Owning one’s own home seems vital to being an American; it is intimately tied to our understanding of the “American Dream.” The headline of a 2008 Newsweek story on the foreclosure crisis blared “The American Dream – Only This Time in Reverse.” When NPR recently broadcast a story that rates of home ownership had dropped from a peak of 69% in 2005 to 66%, the voices on the radio carried the melancholy tone of loss.
However, the dream of home ownership, complete with a white picket fence, was not always considered the ultimate test of making it in America. There was a time when many affluent Americans preferred to rent, leaving home-buying to striving immigrants. Then, in the mid-twentieth century, Uncle Sam helped make home ownership the American Dream.
Home Sweet Rental
In 2002, President George W. Bush launched an effort to encourage home ownership among minorities with a speech in which he said,
[W]e want everybody in America to own their own home. . . . an ownership society is a compassionate society. . . . Yet we have a problem . . . because fewer than half of the Hispanics and half the African Americans own the home. . . . All of us here in America should believe, and I think we do, that we should be . . . a nation of owners. Owning something is freedom . . . And ownership of a home helps bring stability to neighborhoods. . . . It brings pride to people . . . It helps people build up their own individual portfolio . . . it’s an important part of America. . . . And so we’ve called upon Congress to set up what’s called the American Dream Down Payment Fund . . .
Bush was one of many presidents, Republican and Democratic, who extolled and promoted greater home ownership as part of the American Dream.
The connection was not, however, so apparent earlier in American history. To be sure, for generations most Americans sought to own their own farms. That so many managed to do so was critical in making America the society it is today. And farms usually come with homes. But owning a home apart from a farm was not nearly as common. In the late 19th and early 20th century (when we start getting some hard evidence), only about one-third of nonfarm homes were occupied by people who owned them. Most Americans were renters.
Notably, middle-class Americans were not all that interested in home owning. Buying a home in those days required tying up a lot of cash in a building. Mortgages, even if available, were short-term and covered half or less of the cost. Home values actually fell from the 1880s into the 1920s (see Schiller chart near end of this post), so it was not a good investment. Indeed, houses just wore out. Working-class and immigrant Americans, on the other hand, were much likelier to buy once they could scrape together the money, which was usually not until middle age. For them, having a home was a source of some security — at least one had a roof overhead — and by taking in boarders, tending a vegetable garden, and perhaps having a goat or two, a house could be turned into a way of earning income. (A few sources on this era are: 1[pdf], 2[pdf], 3, 4[pdf].)
Then, American home ownership took off. The graph below shows the trends: a drop in the percentage of nonfarm/urban homes that were owner-occupied during the Great Depression but then a boom in ownership from 1940 to 1960. Rates stayed flat through about 2000. After that, not shown, home ownership ticked up a few points to a high in 2005. What happened? What made urban home ownership the norm instead of the exception? What made it part of becoming an adult? Of the American Dream?
Uncle Sam’s Housing Service
Part of what happened was growing affluence; average Americans got wealthier. But that was far from the whole story. In the Depression, the New Deal government of FDR tried all sorts of ways to stimulate the economy. One was to help spur home-buying (which also fit into its social justice mission of uplifting the working class). The Feds did so in various ways. Critical was the creation of agencies to insure or re-purchase mortgages so that banks became willing to extend 30-year loans at low interest rates; another was to inject money directly into housing or land preparation. Later, the G.I. Bill helped put millions of young American families into their own homes. House-building, especially in the suburbs, was indirectly subsidized by the vast interstate highway system started in the 1950s and all sorts of federal funding for new community-building projects like sewer systems and electrification.
Home ownership became much more common and part of the settling-down stage of life. The expanding demand for homes, the increasing tendency to “trade up,” the continuing flow of tax subsidies (including, for high-income families, the mortgage interest deduction) all helped keep prices at least level from the end of the War to the 1990s – as can be seen in the Shiller data below. Then came the housing bubble, the mortgage mania, and the collapse we are struggling with now.
Political economist Barry Bluestone recently explained to a meeting of realtors that their industry rested heavily on government assistance. Federal financial backstopping, regulation, and housing subsidies directly made the home buying and selling business lucrative. More generally, the federal systems of retirement pensions, elderly healthcare, unemployment insurance, union protections, college loans, and the like made a large American middle class with the money to buy houses possible. It helped create what we now take for granted, what we now worry is under threat: the American Dream home.
(This column was cross-posted on The Berkeley Blog on May 19, 2011.)