we talk about problems, we discuss numbers, and one of the last comments that was dealt with was vouchers, not that vouchers are bad, but it is kind of like paying the neighborhood bully not to beat you up, and not enforcing the law and putting the neighborhood bully in jail.

    I mean, we are not dealing with the problem; we are dealing again with the bandaid.
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    Mr. Rubinger, you said you are trying to reform local regulations and practices. What did you mean by that?

    Mr. RUBINGER. I am sorry?

    Mr. MILLER. One of your previous statements was that you are trying to reform local regulations and practices relating to housing. What did you mean by that?

    Mr. RUBINGER. Well, I was talking specifically about issues like land assembly.

    Mr. MILLER. How are you doing that?

    Mr. RUBINGER. Well, we are working with municipalities in several instances, Detroit, for example is a good one, where we are working directly with the city to try to find ways to make the land disposition process more efficient because we are talking about lowering housing prices. If we can get larger tracts into the hands of developers, you know, in a form that is ready for production, you are going to lower the cost down.

    Mr. MILLER. That is what I was hoping you were leading to, and that is an issue I think we are not addressing federally.

    Now, Ms. Nelson, you said there is an increase in rental units and much of it was in the low- to middle-income brackets. In the States of Colorado, Nevada, Arizona, and California, there is a lack of attached product that is being built in those States, because of the litigation associated with it through tort law that requires you to be legally responsible for a unit for 10 years.
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    One of the largest builders in California, who is a friend of mine, who is the major stockholder in K&B right now nationally, is going back into building again this coming year and instead of building condominiums and townhomes for people to move into, because of the tort issue, he is building apartments.

    They are getting density bonuses for low-income people which means they can build more units. And, they plan to hold those units for 10 years and then convert those units, filing new CC&Rs (Covenants, Conditions and Restrictions), and forming homeowners' associations, and sell them on the market as condominiums and townhomes, because they cannot do it today, they can't even buy liability insurance that covers them against litigation associated with building attached product.

    So many of the numbers you are showing up there nationally, especially in high developed areas, are being skewed because the lack of our willingness to attack the issue of tort reform and defects issues that face this Nation.

    So I think we are looking at numbers that are not genuine and not realistic.

    The problem we have today is that developers have become cash cows for local government. You can't avoid that, especially in the San Francisco area.

    Mrs. Lee, you and I talked about that, the associated cost of trying to build in these areas is outlandish. You deal with the normal cost associated with it, and the local government will even take the impact of the intersection three miles from your small project and say, what is the impact of your project on that intersection, and assess you a fee to mitigate that impact.
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    And when you add those local assessments up, the costs are absolutely outrageous. Prior to 1972, most infrastructure was put in place by government; local cities, communities, counties, whatever. Since 1972, infrastructure is put in by the developer. Everything's placed on the developer and the new homeowner is paying those fees.

    I had a project I started in 1987 in the City of Rialto, which is Congressman Joe Bachus' district, a low-income community. I made about 3,000 units. I had probably another 500 units approved for apartments, but the fees associated with those apartments were the same as the fees associated with the houses.

    I had to zone change those apartments. I could not build those apartments for people of lower income levels to live in, because the cost of Government was greater than the cost of the land. I mean, you could buy land cheaper than you could pay the fees to Government.

    Until we address these types of local issues, nothing is going to change. And there is going to be a crisis in affordable housing until we realize that affordable housing relies on the move up marketplace.

    If there is noplace for people to go in lower income housing, if they can't move up, there is going to be a crisis in that bottom end, because people cannot afford to move out of their lower income housing since they can't afford the higher priced houses.

    But the biggest issue we have with affordable housing is most communities don't want it. And people in low-income housing come in all colors, so it is not a matter of race. It is a matter of people saying, we just don't want those people in our community.
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    An example, the City of Claremont, which is a very nice college town in Southern California, I knew a developer who had a piece of property for 3 years, and he wanted to build apartments that people could afford to live in in this area because there were no apartments. He could not get the City of Claremont to approve an apartment complex, because people did not want those people in their neighborhood.

    So what he did, he circumvented the local control, went directly to HUD, got a HUD project approved. HUD inspected the project, issued the certificate of occupancy, and now people are living in affordable housing in Claremont because the Federal Government allowed them to do that.

    But all the vouchers in the world are not going to provide housing. All the subsidies in the world are not going to change the problems we are dealing with in most States. California is a great example.

    The Endangered Species Act. First of all, we look and say, where are the endangered species?

    Mr. GREEN. Gary, I am going to need you to finish your question.

    Mr. MILLER. I am going to wrap up. And then we say, what habitat do they need? Then, by the time we set aside the habitat, it looks like a checkerboard, and if you don't have an endangered species you have habitat.
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    So my question is altogether different.

    MBA's (Mortgage Bankers Association) blueprint for reform, which outlines their position on various issues relating to houses, in its documents, MBA advocates talked about modernizing the mortgage process through comprehensive reform.

    What would MBA's purpose be in doing this, and would it help in improving housing affordability in this Nation?

    Does anybody have an idea?

    [No response.]

    Mr. MILLER. Thank you very much.

    Mr. GREEN. Thank you for your testimony.

    Mr. Watt is recognized.

    Mr. WATT. Thank you, Mr. Chairman. I want to try to get at the two extremes here, Mr. Rubinger and Ms. Nelson.

    I think I agree with both of them that certainly Mr. Rubinger has indicated that there are a number of very successful housing production things going on.
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    But Ms. Nelson has indicated that those housing production things are not getting to the lowest income people.

    And that is certainly the experience that I think we are having in at least parts of my congressional district and at least the Charlotte, North Carolina part of my congressional district.

    Tax credits and HOPE VI are doing some good things, but those things are not getting housing produced at levels that are affordable for the very-low-income people. In fact, HOPE VI, the HOPE VI projects that have been done in my community have reduced the number of units that are available.

    Now I understand the reason is to create a more vibrant neighborhood, create some homeownership, do neighborhood development, and I endorse that. I am not critical of that.

    The question I have though, Mr. Rubinger, is are you aware of any patterns, any places where the problem that Ms. Nelson has described—assuming that it is legitimate, and I understand Representative Frank's concerns with her thesis—but assume that her thesis is correct. Are there any programs that have been successful that have really gotten to this lowest of the low-income housing production? And how do we get to a policy that addresses those very-low, what is ELI?

    Ms. NELSON. Extremely-low.
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    Mr. WATT. Extremely-low. I am sorry.

    Ms. NELSON. That is all right.

    Mr. WATT. I hate to differentiate between extremely-low, very low, low. But let me talk about the extremely-low.

    Are there projects that you are aware of that have been successful in going directly at that extremely-low population?

    Mr. RUBINGER. Yes. I don't mean to be glib about this, but I think both the Low Income Housing Tax Credit, and the HOME Program have more than 40 percent of each of those programs ended up housing people making less than 30 percent of median income.

    Mr. WATT. Well, I am not as familiar with the Low Income Housing Credit, but I can tell you that in the HOME program, you don't have a HOME program unless you are decreasing income, extremely-low-income housing density.

    The whole theory was to get rid of the concentrations so you may end up housing 40 percent of the people going back into their community who may be extremely-low-income. But at some point, 100 percent of the people in that neighborhood were extremely-low-income. And it is hard for me to tell the 60 percent, whose houses have been destroyed to make a nicer neighborhood, that HOME solves their problem. It doesn't.

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    I understand what you are saying.

    If you disagree with me, tell me.

    Mr. RUBINGER. Well, I do to this degree. That the HOME program has been very important in many cases in making the Low Income Housing Tax Credit program work. Because in many instances, the tax credit is not enough, there is still a gap in the cost, and in many instances, the HOME program has filled that gap.

    Now I can't speak for Charlotte, because I am not familiar with Charlotte. But there certainly are lots of instances of that.

    And HOPE VI, I think also it is true that HOPE VI, in many cases, decreases the number of units. And I can't argue with that. But in terms of who it ends up housing, I think it does end up housing the very lowest income, and I think that the issue in both cases is, is more.

    That is the position we are taking, that both of these programs, the Tax Credit program and the HOPE VI program do get to very-low-income people, they just don't get to them in the numbers that we would like to see.

    Mr. GREEN. Thank you for your testimony, Mr. Watt. Your time has expired.

    The Chair now recognizes Mr. Grucci for questions.
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    Mr. GRUCCI. Thank you, Mr. Chairman.

    I am sorry I wasn't here for our opening statements and I would just ask that I do have a statement that I would like to make part of the official record of today's hearings.

    Let me just ask the panel their opinion on a couple of things. I come from a region of the country where the cost of living is higher than in most places. Home sales are higher than in most places. The average price of a home in my district, 1,100 to 1,300 square foot, probably about $160,000 to $180,000 with a tax burden of about $6,000 to $8,000, the cost of land being extremely high. To try and build multi-family units, or to build any kind of housing, could run anywhere from $75,000 to several hundred thousand dollars an acre. Now that is the good news about the district that I live in.

    The bad news about my district is that it is not exempted from people who need affordable housing. Our young families that are starting out, people who are working that are trying to make ends meet, they can't afford those types of houses.

    And affordability, I guess, is within the eye of the beholder. What would be considered affordable in my area may not be considered to be affordable in other areas or may be considered to be very affordable in certain areas.

    We have an enormous problem with our income levels being as high as they are, and trying to equate that into the formula that has been established for eligibility into affordable housing.
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    For example, I believe now—it was at 80 percent of median income—it has been cut back from that level.

    What are your feelings about adjusting that level from 50 percent to some number higher, possibly as much as 120 percent of the area's median income?

    And along those same lines of trying to get people into affordable housing and to try to make affordable housing available, we have mandated certain things from the Federal Government down through into local government that has to be met in order for people to qualify for Section 8 vouchers, for example.

    One of them is the lead-based paint removal. And while I agree 100 percent with the initiative and the need for that to be done, do you believe that we should be making that mandate without providing funding?

    Do you believe there should be some sort of incentive for the removal of lead-based paint to happen? So let me get your responses to those two, and if I have time left, I would like to ask a couple more.

    Anyone can take a shot at it.

    Mr. REID. On your first comment about extending the limits, National Housing Conference, when we did our study on Housing America's Working Families, and this was one of the disturbing things we found, is how far up the income scale the affordable crisis had risen.
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    Our mandate basically is people between zero income and 120 percent of area median.

    Now it is absolutely true that the number of families, working families at risk up in the 100, 120 percent, are much fewer and their plight much less than the people at the very, very lowest. And I don't want to overstate that because the people at the very, very lowest are, as Kathy had said earlier, are the worst, worst, worst case.

    However, I think we cannot ignore the problems in the communities and we are talking about policemen and firemen and a lot of municipal workers and people in incomes where it is hard to believe that 120 percent of income, they are having serious housing problems. They are spending 50 percent of their income for housing.

    So I think it is an area that certainly needs to be closely examined when we are looking at our housing policies as to how wide the net goes.

    Mr. GRUCCI. I tend to agree with that, and it is not specifically the firemen and the teachers, because where we come from, they do pretty well. We have volunteer firemen out where we are, but the paid firefighters in the city do rather well and can probably afford it.

    I am more concerned about our young families, our young kids, our children, our grandchildren, who want to stay in our communities, want to be part of our communities, who are not making $60,000 and $70,000 a year, but are struggling trying to live on $30,000 a year.
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    And while that may sound like a lot of money in some parts of the country, I can assure you that that is near poverty level where we come from to the extent that they can't afford to live in quality homes. They live in basement apartments where they get their electricity from an extension cord coming down from upstairs.

    That is not what I believe our housing stock should provide, and I am eager to find out how we could be more helpful to making those types of affordable housings available.

    The last question that I would have deals with the FHA adjustable rate mortgages. Why should Congress support HUD's initiative to expand the FHA adjustable rate mortgage line to include the hybrid, the ARMS, (Adjustable Rate Mortgages), I am sorry, and how would that product encourage homeownership?

    Mr. GREEN. We will need a quick answer to that.

    Ms. CROWLEY. That is probably a question the second panel can field.

    Mr. GREEN. OK. Unless anyone would like to express a position on that.

    Ms. CROWLEY. Can we go back to the last question?

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    Mr. GRUCCI. Sure can.

    Ms. CROWLEY. The lead question?

    Mr. GRUCCI. The lead question, fine.

    Ms. CROWLEY. It is a very serious issue, and within the low-income housing community, we grapple with that a great deal because obviously when you put more stringent lead safety requirements on landlords, you can reduce the number of units that are available for people to use with the Federal housing vouchers. So it is a serious issue.

    The position that we have ended up taking is that from a public policy and a public health perspective, it is not acceptable for Federal tax dollars to be spent on renting housing that has the potential of causing serious harm to small children. And in any event, landlords should be aware that that is something that can limit their marketability under any circumstances.

    The new requirements that have come out are part of very extensive work that has been done to move beyond——

    Mr. GREEN. If you could wind up your remarks?

    Ms. CROWLEY. ——complete lead abatement to get to something that we now call lead safety that is a much less expensive, a much less time-consuming way to go about trying to manage the lead problem.
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    But I do think that, from a public health perspective, it is something that we need to take very seriously.

    Mr. GRUCCI. I agree with that. Thank you.

    Mr. GREEN. Thank you. Thanks for those questions.

    The Chair next recognizes Ms. Lee for questions.

    Ms. LEE. Thank you, Mr. Chairman.

    Let me ask a couple of questions, and I want to start by just mentioning a little bit about the Bay Area, the Oakland Bay Area which you know is one of the highest cost areas in the country.

    I notice now we have a housing wage of $28.06 an hour, and I would say that in the Oakland Bay Area, probably $10 to $12 an hour, $30,000 to $40,000 a year is probably about—I won't say average, but many, many people make about that amount of money.

    Yet the cost of a house, a two bedroom house, $300,000 I think is probably on the low side, so between $300,000 to $450,000.

    The American dream of homeownership in the Bay Area is the dream deferred, if not ever to be realized, unless we create more affordable housing. So one of the questions I wanted to ask you is, and we talked a little bit about this last week in terms of housing production, the $3 billion plus that FHA and Ginnie Mae are projected to have, either as surplus or profit or reserves or whatever it is called, what is the problem with using that money to create housing, land trusts, or using some of these profits or reserves or surpluses for affordable housing production?
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    That is the first question I would like to ask probably Ms. Nelson, or any of you who could respond.

    And then second, I wanted to ask you just a little bit about the Federal Government's role in what we can do to address the issue of gentrification. Because many people, not only in my district, but I know in Congressman Frank's district and many of our areas throughout the country where these housing costs are so high, are renting houses or apartments and are quickly, as a result of the economy, the economic boom, are quickly being displaced as a result of landlords now seeing a way to make more money from their property.

    One area in my district, for example, is an area that is very desirable. Eighty percent of the residents there, primarily people of color, are renters. These properties are owned by other people living outside of the city, but now they see they can make a huge profit in moving these people and selling the homes.

    So I would just like to ask if there is a role for the Federal Government in this, and if so, what you think we could do to make sure that people who have lived in a community all of their lives are able to stay there and not be run out.

    Ms. Nelson, could you answer maybe the first question with regard to Ginnie Mae——

    Ms. NELSON. I think actually Sheila is better equipped to answer that than I am.
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    Ms. LEE. Ms. Crowley, OK.

    Ms. CROWLEY. Our position on the use of the surplus in the FHA program and the Ginnie Mae program is that it can be directed into other good housing uses, and we support the establishment of a national housing trust fund with dedicated sources of revenue, and those would be the first two that we would see would be directed into that trust fund.

    Attached to my testimony is our proposal that we would like to see considered in the House, and we expect to see legislation similar to that introduced in the Senate shortly.

    So our position is there is no problem with doing that.

    Ms. LEE. Thank you.

    Now let me ask anyone to respond to the issue of gentrification. How do we provide incentives for landlords not to move tenants out in areas that have really benefited from the economic boom that we have experienced in the last 8 to 10 years?

    Ms. NELSON. Well, the general problem is just that there are not enough resources for housing. I mean, I didn't mean to sound obtuse in my answer to Representative Frank, because higher income people do definitely have problems, particularly in the tightest housing markets, because there is so much demand, everyone would like a good buy.

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    So that a general solution that is absolutely essential is more resources for housing in general, and production, in my personal opinion.

    Mr. FRANK. When you are talking about high income, and I appreciate your comment there, we are talking about, you know, higher than extremely-low. We are talking still about the lower median.

    Ms. NELSON. Right, right, right.

    Mr. FRANK. Sometimes people walk in and haven't heard the context, right.

    Mr. RUBINGER. Can I add one quick thought to that. Our approach to this has been to get these properties in the hands of non-profit organizations who are going to keep them affordable in perpetuity. And so whether it is new production that has set-asides for non-profits, or it is figuring out ways to move properties for for-profit ownership into non-profit ownership, in our experience, even in hot markets, that is the way that you keep housing affordable.

    Ms. LEE. So where there are areas where homes are owned by individuals, not non-profits, though, are there recommendations that you have that would incentivize this transaction, I mean, so that it would be appealing for the property owner to either sell to the tenant or to enter into some long-term reasonable rental agreement or lease agreement?

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    Mr. REID. I would think that from a Federal standpoint, that would be pretty problematical, because we are back to local issues here.

    But I think Ms. Nelson hit on—the problem is a shortage of affordable units. If there weren't the shortage for affordable units, gentrification wouldn't be a problem. You know, we will always have some gentrification and movement of housing areas and neighborhoods.

    But if there is an adequate supply of housing, the problem takes care of itself. So the core thing is to have more affordable housing production.

    Ms. LEE. Thank you, Mr. Chairman.

    Mr. GREEN. Thank you.

    You might have noticed that we have a floating membership in the subcommittee right now. We are all in lots of different committees at the same time, so I appreciate everyone's patience, and we are trying to go in order of those who first arrived, although with coming and going, that is hard to do.

    At this point, the Chair would recognize Mr. Capuano for questions that he might have.

    Mr. CAPUANO. Thank you, Mr. Chairman.

    It is hard to come up with questions, because I kind of agree with most of the general talk that we have had here.
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    I guess, Ms. Nelson, what I would like to see though—I have tried to peruse your testimony here—honestly, when it comes to income levels, that is all well and good, but for me, it is more about percentages of income that go into housing than it is about specific income levels.

    And I would like to see some data, at some point, relative to both regional and national numbers, as to who is paying how much of their percentage of income for housing costs.

    Because it is my guess that that is on the rise. That people are paying a higher percentage of their income for housing costs, particularly low-income people.

    And I am not sure about that, and I would like, at some point when you get a chance, if you could provide us with some data on that matter to see if I am right or wrong, and if so, how so.

    I guess, I am not even sure I really have any questions except to get down to some nitty gritty. I mean, we are talking here about doing some more. And I presume that each and every one of you have reviewed the budget proposal that is about to be before us maybe today, maybe tomorrow, who knows when, and what it proposes for the housing world relative to Federal involvement, direct Federal subsidies.

    And I guess I would like to hear if any of you agree that we should be cutting out, oh, say, $700 million for capital improvement in public housing.
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    By a show of hands by the panel, are there those of you who agree that we should to that?

    [Show of hands.]

    Mr. CAPUANO. Gee, what a surprise.

    I guess, along the same lines, I guess I would be wondering, I presume that we are not just talking about a building, because I hope that those of you who are in the business of providing affordable housing know that a home is more than just a building. A building is fine, you have to start with that, but it is also a quality of life issue.

    My presumption is that none of you would advocate for poor quality housing for poor people, just because they are poor, give them junk.

    My presumption is that you don't want all poor people living in one area with no police protection, with no social services, so therefore, I presume, and again if you disagree with me, I would like to see it, like to hear it, would any of you advocate for a $70 million cut in the drug elimination grant that goes toward public housing.

    What a surprise.

    I presume that none of you would advocate for a $25 million cut in the rural housing production program that is in this budget?
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    Gee, I am very, very shocked here.

    And the bottom line is that it is all well and good to advocate, and I appreciate you being here today and telling us what you believe.

    But the truth is, I mean the real decisions that we can impact are really going to be made on the floor of that House within the next 2 days. And all this talk is for nothing if the budget that was submitted to us is enacted.

    In my estimation, not only are they real cuts, but even the few programs—and there are a handful that do go up—they are not anywhere near where anybody in this room should be proud of.

    No matter how you measure it, no matter what you think, no matter how you say it, if you believe in affordable housing, and I would have some differences of opinion as to where it should be targeted, I happen to think it shouldn't just be targeted to the lowest income and that is why I would like to see some of the other numbers. I happen to think it is a continuum, it is a ladder or continuum of how you help.

    If you only help the lowest income people, you are going to keep them dependent on Government subsidies forever. I think you also have to help moderate income people into homeownership, which we haven't really discussed too much today; it seems like we are mostly talking about rental, and that is fine. But at the top of the rental ladder, especially in my district, and you are going to hear from the Mayor of Boston later on, and I have no idea what he is going to talk about, but I have no doubt he is going to tell you how expensive it is in Boston.
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    He is on top of this issue as well as any mayor I have ever known, and having been a former mayor, I know quite a few of them. And that is all well and good. We can subsidize people and subsidize people and subsidize people on their rents, but there are an awful lot of people, if they can get into a little down payment assistance, can then buy a home.

    And then, to me, if we don't talk about that level, then we are really just talking about subsidizing people forever, which those are the kinds of programs that there will never be enough money for.

    The ultimate goal, I think, should be trying to get people into their own homes, especially for those people on the borderline.

    So I guess the only other issue that I would like to talk about, I know it is not really the subject today, but is geographic targeting.

    I want to make sure, in every place I go I want to make sure that people don't think about affordable housing as only an urban area issue. It is not. It is a rural issue, it is a suburban issue, and I believe it is a growing suburban issue, and again that is why I would like to see some of those numbers.

    I grew up in a city. Most of my friends that I grew up with moved to the suburbs, and now their kids cannot afford to buy a home in their suburb which is why they went there because they couldn't afford to buy a home in the city.

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    And that is why, again, as a percentage of income, it is really the most important measure.

    I would also like, I guess I would like to ask a question.

    Mr. GREEN. Mr. Capuano, if you could——

    Mr. CAPUANO. The very first paragraph of Ms. Nelson's commentary relates to a 1981 change which, I was a mere babe in 1981, talking about changing the expected tenant contribution toward rent will raise from 25 percent to 30 percent of income.

    Would any of you argue against the notion that it should be a national priority to reduce that percentage. That 30 percent to me just strikes as an arbitrary figure sounding good, probably needed the money at the time, but is there any reason why 30 percent is some magic number that you would advocate for?

    Ms. CROWLEY. There is no magic to 30 percent, and as Ms. Nelson has said, there is a better analysis that gets at something that is much less than that.

    I just would caution you about the proposal to reduce it back to 25 percent in the absence of expanded resources, because what will happen is that we will serve many fewer people.

    Mr. CAPUANO. I absolutely one million percent agree with that.
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    Ms. NELSON. I would like to respond to your question about changes over time. In the last 20 years, the main increases in housing cost-income ratios have come among owners. Among the group that the National Housing Conference has identified, people who are very-low-income and low-income who are paying more than half of their income for housing, the increase has occurred more among owners, not in renters.

    And I am sorry I didn't say this to Mr. Grucci, but even though most of the work I do is with renters, I consider the idea of increasing low- and moderate-income homeownership important too.

    But I think there is one very mistaken practice in some current Federal policies and more in many State policies. And that is that programs to increase homeownership usually use an income limit that is not adjusted for household size.

    The impact of that is to discriminate against families with children. I have with me ownership rates by income and household type from 1978 through 1999. The basic finding is that in all income groups except incomes above 120 percent of median, families with children still have lower ownership rates than they had in 1978.

    The increase in homeownership that we have heard so much about has occurred mainly among the elderly, but second it has occurred among unrelated singles, and families without children who, in my opinion, don't need homeownership as much as families with children.

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    Mr. CAPUANO. I love you, Ms. Nelson. Thank you.

    Mr. GREEN. Thank you, Ms. Nelson. Perhaps if you could supply that for the record, we could enter that into the subcommittee record.

    And at this point, the Chair would adjourn this panel. I thank all of you for you for your testimony, your input and your willingness to answer questions, and we will call our next panel up.

    Mr. FRANK. Mr. Chairman, can I say that this was a very useful discussion, and I thank you for a break from the norm.

    [Pause.]

    Mrs. KELLY. [Presiding.] I want to thank the second panel for being here. We have the Honorable Thomas Menino, Mayor of Boston, Massachusetts.

    Mr. Capuano.

    Mr. CAPUANO. Thank you, Madam Chairwoman. I just wanted to welcome the mayor. I mean, I have known Mayor Menino for many years now. I was the mayor of the city that immediately joins Boston. I have the pleasure to represent a huge portion of Boston, though not the mayor's home specifically. But his home-away-from-home is close enough to me.

    And as you will hear in a few minutes, Tom Menino is very much involved with the housing issue in Boston. It is a major, major problem in our area because we are fortunate to have so many people that want to live there. We are unfortunate enough to have so little land to develop and the costs there are incredibly high.
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    So I welcome the mayor. I thank him for everything he has done already, and for what he is about to do.

    Mr. FRANK. If the gentleman would yield to me briefly, I also want to say I appreciate, we had arranged with the mayor for him to testify. He is here not just as the mayor, I believe, but in his leadership capacity in the National Conference of Mayors, and that is entirely fitting because he has been a real leader in trying to make our urban areas more livable, and we are very pleased to have his testimony.

    Mrs. KELLY. Thank you very much.

    Mr. Mayor, my son lives up there, so you take good care of that city.

    Next, we have Mr. Robert Nielsen, President of Shelter Properties of Reno, Nevada on behalf of the National Association of Home Builders.

    Next, we have Mr. John Courson, Vice President of the Mortgage Bankers Association, and President of the Central Pacific Mortgage Company in Folsom, California.

    And last, but not least, Mrs. Barbara Thompson, Director of Policy and Government Affairs, the National Council of State Housing Agencies.

    We thank all of you and we appreciate the fact that you are willing to take your time and appear before us today.
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    Let us start with you, Mayor Menino.

STATEMENT OF HON. THOMAS M. MENINO, MAYOR, BOSTON, MA; CHAIRMAN, U.S. CONFERENCE OF MAYORS ADVISORY BOARD

    Mr. MENINO. Thank you, Chairperson Kelly, and let me thank my two colleagues, Congressman Capuano and Congressman Frank, for those good words. And I will need them this year, I am up for reelection, so they are going to have to bail me out of all my disasters.

    And I want to thank you for taking this opportunity to speak with you about issues that dramatically affect people in cities and towns across our country.

    As Chairman of the U.S. Conference of Mayors Advisory Board, I want to bring you the message that the comeback of our cities will not be complete until we have a national commitment to quality housing for everyone.

    Affordable housing is an issue that I deal with on a daily basis. Every time I visit the neighborhoods for a ribbon cutting on a new business, the opening of a new park, or attend a little league game, I meet constituents who are being priced out of their homes in the neighborhoods where they hoped to raise their children.

    Each story is different. It reminds me that prosperity has a price, and for cities like Boston, that price is high. We risk becoming a place where only the very rich and the very poor can afford to live.
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    I know that mayors across the country will agree with me when I say that the comeback of our cities has helped our country grow stronger and helped more Americans live better lives.

    Cities are the economic engines of our country. The new census data shows what many city leaders already know, that our cities are more diverse than ever and that we are gaining strength from that.

    We have to keep our cities diverse. We have to make sure that everyone has the opportunity to share in what cities have to offer. One way to keep our cities growing is to make housing a top priority from Boston to Burbank.

    The challenges cities face today are different from the ones we faced 8 years ago. Back then, we had high unemployment, high crime rates, and high interest rates were forcing many foreclosures on family homes. But today, there are 22 million new jobs, crime has dropped to a 25 year low, homeownership is at the highest rate it is ever been, and foreclosures continue to drop.

    This is our chance to build on our success. We must extend the range of choices so that everyone, not just the fortunate, have access to a better life.

    Cities like Boston are thriving in our new economy. In Boston, we have created 120,000 new jobs in the last 8 years. The quality of life in our neighborhoods has never been better.
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    One of Boston's greatest challenges is a direct result of our new prosperity. We simply cannot produce enough housing to meet the demand. It is hard to believe that in this time of record surpluses and record employment, working men and women who make a good salary are having a hard time finding an apartment or a house they can afford.

    In Boston, the median mortgage is $1,625 dollars a month, and the median price on a two-bedroom apartment is now $1,600 a month. When you apply the standard of using 30 percent of a worker's income to go toward housing, here is what some individuals have to spend:

    A minimum wage earner, $322; a janitor, $456; administrative assistant, $724; and a computer programmer, $1588.

    Those numbers show that even a computer programmer making $63,000 a year has trouble finding an affordable place to live. And I don't think any of us here today can imagine the anguish of trying to find a place to live with $322 in our pocket.

    Affordable housing isn't just about assisting the poor and building more public housing. It is about working people. It is about people who make a decent living and search the Sunday real estate section and shake their heads and wonder how this happened. It is about parents who wonder if their children can afford to live in the neighborhood they grew up in.

    I am proud of what we have done in our city to produce more housing. We have set aside $30 million in city resources for housing. Last year, we added more than 2,600 housing units. We saved 1,400 units from being converted to market rate. We announced a new 3-year housing strategy to increase housing production. We will use $8 million in gap financing to renovate and fill 1,100 units of vacant public housing. And since it was announced, we have permitted 1,997 more units and more than 1,000 of those units are affordable.
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    I would like to submit to you, for the record, a copy of our new housing strategy ''Leading the Way.''

    While we have accomplished a great deal, we are approaching the limit of what we can do. We will keep moving forward, continue to come up with creative ideas, but our heartfelt efforts will never be enough until the Federal Government and statehouses across the country return to the business of housing production.

    Unfortunately, this year's budget for HUD does not show an adequate commitment to the issue of affordable housing. It cuts investments in public housing.

    Mrs. KELLY. Excuse me, Mr. Mayor, but I am going to enforce the 5-minute rule and I am going to ask you to sum up, please.

    Mr. MENINO. What I want to basically say is that we have to get back into the business. We have walked away from housing and it is a crisis in every city in this country.

    And you know, we just can't tell we are going to give tax cuts. Tax cuts to the rich doesn't help the poor. And cities have to build medium income housing for working people. We are not doing it. And cities can't do it alone anymore.

    All of you must represent parts of cities, and you see the problem we have. I see the way we are doing very creative strategy, but we need help. We are not looking for a handout, we are looking for a help out, we are looking for the Congress to help us drive those issues. It is so, so important for the future of our cities and our country.
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    Thank you.

    Mrs. KELLY. Thank you very much.

    Next, we have Mr. Robert Nielsen.

STATEMENT OF ROBERT NIELSEN, PRESIDENT, SHELTER PROPERTIES, INC., ON BEHALF OF THE NATIONAL ASSOCIATION OF HOME BUILDERS

    Mr. NIELSEN. Good morning, Madam Chairwoman and Members of the subcommittee.

    My name is Bob Nielsen and I am a homebuilder from Reno, Nevada. I am President of Shelter Properties, Incorporated, a company which builds and manages affordable multi-family properties.

    I appear today on behalf of the 203,000 members of the National Association of Home Builders (NAHB) in the hopes of getting your support for a number of initiatives to address critical affordable housing needs.

    I commend you for initiating this hearing to raise awareness of the housing affordability needs. The numbers speak for themselves. 13.7 million Americans pay more than half their incomes for housing or still live in substandard housing. That number is too high.
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    I want to start by thanking the Chairman of this Committee and the Ranking Member for introducing H.R. 1629, legislation that would increase the statutory mortgage limits for FHA multi-family insurance by 25 percent.

    One factor contributing to the shortage of affordable housing, especially in high cost areas, is the fact that the mortgage limits for multi-family insurance have not been increased since 1992.

    We also hope that we can work with you, as the bill moves through Congress, to include a provision which would allow indexing for future inflation.

    Again, this will help foster the development of affordable housing, particularly in high cost areas like the Mayor just talked about, and ensure that programs can continue to meet demand without additional interruptions.

    Second, and of more immediate concern facing FHA multi-family insurance programs, is the need for credit subsidy. In order to remain functioning, appropriations need to be set aside for all insurance programs. Based upon projected activities in each of these programs, it is estimated that FHA will require about $255 million in credit subsidies to operate the multi-family insurance programs for fiscal year 2001.

    However, only $101 million was initially appropriated and that money ran out in April. This shortfall translates to a loss of 50,000 units of affordable rental housing that will not be produced.
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    In the short term, we seek a supplemental appropriation. Over the long term, NAHB joins many others in supporting H.R. 1481, the FHA Shutdown Prevention Act, introduced by Representative LaFalce. H.R. 1481 would allow the negative subsidy to be used in the event of a future shortfall in credit subsidy.

    NAHB strongly supports removing regulatory barriers that affect housing affordability. We are working with Congressman Green toward a legislative proposal which would require relevant agencies to designate a staff position to monitor the rulemaking process to determine whether a particular rule would have a detrimental impact on housing affordability.

    We commend Representative Green for his leadership on this issue.

    And now, Madam Chairwoman, another critically important issue is an administrative obstacle which has been thrown in the path of a very successful affordable housing program, the Low Income Housing Tax Credit.

    Since its inception, the Tax Credit has been the key part of the financing of nearly all of the affordable rental housing built in the last decade.

    The Internal Revenue Service has issued five technical advice memorandums, TAMS, which have been applied industry-wide. These TAMS establish standards for determining what costs are includable in eligible basis for the purpose of calculating the tax credit.

    They are creating a program-wide disruption in the allocation of credits and the development of housing, for they are changing what has become the industry-wide practice for the last 14 years.
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    The TAMS have the effect of reducing the level of equity financing available for each project making a number of existing affordable housing properties financially infeasible and weakening the economics of those that still pass minimum underwriting standards.

    The TAMS also have created uncertainty among investors as to whether the credits for which they have paid will be realized. Therefore, the TAMS threaten to reduce the amount which investors will be willing to pay for each tax credit.

    The loss of efficiency hurts both low-income tenants and the taxpayer by further reducing the amount of housing that can be produced from a given amount of tax credits.

    Representative Nancy Johnson has agreed to introduce legislation that would allow certain development costs which have been included in tax credit eligible basis as generally-accepted industry practice to continue to be includable in basis eligible for the Low Income Housing Tax Credit.

    We realize that this subcommittee does not have tax writing authority, but we hope you can support Representative Johnson in her efforts to move this legislation quickly.

    And lastly, we need to think about a new production proposal, multi-family housing production program that would meet the needs of households with incomes between 60 percent and 100 percent of median income.

    This new program would serve those who are not currently served by Federal or other publicly supported housing programs.
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    Mixed income projects should be encouraged and set-asides of funds for the production of housing for elderly, small projects and rural housing development opportunities should be considered.

    Lower or very-low-income residents could be supported through increased fundings for vouchers, tax credits, home or community development block grant funds.

    NAHB also recommends that the new housing production program provide a very low, 1 percent fixed interest rate. The Section 236 program could be used as a basis for design of this program, but the new initiative should incorporate greater returns, especially for small projects. Greater flexibility for commercial space. And vouchers for elderly and other special need populations.

    To assist in any financing gaps, the new program should be compatible with existing housing——

    Mrs. KELLY. Excuse me, Mr. Nielsen, but I am going to ask you to sum up.

    Mr. NIELSEN. OK.

    And community development programs such as CDBG, HOME, and FHA.

    Thank you for the opportunity to address the subcommittee on the critical needs for affordable housing. NAHB stands ready to assist the subcommittee in any way they can.
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    Thank you.

    Mrs. KELLY. Thank you very much.

    Mr. Courson.

STATEMENT OF JOHN A. COURSON, VICE PRESIDENT, MORTGAGE BANKERS ASSOCIATION OF AMERICA, ON BEHALF OF THE MORTGAGE BANKERS ASSOCIATION OF AMERICA

    Mr. COURSON. Thank you, Madam Chairwoman.

    Today, in spite of a decade of economic growth, as we discussed, there are millions of Americans who find they are unable to obtain decent, affordable housing. But this crisis, as we have talked about, reaches even beyond low-income families and is affecting even increasingly moderate and middle income families.

    While the situation is certainly worse in certain parts of the country, the problem exists throughout our Nation.

    Between 1997 and 1999, the number of moderate income families who pay more than 50 percent of their income for housing or who live in severely dilapidated housing, increased by 74 percent.

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    There are a number of reasons for this worsening crisis I would like to discuss. As we have heard their proposal, the Administration proposes to increase the FHA multi-family limits that have not been increased since 1992 by 25 percent. We certainly support that and we applaud both Chair Roukema and Mr. Frank's H.R. 1629, which, in fact, would support the increase of the multi-family housing limits that are supported also by the Secretary.

    Second, Congress should expand the FHA adjustable rate mortgage product line. One of the priorities of the Administration and Secretary Martinez is to increase homeownership, particularly among minorities. One way to achieve this goal is through more flexible mortgage products.

    In the fiscal year budget of 2002, HUD would authorize a new ARM product called the hybrid ARM for FHA. These ARMS have an initial fixed interest rate of at least 3 years and adjust thereafter.

    They carry interest rates that are lower than fixed rate loans, and certainly are less risky than the 1-year ARM currently authorized.

    Third, Congress should take action to halt the shutdown of the FHA multi-family project. On April 26th, HUD announced a shutdown of the multi-family new construction and substantial rehabilitation insurance programs. All new projects will be on hold for the rest of the year unless Congress provides additional credit subsidy funds.

    This shutdown will stop the development of more than 50,000 desperately needed units in 33 States that total more than $3.4 billion in federally-insured mortgage loans.
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    These funds are critical to alleviating the current shutdown in the multi-family new construction program.

    We certainly support President Bush's and HUD Secretary Martinez' efforts to strengthen the economy, but without these funds, projects will not be built, and an opportunity to provide an immediate economic stimulus and produce thousands of construction jobs will be lost.

    Specifically, we would ask that Congress take the following actions:

    Urge the Administration to release the $40 million of already-appropriated credit subsidy that was included in the Legislative Appropriations Act of 2001 and passed in December of 2000.

    Second, to appropriate an additional $115 million in fiscal year 2001 to provide sufficient funding to keep the FHA programs operational for the rest of this fiscal year.

    And lastly, to support legislation that would allow the use of profits generated from these programs to offset those who need credit subsidy or loss reserves for their implementation.

    And we certainly applaud Representative LaFalce and Representative Frank for introducing H.R. 1481, the FHA Shutdown Prevention Act, which leads us down the path of solving this credit subsidy issue.

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    I would like to, if I may, ask permission to enter for the record a letter, which we have submitted to the Staff, and a chart, which will be going to Members of this subcommittee, of the Senate Banking Committee and the House and Senate Appropriations Committees, that deal with the impact of this shutdown of the multi-family and substantial rehabilitation programs.

    Mrs. KELLY. So ruled.

    Mr. NIELSEN. And I would also like to submit a list of all the projects in the country, the $3.4 billion of projects that would be adversely affected by this shutdown.

    I thank you for providing Mortgage Bankers Association the opportunity to share our views with the subcommittee and look forward to working with you and other Members of the subcommittee as we implement these solutions.

    Thank you, Madam Chairwoman.

    Mrs. KELLY. Thank you very much.

    Now we are going to move to Ms. Thompson.

STATEMENT OF BARBARA J. THOMPSON, DIRECTOR OF POLICY AND GOVERNMENT AFFAIRS, NATIONAL COUNCIL OF STATE HOUSING AGENCIES
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    Ms. THOMPSON. Thank you.

    Chairwoman Kelly, Representative Frank, and Members of this subcommittee, I am Barbara Thompson, Director of Policy and Government Affairs for the National Council of State Housing Agencies.

    I am testifying today on behalf of NCSHA. NCSHA represents the housing agencies of the 50 States, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands.

    I would like to begin by thanking you, Chairwoman Kelly, Representative Frank, and the many Members of this subcommittee who, in the last Congress, cosponsored and helped enact legislation to increase the caps on housing bonds and the Low Income Housing Tax Credit.

    Now tens of thousands of additional lower income families every year will have the opportunity to buy their first home, or rent an affordable apartment.

    Unfortunately, many people qualified for housing credit and bond help still will not get it; obsolete program rules prevent it.

    Representative Frank, we especially want to thank you for your early cosponsorship of H.R. 951 which fixes these problems. We urge all subcommittee Members to join Mr. Frank in co-sponsoring that bill, and we ask you to encourage your leadership and Ways and Means Members to include it in a tax bill this year.

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    With your extraordinary leadership and sustained support, we have made some important affordable housing gains, won some important battles in recent years. But we are still not winning the war.

    HUD's budget is half of what it was two decades ago, and the Bond and Credit Cap increase, as I just mentioned, though of a size no one dreamed possible, are not beginning to restore the purchasing power of those vastly over-subscribed programs.

    Meanwhile, as we have heard from many panelists this morning, many American families, one out of every seven, in fact, has a critical housing need, from the very poor to the solidly middle class.

    Indisputably, though, families hardest hit are those with the least income; 80 percent of those with critical needs are very-low-income; 60 percent, extremely-low-income.

    Meanwhile, the number of rental apartments affordable to them continues to drop. In the face of growing need among extremely-low-income people, State HFAs (Housing Finance Agencies) report uniformly that they are having a great deal of difficulty housing them.

    In 1997, the General Accounting Office reported that housing credit properties were actually reaching people who made 25 percent of area median income or less with other subsidies, but that is the problem. Other subsidies often are not available and they are necessary to reach lower income families with the housing credit.

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    Some might suggest that we need to address rental housing needs across the income spectrum as high as 120 percent of area median income.

    We urge you, however, while we have a scarcity of resources, not to divert them from those who have the most acute housing needs. We ask you to reject proposals to increase income limits on existing programs such as HOME and the Low Income Housing Tax Credit.

    Still, existing resources clearly are not enough, and that is why one of our highest priorities at NCSHA and among the States is the creation of a new State-administered rental production program targeted, in significant part, to extremely-low-income families.

    We want to work with you to design a program that builds on the success of programs like Bonds and the Low Income Housing Tax Credit, utilizes the existing, proven State HFA delivery system, and is integrated with existing State allocation plans and funding systems.

    The program will only work, however, if States are given the flexibility to tailor their housing solutions to varied housing problems. HUD regulation must be limited.

    We propose that funds be allocated by State HFAs subject to allocation plans like the Housing Credit Allocation Plan.

    States should be empowered to use funds for a wide variety of uses.

    Finally, it is essential that any new program's income, rent, and other rules be compatible with those of other Federal programs. It is combination with them will almost always be necessary.
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    A new program, regardless of its size, is not the whole answer. We want to work with you to continue to improve existing programs that work through increased funding, deregulation, and, where possible and practical, devolution of their administration to the States.

    NCSHA and our member State HFAs are very grateful to you all for your enthusiastic and constant support of affordable housing. We will continue to do our very best to use Federal affordable housing funds efficiently and creatively under the conditions unique to each State, and to earn the trust that you have placed in the States.

    Thank you.

    Mrs. KELLY. Thank you very much, Ms. Thompson, and thank you for staying in your time limit.

    I really am happy to hear you talk about an integrated solution to the problem, rather than one that is demanding of Federal intervention, because I am not convinced, from what I have heard, that that is necessarily our answer. So I am very happy to hear you talk about that.

    I want to ask a few questions.

    One is for the whole panel.

    If we assume that, to some extent, some of you may not have reviewed the existing programs. I would like to know what your observations are about the HOME program that was created 10 years ago that was to provide housing for low-income families.
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    If you have visited, I would like to know why you think that HOME isn't providing the necessary production we originally thought that it would, or perhaps that is a misperception and it is about housing production capacity.

    There is a third part to my question.

    What about the other existing programs, like the 30 percent set-aside and the McKinney-Vento Homeless Assistance Act?

    So I am asking essentially three questions here.

    Do you want me to repeat them?

    I want to know if you have visited the housing production created by HOME 10 years ago.

    And if you have, or even if you haven't, why HOME isn't providing the necessary production that we originally thought or is that a misperception about the housing production capacity?

    And I want to know what about the other existing programs, like the 30 percent set-aside in the McKinney-Vento Homeless Assistance Act.

    So there are three parts to that question, and you can take them, whichever, whoever wants to own them.
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    Mr. Nielsen, you are going to own some of it.

    Mr. NIELSEN. Let me start with the HOME program.

    It has been my experience, and I have been building tax credit projects since the program began, that HOME fills a gap, a gap that is created between what is necessary and what other programs can provide in that, at least in our States, and in the State of California and Arizona, I can tell you that HOME plays a critical role in filling that gap.

    And I don't know what the original legislative debate included concerning the original numbers that HOME would generate, but I wonder if many times, we count HOME units by the number of specific HOME units that are in a particular property without counting the entire property which HOME may have been critical in filling the gaps to get that property built.

    So I am not sure that that answers both sides of your question, but I think the key is that we need HOME, we need additional HOME funds to continue to fill those gaps in projects that are being built today.

    Mrs. KELLY. Thanks, Mr. Nielsen.

    I just want to say that from my understanding of the HOME funding, the idea was to provide for housing production for low-incomes; it was not really a gap program, it was simply to provide for production. Get those units up.

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    So your viewing it as a gap program is very important information for us.

    Mr. MENINO. In the City of Boston, we use the HOME funds also as gap financing, and then we go to the State for the tax credits and the issue there is the State doesn't have enough tax credits to build the affordability into the housing. We use it as gap financing also.

    Mr. NIELSEN. Excuse me. If I could respond to your comment.

    I really believe that HOME is critical in getting many of these affordable housing projects built. So I think it is a matter of counting, the way we count.

    Mrs. KELLY. I am still looking for the answer to the third part of it. What about the other existing programs? I mean, if you are viewing HOME as a gap program, what about these other existing programs, and why, in your estimation, are they not there?

    We have got the McKinney-Vento, the Homeless Assistance Act. I mean, why is that not working? There are so many possibilities here, there are so many programs.

    My interest in asking this question is to establish whether or not the existing programs should be rehabbed and whether or not, in fact, we need new legislation.

    So anybody there can have a hand at that.

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    Ms. THOMPSON. If I could respond, Chairwoman Kelly, I would like to say a few things about the HOME program. It is an enormously successful program, about 37 HFAs around the country run it.

    It is most frequently used as gap financing, often with Low Income Housing Tax Credit properties. It simply isn't enough money, doesn't provide enough subsidy to do stand-alone HOME financed deals, unless they're small properties, usually rehab.

    The problem with the HOME program is simple; there is not enough money in it. It is $1.8 billion. That is the most Congress has ever appropriated.

    More than a decade ago, when this subcommittee and the Senate side got together and created HOME, you thought it ought to be funded at $2 billion. It has never reached that authorization level. It would require that today just to make up for the purchasing power it has lost to inflation since the early 1990s when it was first funded.

    You also have to bear in mind that the HOME funds are divided up today among about 595 State and local jurisdictions. It is hard to have a big bang with those bucks, because it is not a big pot and it is so divided up, as I said, among hundreds of communities.

    And finally, there are some structural limitations to the HOME program. We are very excited to learn your subcommittee may be looking at the individual programs, like HOME, because we can give you some specific recommendations for changing some of the rules to make it work better. But HOME will not be the whole answer unless the Congress is prepared to put several more billion dollars into it.
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    Mrs. KELLY. Thank you very much. My time is up.

    We will go now to Mr. Frank.

    Mr. FRANK. Picking up from there, I was here when we did the HOME program. Henry Gonzalez was a major figure then, and it was not intended to be a production program. For one thing, as Ms. Thompson just said, it is kind of an entitlement divided up among a lot of municipalities, which means that no one is going to have that large amount of money, and remember you also are talking here about annual amounts.

    You don't build a project, you don't get a loan from a bank. Once you get any bank that lent too much on this annually, I think they would be in trouble.

    So it is a valuable program, but it was not meant to be a production program.

    There is one point that has come out of this today that is very important. And I hope, and I will be approaching Mrs. Roukema, Mr. Oxley. One of the things that both parties have been guilty of has been to allow a jurisdictional rift to keep the Low Income Housing Tax Credit program too separate from the housing programs. And they ought to be made more fully and more easily interoperative.

    And it is true that people have used the HOME program, but I am hoping that we will be able to sit down with a kind of a joint effort. You know, in the hopes that we might be in power, I had been talking to Mr. Rangel about that, and the fact that the party didn't change doesn't mean that we can't work that out, so that is something we have to do.
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    The next point I want to make, though, is that, and I think this is very clear. I am pleased to have, in the two panels that have been speaking in favor of a housing production program in part, a number of people in the business community, people from the Home Builders.

    We have statements from the realtors, we have the mortgage bankers. Because one argument has been, well, Government can't do housing right.

    And I think it is time for us to confront an inaccurate, cultural lag. It is true that when we decided, particularly in the post-World War II period, as a society, to house poor people cheaply, we built uninhabitable buildings called ''public housing.''

    The poor never asked to live in Columbia Point, or Cabrini Greene. They never thought it was a great idea to put about 800 of them into a small, crowded space with no facilities. We did that because we didn't understand fully the sociology, and so forth.

    We have learned from that. The time has come for people to stop citing these acknowledged failures, which we have learned how to avoid, as an excuse not to go forward with a mix of public and private sector flexible programs. We have learned that.

    There are few areas in American Government, in my experience, in American society, where actual on-the-ground cooperation among Federal, State, local, private sector people has worked so well.

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    The Low Income Housing Tax Credit program, Assisted Housing, there are wonderful examples of this.

    Now, again, we have in people's minds old public housing projects being demolished, but people are not fully aware of this. So I think we are at the point now where we have the need.

    And I appreciated Ms. Nelson's acknowledging that, yes, the real crisis was with the extremely-low-income people. But in various parts of the country, as the mayor has pointed out, for the very-low and the low-income people, there are also crises.

    Somebody mentioned well, you know, yesterday's housing is available for the poor people. Unfortunately, other people are living in them.

    Well, eviction is not likely to be one of our programmatic tools here. And it is important for a city not simply to have extremely-low-income people; yes, we want to have the low-income people and the extremely-low-income people better housed. We have learned that we do them no favor if we exclusively build for them alone and segregate them.

    So we want a range of buildings. We are not going to build luxury housing. We have the need, we have the resources in this wealthiest society in the history of the world, and I believe this is what some people have misunderstood.

    We have, in fact, the knowledge, we have the experience. You give the resources and—one of the things, I was talking to Congressman Green when he was here, one of the things we probably ought to do is to recognize the regional differences in this country, and create Federal housing programs with increased resources that give some flexibility.
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    There may be areas where they want to do all vouchers. There may be areas where they want more public housing. There may be areas where they want to emphasize affordable housing which is going to be a mix with public and private.

    I think what we need to do is, one, increase the resources so we don't have people resisting any flexibility because it is coming out of their hides; we don't want to have a zero sum game. And then give each municipality, each region of the country in which people have learned to work together, the flexibility.

    I think, again, we have the need, we have the resources, and we have the knowledge. The only question is whether we have the political will, and that is what we will have to determine.

    Let me just say, lastly, with regard to the FHA, I hope we will move quickly on the bill that Chairwoman Roukema and I have introduced. She took the lead to increase the multi-family limits, but at the same time as part of the way of dealing with the shutdown, we have an FHA fund that is in very good shape financially.

    We had a hearing in which the Congressional Budget Office and OMB and everybody else came and said, GAO, every alphabet agency you can think of that is in charge of fiscal stability, came in and said it is in very good shape. It is inconceivable that we would have an economic downturn so severe as to endanger that fund.

    Therefore, and, in fact, every other assumption we are making in the U.S. Government today goes directly counter to the view that there would be an economic downturn of that magnitude.
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    So the time has come to give more flexibility to the FHA as well, so they can use the increased revenues, the solid surplus in some areas, to help in other areas. There is no need for shutdown and there is no need for fee increase. Within the FHA's pot of money, totally, fiscally, responsibly, they can rearrange things, and we will be pushing for that as an amendment giving them the authority to do that as part of this FHA Multi-Family Increase.

    Thank you, Madam Chairwoman.

    Mrs. KELLY. Thank you, Mr. Frank.

    Next we go to Mr. Watt.

    Mr. WATT. Thank you, Madam Chairwoman.

    Every once in a while, one of my colleagues will ask a question and I will be tempted to raise my hand to answer it, and then somebody will answer the question.

    And I want to start by thanking Ms. Thompson for answering the Chairlady's question.

    It is absolutely apparent to me that we do not solve a problem in this body by authorizing legislation to solve it. If we don't put some appropriations behind the authorization, then we can't expect, at the end of a 10-year cycle, to say ''Well, what is the problem? Didn't we solve this problem by authorizing the HOME program?''
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    And I just want to resonate the answer one more time. Yes, the HOME program was a good program to authorize, but if we had not appropriated a dime to implement the HOME program, none of the results that we have gotten out of HOME would have ever been achieved.

    And if we had appropriated what we should have appropriated, then maybe we wouldn't have a housing problem now, or at least we would be a lot further down the road.

    Now I take it the same is true for the McKinney-Vento Act. It is an authorized piece of legislation.

    Have we ever appropriated enough money to solve the problem that it was designed to—maybe we should go one-by-one on these programs, and finally maybe somebody will get the message that it is not about not having programs out there; it is about not having money out there.

    And Representative Frank said, we have got the resources. Well, we do have the resources if we appropriate them. That is where the political will that he was talking about comes in. What do we use the resources for.

    So maybe I should ask the question: How much more money do we need in the HOME program appropriated for the HOME program for it to really fulfill its mission?

    Maybe Ms. Thompson can help me on that.

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    Ms. THOMPSON. Well, I think we certainly need much more money in HOME. In fact, our organization is advocating $2.25 billion for fiscal year 2002. And that is not nearly enough to meet the need.

    Mr. WATT. And how does that compare with the what the President's budget?

    Ms. THOMPSON. The President has proposed level funding; we would argue the Administration has actually proposed a cut in the HOME formula grants to State and local governments by virtue of the fact that it proposes a set-aside of $200 million within HOME for a special downpayment assistance program.

    So we feel that is actually a reduction in funding from the current year funding of $1.8 billion. But I do——

    Mr. WATT. So, if I hear you correctly then, even if you treated this $400 million or $200 million as appropriately in HOME, then we would still be $400 million, $500 million short of what you think——

    Ms. THOMPSON. What we think ought to be achievable?

    Mr. WATT. Ought to be achievable.

    Ms. THOMPSON. And that isn't what is needed.

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    Mr. WATT. And that is not what's needed.

    Ms. THOMPSON. What is needed is more.

    But I do want to point out, I think this is really important, and I didn't mention in my earlier remarks, that the HOME program also is for single family housing.

    I agree with Mr. Frank, it was never really designed to be a rental production program. Forty percent of the money goes to single family housing.

    Mr. WATT. Well, you anticipated my next question. How much are we short on the other programs that we need to really address the housing shortage, affordable housing shortage in this country?

    Ms. THOMPSON. Billions of dollars short.

    Mr. WATT. And what are the programs? I mean, what is your funding level that we ought to be striving for for some of the other programs?

    Ms. THOMPSON. We believe what is needed is a new program, Congressman. That doesn't mean that the existing programs aren't playing a useful role. But we think it is very important that we take the experience we have under the Low Income Housing Tax Credit and build off of that program, which has caused the private sector to get involved in the production of affordable housing.

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    It works well, it gives the kind of regional and State flexibility that Mr. Frank mentioned is important. The only thing that is missing is extra resources to be coupled with it to reach lower incomes to the extent we need to. And maybe we need to look at the question of 60 to 80, as well.

    Mr. WATT. How much extra resources are we talking about? I am trying to give the Chairlady a picture of what——

    Ms. THOMPSON. We are looking for a block grant to States probably of several billion dollars in size.

    Mrs. KELLY. I am extending you a little extra time.

    Mr. WATT. Say that again?

    Ms. THOMPSON. A block grant to States of several billion dollars in size. I think we need to change the conversation about money.

    Mr. WATT. Is any of that in the President's budget?

    Ms. THOMPSON. Is it anywhere in the President's budget.

    Mr. WATT. Any of that in the President's budget?

    Ms. THOMPSON. No, it is not.
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    Mr. WATT. All right, I yield back. I rest my case.

    Mrs. KELLY. Thank you, Mr. Watt.

    Next we go to Ms. Carson.

    Ms. CARSON. Thank you very much, Madam Chairwoman. I have heard a lot of the testimony because I have been out here meeting with constituents and all that, we are doing both.

    But I was particularly interested in hearing the Mayor's comments about the impact of rising housing costs on a community such as yours.

    Would you kind of give me your spin on that, and the impact it has had on your community?

    Mr. MENINO. Let me give you an example of what the rising housing costs are doing in our society. I met a couple out in one of the neighborhoods of the city just recently. A year ago, they were paying $750 a month rent. Today, they are paying $1,500 a month rent.

    The taxes in the City of Boston haven't gone up, the water and sewer bills haven't gone up, it is just the landlord is looking to make as much as he can out of that housing unit because you have a housing crisis. Housing is at a premium. We are not producing any housing when it comes to affordability.
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    We did 1,000 units in our city last year. That is outstanding for any city in the country. But we need the Federal, we need the help. We need help and the U.S. Conference of Mayors, of which I am the Chairman of the Advisory Board, recommends on the HOME program $2 billion for HOME and $2 billion for new housing production.

    Congressman Watt asked that question, so the U.S. Conference of Mayors is on record for $4 billion.

    But how do we do it? Why do we have this problem? We have, you know, cities are hard commodities. Everyone's come back to cities. And we just don't have the resources.

    And public housing, public housing developments are places where people could be proud to live in, if we continue do what we do with the HOPE VI program. We have two HOPE VIs in the City of Boston and people are proud to live there. We give them a back door and a front door.

    We give them, you know, something that they can be proud of. We are going to continue to do that. What is happening now is we are putting all kinds of resources together. I am putting $30 million of surplus disposition funds, which the city has never done in its history, to provide for affordability.

    We are selling off land in the City, you know, giving it away for the most part to get development. But still the HOME funds we just talked about as part of the about $50 to $1,000 per unit helps us cut down the cost, and we have to go to the State and get tax credits.
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    What we need is a comprehensive plan. We need help. We do have a housing crisis. We don't need it 5 years from now. We need it now. We desperately need it.

    You know, cities can't be just the rich and the poor. There also has to be the middle class. And, you know, we are driving them out. Besides housing, there are other issues out there, but we have to continue to work hard and try to produce housing in our city; it is not easy, but obviously we have made it a priority, and we are doing it slow but sure, but we don't have the subsidies that the Federal Government could supply us if they really cared about housing.

    Mrs. KELLY. Thank you very much, Ms. Carson.

    We now go to Mr. Capuano.

    Mr. CAPUANO. I guess I am going to pretty much stick to the same tack as I had in the last.

    I guess I would like to see, by a show of hands, those of you who think it is a really good idea to cut $700 million out of the capital improvement program for public housing?

    Or $70 million out of the drug elimination grant?

    Or $25 million out of the rural housing production program?
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    Or basically, I agree with you, Ms. Thompson, that it is a de facto cut. I don't buy earmarks or carve outs, as they are called here.

    On the HOME program, do you think there is anywhere near enough money in any of the HUD budgets to address any of the real needs we have expressed here today?

    Mrs. KELLY. Will the gentleman yield?

    Mr. CAPUANO. Sure.

    Mrs. KELLY. Let the record reflect the fact that no one has raised their hands.

    Mr. CAPUANO. Thank you, Madam Chairwoman.

    I guess the other question I do want to ask, especially since we have two people from business, we do have significant tax cuts before the Congress at the moment, and there are some people that think that somehow there is going to be an economic stimulus, and I am not one of them, but that is beside the point. I mean, I understand tax cuts are fine on some levels.

    But on these issues, is there anything in the current tax proposals that are before us that you think will help housing production, changes in marginal rates or changes in the estate tax?

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    VOICE. The answer from our point of view is no.

    Mr. CAPUANO. Thank you.

    VOICE. If the President has a proposal for a new, single family housing credit program, we support that. But it is not in the bills that are moving forward, and we doubt it will be in the 1.35 package that is ultimately passed by the Congress.

    We urge you, though, to help us get the Congress to include this bill I mentioned earlier, because if they are going to do a big tax bill, we hope it could contain something for housing, such as H.R. 951 to fix the impediments in the Low Income Housing Tax Credit Program and the Bond Program, so we get full use of those cap increases you gave us last year is very important.

    Mr. CAPUANO. Many of us are going to try.

    Mr. COURSON. And the mortgage bankers would support that. We certainly support H.R. 951.

    VOICE. That is terrific, thank you.

    Mr. NIELSEN. The other thing, as I mentioned in my testimony, and we realize that this subcommittee can't do a whole lot about it, but you as individual Congressmen certainly can and that is the TAM issue which could cripple the Low Income Housing Tax Credit program, so it is extremely important to us that that get fixed too.
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    Mr. CAPUANO. I guess what my whole questioning is going toward is really one of the members of the earlier panel said something about there aren't enough resources, and I believe you. Ms. Thompson, said something about a resources crisis.

    I totally disagree with that. It is not a resources crisis, it is a priorities crisis. And I will be honest that it is a priority crisis. It is not just in the people who run the Congress and the White House today. It is not just the Republican Party. It is the Democratic Party as well.

    As you will see if you take a look at any of our national statements, as far as a party goes, housing is not mentioned. Housing is not mentioned. It doesn't seem to show up on the political radar screen.

    And I guess for me, that is the most difficult thing I have had down here. It is not so much finding people that agree with me, but people who are willing to stand up and put it as a priority and an important issue.

    I happen to think that housing is probably one of the most important things America can do is to help people get into homeownership and those who can't afford it to at least give them reasonable decent shelter.

    And I guess I know you are here asking for help and I know I will do as much as we can; I think most people here today will. But at the same time, I am also asking for your help as well.
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    Testifying in front of this subcommittee is great, and I appreciate you coming today, but it is not enough. You know, we need you to spread the word in Nevada and to spread the word in other places across this country to people to understand that this is not an urban problem, this is a national problem, and that the Federal Government has an appropriate role to play and that we are not doing it now.

    And with that, I know the Mayor wanted to have something else to say.

    Mr. MENINO. Congressman Capuano, the drug elimination money has gone a long way in public housing over the last several years, and to remove that money just makes us go backward in public housing.

    I don't know why we want to go backward. It doesn't make a lot of sense to me. But to eliminate these funds, you know, it makes good headlines, but it doesn't do anything for the human development issue that we all care about as elected officials.

    We have got to get back to human development, and let us not talk about cut, cut, cut, because I see the progress we have made in public housing over the last several years. And to take the drug elimination money out of public housing will not do any good to anyone; it will just let those public housing tenants be treated as second class citizens once again.

    Mr. COURSON. Congressman, if I may, the other is, and I talked a little bit about credit subsidy in my testimony, and if, in fact, and we at MBA are working with OMB, if, in fact, you look at credit subsidy in the dollars of those programs that are profitable, and those programs that do need subsidy, and look at those as an insurance fund, as we would in business, you don't need an appropriation.
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    So there is an area where Congress is appropriating where frankly we don't believe they need to appropriate, because the sharing of risk, if you will, which is what FHA is, an insurance fund, doesn't need that appropriation. So there are dollars appropriated that aren't necessary.

    Mr. CAPUANO. I agree. Thank you very much.

    Mrs. KELLY. Thank you very much, Mr. Capuano.

    We go now to Ms. Waters.

    Ms. WATERS. Thank you very much.

    I really don't have any questions. And I am sorry I was not here to hear the first panel. I would like to thank Congresswoman Roukema for holding this hearing, and this is what I would expect Barney Frank to do, and I thank you, Mrs. Kelly, for chairing this hearing today.

    I mean, I think you are very courageous. I think the Republicans are very courageous because you are doing it in the face of the budget cuts that are in the budget.

    I mean, I don't know what else I can say about how outrageous it is to cut the drug elimination program in housing projects. It just speaks for itself.

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    I don't know what to say about the reduction in Section 8 subsidies. I mean, it just speaks for itself. We know what we need to do.

    Again, I thank you, because just by holding the hearing, you highlighted and it points us in a direction, and I think it sends a signal that some of you are willing to do something about it. I just hope you can convince a few other people.

    We got it over here, we know. We understand what must be done. I am one of the spenders. I want to spend some money on poor people and housing and a better quality of life for people, and I just hope that the housing crisis is understood so that we can reverse some of the potential damage of this budget.

    So I thank the panelists for being here today, and again I thank my colleagues on the other side of the aisle for holding this hearing. All it takes is, you know, a little will and some money, and we can get it done.

    I yield back the balance of my time.

    Mrs. KELLY. Thank you, Ms. Waters.

    We all know, we all know this is not a partisan thing. We know what it takes to create good communities in this Nation. We need good housing, we need good schools, and we need good community support in various ways with regard to jobs and so forth, and safe streets.

    You put those things together, those four things, and we have wonderful communities, and it is not about politics. It is about good public policy and I think it is one of the saddest things to witness here today that Ms. Waters feels that this is a remarkable hearing, because this is remarkable in one sense. We are finally trying to get our arms around a tough problem.
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    So thanks for your kind words.

    Next we go to Mr. Sanders.

    Mr. SANDERS. Thank you, Madam Chairwoman.

    I would not one hundred percent agree with your previous statement in that I think this issue is one hundred percent about politics and it is about national priorities.

    And I appreciate very much you and Mrs. Roukema holding this hearing and for highlighting the crisis in affordable housing.

    But as I think everybody who has spoken has indicated, that one of the ways we address this crisis is to put money into housing. We could talk theory all that we want, but by definition, affordable housing is going to need Government help.

    And where the politics unfortunately comes in is, as a Nation, we have got to decide whether we provide hundreds of billions of dollars in tax breaks to the wealthiest one percent while cutting back on affordable housing programs.

    That is politics, that is national priorities.

    What saddens me very much in the national discussion on housing is that the people who are most in need of affordable housing are very often the last people who will come to Washington to attend $100,000-a-plate fundraisers.
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    In fact, in many instances, these are the people that don't even vote. And I think in Washington, these are people who are seen as easy targets. We can cut back, because who cares about those people; they don't vote, they don't contribute to political parties.

    I think it is a national disgrace that millions of people are being asked to pay 40 or 50 percent, and in some cases, more per month for their housing. It means that they don't have money left over to take care of other basic necessities.

    I think it is absolutely right for the United States Government to say that every person in this country is entitled to decent, safe, and affordable housing, and I would hope that you will join with us to fight for national priorities that say that it is outrageous that we give tax breaks to billionaires, and at the same time, cut back on affordable housing.

    So I want to thank the panelists for their excellent testimony without exception, and look forward to working with you so that the day will come, sooner or later, when everybody in this country lives in the kind of housing that they are entitled to and that especially our children have safe and affordable housing.

    Thank you very much.

    Mrs. KELLY. Thank you very much, Mr. Sanders.

    No doubt you have written statements, and without objection, your written statements will be made part of the record.
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    As the Chair notes, some Members may have additional questions for this panel, and they may wish to submit them in writing, so without objection, the hearing record is going to remain open for 30 days for Members to submit written questions to the witnesses and to place their responses in the record.

    I thank you very much.

    This hearing is adjourned.

    [Whereupon, at 12:35 p.m., the hearing was adjourned.]

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