the government did not want houses in urban areas -- 8/23/16

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Today's selection -- from Debtor Nation by Louis Hyman. To help bolster mortgage lending during the Great Depression, the Federal Housing Administration (FHA) was created, and the FHA in turn created the twenty year mortgage. But no one had made a mortgage loan for anywhere close to as long as twenty years before, and lenders were worried that the houses would not hold their value over twenty years. So the FHA created standards and guidelines to help insure that they did. But in so doing, it clearly showed a bias against urban areas, inaugurating an almost eighty year period in which the trends in housing was toward suburbs -- and away from urban areas. This trend has only recently reversed:

"The purpose of the FHA was to create demand for building materials and for labor. To get money moving again in the economy, the FHA guidelines helped buyers and lenders alike differentiate between a good house and a bad house. Too many home buyers had been burned by shoddy construc­tion in the 1920s. Enacting national standards allowed investors to loan money at a distance, and allowed mortgages to be resold. Housing qual­ity was the foundation upon which the entire FHA system resided.

"In determining 'good' housing, however, FHA guidelines went well beyond the proper ratio of nails to wood in addressing what had long been contentious politically and racially. ... The FHA Underwriting Manual instructed lenders on which properties could be insured. ... Through its many pages of charts, tables, and descriptions, the manual instructed banks on where to lend and on whom to lend money to. While the man­ual promised objectivity, the social assumptions of the FHA planners shaped the planning criteria as much as macroeconomic considerations. ...

"These standards were not only for how they were physically constructed, but also where they were located, which few ex­tant homes could meet. ... The ideal house lot possessed 'sunshine, ventilation, scenic outlook, pri­vacy, and safety.' 'Effective landscaping and gardening' also added to its worth. Needless to say, downtown districts, especially in the East, rarely possessed all these qualities and 'depart[ure] from the conditions [caused] ratings [to] become progressively lower.' Homogeneity of surrounding housing stock -- houses that all looked alike -- was believed to indicate stable housing prices. To get the maximum score on the mortgage evalu­ation, the manual mandated that a house be a part of a 'sparsely devel­oped new neighborhood . . . completed over the span of a very few years.' Without this homogeneity, 'an undesirable age mixture of structures will result.' Between the types of lots and the need for simi­lar building age, the suburban subdivision easily received a designation as a 'better mortgage-lending area.' Urban neighborhoods found it nearly impossible to receive such a designation. ...

"Multiuse districts with 'commercial, industrial, or manufacturing enterprise,' threatened resi­dential value. A declining population threatened a surplus of sales, which would decrease value. Most alarming was the mixture of classes or races in a neighborhood or the potential therefore. The 'adverse influences' category of the mortgage application, which was 20 percent of its total rating, was mostly concerned with the danger of class and racial mixing. Ideal neighborhood schools ought not to have 'a goodly number of the pupils represent a far lower level of society or an incompatible racial ele­ment.' A good neighborhood also included 'prevention of the infiltra­tion of business and industrial uses, lower-class occupancy, and inharmo­nious racial groups.' ...

"Considered from the point of view of a mortgage lender, the FHA be­lieved the city was not a good investment, making suburban lending risk­ free and thus, urban lending, bad business. Very explicitly, the 'central downtown core' was 'considered ineligible.' "