The United States Housing Program
by Albert M. Cole, Administrator, U.S. Housing and Home Finance Agency

Housing in the economy of the United States has traditionally been, and still fundamentally remains, the function of the private enterprise system. During the past quarter of a century, however, national growth and the increasing interdependence of the American economy have resulted in increasing governmental concern and activity to secure, guide, and stabilize the production and distribution of housing to a substantial degree. At certain periods, such as the war, and in certain instances in the past, the Federal government has exercised very direct control or participation in parts of the housing economy. These trends have been eliminated or modified, however, and today government operates indirectly in housing, but its effect and influence on the housing economy are still of major importance.
Today’s housing and related community activities in the government developed piecemeal over many years, to meet various kinds of problems. Unified temporarily during the war as an emergency measure, its continuing functions, with one major exception, have been consolidated on a permanent basis in a single agency, the Housing and Home Finance Agency, under the general supervision and policy direction of an Administrator reporting to the President. The one exception is the program of home loans for veterans, administered as one of several special benefits for veterans through another Agency, the Veterans Administration.
The administrative consolidation of housing programs was also paralleled by the development of a consistent, related housing policy, initially set forth in the Housing Act of 1949. This most recently has been expressed through the Housing Act of 1954, a comprehensive revision and enlargement of housing law and policy under the Eisenhower administration.
Basically, this Act conceives the government’s function in housing to be supplementary, to operate to assist and stimulate the private housing economy, to aid local communities to meet urban problems beyond their local means, and to enable all families, at all levels of need, to obtain adequate housing. Although the needs of the great mass of American families are being met, the full so1ution of some of the complex and difficult problem areas of housing and community growth is yet to be accomplished.
In its supplementary role, the government, except in emergency or exceptional situations, does not build homes, nor make loans or give subsidies to individuals to obtain them. Indirectly, however, it helps make adequate home financing available on terms that most people can afford, and it makes both loans and subsidy grants to local communities for special needs, such as housing for low-income families, and the clearance of slums and prevention of blight.
A brief review of the major housing programs today will afford a good background for understanding the American housing economy today. Under the Housing and Home Finance Agency, there are today six major operating programs, as well as the Veterans Administration home loan program. Not included, however, are aids for farm and rural housing. Direct loans and insured mortgages are, nevertheless, extended for certain rural housing needs through the Department of Agriculture. Most farm housing credit, however, is embraced in agricultural credit for the total farm property or the farm operation, and is related to the farm economy as a whole.
First of the present non-farm housing programs to be established was the Home Loan Bank Board, set up in 1932 as a means of reestablishing a stable source of mortgage credit during the demoralizing period of the depression. For a century, building societies, mutual groups who shared savings in a locality and used them for financing homes, had operated in the United States, but were constantly subject to the peril of violent booms and busts in the housing market.
The Home Loan Bank System Was set up to provide a national reserve to secure these investments and later the government also insured investments in these institutions, now called savings and loan associations. Today under the Home, Loan Bank System there are some 4,000 of these local associations, which bring together the relatively small investments of millions of citizens in a local institution, and make them available for home investment in the locality. More than one third of all home mortgage financing in the United States is provided today through such institutions, which have assets totalling about $26 billion.
No government funds are now directly involved and the system is self-supporting.
The Federal Housing Administration, begun in 1934, was the second major program to be launched. This provided government insurance, under a mutual system, for private home loans, thereby giving security to the lender and, through liberal terms, enabling families of moderate means to buy or improve a home. The FHA system of home purchase was based on the long-term, low-interest mortgage based on sound economic value. With a relatively small down payment, the purchaser through moderate monthly payments over a long period (initially 20, and now up to 30 years) could repay both interest and principal. This type of mortgage is now standard in nearly all types of home loans in the United States. By making sound home investment feasible to the great mass of American families, it has resulted in an increase in home ownership in the United States to 53% at the present time.
As a result of the security and assurance provided by the adoption generally of the FHA type of amortized mortgage financing, short-term construction financing has been greatly expanded. Homebuilders have been able greatly to enlarge their construction credit and operations, resulting in the rapid growth of the large-scale speculative builders, producing homes for the general market rather than the individual buyer. Builders producing more than 100 homes a year in the United States produced more than one-third of new homes built in 1949 compared to only 11% in 1939.
From its inception in 1934 through 1954, the FHA has insured mortgages covering nearly 4 million sale and rental units, totalling nearly $23 billion, of which nearly $13 billion was still outstanding.
The FHA also underwrites smaller short-term loans, up to three years, for repair, improvement, and enlargement of homes. Much of this credit is channeled by lenders through local building supply dealers, who furnish the materials, with the homeowner either contracting for the work or in many cases, performing the labor himself. Through 1954, the FHA had underwritten more than 18 million such loans amounting to more than $8 billion, of which less than $1.4 billion was outstanding. FHA insured mortgages are subject to terms, property, and credit requirements established under law and regulation. Costs and losses, which thus far have been insignificant, are met through reserves obtained by premiums, and the program has involved no cost on the part of the Government.
The veterans home loan program, established in 1944, is basically similar to the FHA program. In this case, however, the Government directly guarantees private loans, and pays administrative costs and losses, which thus far have been minor. The terms are in some respects more liberal, permitting many veterans to buy homes with no down payment.
Under the veterans program a total of more than 31/2 million home loans, amounting to nearly $26 billion, had been guaranteed through 1954, of which $18.7 billion was still outstanding.
FHA and VA, while an important source of financing for moderate and lower cost homes, still represent only 27 percent of total outstanding home mortgages. Conventional loans, with no Government insurance or guarantee, provide the majority of home financing. Principal types of lenders in the housing market are savings and loan associations, mortgage companies, commercial banks, mutual savings banks, insurance companies, and individuals.
In order to assure a steady long-term market for FHA and VA home loans, the Federal National Mortgage Association operates as another agency in the HHFA. The FNMA buys and sells such mortgages, according to the capacity of the private investment market to absorb them. The Housing Act of 1954 reorganized this operation, to make private capital its normal source of funds, but permitting Government support for special needs where private financing is inadequate.
Another problem of Government concern was that of slums and housing for low income families unable to afford good private housing. In 1937 the public housing program was started to meet this problem. The Federal Government provides annual subsidies to local public agencies to enable them to build and operate good housing for low-income families at rents within their means. Nearly all such public housing is in large-scale, multi-family rental projects, much of it built on sites of former slums. Through 1954 about 450,000 units of such housing had been built or were authorized for construction.
Under the Housing Act of 1954 such housing is specifically to be used for the necessary relocation and rehousing of low-income families displaced from slum or blighted areas or by other Government or public works.
Although originally it was intended that by housing low-income families, substandard housing could thereby be eliminated and slums ended, it became evident that slum and blighted areas required more comprehensive treatment and private as well as public resources in order to overcome the effects of obsolescence, deterioration and neglect, and congestion within growing cities.
In 1949, therefore, a slum clearance and urban redevelopment program was authorized to provide Federal loan and grant assistance to local communities to clear, replan, and make available for private or public redevelopment the worst slum and blighted areas. Nearly 200 communities have projects under way under this program.
The Housing Act of 1954, however, broadened this approach to cover not only slum clearance, but also the prevention of blight and the renewal and rehabilitation of areas that were declining but were still basically sound. This new “urban renewal program” is just getting under way. Nearly 100 towns and cities, however, are preparing or have completed community-wide workable programs under which such broad-scale action can be undertaken.
Another development in housing thinking is the realization that housing growth has a great impact on community facilities and services and is inescapably related to these needs. In the HHFA, therefore, is a Community Facilities Administration, which constitutes a professional staff, experienced in construction, planning, and financing of community and institutional types of facilities and utilities.
Except in emergencies, such as war or depression, the Federal Government does not undertake to provide or finance directly local public and community facilities. The EFA, therefore, in addition to administering some emergency programs now in liquidation, assists local communities, through non-interest-bearing loans, to develop advance plans for needed public works, makes loans for public facilities where private financing is unavailable, and administers a special program of loans for student and faculty at colleges and universities where private funds at reasonable rates are unavailable.
From what originally developed as separate, unrelated, and often direct Government undertakings in the housing field, the present policies and programs cover a broader range of housing and community problems, but are now basically coordinated in their administration and generally limited in function to supplementary support and assistance of private and local community endeavor.
Coordination of policies and operations is achieved through the HHFA Administrator as required. In a local urban renewal project undertaking for redevelopment and rehabilitation of a blighted area, for example, the functions of the Administrator’s office, of the Urban Renewal Administration, the Federal Housing Administration, the Public Housing Administration, and the Federal National Mortgage Association may all be used in combination.
Government aids, therefore, are intended to maintain the private economy and local activity at a high level and enable it to serve a broad range of needs, as an essential part of the Nation’s economy and its social advancement. Housing and its related production - equipment and furnishings, public and commercial facilities, and land development - represent, next to the production, processing, and marketing of food, the second largest field of economic activity in the Nation. Actual private investment in construction and improvement of homes alone is currently more than $13 billion, and accounts for nearly 30% of the Nation’s gross private investment.
Housing, therefore, is a major factor in national economic prosperity, and conversely, a strong economy is essential to the support of a high level of housing activity.
The housing industry is still a fairly loose and varied operation compared to many integrated, mass-production functions in the manufacturing and industrial field, hut with the advent of many large building organizations and development of a continuing mass market since the war, the housing industry has become a much more integrated entity. Strong national trade organizations are established for the major elements in the industry, closer relationships have been developed between the elements of the industry , and large-scale modern techniques are now common in land development, design and construction, and community planning. Large suburban towns are built in some cases, such as Levittown on Long Island with more than 50,000 persons serving the New York area; and Park Forest, near Chicago with about 20,000 persons. Schools, streets, utilities, and town facilities are provided for by the developer in such instances. In more average types of home developments, however, the builder acts largely as a contractor, arranging financing and development, and carrying out the operations through specialized sub-contractors. Suppliers have also become more specialized, with large firms concentrating on kitchen and beating equipment, windows, flooring, plumbing, etc. Prefabrication methods have been widely adopted in recent years, ranging from factory production of whole homes, to prefabrication of various parts and large-scale site fabrication for housing developments.
Homebuilding labor on the site is organized in most of the larger urban areas along craft lines under the American Federation of Labor. Collective bargaining is carried on locally between local labor organizations and builder groups. In smaller places, a considerable part of building labor is still unorganized.
Employment on site construction in homebuilding is estimated at well over one million workers in addition to an equal or larger number in the secondary labor force required to produce and distribute the machinery, materials, and products used in homebuilding.
The increased housing market in the Nation has resulted from the increase in population, the rapid urbanization of the country, shifting a large proportion of the rural population to the cities, and an increasing standard of living coupled with the greater opportunities for the mass of families to finance a home and improve their living conditions. Most of the housing demand is for single-family homes, with the greater part of home construction since the war occurring in the newly developed suburbs of metropolitan areas. Rental housing is still in demand in the cities, where many large apartment developments have been built in recent years. However, apartment construction, which reached nearly 20% of total new housing production in 1949, has now declined to less than 10%.
Rapid urbanization of the country has created difficult problems, as expansion has jumped across municipal political boundaries and central areas have declined through deterioration and obsolescence. Baltimore, Maryland, estimates that the city annually spends $13 million more on its blighted areas than it receives in revenue, and this is typical of most cities.
This drain on city income makes more difficult the task of meeting increasing new capital needs, and blocks off renewal of these areas for productive, modern purposes.
Planning has therefore become a major problem in urban areas, and many states have undertaken to bring better area planning into effect. Under its new urban renewal program, the Federal Government can make grants to state planning bodies to assist smaller communities faced with expanding needs, and to finance planning on a metropolitan area basis among various separate municipal and county governments. Planning, however is basically a local and state responsibility and is affected by Federal policies only as it must conform to certain broad, basic requirements to qualify for certain Federal aids.
New home production itself has been at record levels during the post-war period, passing the million-unit level for the first time in history in 1949, and continuing above that level for the past six years. Although new household formation is declining and is down to about 800,000 a year, market demand continues strong. Family formation will continue at a lower rate for the next four or five years before it starts rising again to new high levels. In order to sustain high level production of homes during this period, it will be necessary to meet more of existing market needs, such as replacement of substandard homes, more housing for low-income and minority families who have not shared equally in the past market, and the demand for better and larger homes and of increased urban needs resulting from continued population mobility and rising incomes.
Home mortgage debt in the United States has trebled since the end of the war, amounting to about $75 billion at the end of 1954. This increase, however, has not been out of line with the post-war expansion in production and the increase in savings and income, and repayments on this debt already amounts to about $12 billion annually. Moreover, because of the long-term amortized mortgage generally prevailing and the Government security behind a substantial part of the debt, it is not exposed to the sudden waves of mass foreclosure and forced liquidation that brought on a collapse of property values in the past.
Nevertheless, it is considered a constant responsibility of Government home financing policies to avoid, on the on hand over-stimulation of housing credit to the point of inflated demand and costs, but on the other hand, to support a sustained high-level of market demand to keep production at prosperous levels, to meet more of the people’s needs for better housing standards and to replace the substandard housing and blighted areas of our urban areas with good homes and neighborhoods. These represent the primary ends toward which the coordinated use of the Government’s housing activities is directed.
 
 
 

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