The Big City's Big Problem

MIDDLE-INCOME HOUSING

THE middle-income city dweller A is a forgotten man. His income, $6,000 to $9,000 a year in New York and other big cities, is high enough to bar him from public housing but too low for luxury apartments. High-rental apartments continue to rise, and low-income projects spread by the acre, but building for the urban middle-income group has stopped almost entirely. Such families are often forced to settle for poor housing or pay rents --way above 25% of income--which they cannot afford. Said the Senate Committee on Banking: "Housing available or in prospect for families in the middle-income group is wholly inadequate."

The shortage is not only a worry for the middle-income family but a grave problem for such cities as New York, Chicago, Kansas City, San Francisco. Urban redevelopment programs are in danger of collapsing unless better middle-income housing is developed. City planners realize that they cannot go on building low-income projects, which do not carry their part of the tax load, without balancing them with middle-income accommodations, which do. One reason for the flight to the suburbs--with its attrition of city revenues and business--is that families find it easier, once they have a down payment, to pay for a house than for a high-priced city apartment.

In Chicago, where about 40% of the population falls in the middle-income bracket, there has been little rental housing construction for this group since the '20s. In Manhattan, says one real-estate man, the situation is "impossible." Bostonians can almost count on their fingers the apartment houses for middle-income families going up in their city. Apartment construction for middle-income dwellers in Philadelphia is at a virtual standstill. The National Association of Home Builders insists that the national need for such housing is so acute that it "could reach emergency proportions."

Few middle-income apartment houses are being built because operators and builders no longer find such structures attractive investments. City land is expensive, and an office building or luxury apartment offers better returns. Today's investor in a middle-income apartment building often clears only 4% after taxes, no more than he could make on a high-grade bond. When a builder does start out to construct a middle-income building, climbing costs of labor and materials often force him to end up charging monthly rentals beyond the reach of the middle-income family--up to $100 a room.

One of the biggest blocks to more middle-income housing is the attitude of the Federal Housing Administration. In the early postwar years, under FHA's Section 608, builders could put up middle-income housing with FHA help without tying up a large amount of capital. But in 1954 a spate of scandals broke about .builders who made windfall profits under 608. In its zeal to tighten up, the FHA overdid things. Even though the windfall profiteers were only a handful among thousands of honest builders, FHA now suspiciously administers its new 207 program, sets extremely rigid standards, digs through construction figures long after it has approved--threatens builders with future disapproval if they balk at making changes. Result: many builders feel so harassed that they no longer put up the middle-income housing they could build profitably with FHA's aid.

Few builders have any faith in more legislation as a source of relief: a bill to grant builders Government loans at low interest rates has repeatedly failed to pass, and President Eisenhower vetoed a bill to grant real-estate investment trusts the same exemptions from corporation taxes now granted securities investment trusts. Some cities have taken matters into their own hands; New York City is working on twelve middle-income projects (about $21 a room) with rents lower than private buildings because of lower financing costs, partial tax exemptions and nonprofit operation. It also grants private builders tax exemptions and loans of up to 90% of a project's cost.

Using this program, New York City Builder S. J. Lefrak is putting up a cooperative development in Brooklyn's Sheepshead Bay district with a monthly carrying charge averaging $21 a room. When Lefrak's office opened to receive applications, his staff was greeted by 600 people who had stayed in line through the night; in one day he leased 3,800 apartments.

Most real-estate men feel that the shortage of middle-income housing is a long-range problem for which there is no quick or easy solution. But one practical step in the right direction is recommended by the National Association of Home Builders. The FHA, says the association, should look at the scandals of 1954 in proper perspective, relax its rules and harassments to encourage more middle-income housing, thus make FHA's present program work more effectively.

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