Magazine article Mortgage Banking

Taking Stock

Magazine article Mortgage Banking

Taking Stock

Article excerpt

Taking Stock

AFTER MORE THAN 100 years of American housing policy, it is fair to ask a fundamental question: Has it been a profound success, or an abject failure? The answer, of course, depends much on one's ideology, but a case could be made that it has been both.

Among its successes are a housing stock now at its highest quality level ever, declining overcrowding and a secondary market that has made mortgages as liquid as Treasury securities. Among its failures are persistent homelessness, low-income people paying an increasing fraction of their incomes on rent and increasing impediments to young families becoming homeowners.

How we have come to this mixed state of affairs, and how we might proceed from here, is the topic for discussion.


The Homestead Act of 1862 is as good a place as any to begin our story. The act not only provided its beneficiaries a deep subsidy (free land in the unsettled West in exchange for a promise to live on it and farm it), it also began an important pattern: the use of housing as an instrument to achieve national social and economic goals. The historian Frederick Jackson Turner noted that the West served as a "safety-valve" for the unrest arising from industrial working conditions and the crowded, unsafe tenements of the cities of the East.

The Homestead Act thus served two nonhousing-related national purposes - the settlement of the West and the relief of social pressures in the cities. That it also provided subsidized housing was an almost incidental, albeit still important, outcome.

While the Homestead Act did relieve some urban pressures, it was not quite as successful a program as our mythology might suggest. Western migration slowed down urban growth, but it did not stop the growth of cities and their associated problems. Social reformers, therefore, tried to change living conditions directly by improving housing and its related infrastructure.

Among the earliest of these efforts was the formation of the New York City Tenement Commission, whose recommendations spurred New York to pass legislation that outlined the bare statutory minimum of what constituted adequate housing. While the Tenement Act was not well enforced in its early years, it did serve as something of a model, and it began a history of local building and zoning codes that would improve substantially the quality of the American housing stock.

Unlike the Homestead Act, the New York City commission's reforms clearly had the primary purpose of improving housing conditions. Nevertheless, housing was still viewed as a means to a larger end; the reformers believed poor housing conditions caused moral degradation and slothfulness. While the improvement of housing was in and of itself a laudable goal, the reformers considered it an instrument for the "social improvement" of the masses.

The next step after reforming housing conditions involved the beginning of active government participation in building and financing houses. President Franklin Roosevelt's New Deal brought the federal government into a number of new areas. The Public Works Administration (PWA) financed slum clearance, low-cost housing and subsistence homesteads. These subsistence homesteads provided low-interest, long-term loans for the purpose of fostering, in the words of the 1933 National Industrial Recovery Act, "decentralization" of urban areas. The United States Housing Act of 1937 financed the construction and operation of housing by public housing authorities. This act and its amendments would ultimately be the impetus for the building of more than one million units.

New Deal housing finance programs included the establishment of the Federal Housing Administration (FHA), the Federal National Mortgage Association (Fannie Mae), the Federal Deposit Insurance Corporation (FDIC) and the Home Owners Loan Corporation. The Federal Home Loan Bank System was created in 1932, during the Hoover administration. …

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