 Ladies and gentlemen, the President of the United States. Well, we understand you've been visiting a nearby housing subdivision, and we're very interested to hear your reactions to it, but we thought before that you might like to know what we've been talking about here. The map in front of us, the topographical map, is a new town in this area about 25 minutes from here called Las Calinas. And it has commercial buildings, as you can see, and ultimately will house 50 to 60,000 people. It's being developed by the Southland Financial Corporation. Many of the biggest home builders in the country have bought pieces of land and are building their own developments there. We're in Dallas for the roundtable because Dallas is the number one city in the country for housing starts, and Las Calinas is one of the best examples in the country of new home-building development. Well, that's remarkable. I don't suppose where I was was part of that. I don't think you were at this development, but it is in this area. The other thing I thought I'd tell you before asking for your response to the trip that you took this morning, the panel, and I know rather than take the time to introduce them all, I know you've seen the list and you know that we have representatives here and the home builders and the realtors and the Savings and Loan League. We have some major publicly held builder home-building companies. We have building product manufacturers. And before you came, we went around and introduced ourselves and talked about how business was. And the consensus was that business right now is good. 11 of the 12 people on the panel mentioned concerns about interest rates. I can't understand why. Well, I know too that I'm going to have an opportunity later to greet each one of you, so that's why I didn't take time here in the beginning. It was most interesting and enjoyable, the project that I just built and the fine homes that are being built there. And I had an opportunity to tell them a little bit about, in my boyhood, having a job with a unit that was building, but it was a little different than we didn't have the machinery and the skip loaders and things weren't around. You did it with a pick and shovel. But you also weren't limited to just one type of work, as I explained to them before the projects were over, why I would end up laying hardwood floor and shingling roofs and even painting and so forth. But today, the improvement in tools and productivity and all, although if you see a slowdown in the Dallas area, because I slowed it down by being there, everyone stopped work. But that happens in government too. I don't even have to be around. But it's certainly a pleasure for me to get out of Washington and to be with all of you today. It helps to get a fresh perspective. If you stay in Washington too long, the world begins to look like the Twilight Zone. I have, as I say, just come from that site in Grand Prairie and I'm interested with what I saw and the people I met. Far too many in our nation's capital have come to believe that progress is the result of passing laws and regulations. But I think this group knows better than most that that isn't so. It's opportunities for hard work and risk taking by people like yourselves that keep this country building and growing. And more often than not, you're doing it in spite of the roadblocks put in your way by government. For the last three years, we've been busy trying to remove roadblocks and create a stable economic environment in which enterprise can flourish. Irresponsible taxing and spending policies in the years prior to this administration gave us double-digit inflation and economic stagnation. You saw firsthand the failure of the liberal tax spend and inflate policies. Your industry had its legs knocked out from under it by ruinous inflation and killer interest rates. It takes time to put a program in place and it takes time for it to start working and working its magic throughout the economy. But I think even the skeptics are admitting that our reforms are working. The American economy as a whole and your industry in particular are coming back strong. Overall economic growth last year was a robust 6%. And the first quarter growth this year suggests the recovery is going to continue at a healthy rate. But I'm also encouraged by the fact, and this may sound strange, that figures that were released this morning, the Commerce Department, suggest that there is some slowing of that first quarter growth. And I think that's fine because I think it indicates that this is a sustainable expansion, not just a quick fix or a splurge. And when our program was put in place in the fall of 81, housing starts were at an annual rate of 840,000 annual. Now they've jumped to almost 2.2 million. That's the highest rate in six years. Building permits which were only 730,000 in the fall of 81 have risen to nearly 2 million. And that's a 166% increase. In February, 721,000 new homes were sold as compared to 338,000 in September of 81. And that makes a 113% increase. But the strength surging through your industry and the rest of our economy is no accident and is not a reflection of some uncontrollable cycle. They used to try to explain inflation away like a plague of locusts that we didn't know where it came from and it just was there. But when the last administration took over, inflation was running at 5% and the prime interest rate, and it hurts to say this, was 7%. And after just four years, we were left with double digit inflation, 21.5% prime interest rates and a spiraling mortgage rates, of course. The average monthly mortgage payment rose from $256 to $598. And that $342 a month increase in the cost of buying a home made all the difference, as you all well know. Since our economic recovery program took effect, the decline in mortgage rates from a peak of about 18, down to 13.5%, translates into a typical savings of $225 in the monthly payment for families that are now buying homes. Inflation has been reduced by around 2 thirds. Home ownership is an essential part, as I told these people out there today, of the American dream. It strengthens the family, it's fundamental to our way of life. And we want to build an opportunity society where more and more families from all walks of life can afford to buy their own homes. But you know, one of the strangest things to me has been listening to people suggest that we should be frightened because the economy is growing too fast, that too many people are finding jobs and this will push up interest rates. Well, no one will ever convince me that economic growth is bad for us. I think it's good for everybody, especially the home-building industry. I believe there are three keys to bringing interest rates down further and keeping them down. First, real and lasting spending restraint by the Congress. Second, an overhaul of our tax system to make taxes more simple, more fair, and to provide greater incentives for growth. And third, confidence that the Federal Reserve Board will provide sufficient liquidity to finance economic growth while maintaining long-term price stability. The progress that we've made can't be taken for granted. We can't go back to the same taxing and spending patterns of the last decade and expect that we will not also fall into the pit of recession, inflation, and stagnation from which we're now just emerging. How we come to grips with the Federal deficit will set the tone. We can try to balance up by increasing taxes, including economic growth and investment. Or we can try to balance down with lower spending and tax rates permitting our economy to break free. Now let me interject here that when I talk about simplifying taxes, I don't want to go the root of the form that I saw the other day that someone sent in as a sample of simplified taxes. It only had two lines on it. Top line said, how much did you make? And the second line said, send it. But we've heard considerable talk about crowding out, about government borrowing too much of the funds in the private credit markets. Well, that is indeed a threat and one of which you are keenly aware. Yet even with all the attention that's focused on this issue, not one of the advocates of raising taxes has ever answered a challenge that I have issued. I've made it over and over again. Explain why taxing the money out of the private system will not eliminate money from the private credit market every bit as much as if the federal government borrows it. The same amount of money is going to be taken whether the government takes it in taxes or the government borrows to fund the present activities of government. The problem is, government is taking too big a share from the private sector and we're not going to answer our economic problems until we harness government and bring it back down to within a reasonable percentage of the gross national product. The answer to the indefinite, as I say, is not raising taxes and pushing us back into recession. Nor is the answer to Sabotage the Defense Rebuilding Program we've begun and which is so long overdue. The answer is economic growth and a responsible program to control federal spending. We've made a proposal, as you know, for a down payment on the deficit that would be a good first step and yesterday the Finance Committee and the Senate passed that. In 1982 an agreement was made with me and I'm remembering this to this day that the Congress would provide $3 in savings for every additional dollar of revenue that we would agree to. Well it was against my grain but I went along with a tax reform package that was designed to raise about $100 billion over three years thinking that there would be a $300 billion cut in spending. Well I haven't seen any serious effort to cut spending, in fact there are even proposals to increase spending in certain areas. So there's a great deal of politicking going on about the deficit. The people are going to have to judge for themselves who's serious about the problem. I'm willing to do my part but I will not simply give in to those who would take us back into recession and or play fast and loose with the security of our country. You can expect some progress in the areas where the executive branch can act on its own. The Grace Commission provided us with a great number of suggestions for the departments and agencies right now. But for tangible progress to be made we need commitment from the Congress which until now has not been forthcoming. I'm not pessimistic about the deficit or any of the challenges we face and I was only joking when at the gridiron the other night I said I wouldn't worry about it because it's big enough to take care of itself. That was a joke. But already the deficit has been coming down from the economic growth throughout the country. And I also think that the members of Congress who are out seeking votes for finding that their constituents are concerned about the deficit but at the same time opposed to raising taxes. The members of Congress don't have to see the light. We just have to make them feel the heat. And I've gone on long enough so I think I'll hear more from what's on your mind and what you have planned here. Thank you Mr. President. I have short three-minute presentations for you from the leadership of the National Association of Home Builders, the National Association Realtors and the U.S. League of Savings. So if it's all right with you I'll introduce the first of those three speakers who is Dave Smith who will be the president of the NIHB in 1986. Mr. President we thank you for this opportunity to brief you this morning on the housing industry and the current market conditions. To our board of directors last May home builders are leading the recovery by the sweat of their brow and the strength of their nerve. That is still true today. Last year we built about 1.7 million housing units an increase of 60% from the previous year. This year we expect to start 1.8 million units. During February new homes were being started at an annual rate of 2.2 million and new homes are selling at their fastest pace for the next 30 years. Looking back this recovery represents a major time for your administration. You put America back on its feet. You put Americans back to work. You looked inflation and helped create an economic climate in which it was possible for small builders like myself to build affordable housing for young people just starting families and careers. But the recovery Mr. President has reached a critical turning point. Looking ahead and beyond today's robust economic news there's a great deal of uncertainty in the marketplace. This uncertainty has been expressed by the typical member of our association who constructs fewer than 20 houses per year. Builders are the ones out in front of this economic recovery. They're the ones that are taking the risk. Builders are the ones who live and die with the ups and downs and interest rates. And interest rates Mr. President are rising. That has the builders worried when mortgage rates were in the 13% range a few months ago we had a strong market. Now mortgage rates are approaching 14% and still rising. That's too high for millions of potential home buyers. Unless this upward trend and interest rates is reversed it is only a matter of time before home sales drop. New construction declines and unemployment rises. Can another economic crisis touched off by rising interest rates be avoided? The answer is yes. But to do so requires your bold demonstrated decisive leadership. It requires immediate action on the federal budget that would cut the deficit in the neighborhood of 150 to 200 billion over the next three fiscal years. Builders view the deficit as a single greatest threat to the nation's economic recovery. Deficits keep interest rates high. Deficits are inflationary. Deficits compete with investments. Deficits reduce our ability to compete in the world market. And deficits threaten to upset the current economic recovery. Mr. President, the time is running out. The bipartisan program now in Congress appears to be our last chance of cutting the deficit during this election year. We appreciate your work on the bipartisan effort. And we hope you will continue to take a leadership in this deficit reduction program. By using your office to negotiate a consensus on the budget, you will be sending a powerful message throughout this land. Interest rates would decline or at least settle down. Confidence would be restored. The American dream of owning a home would be preserved. And the economic recovery we worked off the ground would be sustained. We certainly appreciate you being with us today, Mr. President. Do you want to respond, or shall I ask the next man to... Well, whichever is suitable here. I would like to comment this with regard to the interest rates and what you just said here with regard to the connection to the deficit. I hope I've made clear deficits are something we shouldn't have had them for the last 50 years as a part of our regular policy regarding them. But I think that there are other two other reasons for the interest rates right now. And one of them in one way is a sign of the progress that we've made. The other one is a pessimism that because of the past experiences going back to the time of the Second World War, the seven previous recessions, that the market isn't quite convinced that it's going to stay down where it is. And so they're protecting themselves before they lend that money out. For fear it'll go back up. That's one. The thing that is born out of the encouragement is that, yes, this last flurry of a little bit of climbing interest rates, I think is more due to the fact that the robust economy saw a great upsurge. We've gone from to 12 something percent, over about 5% of business investment in new plant and equipment and so forth. And at the same time the great upsurge in consumer buying. Now that's the thing that as of this morning we find there's been some slow down in that, particularly in those areas that are tied to interest rates such as appliances, the durable goods and automobiles. And there we've just run in temporarily, I'm sure, to supply and demand. There's more market for the money out there than there is money. I believe that we're going to see before long that beginning to come down. Now if I couldn't respectfully suggest that with no retreat from going after the deficits I think that there it's more that they contribute to the pessimism of the people in the marketplace that would account for the interest rates than having any direct tie. Because let me point one significant thing. When we started and the interest rates were coming down from that 21.5 down to that 11% prime in that same period our deficit was doubling. So obviously with the interest rates coming down at the same time that the deficit was going up indicates that there isn't that tie and the same thing is true for foreign countries. If we look at our deficits on a basis of percentage of gross national product we find that this great growth in them in the number of dollars is not as severe that there are other countries among our industrial allies out there that have the same percentage of deficit in their gross national product but they don't have the high interest rates we have. But you are right that it is a problem in solving it I think we can restore the confidence of the market and I am going to say that I believe that before the warm weather left us I think we are going to see some settling down with the interest rates. Now I will call on Jack Carlson Mr. President who is representing the National Association of Realtors. Mr. President we appreciate your proclamation of this being Private Property Week and we appreciate all of you members of the National Association of Realtors across the country are joining together with 60 million families that own their own home to celebrate private property in this country and home ownership is of course the most important part of private property. Mr. President we are concerned about the deficit and we agree with you the primary cause of a high deficit is inflationary expectations and we have to move that out of the marketplace. To lower our interest rates on the back end we will have already taken taxes away from investment if the tax is paid on investment so we will not have any gain at all by bringing down the deficit by taxing investment. That is why we are particularly concerned not with what happened in the house as you indicated past yesterday but also what is happening in the Senate Finance Committee they want to erase away your accelerated cost recovery program going from 15 to 20 years to 20 years and this would be primarily for rental housing and the impact upon it when it is fully effective will mean rent increases for those in rental housing $25 a month and as you know that affects the safety net that is a lower income part of the market and we would hope that you would not favor the increase of the depreciation life or the accelerated cost recovery period going from 15 to 20 years because that is a huge increase also end up with about 30% of rental housing units that we would otherwise have in this country. Second point there has been rumors as there always will be about your suggestion of a study to be made a report to be made to you in December as to what an overall tax reform and simplification program might be. There are rumors that are starting to abound and some of them deal with some of your assistance who I am sure are not reflecting your viewpoint but nonetheless cause some concern that the depreciation on home ownership is being considered such as doing away with interest deductibility on home mortgages while allowing deductibility of interest on all the other kinds of investments. That would increase taxes on the average homeowner in their 60 million households who are homeowners in this country two-thirds of Americans that would increase it by $2500 a very large increase if it was totally removed or a smaller amount if it was eliminated on a small basis with concern because since 1980 the home ownership rate has gone down and we've washed away half the gain that we got in the 1970s already during the 1980s and clearly as you have indicated in your proclamation on private property week and also right here that we want to move in the opposite direction because of the fundamental values that home ownership has. I would hope that you would disavow any effort to increase taxation on rental units in this country. And our third prepared speaker is Paul Pryor who represents the national chairman of the U.S. League of Savings. Mr. Pryor is on the other end of their hand. Mr. President I thank you for giving me opportunity once again to talk with you personally as you have three previous times and to discuss with you concerns of our savings institutions in the country. Savings and loan associations and savings banks are the main sources of financing of all this activity the real estate sales and new home building that we're talking about this morning. We have been in that position of market dominance in the past and despite some of what has been written and said in recent years some of which was just said on my starboard side before you got here this morning we remain the primary mortgage lending source today. In 1983 we had an all-time record lending year in our institutions $137 billion in mortgage loans by savings institutions. What made this volume possible is the increasing acceptance of the adjustable rate mortgage 60 to 75% of our lending was represented by this flexible interest the financial institutions industry has also just gone through the very gratifying experience of more than recapturing the deposit base that we had lost to the money market funds and that has helped to make the strong housing recovery possible but we're concerned about what lies just ahead and what you said a minute ago is most encouraging. The fear that looms in people's minds today is are we going to be hit again with higher and higher interest rates and underlying that will Washington be able to get these huge deficits under control. I manage a small financial institution in the corn fields of Indiana and I talk to men and women every day when I'm in my office who wonder whether they'll ever be able to afford a house with the interest rates as high as they are and seeming to be headed even higher. The US League two days ago released a survey showing home buying patterns last year and the good news is that more first time buyers got into the home buying market than ever before and home prices were not spiraling upward as they had been in fact to the surprise of many people home prices were actually lower our study showed in 1983 than in 1981 that is median prices but we should not be misled by the recent strong showing of housing markets because the fear of inflation and high interest rates is decidedly back in people's minds. Some of us here and our customers have been through a couple of very difficult years with high interest rates and just as you have pointed out to us Mr. President and as you have said many times that a nonpartisan approach will in fact get something done. We are not concerned with who gets the credit for bringing the deficit down as long as we get the job done. If you have some time left Mr. President we have some other members of the panel who would like to ask you questions. And the first one is to your immediate left, Barbara Ann Kirk from this area. Thank you Mr. President. My question, the deficit as you have heard is a major concern to all of us and especially to the building industry. We know that Congress is currently working on a number of proposals to control the deficit. Mr. President what steps are you willing to take in this effort? Well there virtually aren't any steps that I won't take if they can be taken without punishing any particular segment of our society and apropos but you were saying sir the in this year and I know there's a lot of talk that well everybody's waiting to the election years over because of the threat of votes and so forth. Actually one of the main problems is that in an election year like this the Congress time is restricted. There is so much time that is now going to be taken out and understandably for campaigning that there's a limit to how much you can put on their plate. This is why we've called what we're asking for a down payment but in the meantime as I've said before we have to and are looking at the whole structure and I have to say we're all and should be indebted to Peter Grace and the more than 2,000 business and professional people in this country who not only volunteered their services free time to go in and look at government but who also for whatever financial overhead there was contributed the money for that but they came back. This idea come to me when I was first elected governor of California and the state was almost in as bad a shape as the federal government is and only there we had a constitutional requirement that in the first 6 months that I was in office I had to restore the balance that had been lost in the previous administration out there and I called on business and private sector in California to do what the grace commission has done they came in some 250 there average giving 114 days full time away from their own activities and their own businesses and professions came back with about 1,800 recommendations. We implemented more than 1,600 of those and restored California to the point that over the next few years that we would come to such surpluses that I was able to restore them to the people as one-time tax rebates income tax collection time and I remember about the third time that we did that a long time senator state senator came into my office one day outraged about our giving that money back to the people and he said giving that money back to the people an unnecessary expenditure of public funds I think it revealed a difference in philosophy there but we have some 2,470 recommendations from the grace commission and we have a task force now within government looking at these a number of them can be done administratively many of them will take legislation but we're going to just give one simple example and I use this morning that can show government is so hidebound it gets into the habit of doing things the way they've always been done and they don't realize as business has to that there are new ways and that there are improvements and efficiencies for example one agency of our government that it cost them $4.20 to process a paycheck for an employee every paycheck cost $4.20 out in business it costs around $1 on the average well why should government not be doing it the way business is doing it in the defense department with all the complaints that people may want to make because we're trying to restore defenses the percentage of the budget that goes to defense now is smaller than it historically has been back through the years defense being the prime responsibility used to take half the federal budget what is down to little less than 30% now of the federal budget but there they found that they were putting out due to the the things of the day and the machinery of the day they were putting out paychecks that were on a kind of cardboard type of paycheck and they're now putting them out on the regular kind of paper paycheck and it costs about half as much as it used to cost but we are going to continue we're going to do everything we can and it's going to take aiming down the road at a balanced budget and I'm going to continue to insist on an amendment that demands a balanced budget in the federal government and if any of you are talking to any of your congressmen also one of the best tools that I had as governor that I would like to have as president line item veto let a president be able to veto out that item that was tied into a necessary bill in order to get it passed because they knew they couldn't get it passed on its own as governor of california I vetoed 943 of those and was never overridden once even though the budget had to be passed by a two-thirds majority the same as is required for overriding a veto they would not stand up and vote for that single item out there exposed for what it was in order to override the veto so that is a tool we must have the some of the things in the tax that you're talking about deduction of interest on home mortgages and all I have told them I want them to look in the area of simplification at everything but study everything that can be done now would there be any harm if and this is well I don't know anything that so far has that we're engaged in in the study but if we could have a tax simplification that was so constructed that you could then actually reduce the individual's rates because of the simplification of the tax structure and if that included such things as eliminating some things that today are deductibles would that not resolve the problem we had an entirely different type of tax structure with a quite low rate investment can be found in a home as well as in the commercial part of the economy if we have deductibility elsewhere as to investments we certainly ought to have it for home ownership I would argue that that should be excluded I won't argue with you on that I believe very strongly in what you say but I was just hypothesizing that suppose they came in with some entirely different form of taxation aimed at something different than income as a method of taxing I don't know but I've told them I want them to look at everything there is in that structure now I'm trying to answer three questions here and I forget where I started yours was on the deficit yes we have to I I remember being told more than 20 years ago I was out in the mashed potato circuit didn't think I'd be doing anything like this but speaking about things and criticizing government and I remember then the defense of the deficit spending was that well the national debt didn't mean anything because we owed it to ourselves well today when you stop to think about it that the interest on the national debt is more than the total federal budget of some 20 years ago it's how far we've gone and what we're doing there and the answer has to be that I would think that today we are sophisticated enough in our knowledge of business and finance to know what is the optimum point the percentage level that government can take from the private sector before government becomes a roadblock or a drag on the economy which it is now and once you've established that point then we should see that government never spends above that percentage of the gross national product so that's if there's a second term that's what I'm going to be doing in the second term we have several of the members of the panel we're hoping to get a chance to ask you a question I think we'll have time for one more if it's okay with you I'll try to make the answer shorter and if it's okay with Lloyd Bowles I'm going to skip your question because as I remember interest rate related and I think the president has answered that and I was going to go to Joe Hall who has a question about, well you ask it Mr. President I think everyone has agreed that the housing industry lives and dies by interest rates and my question is with the progress that has been made in lowering the inflation rate where do we still have these historically high spreads between the interest rate and the inflation rate I have to say that I'm convinced that it is nothing but a pessimism out there we've had well this was the 8th recession since World War II and in seven of those we always resorted to the quick fix artificial stimulus to the money supply and what happened was yes you cured that present recession the government rate went down but you wound up about two or three years later with another recession and this time you started with inflation higher than it had been and I think that they just and particularly with the opposition that we're having in getting say this down payment if we get this I think this could be a great measure of reassurance out there they just are not convinced yet that government is going to be serious about keeping inflation down and if I could cite myself as an example again I remember once back in those motion picture days I knew that someday they'd come to an end and I bought a retirement policy and I wanted to think that I could retire and continue to live the same way I was living so I bought the policy on that basis well the policy finally came to the payment date retirement age and the policy by that time wouldn't pay the property tax on the house that we lived in so I think that inflation is the biggest single enemy of it all there is no way that you can have a sound economy where a person is expected to invest or put money away and know that at the payoff time the dollar is only going to be worth half what it was or less when it comes time to pay out the loan they're going to have to have more of a guarantee that it isn't going to happen again well thank you very much Mr. President for being with us today it's been a terrific thrill for all of us in the industry and those of us at Builder magazine who sponsored the round table and I don't know if you had any final remarks you wanted to make well no more than just to thank you all that for having me here and I'm sorry some of those answers I'd like to answer the others maybe we'll have a chance to walking out or something to hear some of them but I am more confident than ever I'm an optimist generally and normally and I'm more confident than ever after what I've seen this morning and after meeting with all of you that we're going to continue and I will quote to you a very renowned economist who wrote to me the other day and castigated me for continuing to call this a recovery he said we have passed the recovery stage we are now in legitimate expansion thank you Mr. President I am right we're all seeing each other