Rating
The Pequod Review:
Kenneth Jackson's Crabgrass Frontier begins as a sort of dry and perfunctory history of American suburban development, as it explores how new forms of transportation in the 1800s and early 1900s led to population shifts away from traditional urban centers. But around the time it gets to Chapter 8 (Suburbs Into Neighborhoods: The Rise and Fall of Municipal Annexation) and especially Chapter 11 (Federal Subsidy and the Suburban Dream: How Washington Changed the American Housing Market), it becomes a much more detailed and interesting analysis of the specific political and economic forces that encouraged and accelerated suburbanization. This includes the creation of the long-term, low-interest mortgage, which enabled homeowners to more safely and predictably finance the purchase of new homes:
On April 13, 1933, President Roosevelt urged the House and the Senate to pass a law that would protect the small homeowner from foreclosure, relieve him of part of the burden of excessive interest and principal payments incurred during a period of higher values and higher earning power, and declare that it was national policy to protect homeownership. The measure received bipartisan support... The resulting Home Owner Loan Corporation (HOLC), signed into law by FDR on June 13, 1933, was designed to serve urban needs; the Emergency Farm Mortgage Act, passed almost a month earlier, was intended to reduce rural foreclosures.
The HOLC is important to history because it introduced, perfected, and proved in practice the feasibility of the long-term, self-amortizing mortgage with uniform payments spread over the whole life of the debt. In the nineteenth century, a stigma attached to the existence of a mortgage; well-established families were expected to purchase homes outright. After World War I, however, rising costs and increasing consumer debt made the mortgage a more typical instrument for the financing of a home. Indeed, housing became extraordinarily dependent on borrowed money, both to finance construction and to finance the final purchase. During the 1920s, a boom period in home building, the typical length of a mortgage was between five and ten years, and the loan itself was not fully paid off when the final settlement was due. Thus, the homeowner was periodically at the mercy of arbitrary and unpredictable forces in the money market. When money was easy, renewal every five or seven years was no problem. But if a mortgage expired at a time when money was tight, it might be impossible for the homeowner to secure a renewal, and foreclosure would ensue. Under the HOLC program, the loans were fully amortized, and the repayment period was extended to about twenty years.
And it also includes HOLC's loan underwriting process, which had specific biases that heavily favored the suburbs relative to cities:
Aside from the larger number of mortgages that it helped to refinance on a long-term, low-interest basis, the HOLC systematized appraisal methods across the nation. Because it was dealing with problem mortgages -- in some states over 40 percent of all HOLC loans were foreclosed even after refinancing -- the HOLC had to make predictions and assumptions regarding the useful or productive life of housing it financed. Unlike refrigerators or shoes, dwellings were expected to be durable -- how durable was the purpose of the investigation.
With care and extraordinary attention to detail, HOLC appraisers divided cities into neighborhoods and developed elaborate questionnaires relating to the occupation, income, and ethnicity of the inhabitants and the age, type of construction, price range, sales demand, and general state of repair of the housing stock. The element of novelty did not lie in the appraisal requirement itself -- that had long been standard real-estate practice. Rather, it lay in the creation of a formal and uniform system of appraisal, reduced to writing, structured in defined procedures, and implemented by individuals only after intensive training. The ultimate aim was that one appraiser's judgment of value would have meaning to an investor located somewhere else. In evaluating such efforts, the distinguished economist C. Lowell Harriss has credited the HOLC training and evaluation procedures "with having helped raise the general level Of American real estate appraisal methods." A less favorable judgement would be that the Home Owners Loan Corporation initiated the practice of "red lining."
This occurred because HOLC devised a rating system that undervalued neighborhoods that were dense, mixed, or aging. Four categories of quality -- imaginatively entitled First, Second, Third, and Fourth, with corresponding code letters of A, B, C, and D and colors of green, blue, yellow, and red -- were established. The First grade (also A and green) areas were described as new, homogeneous, and "in demand as residential locations in good times and bad." Homogeneous meant "American business and professional men." Jewish neighborhoods, or even those with an "infiltration of Jews," could not be considered "best" any more than they could be considered American."
New Deal-era programs that funded the construction of public housing further encouraged the flight to the suburbs:
At both the state and the national levels, governments in the United States remained absent from the housing field throughout the 1920s... In an important reversal of traditional federal policy, the administration of Franklin D. Roosevelt initiated its own construction program. The direct involvement of Uncle Sam began with the passage of the National Industrial Recovery Act during the First Hundred Days of 1933. The legislation had four purposes: to increase employment, to improve housing for the poor, to demonstrate to private industry the feasibility of large-scale community planning efforts, and to eradicate and rehabilitate slum areas in order "to check the exodus to the outer limits of cities with consequent costly utility extension and leaving the centrally located areas unable to pay their way." The first purpose was most important; Congress wanted to create jobs, not housing.
The 1933 housing law authorized the Public Works Administration (PWA) to accomplish these purposes through three mechanisms. First, the PWA Housing Division could lend money to private, limited-dividend corporations interested in slum clearance. Second, grants and loans could be made available to public authorities for the same purpose. Third, and most significant, the Housing Division was empowered to buy, condemn, sell, or lease property for developing new projects itself...
The result, if not the intent, of the public housing program of the United States was to segregate the races, to concentrate the disadvantaged in inner cities, and to reinforce the image of suburbia as a place of refuge for the problems of race, crime, and poverty.
This is an excellent history of not just American suburbanization, but also of economic development and public policy more generally.