Over the years I’ve read various books that talk about the federal government’s role in the suburbanization of America, most are overly technical explanations or just exceptionally lengthy. But, David Rusk in this third edition of , does an excellent job summarizing the issue:
“For Whites Only†was the sign that the federal government hung out as America’s suburbs exploded with millions of new families in the postwar decades. The federal government did not create discrimination in America’s housing markets, but it institutionalized it on an unprecedented scale.(1)
In 1933, as millions of owners were losing their homes during the Great Depression, the New Deal created the Home Owners’ Loan Corporation (HOLC). To help struggling families meet mortgage payments, HOLC offer low-interest, long-term mortgage loans. HOLC developed a ratings system to evaluate the risks associated the loans made to specific urban neighborhoods. HOLC designated four categories of neighborhood risk; on its “residential security maps†the highest risk areas were colored red. Black neighborhoods were always coded red and were “red-linedâ€; even those with small black percentages were usually rated as “hazardous†and residents were denied loans.
HOLC’s loan program was small, but the impact of its discriminatory practices was enormous. During the 1930s and 1940s, HOLC residential security maps were widely used by private banks for their own loan practices. When the Federal Housing Administration (1937) and the Veterans Administration (1944) were founded, they embraced HOLC’s underwriting practices. The 1939 FHA Underwriting Manual, for example, stated that “if a neighborhood is to retain stability, it is necessary that the properties shall continue to be occupied by the same social and racial classes.â€
FHA and VA largely financed the rapid suburbanization of the United States after World War II. The federal government’s regulations favored construction of single-family homes but discouraged the building of multifamily apartments. As a result, the vast majority of FHA and VA mortgages went to new, white, middle-class suburban neighborhoods, and very few were awarded to black neighborhoods in central cities. Historian Kenneth Jackson found that from 1934 to 1960 suburban St. Louis County received six times as much FHA mortgage money per capita as did the city of St. Louis. Per capita FHA lending in suburban Long Island was eleven times greater than in Brooklyn and sixty times greater than in the Bronx.
Such government practices died hard. As late as 1950, FHA was still encouraging the use of restrictive racial covenants two years after the U.S. Supreme Court had ruled them unconstitutional. FHA’s red-lining continued overtly until the mid-1960s, when Robert Weaver became the first African American HUD secretary. The weak Civil Rights Act of 1968 finally outlawed housing discrimination. However, the full extent of discrimination in mortgage lending was only revealed after passage of the Home Mortgage Disclosure Act (1975), and significant mortgage funds began to flow back into inner-city neighborhoods only with vigorous enforcement of the Community Reinvestment Act (1977).
Extreme segregation of America’s housing markets was not the result of some natural process of self-regulation. For decades it was force-fed by discriminatory rules of the game from federal, state, and local governments.
Rusk has one misstatement above that should be noted. In 1948 the U.S. Supreme Court ruled on a St. Louis case, Shelley vs. Kraemer, that it was unconstitutional for the government to enforce racially restrictive covenants. The covenants themselves as private agreements, however, were not ruled unconstitutional. The 1968 Civil Rights Act, as Rusk indicated, outlawed housing discrimination based on race.
In cities such as St. Louis, by the start of the Great Depression some of the oldest areas were already showing signs of excessive wear. Combined with the depression and the inability to obtain a mortgage many people simply had no choice but to move to the suburbs. Generous terms on these new mortgages often made it cheaper to live in a new house in the suburbs than to rent an old apartment in the central city. Government policy, not natural market forces, accelerated the shift to the suburbs.
The only money central cities saw for many decades came from federal “Urban Renewal” programs, a misnomer if ever there was one. The renewal was not needed investment in basic maintenance neglected during the depression or updating structures with wiring and plumbing, but wholesale clearance and replacement. Today one of those areas targeted for replacement of its “functionally obsolete” housing stock is one of the highest demand areas, Soulard. Soulard’s structures, once thought to be of no value, have been reborn as new living spaces. offices, restaurants and retail stores. The term functionally obsolete continues to be used today to justify destructive policies of demolition, land clearance, and auto-centric development. Whenever you hear (or read) the phrase functionally obsolete from developers, engineers, politicians or others, do so only with many grains of salt.
Historically cities, going back centuries, were a mix of economic classes. St. Louis’ 19th Century neighborhoods exemplified this with streets of more affluent housing around the corner from the housing of the common workers. Long before the car became so dominant in our society, the feds determined neighborhood stability depended not upon centuries of history but on a new idea of separating people based on “social and racial classes.†This false notion of neighborhood stability has undermined inner-city neighborhoods for decades since and has helped create wealthier suburbs and concentrations of poverty in cities. Again, this is not born out of natural market forces — this was the result of poor public policy.
This is not to say that we would not have seen suburbanization or class/racial divisions without these federal lending policies — we must certainly would have. But we have to wonder to what extent our cities, namely St. Louis, would have been different had black areas not been red-lined so that they could receive loan guarantees. And what if the FHA guidelines would have been open to all types of housing, not just single-family detached, would suburbanization have taken on a different form that included multifamily buildings and corner stores? We most certainly would have taken to the car post WWII regardless of these lending policies but with so many far-flung new houses being built as a result of these policies one has to wonder if the adoption of the car would have been slowed if lending policies were at least neutral or favoring a more dense development pattern?
Today’s decisions seldom consider the long-term consequences. If decision makers had been told in 1937 their neighborhood security map would lead to devestating & costly consequences for America’s cities over the next 5-6 decades they may have revised their thinking. In reality, concerns about the consequences would have likely been ignored as politicians then, as today, look mostly to short-term solutions. This is why we must carefully consider those people we elect to public office.
