f ;* I i i : 7zr.i l '! ^ I t IfcW;;- s£ •: ' I _ APR 13 1958 V* TfcraaiilE and Home Finance Ag©no> •> . ! of th® Ad®ini§tratop s •! LUBAHI ; 1 I THE ROLE OF THE ■ '<* ! > FEDERAL GOVERNMENT :‘i I i' IN HOUSING ' ! ; / > ■n 1 By Paul F. Wendt r i j i i- I f PUBLISHED AND DISTRIBUTED BY THE i AMERICAN ENTERPRISE ASSOCIATION, Inc. WASHINGTON, D. C. •-"i r Stowing and Home finance ^onot •ffio* of the Adainietrater UMimi The Role of the Federal government in Housing THE ROLE OF THE By Paul F. Wendt FEDERAL GOVERNMENT In this study Dr. Paul F. Wendt, Professor of Finance, IN HOUSING University of California at Berkeley, traces the evolution of Federal housing policies and programs and evaluates specific programs in terms of their contribution to the By Paul F. Wendt solution of the Nation's housing problems. Dr. Wendt is a consultant on housing, valuation and t C " -investments and for the last seven years has been engaged in^developing a curriculum in real estate at the University of California and carrying on real estate research. He is a member of the American Institute of Real Estate Appraisers and former Vice President of the American Finance Association. He is the author of the book Real Estate Appraisal published in January of this year. NO. 460 IN TOE SERIES “NATIONAL ECONOMIC PROBLEMS” PUBLISHED AND DISTRIBUTED BY THE For Additional Copies American Enterprise Association, Inc. Address I WASHINGTON, D. C. American Enterprise Association, Inc. 1012 14th Street, N.W., Washington 5, D.C. Single Copy: one dollar Special Prices Will Be Quoted on Quantities CONTENTS PAGE Acknowledgment ............................................................ v I. Introduction .................................................... 1 II. Evolution of Government Housing Policies 2 This study is published in the American Enter­ Origins of Federal Intervention in Housing. 2 prise Association’s National Economic Prob­ • *v Federal Housing Programs in the Great Depression . 3 lems Series. Studies in the series are intended to analyze important issues of legislative concern. Housing Policies and Programs in World War II___ 5 As an educational and nonpartisan research Post World War II—Housing the Veteran................. organization, AEA takes no stand either in favor 6 of or against any proposed legislation. The Groping for a Long-Range Federal Housing Policy.. 8 Association, with the counsel of its Advisory Board, utilizes the services of competent authors, III. Evaluation of Government Housing Programs 12 but assumes no responsibility for their opinions. Mortgage Lending .................................................. 13 Public Housing.......................................................... 21 Slum Clearance, Urban Development and Renewal.. IV. Summary and Recommendations 36 References ............. 39 i Copyright 1956 by the American Enterprise Association, Inc. All rights reserved. Manufactured in the United States of America by Judd 6- Detweiler, Inc., Washington, D.C. - ! ! iii ! ! ! : ACKNOWLEDGMENT T he task of evaluating federal housing policy within the com- ! pass of a few pages has proven a difficult challenge. Few areas ! of public policy involve more important economic problems and such wide disagreement. The author confesses to a strong per­ sonal leaning in favor of reliance upon private enterprise in the housing field. There is no dearth of literature presenting oppos­ j ing viewpoints. Particular acknowledgment is due to Miles Colean and to Leo Grebler, whose writings have been drawn upon heavily in' the historical review of the evolution of federal housing policies. Although the views of these and many others are cited to sub­ stantiate portions of the authors judgments, the responsibility for the conclusions of the study is his alone. \ i v THE ROLE OF THE FEDERAL GOVERNMENT IN HOUSING I INTRODUCTION Federal housing policies and programs have shifted in their emphasis, expanded and contracted, as various aspects of the housing problem commanded public attention in the United States over the past quarter century. During this period the federal government created an extensive array of governmental agencies charged with administering its housing programs. Wide disagreement exists as to the proper scope of federal activities, the wisdom of government housing policies, and then- I administration. Many local governmental officials exert strong pressure to obtain federal support for public housing programs which they feel will be popular with important segments of the voting population. Others resist federal public housing programs as un-American and socialistic. Real estate and homebuilder groups support some federal housing programs strongly, yet vigorously oppose public housing and other special features of federal housing policy. The public, looking back upon an impres­ sive postwar home building record, is confused by contentions of opposing groups that GI financing benefits have resulted in higher home prices to veterans, that liberal housing finance policies are a major contributor to postwar inflationary trends in the economy, and that unprincipled promoters have been the chief beneficiaries of FHA’s liberal lending policies. It is the purpose of this study to trace briefly the evolution of federal government housing policies and programs and to evaluate specific programs in terms of their contribution to the solution of the nation’s housing problems. [1] during these periods as a means to a better understanding of federal housing policy. Following World War I, several states experimented with a variety of inducements to housebuilding activity. The state of New York initiated a program of tax exemption for new rental construction, Wisconsin passed legislation permitting municipali­ ties to lend funds to housing corporations, the North Dakota II legislature authorized direct homebuilding by the State, and California made state funds available for home loans to veterans. EVOLUTION OF GOVERNMENT HOUSING POLICIES Between 1915 and 1931 central mortgage banks of various types were established in New York, California, Florida, Massachusetts, It can be fairly asserted that the federal government has so and Ohio.3 extended its powers in the housing field that today it exercises The creation of the Federal Land Bank System in 1916 estab­ a large element of control over the volume of residential construc­ lished as a principle the direct use of federal funds and the tion, the type, location and size of housing units constructed, extension of Treasury aid to privately owned mortgage-lending residential mortgage loan terms, the planning of new and the re­ institutions. Bills were repeatedly introduced in the Congress planning of older residential areas. It has been pointed out that during the 1920’s and 1930’s providing for the establishment of a each of these steps in widening federal housing activity has had central mortgage bank. The Federal Home Loan Bank System its special justification in the circumstances of the times.1 was finally created in 1932, following a conference on homebuild­ ing and home ownership called by President Hoover in the pre­ Origins of Federal Intervention in Housing vious year. The first action by Congress in the housing field was the appro­ priation of $20,000 to finance a survey of slums in large cities in Federal Housing Programs in the Great Depression 1892.2 Since then emphasis in federal housing policies has shifted with the problems of the times. The post-World War I housing The rising tide of foreclosures on farms and urban properties following the crash in 1929-30 brought about a gradual weakening shortage gave rise to pressure upon Congress for liberalized home mortgage credit. During the years from 1933-1941, principal of mortgage lending institutions and soon resulted in a situation with which existing federal agencies could not cope. The Home emphasis was upon the stimulation of residential construction as Owners Loan Corporation, the Federal Farm Mortgage Corpora­ for the depression. During the war years from 1942-1945, a cure tion, and the RFC Mortgage Company were created during 1933 government policy was in the main directed toward the provision and 1934 to arrest the foreclosure trend and bolster weakened of emergency war housing and the control of rents and building mortgage lending institutions. materials required in the war effort. The housing problems of ■ The National Housing Act of 1934 established the Federal veterans of World War II absorbed principal attention in the years Housing Administration, designed to stimulate new mortgage immediately following World War II. During the past few years, lending by insuring private lenders against loss on new mortgage following the Korean War, the federal government has been seek­ loans, and the Federal Savings and Loan Insurance Corporation, ing to establish a long-range housing policy, while, it seems, modeled after the Federal Deposit Insurance Corporation. The waiting for another emergency to dictate an immediate program. Farm Security Administration was established in the Department It will be useful to review briefly the principal developments [3] [2] ! ear ferred to the United States Housing Authority. According to the provisions of this legislation, construction, ownership, and operation of public housing properties were to be under the juris­ sssssssass fvhich had undertaken the development of garden city com­ diction of local housing authorities. The US HA was empowered munities for urban workers, was soon abandoned by the Farm