From Foxholes to Tract Homes
Continuing the conversation … tracking the history of homeownership and how it has evolved since national housing records were first kept in 1890. And looking for historical perspective that might offer some insight on the current housing crisis.
Last week, we reached the post-war period of the late 1940s just as 15 million GIs were returning home from the War, right in the middle of a severe housing shortage and a looming recession. They had grown up in the Depression and come of age while making the world safe for democracy. Now they wanted to restart their lives with marriage and kids and not surprisingly, they were expecting democracy to deliver better educational opportunities and higher-paying jobs.
Enter the GI Bill, which was already in motion before the end of the war and set up to provide wide-ranging support for returning soldiers like: college tuition and living assistance, unemployment compensation, loans to start businesses and low downpayment loans to purchase homes. The hope was that it might help create an aspiring middle class and deliver prosperity and tangible benefits to more people (maybe even homeownership).
Policymakers had already recognized the positive social and economic impacts of homeownership during the Depression, when they intervened in the struggling housing market with a slew of new housing entities like the Federal Housing Administration (FHA) and Federal National Mortgage Association (Fannie Mae) – both designed to stabilize the mortgage market and increase affordability.
The stage was set and as FDR said in 1944: The sentiment for home ownership is embedded in the American heart [of] millions of people who dwell in tenements, apartments and rented rows of solid brick. . . .This aspiration penetrates the heart of our national wellbeing. It makes for happier married life. It makes for better children. It makes for courage to meet the battle of life. . . There is a wide distinction between homes and mere housing.
Among those returning GIs, there was plenty of desire and pent-up demand to own homes rather than just occupying mere housing. What was lacking was more effective demand. Translation: Lots of people wanted to buy homes but not that many people could actually afford to act on that impulse. The obvious solution for those returning soldiers? More government intervention!
So, in addition to the GI Bill, the government launched an all-out effort to revamp the Country’s entire socio-economic system by making homeownership the core component of the American Dream. What followed was a series of sweeping new policies, financial reforms, infrastructure developments and stimulus efforts aimed at private sector investment that would dramatically increase the rate of homeownership over the next two decades.
Next week: Lower down payments and more favorable loan terms.