Oct 14, 2002
The housing industry is by far the biggest single sector of the economy, accounting for more than 20% of the Gross Domestic Product (GDP). For the last couple of years, it has been practically the sole sector of the economy to show any kind of growth. Last year, home construction increased by 4% and home sales were up nearly 6%. In many parts of the country, home prices have been rising at a record clip. In contrast, overall industrial production fell by nearly 6%, production of clothing and transportation equipment each fell 11% and home electronics fell by 24%. Machine tool orders plummeted by 47%, reflecting the sharp cutback in corporate investment.
Most likely the most important factor driving the growth in the housing sector has been very plentiful and relatively cheap credit. Houses have been mortgaged up to the hilt, with little or no down payments and all kinds of creative financing. There has also been a boom in home refinancing, with many homeowners taking out much bigger mortgages and either using the extra money to pay off some other, more expensive debt, or simply spending the money. As a result of refinanced mortgages, 80 billion dollars has been pumped into the economy in the last year, an average of $23,000 per homeowner who refinanced, much more money than last year's tax rebate. Economists estimate that without the boost from the housing sector, last year's recession would have been five times deeper and much longer.
Yet, despite the current boom in housing, so celebrated throughout the media, there is not enough affordable housing for the sectors of the population with the greatest needs, the working class and the poor. There is a gap between the number of affordable housing units and the number of people needing them, and it is growing. Between 1973 and 1992, 2.2 million low-rent units disappeared from the market. Another one million were lost over the past decade. Landlords either abandoned those units completely, converted them into condominiums and expensive apartments, or raised the rent on them, making them unaffordable. While the supply of affordable housing was reduced over the last 10 years, the number of households in need of that housing increased by over a million.
Throughout the decade, there has been a big increase in rents. From 1991 to 1995, rents paid by low-income renters rose by 21%. In the year 2000, rents increased faster than overall inflation for the fourth consecutive year.
Since wages have been kept down, the burden on family income to pay the rent has increased. Housing is by far the most expensive item in household budgets. "Experts" on household budgets used to say that rent was not supposed to take up more than one-quarter of take-home pay. Over the last 20 years, that standard has been increased to one-third of take-home pay. But for tens of millions of households, rent takes a much bigger share. Over 14 million U.S. households spend more than half their income on housing. That is one out of every seven households. These are not just the poorest families, nor only those on welfare. Nationwide, about three million households for whom more than half their income goes for rent are full-time working families.
An annual study by the National Low Income Housing Coalition shows what a worker would have to earn in order to afford an average two bedroom rental unit in different cities. In Washington D.C., the average wage would have to be $18.13. In Boston, it is $20.21. In Los Angeles, it is $19.14. In no state, county or metropolitan area can a minimum-wage worker, working a 40-hour work week, afford a two bedroom rental at the going market rate.
One consequence of this is the rise in homelessness. One study found that homelessness had tripled between 1981 and 1989. In the 1990s, conservative estimates showed homelessness increasing at a rate of 5% per year. During any night, there are 700,000 homeless people, who are found in shelters, eating at soup kitchens or congregating on the street. In the course of a year, about two million people experience this kind of homelessness with no permanent place to leave their belongings. Of the homeless, an increasing proportion, currently around 40%, is made up of families with children.
But beyond that, there are millions of hidden homeless not covered in any studies, those who make do without a stable home. They may lose a job, and they move in with friends and relatives. Or, because they can't afford the first and last month's rent, they live in cars or other vehicles. Or they survive in such makeshift housing as tents, boxes, caves or boxcars.A New York Times editorial from July 5 stated that "the housing crisis today is nearly as severe as the one... just after World War II." In other words, according to the New York Times, the crisis of affordable housing is almost as great as it was in the late 1940s, a period that followed almost two decades of unprecedented crisis, the Great Depression and World War II, with the migration of millions of workers and the return of millions of troops.
In fact, there has never been nearly enough decent and affordable housing for the working class and the poor, from early industrialization on to present times.
By all accounts, the housing situation for the U.S. working class during the 19th century was horrendous. While ruling class reformers preached temperance and the merits of hard work, the working class was crowded into the worst slums, in utter filth and squalor. For decades and decades, several sections of New York City held the distinction of being the most densely populated space on earth. In the mid-1800s, New York City health inspectors blamed the high death rate from the cholera epidemics that ravaged the city's poor inhabitants on the "crowded and filthy state in which a great part of our population live."
In the 1870s and '80s, a few wealthy philanthropists made some highly publicized token efforts at private reform, setting up model tenement communities in many cities, including Boston, Brooklyn and Washington D.C. "Enlightened" and "benevolent" investors were supposed to content themselves with only "modest" profits on "limited profit" housing ventures. Of course, there weren't that many "benevolent" investors, and the few projects that were built didn't make a dent in the housing needs of the industrial city.
Among the more practical capitalists, some built company housing, claiming they were setting up enlightened, model communities. In 1885 George Pullman, president of the Pullman Palace Car Company, built the "model" industrial town of Pullman, Illinois. Near Pittsburgh, Apollo Steel's George McMurty founded Vandergrift, a town that, like Pullman, linked the idea of better housing with improved health, enhancing productivity ... and profits. But these were nothing more than a dressed-up public-relations version of the company town. In Pullman, the workers complained that behind the "green stretches of velvety lawns" that Pullman showed off to visitors, workers lived in overcrowded tenement blocks, with 300 to 500 persons in each. There were only one closet and one water faucet for each group of five families. There were no bathtubs. One barren space served as the common yard for the tenements surrounding it. In other parts of the town, residents said, living quarters were even worse. Excessive rents, furthermore, forced them to take in lodgers. When the depression of the early 1890s broke out, Pullman laid off a quarter of his workforce and cut wages drastically. But he did not reduce his rents, nor did he fail to evict those who were laid off. This was one of the workers' major grievances when they initiated the great railway strike of 1894.
Other industrial towns, like Carnegie Steel's Painters Row and Skunk Hollow, didn't even make the pretense of being model towns. They were often little better than slightly sanitized versions of the notorious coal patches and company towns dotting the industrial landscape of Pennsylvania and West Virginia. Houses were jerry-built, sharing foul latrines and without running water.
Up until the Great Depression of the 1930s, the federal government directly financed the construction of workers' homes only once, when the U.S. entered World War I in 1917. The mass migration of labor to the industrial cities for war production vastly exacerbated the already severe housing shortages in those cities. Sometimes, companies had trouble filling all their open positions because there was not enough housing in the area. Other times, workers demanded higher wages to cover their housing costs. This all happened to coincide with the isolationist opposition to the war. To undercut the criticism and discontent, with great fanfare the Wilson administration announced that it was setting up a couple of programs to build workers' housing. Behind all the fanfare, the actual number of homes built was only 15,000 and the Wilson administration waited more than a year before it even began construction. Most of the homes were not completed until after 1918, that is, after the war. Once the war ended, the federal government immediately dropped all pretenses of a housing program, despite the fact that, if anything, the housing shortage worsened, as millions of troops returned to civilian life.
In the 1920s, some of the biggest corporations including Ford, General Motors, U.S. Steel, Kodak, General Electric, Bethlehem Steel, Goodyear Tire and Standard Oil embraced a form of "welfare capitalism" or paternalism, providing housing to part of their workforce; of course, the workers paid for this housing with deductions from their paychecks. This housing, which was offered to only a minority of stable workers, was used as an incentive for those workers to identify their interests with those of the corporation, that is, to undercut any labor militancy.
As for the housing built by private developers in the 1920s, most of it was single family homes for the well-to-do, the richest third of the society, where the surest profits could be gained. This brought about something of a housing construction boom, which also contributed to the economic expansion of the "Roaring 20's." But that part of the housing market was soon saturated, and by 1926 housing construction began a steep decline. By 1929, residential construction had dropped by 46%. This collapse in housing construction in the latter part of the 1920s was a prelude to the fast approaching Depression.
In late 1929, the stock market collapse officially ushered in the beginning of the Great Depression, causing widespread misery and suffering. Estimates are that by 1932, over one-quarter of the workforce was unemployed, and one-third of the nation, some 40 million people, had no stable income. Millions were evicted from their homes or took off looking for work. Outside almost all cities and towns, improvised communities of the homeless sprang up, going by such names as "urban jungle," or "hobo jungle," or "Hooverville." An article in the New Yorker from 1932 described these as "whole villages of sacks and huts, made up of packing boxes, barrel staves, pieces of corrugated iron, and whatever else the junk man doesn't want."
In 1932, the Hoover administration, claiming to take steps to deal with the housing crisis, established the Reconstruction Finance Corporation (RFC). Under the RFC, the federal government used federal dollars to set up a fund to provide loans to banks and insurance companies so that they could construct low-income housing or reconstruct slum areas. But once the RFC was set up, Congress quickly changed the law so that the companies were given much greater latitude to use the loan money however they wished. Despite all the promises, only one housing program in the entire country was built with money provided by the RFC, the Knickerbocker Village development in New York City.
Big sectors of the population had no homes or were living in tar paper shacks, while the federal government aided ... the banks and insurance companies.
In 1933, the administration of Franklin Roosevelt came to office. By that time, the crisis of the housing industry was extremely severe. More than half the housing mortgages had either been foreclosed or were in the process of being foreclosed. This mass of defaults was pulling down the financial institutions that did the foreclosing. At the same time, depositors were lining up outside banks to empty out their funds, out of fear that the savings institutions were about to go under. The real estate and construction industry was almost at a dead stop. In 1933, only 134,000 dwellings in a nation of 120 million people were being built, a decline of 84% from the 1922- 28 average.
Under Roosevelt, the Home Owners Loan Corporation (HOLC) was set up. The HOLC purchased defaulted home mortgages from the holders who could carry them no longer, and refinanced the loans to the occupants. This measure helped the financial institutions, relieving them of the burden of carrying a host of bad mortgages. It also aided those homeowners who risked losing their homes who were primarily from the wealthy classes, parts of which could not meet their mortgage payments, given the worsening depression.
In 1934, the federal government established two sorts of insurance programs. Under one, the Federal Housing Administration (FHA) insured mortgages, protecting the lender against loss in the event of default by the home buyer. This was paid for by a small mortgage insurance premium paid by the home buyer as part of the monthly installment. The second form of insurance came under the Federal Savings and Loan Insurance Corporation. This insured deposits savings in savings and loan institutions on a basis generally comparable to Federal bank deposit insurance.
In other words, government "housing" policy under Roosevelt was aimed at aiding the better-off homeowners, while rescuing the financial sector from further collapse.
But this kind of aid had no impact on the mass of the population who had no homes and were not bankers. So the Roosevelt administration also promised a housing program. Upon taking office in March 1933, the Roosevelt administration created the Public Works Administration (PWA), under Harold Ickes, the secretary of the Interior. Authorization for the PWA claimed that its aims were the "construction, reconstruction, alteration, or repair under public regulation or control of low-cost housing and slum-clearance projects." Nonetheless, over a period of four years, the PWA produced only 58 housing developments with 25,000 individual units throughout the whole country. But even this was too much for the bourgeoisie. And when a coalition of the U.S. Chamber of Commerce, the National Association of Real Estate Boards, the U.S. Building and Loan League and the National Retail Lumber Dealers Association formed a strong opposition to this token reform, the Roosevelt administration soon dropped it.
But as the economic and social crises of the Great Depression deepened, there was an upsurge of the working class movements. Among these were the fights of the unemployed, including the local fights against evictions. As a concession to those movements, the Roosevelt administration sponsored and passed as a part of the 1936 Social Security Act, the first welfare programs, that is, social aid for the poor, especially families with children. The problem was that the allocations were so small, they did not cover even the lowest rents on the housing market. So, a 1937 housing law provided for the construction of public housing projects that were aimed at providing housing for the poorest layers of the population. The government set strict cost limits. As opposed to the public housing constructed under the PWA, which was considered decent and even somewhat enlightened, the construction of the housing projects under the 1937 law was to be as cheap as possible just enough to try to take the movement of the unemployed off the streets.
The first two housing projects that were built under this law were in New York City, Red Hook and Queensbridge. Doors were left off closets, kitchens were not separated from living areas and interior partitions were cheap and flimsy. There were no elevator stops at the second, fourth, and sixth floors of the buildings. Lewis Mumford, the city planner and social critic, described these projects as "unnecessarily barrackslike and monotonous." This became the pattern for public housing projects. Public housing produced instant ghettoes of the poor.
Usually the policy of the Roosevelt administration is pictured as being a real break with the past. His administration is credited with funneling huge amounts of government aid to relieve the terrible conditions of the population at the time. But this was always a myth. The interests that the Roosevelt administration helped rescue were those of the bourgeoisie. When it had to give up concessions to the working class and poor, it did so only grudgingly and in a way that still served the interests of the bourgeoisie.
The gearing up of industry for war production starting in 1940 produced new enormous housing problems. Within a year, an estimated three million workers migrated to the cities, and the population of certain cities and towns doubled or in some cases tripled. During the entire war, this migration represented a total population shift of 8 to 10 million people. In most cases, the housing just wasn't there.
The federal government had no choice: to prevent industry from being starved of a workforce, it had to set up a program to build homes for millions of workers within a short period of time. A new agency, the FPHA, was formed to oversee this construction. Within one year's time, a total of 1.8 million housing units were built. (Yes, the government can certainly move quickly when it decides to!) Half of the units were built directly by the government. The other half were built by private contractors, with government financing, usually through FHA- insured mortgages.
Of course, in most cases, this housing did not meet the workers' needs. In some cities, where there was empty space, huge tracts of tiny bungalows were laid out. In other places, workers' families shared temporary barracks structures. Or they were crowded into cramped, primitive structures in which they had to share sanitary facilities with dozens of other families. And, as soon as enough housing was built to keep a workforce in the cities, the program trailed off. The fierce competition for housing exacerbated racial tensions and became an important contributor to the race riots that broke out in Detroit, New York and Los Angeles during the war.
But industry was provided with its workforce, and building contractors and banks received big profits from the huge government contracts.
By the end of World War II, there was a great deal of pent-up demand for housing, especially with the return of millions of troops. With the exception of the first few years at the start of the war, there had been little housing built, adding to the problems created by the depression.
This is the period during which the housing industry turns to the suburbs, where land was cheap and plentiful. The government stepped in with different ways to support the housing industry. The federal government provided two important programs to support home financing. There was the federal mortgage insurance program of the FHA. This program had been introduced during the 1930s and it was expanded in the mid-1940s. In 1944, Congress extended mortgage insurance, by creating a second similar program as part of the G.I. Bill administered by the Veterans Administration. With these programs, federal dollars were used to insure mortgage loans, with the promise that the bank would be repaid in the event that the home buyer defaulted.
These two federal programs virtually transformed the mortgage business. Before the introduction of federal mortgage insurance, banks extended loans primarily to the wealthier segments of the society. Generally, they required a 50% down payment and they granted mortgages for a relatively short duration, five or 10 years. With federal mortgage insurance, banks slashed the down payment to 25%, and offered mortgages for much longer durations, up to 30 years. Suddenly, mortgages were much more affordable, and banks and other lending institutions began to offer them to the middle classes, as well as the more stable sectors of the working class.
Washington's aid did not stop there. It also stepped in and provided the vast infrastructure necessary for the new housing developments. It provided most of the funding for the massive construction of highways and sewers. Local governments put in the rest: roads, lighting, schools. Then, both sectors of government provided generous tax breaks for homeowners, as well as developers.
All the different forms of government aid, direct and indirect, helped to revolutionize the scale at which suburban developers worked. Developers found themselves commanding virtually unlimited capital very little of which they actually had to supply themselves which enabled construction on a scale virtually unknown in U.S. history. Where the typical builder of the 1920s had only one or two homes under construction at a given time, post-World War II firms commonly erected hundreds at a clip. The industry was transformed from small craft builders to gigantic "operative builders," as the FHA called them.
This construction boom was an important underpinning to post-World War II economic growth. And it also stimulated the growth of other important segments of the economy from electric and gas utilities, to automobiles, to household appliances and furniture.
By the very economics of these brand-new suburban developments, usually made up of individual houses, all of the old social problems were exacerbated. Obviously, lower income people and most minorities were excluded, since they couldn't afford these new houses. Developers did not build new apartment houses that would house lower income families. The suburbs were homogeneous and insular or put in another way, they were de facto segregated even more than in the cities or the South. This made it that much more difficult and forbidding and threatening for black people to move into the suburbs, even when they could afford it. There are all kinds of stories about individual black families moving into one of these suburbs and being threatened, burnt out, etc. Levittown, one of the first and most successful enormous tract developments of the suburban era, might have been just over the border from New York City, but even in 1960, not one single black person was among its 82,000 residents.
Certainly, the federal government, which supported this economic development and the fabulous profits that it brought to so many parts of the bourgeoisie was not about to rock the boat, despite all its pretenses of standing up for civil rights. For example, until the black movement of the 1960s forced the issue, the FHA and VA-backed mortgage regulations continued to allow restrictive covenants in their deeds, stipulating that the owner could not sell to various ethnic or racial groups.
Over time, sections of the more stable part of the working class that was able to gain higher wages, that is, mainly white workers, were able to move out into a few of the suburbs. But these were not the same suburbs as those that the middle classes, that is, the small business owners and professionals, had settled into. These workers had to settle for those suburbs that didn't have the nicer neighborhoods or the better schools.
Left in the cities were most of the working class and the great mass of the poor. Through the decades of both depression and war, there had been little investment in the cities' housing and infrastructure, and there was a very desperate need for massive investment in new buildings, as well as renovation and repair of the old. But little of this was done, and the cities were left to languish and decay, even as the overcrowding was made that much worse by the continuing migration of the black population and sectors of the impoverished white population from the South to the big industrial cities. The worsening conditions only encouraged further flight out, not only of residents, but everything that went with them, businesses, jobs, shopping areas and the tax base.
It was big parts of the working class, along with the poor that bore the brunt of this crisis.
But by the 1950s, the civil rights movement in the South was beginning to have echoes in the North, leading to an increasingly explosive situation. Only then did the government step in. Some slums were bulldozed. In their place, the government constructed massive public housing projects designed to warehouse the largest number of poor people in the smallest space possible. New York City, under Robert Moses, the powerful chairman of the Mayor's Committee on Slum Clearance, erected seventeen housing projects. They were all high-rise construction, sometimes mile after mile of drab, hulking towers. On the Lower East Side of Manhattan, the projects contained 148,000 apartments and over one-half million tenants. In Chicago between 1955 and 1966 the city council approved 51 public housing sites, 49 of which were situated in the ghetto areas of the South, West and Near North sides. At the time of its completion in 1962, the Robert Taylor Homes on Chicago's South Side was the largest public housing project in the world. City after city put in these enormous public housing projects.
When they were built, these housing projects might have been an improvement on what passed for housing before, tenements that had been built in the last century, where there was no light or air and hardly any plumbing or heating; where one floor of residents shared a single bathroom in the hallway. At least the new projects had bathrooms and kitchens. But they were cheaply built and there was little or no money to maintain them. The walls were thin. The buildings were noisy. At the same time, they were beset by all the social problems of the very poor. Very quickly, the conditions began to deteriorate.
Said one resident in the Robert Taylor Homes shortly after it was built, "We live stacked on top of one another with no elbow room. Danger is all around. There's little privacy and no quiet. And the world looks on all of us as project rats, living on a reservation like untouchables."
Claiming they were getting rid of the slums, local governments began to carry out so- called "urban renewal" projects. Over the years, big sections of the cities were cleared but mainly to put up housing for the wealthy or professionals who preferred to have at least one home near their work, as in downtown Los Angeles's Bunker Hill or Detroit's Lafayette Park; or new office buildings or a new factory as in Detroit's Poletown; or big cultural centers, like New York City's Lincoln Center or Baltimore's Charles Center; or big hospital complexes or extended university campuses, like Columbia or Fordham in New York or the University of Southern California in Los Angeles. In the process of this "urban renewal," countless neighborhoods with millions of housing units for the working class and poor were bulldozed, and only a tiny fraction of new housing was built for the displaced residents. The stock of affordable housing was thus reduced that much further. People were either forced into ever more overcrowded slums and the projects or forced to pay a much higher share of their income for housing.
As the cities festered with the growing social problems, the black movement that had started in the smaller cities and towns in the South exploded in the major cities throughout the country. Among their most important demands were improved housing, and an end to the de facto discrimination and segregation.
The government responded with some concessions. Starting in 1965, the president at the time, Lyndon Johnson, recognized the movement's demands by creating a cabinet-level Department of Housing and Urban Development (HUD). The Housing and Urban Act of 1965 instituted rent supplements for poor people to bridge the gap between market rents and the amount families could afford to pay, defined as 25% of their income. (Under "Section 8," a decade later, the government provided housing vouchers which stipulated that the poor had to use 30% of their income, before taxes, to pay rent.) The 1965 act also provided for the construction of further public housing. Then in 1968, a new Housing and Development Act provided subsidies for lower income people to purchase homes. Through FHA and the Federal National Mortgage Administration (Fannie Mae) the government also granted subsidies and guarantees to developers to build low income housing.
But while these programs provided some access to housing, they were more importantly subsidies to the profits of landlords, developers and construction companies. Rent subsidies, for example, were nothing but a reward to slum landlords that allowed them to raise their rents even higher than before for substandard housing. And the HUD program that allowed lower income families to finally own their own home was more importantly a gift to the real estate industry, letting the companies that owned huge stocks of dilapidated rental homes unload them, with big government subsidies and tax breaks. Supposedly, HUD inspected these homes before allowing their sale. But often, the heating, electricity or plumbing were in such bad shape, the home owners could not afford to repair them, and they were forced to walk away from their down payment and whatever cash they had sunk into the home. In cities like Detroit and Philadelphia, abandoned houses multiplied, leading to the destruction of entire neighborhoods.
With the onset of the economic crisis in the 1970s and the decline of social movements, the federal government began to drastically scale back on all of the social programs that it had enacted in the previous decade, including whatever housing programs existed. Low-income housing starts dropped from 183,000 in 1980 to 28,000 in 1985. By 1996, the Clinton administration signed "housing" legislation that authorized no new construction of public housing. Federal funding for day-to-day maintenance and rehabilitation of public housing was scaled way back.
The poor conditions caused by government neglect have provided the pretext for that same government to destroy more and more of the public housing stock, only to hand it over for next to nothing to developers who then put up more profitable construction. When the Chicago Housing Authority demolished several of the Robert Taylor Homes in July 1998, the waiting list of people to get in was six years long. As miserable as the conditions were in those projects, for many that was all there was, because there was almost no new construction of affordable housing to take the place of the public housing that was being demolished.
Low income families are forced to compete for the dwindling supply of affordable rental housing available on the private market, a kind of sinister game of musical chairs in which only the lucky ones get seats.
As for vast parts of the working class that are somewhat better off, both the cities and the suburbs are a mess. The center cities are either too expensive, or rundown and unsafe. The other option, the escape to the suburbs, is hardly a solution either. Too often it means living in communities that are isolated and cut off, where commutes to and from work constitute a major extension of the work week that is not only unpaid, but also entails huge expenses for cars, gas, maintenance, etc. Given the much greater share of income that housing costs take up today, there is a much greater chance that workers can lose their home if even only one member of the family loses a job.
It is of course scandalous that a society as rich as this one cannot provide affordable housing, liveable cities and suburbs with decent public services for the great mass of the population. But this is simply because housing, like every other vital sector, is run for the private profits and enrichment of the big corporations, construction companies, finance companies, banks and landlords.
The way to provide decent housing for everyone would be to deal with housing on a social level, across-the-board: the resources and wealth of society would have to be marshaled and production planned with the aim of satisfying the needs of the population. But for such a humane and rational approach to exist, the working class will have to remove the hold of capital over society.