Department of Housing and Urban Development's Review of Basic Homes Program

Published by the Government Accountability Office on 1977-04-01.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                          DOCUMENT RESUME
00550 - [A1051859]
[Department of Housing and Urban Developmentls Review of Basic
Homes Program]. CED-77-52: B-114860. April 1, 1977. Released
April 4, 1977. 2 pp. + enclosure (14 pp.).

Report to Sen. Lee Metcalf; by Elmer B. Staats, Comptroller
issue Area: Domestic Housing and comaunity Development: Housing
    for Low and Moderate Income Families (2101).
Contact: Community and Economic Development Div.
Budget Function: Community and Regional Development. Community
    Development (451).
Organization Concerned: Department of Housing and Urban
    Development; Department of Agriculture; Battelle Memorial
    Inst.: Columbus Labs., OH.
Congressional Relevance: Sen. Lee Metcalf.

         The Department of Housing and Urban Developaent's (BHUD)
Basic Hoses Program was intended 'co determine whether low cost
basic hones can be built which are acceptable to the rural poor.
Battelle Columbus Laboratories was selected as the prime
contractor for the program.   Findings/Conclusions: Program funds
have not been used to construct demonstraton housing units as
originally planned. Program emphasis has changed in terms of
designs and types of hoses to be built, and the program might
ultimately benefit people with higher incomes thdn originally
planned. The Advisory Committee, composed of various interest
groups, has been critical of the program and its administration.
An organization such as Battelle was needed to manage the
day-to-day operations of the program. Battelle itself felt it
necessary to subcontract with several consultants to do specific
analyses. The future of the program is uncertain, and after
additional analyses, a decision on whether tc continue or kill
the program will be made. (Author/DJN)
               relic   *   COMPtTROLLER GNERA   OP THE UNITED SMATES
          B-                          .11486WAS4IN.TON.
                                               D.C.                      RELEASED
    Co    B-114860                                                     APR   1 977

          The Honorable Lee Metcalf
J    ,.   United States Senate

          Dear Senator Metcalf:

               Your letter of May 28, 1976, asked us to study the
          Department of Housing and Urban Development's Basic Homes
          Program. Our study was directed to the issues raised in your
          letter, primarily the (1) use of program funds, (2) changing
          program emphasis, (3) use of the Advisory Committee, and
          (4) need for Battelle Columbus Laboratories and several other
          consultants to be involved in the program.

               We examined records and talked to officials at Department
          headquarters in Washington, D.C., who are responsible for the
          program. We also talked to the program manager for Battelle
          Columbus Laboratories because Battelle is the grantee respon-
          sible for providing the day-to-day managemient and technical
          support services in implementation of the program.

               The results of our review are contai.ned in the enclosure
          to this letter.  To summarize, we fcund tiiat:
               -- Prcgram funds have not been used to construct
                  demonstration housing units as originally planned.

               -- Emphasis of the program has changed in terms of designs
                  and types of houses to be built. Also, concern has
                  been expressed that the program might ultimately bene-
                  fit a population with higher incomes than originally

               -- The Advisory Committee, composed of various interest
                  groups, has been critical of the program and its
                  administration. While the Department has not always
                  taken action to satisfy this criticism, there is evi-
                  dence which shows the Department's concern and regard
                  for the criticism. The Department recently met with
                  several committee members and told them of the status
                  of the program. Concerns about the program were shared,


        and the Department agreed to provide the members
       ·with prototype drawings for their evaluation.

      -- According to Department officials, an organization
         such as Battelle was needed by the Office of
         Opportunity, and later by the Department,
                                                     to manage
         the day-to-day operations of the program.
                                                      Because of
         its own staffing
         has subcontracted orwith
                               technical limitations, Battelle
                                  several consultants during the
         program to accomplish specific tasks.
     -- The future of the program is uncertain.
        officials told us that a decision to continue
        terminate the program will be made within the
        several months after additional analyses.      next

      As your office requested, we did not submit
to the Department for formal review and comment. this report
however, were reviewed and discussed with key      Its contents,
                                               agency officials
who are responsible for administering the procgam,
commex.ts were incorporated where appropriate.      and their
                                                Its contents
were also reviewed by the Battelle program
                                            manager who fur-
nished his comments to the Department.

                                  Si   lty yours

                               Comptroller General
                               of the United States

ENCLOSURE I                                      ENCLOSURE I


                     BASIC HOMES PROGRAM


     The Basic Homes Program was begun by the Office of
Economic Opportunity in early 1972.   It was transferred to the
Department of Housing and Urban Development as a result of the
Office's demise in May 1973. Although the program concerns
rural housing, it was not transferred to the Farmers Home Ad-
ministration of the Departmcent of Agriculture because Farmers
Home lacked the research capability necessary for the program.

     The primary purpose of the program was to determine
whether low-cost basic homes can be built which are affordable
and acceptable to the rural poor.  A basic home has been de-
fined within the program as falling be'tween the Census Bureau
definition of standard (i.e., a structurally sound holse with
interior plumbing, hot and cold running water, and electricity)
and Minimum Property Standards accepted by the Department of
Housing and Urban Development and the Farmers Home Administra-
tion. It was anticipated that in building a basic home, cer-
tain standards and local zoning and building codes may be
modified and perhaps waived.

     An acceptable home is one which low-income rural families
will buy and occupy. An affordable home, as defined initially,
was one for which the Office of Economic Opportunity target
population (e.g., a family of four with an income of $4,000
annually) could afford to pay 20 percent of their income.

     Battelle Columbus Laboratories of Columbus, Ohio, was
selected by the Office of Economic Opportunity in June 1972
as the prime contractor for the program. The Battelle organi-
zation was selected over three others because, among other
things, it is large and has had experience in managing complex
research and demonstration programs. An initial grant of $4.7-
million was awarded by the Office of Economic Opportunity to
Battelle for their management and technical support of the
program and for the development and construction of prototype
and demonstration housing units.

     The program, as originally conceived, was divided into
three phases. Phase I was to be a research, planning, and
design effort. Battelle's responsibilities were to include
participating with the Office of Economic Opportunity in
the selection o eight planning subcontractors for this phase
who were each tj develop a survey of housing needs and
preferences of rural families; a local housing market
ENCLOSURE I                                      ENCLOSURE I

analysis; a minimum of four desigi concepts; and drawings,
specifications, and cost estimates for each design concept.

     Battelle was to evaluate the submissions of the planning
subcontractors in terms of program goals and with the Office
of Economic Opportunity, select four construction subcon-
tractors to participate in Phase II.  Phase II was to include
screening families who wanted to participate in the program,
land acquisition, preparation of site plans: purchase of
materials, and construction of both prototype and demonstration
housing units. The demonstration units were to be bold to
rural home buyers. They were to be built to order based on
the home buyer's selection from the prototypes constructed
in his or her particular geographical area.  Battelle was to
provide construction supervision, including payment  of the
construction subcontractors and material suppliers.   Battelle
also was to provide postoccupancy family counseling.
     During the planning and construction phases, Battelle was
to monitor the performance of the subcontractors and provide
technical assistance to them. Also, its job was to evaluate
the acceptance by rural home buyers of the prototype units
and to determine how well the subcontractors had met cost

     In Phase III, the results of the program were to be
implemented.   Battelle's role was to provide technical
advisory assistance and to help in disseminating the results
of the program. It was anticipated that the final product of
the program would be plans and specifications for acceptable
basic homes which were to be endorsed and made available by
the Department of Housing and Urban Development to builders
and prospective homeowners in rural areas throughout the
United States.

     In addition to awarding the grant to Battelle, ea:ly in
the program, the Office of Economic Opportunity also created
an Advisory Committee consisting of various organizations
which were concerned directly or indirectly with the housing
needs of the rural poor. Although the committee's role and
responsibilities were not specified, the original grant
document between the Office of Economic Opportunity and
Battelle stated that it would participate in the selection
of the Phase I subcontractors "and other funding decisions."

     Upon transfer of the program from the Office of Economic
Opportunity to the Department of Housing and Urban Development
in 1973, one of the Department's first acts was to perform a
budget and work evaluation of the program. The Department
determined that in addition to the design and construction of

ENCLOSURE I                                       ENCLOSURE I

low-cost housing, the program needed to develop, demonstrate,
and evaluate methods of delivering (including marketing and
financing) the houses to rural families. Actually, the
development of a delivery system had been one of the program's
stated goals from the start. Department officials told us
that when the Department assumed the program, this particular
goal was more clearly defined and given much more emphasis.
?ihe Department's evaluation also showed that certain costs
relating to the construction of prototype units and costs for
construction inspection and warranty enforcement had not been
considered. To cover these unanticipated costs, the Department
increased the grant to Battelle in June 1974 by $200,000,
increasing its total to $4.9 million.   In January 1977, this
total remained unchanged.
     The $4.9 million in program funds have not been used in
accordance with the original plan. The Department's deter-
mination that there was a need in the program to develop,
demonstrate, and evaluate methods of delivering basic homes
to rural families, and the changes which ensued, have rendered
che program incapable of producing the up to 400 demonstration
units which were initially planned. The only units produced
as of November 1, 1976, were 39 prototype units which, as
planned, were to be used as "model homes" during the demon-
stration phase of the program.
     In Battelle's request for proposal dated September 1,
1972, which was furnished to prospective Phase I subcontrac-
tors, the goals of the Basic Homes Program were listed as
     -- To develop basic homes acceptable and affordable to
        low-income rural families.
     -- To encourage the linking of public and private
        organizations capable of providing a complete
        housing delivery system to low-income rural families
        on a large scale.
     -- To assess the acceptance of proposed design concepts
        in a relatively large-scale experimental effort.
     -- To disseminate information and encourage utilization
        of the results of the program.

 ENCLOSURE I                                      ENCLOSURE I

     The request for proposal also stated that:

     "The program will involve the design and
     construction of up to 100 experimental housing units
     in each of four geographic areas of the United
     States. To determine the variable needs and prefer-
     ences and to determine the acceptability of the pro-
     posed design concepts relative to low-income rural
     families, two of the four program sites will be lo-
     cated in the South, one in the Southwest, and cie
     in the North. The design of the experimental housing
     units will be based on a pre-design market assessment
     of the needs and preferences of low-income rural
     families and their evaluation of full-scale prototype
     units, Cost reductions will be sought through the
     development of design amenities more appropriate to
     the needs and payment ability of the rural poor than
     [are] now permitted by existing local codes or by * * *
     minimum property standards. In addition, cost reduc-
     tions will be sought through (a) the use of techno-
     logical innovations, and (b) the use of optimum value
     engineering such as the reduction of overbuilt
     construction components."
      There were 90 responses to the request for proposal.
the prospective subcontractors responding, eight were chosenOf
to participate in Phase I of the program although one was later
dripped by the Office of Economic Opportunity after an audit
disclosed major management weaknesses. Of the seven subcon-
tractors who are participating, three are State housing agen-
cies in Minnesota, South Carolina, and West Virginia. The
other four are nonprofit organizations representing California,
Oklahoma, Alabama, and New England (Maine, Vermont, and New
Hampshire). Final selection of the subcontractors took place
on June 28, 1973, after the Department of Housing and Urban
Development had assumed responsibility for the program.
     Our review disclosed only limited information regarding
plans for spending the $4.7 million initial grant. The grant
document between the Office of Economic Opportunity and
Battelle did, however, show the following funding breakdown:

                                                     ENCLOSURE I

        Funding                      time
        activity                                         Amount of
                                     frame                 funds
  Funding of grantee to
    signing of planning
    subcontracts                    6/72-1/73        $    200,000
 Planning subcontracts to
   selection of four con-
   struction subcontractors
                                   1/73-10/73             600,000
 Selection of construction
   subcontractors through
   prototype construction          10/73-1/74             500,030
 Construction of demon-
   stration units                  1/74-6/74          3,400,000
         Total initial grant

      When the department
 detailed budget and work took over the program in 1973, a
                          evaluation was performed.
 Department memorandum stated that:                  An internal

       "Adequate funds for Battelle's role
      tasks such as the user need study, and performing
      tion of the prototypes, technical walk-thru evalua-
      gram evaluation were not provided support, and pro-
      was detailed out to place emphasis for. Then Phase II
                                           on the rural
      housing delivery systems and such
      for site and unit inspection, counseling as budgeting
      ing staff, prototype land and construction, and market-
      "HUD added $200K to the grant and
     four subs in Phase II estimated a based on selecting
     tract amount of $750,000 each. ThePhase II subcon-
                                            seven subs in
     Phase I were told to develop a low-cost
     system that would be replicable and         delivery
     designs. They were told to develop     to  develop house
     including construction of prototypes   a  delivery system
     effective use of the $750,000."         that would make

Apparently, at this juncture, the
                                  plan to construct up to
400 demonstration units with a portion
was abandoned.                         of the $4.9 million

     The Phase ! effort was completed
September 1974. The designs and       by all subcontractors in
                                 delivery systems submitted by

ENCLOSURE I                                     ENCLOSURE I

the subcontractors were evaluated, and tha Department concluded
that some of the designs were disappointing, and not one of
the delivery systems and accompanying financing plans could
justify full use of the $750,000.  It was the Department's
opinion that the subcontractors had budgeted most of the
money for financing mechanisms which were not fiscally sound
and could not be used by other organizations and locations
without an up-front grant. In addition, two Advisory Com-
mittee members expressed concern that the financing mechanisms
which were being developed involved interest rates ranging
irom 7 percent to 9 percent and that families within the Office
of Economic Opportunity established income guidelines could not
afford to finance houses at these rates.

     Because of the Department's disappointment and the fact
that none of the plans justified full use of the $750,000,
it decided to fund all seven Phase I subcontractors during
Phase II. rather than only four as originally planned. The
Department thought that by funding all seven subcontractors,
the marketability and cost of all designs :ould be tested,
and the delivery systems could be demonstrated and evaluated
on a smaller scale, in a shorter time frame, and for less

     The decision to increase the participation in Phase II
to seven subcontractors required a reduction i'. individual
subcontract amounts from $750.000 to an estimated S420,000.
This division of funds among seven rather than four subcon-
tractors has been questioned by the Advisory Committee, the
subcontractors, and by a Department review team on the basis
that it will not permit any of the subcontractors to demon-
strate their proposed financing mechanisms.

     Although funds from the $4.9 million are no longer
planned for the construction of demonstration units, the
decision to co with seven subcontractors increased the number
of demonstration units envisioned from up to 400 units to as
many as 700 (up to 100 units for each of the seven subcon-
tractors). How these units are to be financed remains to
be determined.

     As of July 1976, $3.3 million of the $4.9 million grant
money had been spent. Of this amount, the seven subcontractors
had received about $400,000 for Phase I and $1.6 million thus
far during Phase II. The cost of Battelle, including a
number of consultants they have used to date, has totaled
$1.3 million. It is anticipated that the remaining $1.6
million will be spent in such areas as the marketing and sale
of the demonstration units, family counseling of the home
buyers, and evaluation of the program.

ENCLOSURE I                                       ENCLOSURE I

     As of November 1976, six of the seven subcontractors had
completed 39 prototype units (these are all that they plan to
build).  These units are furnished and landscaped and are
being evaluated by the Department in terms of the signifi-
cance of departures from Minimum Property Standards. The
following table represents the 39 units in terms of type
and number of bedrooms.

                             Number of            Number of
    Type of unit             bedrooms               units
    Single-family            0 and 1                    9
                                2                     !0
                                  3                    9
                                  4                    7.
                                  5                    1
    Condominium             0, 1, and 3                3
        Total                                         39
     Prototype construction by the seventh subcontractor
(West Virginia) has been delayed because of (1) land acquisi-
tion and title problems, (2) refusal by the Department to
approve architectural and engineering planning proposals, and
(3) a decision by the Department to prohibit further construc-
tion of 0- and 1-bedroom units which required redesign of some
of the homes and the subdivision plan.  As of November 1976,
the West Virginia subcontractor had developed designs for five
prototype units which were under review by the Department.
Construction of the units is being held in abeyance until the
Department completes its design review and also makes a deci-
sion regarding future direction of the program.


     Emphasis of the program has changed since its inception
in 1972 in terms of designs and types of houses to be built.
Designs of the hcmes developed thus far have been criticized
for lacking innovativeness and cost-saving technologies.
The idea of designing and building 0- and 1-bedroom homes
under the program for singles; couples; or small, young
families has, at the moment, been aband'oned.  Concern also
has been expressed that the program      t ultimately benefit
a population with higher incomes thai    s originally antici-
pated partly because of the program'.    ilure to produce a
financing mechanism which would effectively serve the lower
income rural family.

ENCLOSURE I                                       E:CLOSURE I

     As stated previously, the purpose of the Basic Homes
Program was to investigate the feasibility of develcping
low-cost basic homes that are affordable and acceptable by
low-income rural families. These homes were to meet all
requirements for health and safety but were to be free of
architectural and construction overdesign. Innovation and
imagination were to be used to keep the homes affordable by
rural families which have adjusted gross incomes equal to or
below poverty guidelines. The homes were to be basic in
terms of amenities and size, and some 0- and !-bedroom homes
were contemplated.

     Designs of the homes developed thus far in the program
have been criticized as lacking innovativeness and, in some
instances, as inferior to existing housing plans. A former
Department program manager expressed disappointment in the
designs, and a Department review team, assemb].d to evaluate
the program and assess various criticisms levied against it,
reported the following on January 24, 1975:

     "None of the designs appear to be patently unworkable.
     On the other hand, none of them present striking
     design innovations, nor do they employ cost-saving
     technologies to any appreciable advantage. The cost
     per square foot of the Basic Homes it should be
     noted, does not appear to be much lower than conven-
     tional housing, economies achieved are realized mainly
     by reducing dwelling size."

The review team also stated that:

     "* * * colleagues here at HUD and experts at
     Farmers Home predict that the cost of the Basic
     Homes will be higher than the DDC's [subcontractors]
     have estimated--perhaps not much lower, finally,
     than the standard, three bedroom Farmers Home unit.
     If this is true, the program will have failed to
     accomplish ona of its major objectives."

The review team concluded, in part, that "* * * the goal of
producing designs with substantial cost-saving variances
from the MPS [Minimum Property Standards] seems to have
been deemphasized during the program implementation."

     One of the overriding concerns facing the program
throughout its existence has been the problem of financing
the basic homes once they are constructed.  In planning the
basic Homes Program, the Office of Economic Opportunity
assumed that the Farmers Home Administration's section 502
interest credit program, which reduces interest on home

                                                     ENCLOSURE I

purchases to as low as 1 percent, would be the main
financing mechanism. Battelle wrote in its request
proposal of September 1, 1972, that "FmHA in Washington
given OEO a tentative commitment to assume the mortgages has
the homes developed within this program--it is anticipated
the majority of homes will be covered under the
502 program * * *." The Department review team'sFmHA section
mentioned earlier, indicated that Farmers Home has
denied any such commitment.

      Battelle also committted itself in the request for
proposal to investigate other forms cf subsidies
                                                  and financing
techniques in the Basic Homes Program. As stated
                                                   earlier, the
scope of this effort was later expanded when the
assumed responsibility for the program. The effort
however, which led the Department review team to     failed,

     "Eattelle and its subcontractors have been
     unsuccessful in developing acceptable financing
     nisms for delivery of Basic Homes to the low income
     rural population which would improve upon FmHA
     interest credit financing.  The original target popu-
     lation will be served to a limited extent where
     is utilized; other available financing plans will
     serve a higher income group."
      To date, the Department has not enticed the Farmers
Administration to participate in the program. Farmers
has objected to the fact that the basic homes, in          Home
 instances, ao not meet Minimum Property Standards
 0- and 1-bedroom homes will not sustain consumer    and that
Farmers Home also claims, througn its Office of
Counsel, that section 502 rural housing loans cannot
to finance homes built-under the Basic Homes Program be used
of the experimental nature of the program. Becaus:e
Farmers Home's opposition to 0- and 1-bedroom units,   of
Department does not expect to offer such units ,'uringthe
demonstration phase of the program. We were informed, the
however, that should Farmers Home later agree to
financing for the other size units, the Department
                                                      may try
to persuade them to finance the smaller units at
date.                                              a  later

     The financing issue remains one of the program's
pivotal issues. The affordability to the rural         most
homes developed during the program depends in    poor of the
                                              great measure
on the financing scheme that is ultimately used.
officials told us that in aidition to Farmers Home's
502 program, they are also looking at several
                                              of their own

 ENCLOSURE I                                        ENCLOSURE I

 programs which they hope might offer at least a partial
 solution to the financing problem they now face.


     As stated earlier, an Advisory Committee was established
early in the program by the Office of Econonic Opportunity.
Its members include the

      -- National Association of Home Builders Research
     -- National Association of Building Manufacturers,

     -- Housing Assistance Council,

     -- Rural Housing Alliance,

     -- Building Research Advisory Board,

     -- National Asrsociation for the Advanceme-t of Colored

     -- American Institute of Architects,
     -- National Housing and Economic Development Law

     -- National Sharecroppers Fund Incorporated, and

     -- National Spanish Speaking Housing Development

     Although the committee's formal role and responsibilities
have never been specified, the original grant document
the Office of Economic Opportunity and Battelle did state
it would participate in the selection of the Phase         that
                                                   I subcon-
tractors and other funding decisions and that the Office
seek advice from the various committee members informally
needed.                                                    as

     Evidence obtained during our review showed that the
committee had met only three or four times  since its forma-
tion, and we were told by both the Battelle and Department
program managers that it ihad last met in January 1975.
all of the committee members have been active. Those
the most interest have been the Housing Assistance Council,
the Rural Housing Alliance, and the National Association
Home Builders Research Foundation.                         of

ENCLOSURE I                                       ENCLOSURE I

      Although the committee has met infrequently, Department
files contained considerable correspondence between certain
committee members and the Department. The Department, while
not satisfying all criticisms levied against the Basic Homes
Program by committee members, has responded to such criticism
in its correspondence and has shown some concern and regard
for the things that have been said. As an example, the
Department review team referred to earlier was established in
November 1974 as a result of criticism received from several
members of the committee concerning Battelle's handling of
the program and whether or not the original objectives of the
program would be met.   In a January 1975 report, the review
team concluded that although there have been major problems
in meeting the goals of the program, Battelle was not solely
responsible for the difficulties and that replacing Battelle
at that point would serve no useful purpose. The review
team indicated that major program decisions affecting the
overall structure and direction of the program were made
jointly by the Office of Economic Opportunity/Department of
Housing and Urban Development and Battelle. The team recom-
mended that the Department assume a more aggressive role in
managing and supervising the program.

     In recent months there has been a continued interchange
of correspondence between several committee members and the
Department. The correspondence suggest that the committee
may convene in the near future. The Department's program
manager said that the Department had met in August 1976 with
representatives of the Housing Assistance Council and the
Rural Housing Alliance. During this meeting, the status of
and concerns about the program were discussed. Also, the
Department agreed to submit prototype drawings to the
National Association of Home Builders Research Foundation
for review. Representatives of the Housing Assistance
Council and Rural Housing Alliance indicated that they would
look to the National Association of Home Builders for an
opinion on the homes.


     Rattelle Columbus Laboratories was chosen early in the
program by the Office of Economic Opportunity to

    -- undertake research and provide technical advisory
       support for construction of the experimental
       housing units,

     -- develop specific survey analyses and evaluations,

ENCLOSURE I                                       ENCLOSURE I

     --work cooperatively with selected subcontractors
       in different parts of the country, and
     -- disseminate the results of the program.
Battelle was selected because of its size and experience in
managing complex research and demonstration programs; its
technical competence and facilities to evaluate construction
design, materials, and methods; and its experience in the
area of rural housing.
     The Departmer. As program manager said that involvement
by an organization .-uch as Battelle was necessary because the
Office of Economic Opportunity lacked staff expertise in the
housing area and was not equipped to manage the program on
a day-to-day basis.
     The Department, in effect, inherited Battelle at the time
it assumed overall responsibility for the program. Although
the Department does possess experts in the housing field, the
program manager expressed doubt that the Department would have
assumed day-to-day management responsibility of the program
had they initiated it because of the limited full-time staff
available for such a project and also because of the large
amount of travel involved. The program manager also expressed
his belief that the Department was committed to the contract
with Battelle at the time it assumed the program.
     The program manager told us that in those instances
where Battelle has needed help in performing specific tasks,
due to either staffing or technical limitations, it has con-
tracted with a number of consulting firms. One of the large:
efforts involved the user needs and preference survey conducted
in the early stages ofthe program which was to determine the
type of house that low-income families need, want, and will
buy. Battelle subcontracted with a firm named National
Analysts to help with the survey. Of the $324,310 spent for
the survey, National Analysts received $108,781.
     Social Perspectives, another consulting firm, has been
involved in four subcontracts valued at about $112,000 for work
performed during both Phases I and II of the program. The work
has included reviewing Phase I final reports and evaluating
prototype units.
     Battelle additionally subcontracted with Homer Hoyt
Institute at a cost of $45,453, to perform in independent cost
analysis of the basic home prototypes. The purpose of the
analysis was to determine whether homes could be built by
independent builders at the same cost as the prototype

ENCLOSURE 1                                       ENCLOSURE I

subcontractors. Homer Hoyt submitted the final results of
the analysis to the Department on August 31, 1976.  Battelle,
in turn, submitted its interpretation of the results to
the Department on November 4, 1976. Battelle concluded, in
part, that basic homes

     -- have been designed that are significantly lower
       in construction costs, purchase price, and cost
       of ownership than owner-occupied homes being
       financed by Farmers Home for comparable size
       families in rural areas and

     -- are affordable by lower income rural families.

Department officials told us, however, that they are
questioning Battelle's interpretation of the analysis because
the comparability of houses used in the analysis is question-
able and cost differences have not been adequately explained.
A meeting between officials of the Department and Battelle
is anticipated to discuss this situation.

     As of July 197f, the cost of Battelle and the various
consultants which have participated in the program was
$1.3 million. Of this amount, about $300,000 was paid by
Battelle to the consultants.


     The future of the Basic Homes Program has been uncertain
for some time. Those in the Department responsible for the
program agreed that a decision regarding the future of the
program is needed and pointed out certain ongoing functions
that must be finalized before such a decision can be made.
The program manager told us, for example, that a decision to
go forward with or terminate the program would be based on
the results of their current review of prototype drawings as
well as the review of drawings performed by the National
Association of Home Builders Research Foundation. We were
told that the results of Homer Hoyt's cost analysis and other
studies will be considered in reaching a decision and that
the Advisory Committee and Farmers Home will be consulted
before a final decision is made. The decision reached will
also be dependent upon the Department's ability to resolve
the financing issue which it continues to face.~ Department
officials expect to make their decision concerning the
future of the program within the next several months.

                                                  ENCLOSURE I

     Although the Basic Homes Program is over 4 years
the Department has not yet been  successful in determining
                                     built which ire affordable
whether low-cost basic homes can be Designs
and acceptable  to the rural poor.          of some homes in
the program have been criticized as lacking innovation
                                                The conclu-
cost-saving features other than reduced size.
                                                    the homes
sions reached from a study of the affordability of     Depart-
develope'] in the program are being challenged by the     in the
ment on the basis that comparable housing was not used
                                                       was not
study and sufficient explanation of cost differences
                                                rural  poor is
made. The affordability   of basic homes to the
largely Cependent on how they are to be financed and,
the financing issue remains as one of the program's

     The acceptability of basic homes-was to be determined
during the demonstration phase of the p. ogram. Initially,
                                       built to order for
to 400 demonstration units were to be prototype
low-income families using designs of             units earlier
            This figure was later changed  to up  to 700 units;
however, to date, no demonstration units have been
     The ultimate goal of the program was to produce plans
and specifications for basic homes which  would have been
affordable and acceptable to the rural  poor.  These plans
and specifications were to be endorsed and made available
the Department to anyone interested.   In view of the fact
that neither the affordability nor acceptability   issue has
been resolved, the program's ultimate goal seems to
in the distant future.
     Department officials have told us that a decision
                                           Homes  Program  will
to go forward with or terminate the Basic
                                               after  additional
be forthcoming within the next several months             been
analyses have been made and some current problems have