The Great Depression

The federal government began to play a permanent role in housing policy during the 1920's; formerly, housing issues in America were handled mostly by local governments. The federal government's involvement in housing began shortly before the Great Depression.

During his two terms as Secretary of Commerce in the administrations of Presidents Coolidge and Harding, Herbert Hoover rallied for homeownership. He believed in policies that did not involve direct assistance; this was a prevalent way of thinking in American society at the time. As Secretary of Commerce, Hoover created an organization called Better Homes in America, which helped to lower the costs of new homes, increase construction of homes, enforce new building codes, publish manuals for homebuyers on financing, and create zoning laws for residential neighborhoods.

In an effort to bring the economy out of bad times and house millions of homeless during the Great Depression, Herbert Hoover as President instituted the use of home loan discount banks; in 1932, the Federal Home Loan Bank Act created the Federal Home Loan Banking System. These new banks created a new supply of loans that would be used specifically to buy homes and refinance mortgages. Since the banking industry had collapsed and credit was virtually nonexistent at the time, Hoover thought the discount banks would "relieve home and farm property owners" by creating a new source of credit and mortgages other than failing banks. As the economy worsened, many critics called for direct assistance to families to aid in finding adequate housing and employment. However, Hoover held to his early philosophy of self-reliance.

After Hoover, the Roosevelt Administration ushered in New Deal policies that would revive the economy. Housing reformers of the New Deal era firmly believed that by providing affordable and adequate housing (thereby improving one's environment), the ills of the slums created from the Great Depression would be cured. [1]

Early New Deal housing programs came as part of employment packages that called for the removal of slums and made provisions for low-income housing. Those who were previously unemployed were now put to work constructing government-owned rental units. The Housing Act of 1934 created the Federal Housing Administration (FHA), which served as a review committee for banks and other loan institutions to make loans to low-income families. In 1948, the role of the FHA changed to providing mortgage insurance; the Veteran's Administration was also created that year to provide long-term mortgages with low down payments to veterans.

Another New Deal program, the Public Works Administration, created a new division to temporarily handle housing issues. Since this division was only temporary, housing advocates in Congress enacted the Wagner-Steagall Housing Act of 1937, which established the US Housing Authority in an effort to build more public housing units. It was during this time period that control of housing policy began to shift from federal agencies to local entities. The US Housing Authority provided money to public housing authorities, which oversaw the maintenance and ownership of public housing. The 1937 Housing Act required the demolition of slum housing before public housing could be built.

The Postwar Period

After World War II, there was an increased demand for new housing. One consequence of this was the Housing Act of 1949, which shifted housing policy farther towards slum clearance. Title 1 of this Act focused on urban redevelopment, including the use of large amounts of federal money for the clearance of slums at a neighborhood level. Entire neighborhoods were demolished, and in their place highways were built. Families and businesses were displaced in order to open up land for the development of industries.

Title 2 of the Housing Act of 1949 guaranteed loans for mortgages through government underwriting. However, there were restrictions on what type of loans the government would underwrite; the loans had to be for new housing for a single owner. Most lenders also practiced redlining; certain areas of towns were not eligible to receive loans. FHA appraisal manuals instructed loan originators to steer clear of areas with "inharmonious racial groups" and recommended that municipalities enact racially restrictive zoning ordinances as well as covenants prohibiting black owners. [2] As a result, discrimination in the housing market was prevalent and property values began to plummet in minority neighborhoods.

During this time period, the architectural style of public housing changed as well. Early public housing units were built in garden style apartments. In the 1930's, many public housing architects incorporated the low-rise Zeilenbau style, "in which parallel rows of two- to four-story apartment buildings were aligned along an east-west orientation and situated in superblocks." [3] However, the 1950's ushered in the modernist movement, which relied heavily upon famous French architect Le Corbusier's idea of future cities. Le Corbusier envisioned cities where high rises dominated the skyline; unfortunately, high-rises would prove to be housing disasters due to alienation from surrounding neighborhoods and the lack of public space.

By the 1950's and 1960's, inner city neighborhoods were beginning to be termed "ghettos" and carried a negative stigma. Ghettos had once been seen as transitional neighborhoods housing immigrants who would eventually assimilate with mainstream society and move out of the inner city. However, most ghettos at that time remained in cycles of poverty that sprang from lack of formal education, lack of stable economic stability and inadequate housing.

Around the same time, housing authorities began skimping on construction expenses because of high project costs and decreased funding from federal authorities. People were often crowded into ever-smaller spaces. Many public housing projects encountered social problems such as concentrated poverty and increased crime; yet even with the myriad of problems associated with high-rise public housing units, public housing authorities continued to build more.

As problems continued to plague public housing, domestic policy priorities shifted towards the creation of a comprehensive highway system. In 1956, the Interstate Highway Act was passed in Congress. Under the Act, the federal government subsidized highway construction in an effort to connect cities; the federal government usually paid 90% of the cost. As a result, cities had little authority in determining the placement of roads, and many new highways cut straight through towns, isolating entire neighborhoods. Highway construction also escalated suburbanization, increasing the movement of middle- and high-income households out of the inner city.

President Lyndon Johnson's administration instituted a war on poverty and passed the Housing Act of 1968, calling for more community involvement and the rehabilitation of slums. The Act tried to replicate Title 2 of the Housing Act of 1949, but was heavily abused by lenders and real estate developers. Following the Housing Act came cutbacks in government spending for housing programs. The Brooke Amendment to the 1968 Housing Act placed a ceiling on rents, and many public housing authorities cut back further on building and maintenance.

In 1965, the Department of Housing and Urban Development (HUD) was created to handle housing issues as well as community supportive services. The Fair Housing Act of 1969 prohibited racial discrimination in the housing market and gave HUD more responsibility.

However, although the federal government continued to enact programs that assisted low-income neighborhoods, it was becoming clear to policymakers that poverty is a more complex issue than they realized and housing alone is not a panacea.

Modern-Day Housing Programs

During Nixon's administration in the 1970's, the nation's economy was heading towards a recession. In an effort to improve the economy, Nixon established the Section 8 rental assistance program, in which part of a renter's payment is subsidized by the government. In the program, only 30% of a renter's income is paid to landlords, and the government pays the landlord the difference between that and the fair market rate. Around the same time, the federal government initiated what is known as "project-based Section 8", a proposal aimed at increasing incentive to build low-income units. The government insured and helped finance rental developments, as long as the owner signed a twenty-year use agreement.

Nixon's administration also established the Community Development Block Grant (CDBG) program, which still exists and provides funding to states and municipalities for infrastructure and supportive services in low-income areas.

In 1987, President Reagan and Congress established the Low Income Housing Tax Credit as a subsidy to private investors to spur production of low-income housing developments. The program is still in existence; the tax credits are awarded to investors by state housing agencies through a competitive process based on rules adopted by each state. [4]

The Future?

Currently, the federal government seems to be gradually moving out of the business of constructing housing for poor people, and towards encouraging local governments and private entities to tackle problems of affordable housing themselves. The twenty-year use agreements of Section 8 project-based units have begun to run out, with millions of low-income units across the country in jeopardy; no remedy has been proposed. The relative number of Section 8 vouchers issued by HUD has also been on the decline, although waiting lists across the country are as long as they have ever been.

One major recent initiative proposed by the federal government is a cooperative effort between public housing authorities, HUD, and local businesses, known as HOPE VI. First begun in 1993, HOPE VI is a grant program administered by HUD allowing local housing authorities to redevelop aging public housing projects and encourage a greater mix of incomes. HOPE VI has been alternately hailed as a rejuvenator of public housing projects and decried as a great loss of housing for the very poor.

Keeping in line with longstanding federal policy, the Bush Administration is actively promoting homeownership through various self-reliance programs. During the summer, President Bush announced a goal of increasing minority homeownership to 5.5 million families by the end of this decade. [5] Other recent programs include the Single Family Affordable Tax Credit, Self-Help Homeownership Opportunity, and The American Dream Downpayment Fund.

Thanks to our intern, Sonye Randolph, for researching and writing this brief.

[1] This idealism lasted until the mid 1970's. It is commonly called environmental determinism

[2] From Principles to Guide Housing Policy at the Beginning of the Millennium, Michael Schill & Susan Wachter, Cityscape

[3] From High Ambitions: American Low Income Housing Policy, Alexander Von Hoffman, in the Fannie Mae publication Housing Policy Debate

[4] From Corner Stone Electronic Services, www.cses.com/RENTAL/housing.htm

[5] From White House website, www.whitehouse.gov/infocus/homeownership