Secret #17 - U.S. Housing Policies Almost Moved Toward Vienna or Singapore in the 1960s

The late 1960s was a turning point in U.S. housing policy away from public housing for low-income households and toward public-private partnerships for every housing policy, including housing for low-income people. 

Before the late 1960s, U.S. housing policy for the poor was public housing. Government agencies developed, owned, and managed housing they rented to low-income people.

However, powerful housing industry trade associations led by the National Association of Home Builders (NAHB) and the National Association of Realtors (NAR) (then called the National Association of Real Estate Boards), fought against public housing, calling it socialist and a give-away.

“Throughout the postwar period the industry lobby spokesmen adamantly opposed any appropriations or extensions of the [public housing] program, frequently expressing the desire to extinguish what they termed as a dangerous intrusion by government into the free market” (von Hoffman, 2013). 

Notice those associations didn’t object to the many government intrusions into the free market for mortgages, for example, FHA and VA mortgage programs, because those programs led to more business for their members.

The National Association of Home Builders wanted their members to be in control of creating the housing – to be both the developers and the builders - instead of just being the contractors that government bureaucrats hired to build public housing.

In addition, by the 1960s it was widely acknowledged that the public housing system wasn’t working well anymore, and the urban riots in the 1960s were often blamed on bad housing – ghettos and slums. 

During this housing crisis, in 1967, Republican Senator Charles Percy from Illinois submitted a housing bill that was co-sponsored by all 36 Republican senators and 106 of the 187 House Republicans that focused on increasing home ownership for low-income people instead of increasing public rental housing.

“... the proposed quasi-public entity–the National Home Ownership Foundation–would lend or guarantee loans to non-profit, cooperative, or limited-dividend groups to build or rehabilitate “safe, decent, low-cost” homes. The low- and moderate-income purchasers of the houses—not private lenders—would receive direct subsidies on mortgages from the Department of theTreasury“ (von Hoffman, 2013). 

Senator Percy’s bill also included training and counseling for home buyers.

Senator Percy’s focus on nonprofits to develop the housing is a bit like solutions seen in some other countries where governments, non-profits, and limited-profit companies develop a lot of housing. In some places (Vienna) it’s mainly rental housing and in others (Singapore) it’s mainly housing for sale. Senator Percy’s bill would have built housing to sell to lower-income people.

Although the Republicans proposed a massive increase in housing for lower-income people, the Democrats could not support a bill proposed by the Republicans, especially a bill sponsored by Senator Percy who at the time was considered a possible Republican candidate for president. In addition, the housing industry trade associations didn’t like the idea of an independent nonprofit housing association.

“The National Association of Home Builders were troubled by the idea that nonprofit organizations, instead of the group’s members, would develop low-income homes”

“Democrats in the Senate pushed alternative home ownership programs to be carried out by for-profit businesses rather than nonprofit organizations.”  (von Hoffman, 2013)

In the end, the Housing Act of 1968 turned housing policy away from the public housing policies that got started in the 1930s, and toward public-private partnerships that were supported by the housing industry for low-income housing programs. That’s still the emphasis today.

Notes

This section is based on the work of Harvard historian Alexander von Hoffman. I found this history totally fascinating and it helped me understand how we got to where we are today on home ownership. A short version is here. The final long version is here. An earlier working paper is here.

All real estate geeks should read the final long version. I found this story as intriguing as a mystery novel. 

Although von Hoffman appears to consider the change to public-private partnerships to be a success, it’s hard for me to not consider it a big failure given that the home ownership rate is pretty much the same now as when we switched to public-private partnerships in 1968. 

A more spectacular failure of the policy change is that the Black home ownershp rate is pretty much the same now as when we made the change in 1968. Remember, the Black home ownership rate nearly doubled before the change, from 23% in 1940 to 42% in 1970, but now, after the change, is pretty much the same as it was in 1970, over half a century ago. See #26.

Another permanent change in the Housing Act of 1968 was that it included a lot of government spending that was invisible to the public such as government agency purchases or guarantees of below market interest rate loans, and tax breaks for developers and investors. Invisible government spending on tax breaks was and is more acceptable politically than direct government spending on public housing, especially considering the huge government spending on the Vietnam war and the Great Society programs at the time.