The Bad Deal

Race and capital in early 20th century housing policy

Pittsburgh, PA
Diane Shaw
Fall 2020

The most prominent influences on the astronomical growth of home ownership in the early 1900s were those of race and capital, the latter often used to cover up the presence of the former. These developments were in no way natural or ‘market driven’ – they were fabricated for the sake of ideological security and entrenchment within an idealized society. Initiated and supported by government forces, the private sector and profiteering interests certainly played a role, but it was institutionalized policies of incentivization and discrimination which had the largest effects on the characteristic development of “The American Dream” as we know it today. While the ideas of owning one’s own home and the land underneath it had been brewing for some time – largely based on the undesirability of inner city living at this time – what solidified the concept in American minds were governmental propaganda programs, kicked off by Wilson and Hoover’s “Own Your Own Home” campaign.[1]This was occurring parallel to, and greatly increased the desirability of, private developments capitalizing on development opportunities opened up by new infrastructure advances. Both the public and private initiatives were consciously constructed to further segregate America, and advantage whites over all others. It is at times difficult to decipher whether race or capital issues came first or was the primary motive, but one thing is certain: the social acceptability of capital and profit driven motives was used to deceive both the public and the state into allowing discriminatory practices to solidify a wealth and well-being gap in America of which the effects are still tangible today. This essay will discuss these three factors on early 20th century home ownership, and how those actions had a crippling effect on minorities and their ability to participate in our society.

The initial institutional support for home ownership was driven by fear. In 1917, the proletarian revolution in Russia was successful at overthrowing the Provisional Government of industrial capitalists and old aristocracy – signifying the first ideological triumph of communism over capitalism. The American government, lead at the time by Woodrow Wilson, had observed the dissatisfaction and estrangement of the working class in Russia and was incredibly fearful that the same class uprising could occur in the United States.[2]To secure capitalism as the dominant ideology in our country, they developed a clever way to ensure buy-in to the capitalist system: this was the “Own Your Own Home” campaign.

By giving as many Americans as possible ownership over their home and their land, they were fabricating a fake middle class which didn’t have enough power to ascend, but had enough property they would strive to hold on to when faced with a communist alternative. By calling it a “patriotic duty” to cease renting a property and build a home for you and your family[3]they effectively, as architect Edwin Brown said, “nationalized the problems of the small home”.[4]

From the outset this dream was only meant for white ‘Americans’ (i.e. immigrants, even white ones, were also excluded). These racially discriminatory sentiments would later become hidden behind issues of profit margins and economic security, but at this point were masked by a nationalist or patriotic sensibility. After Hoover took office in 1921 he asserted that owning a single family home was an “expression of racial longing… that our people should live in their own homes is a sentiment deep in the heart of our race.”[5]Accompanying this speech was a manual of thirty items to consider when purchasing a home, number nineteen was “Restricted Residential Districts may serve as protection against persons with whom your family won’t care to associate…”.[6]And as Rothstein so eloquently puts it, “There was little doubt about who the persons to be avoided might be.”[7]

American private enterprise took this 19th point to heart. Before explicit racially exclusive regulation could become a part of government policy it was enacted through private deeds and developments. Restrictive Covenants, a list of obligations that anyone looking to purchase a property would have to subscribe to, were in put into practice as a means to evade the racial zoning regulations put into place after the 1917 Buchanan v. Warley decision.[8]By no means an isolated practice, these covenants were put into use across the country. Even worse than their isolated existence was that state courts upheld and endorsed the practice when it came to court – actively evicting African American residents from the homes they had just bought. The covenants were determined to not be in violation of the constitution because they were private agreements between citizens and not law, yet they were being upheld as law in the courts.[9]

In both state courts, and in 1926 even the Supreme Court, exclusionary zoning and restrictive covenants were upheld as constitutional practices being voluntarily participated in through private contracts rather than state policy. A federally endorsed report by Harland Bartholomew in 1928 justified these clearly racially biased actions through the guise of profiteering. The report stated that these prohibitions “benefited both the developer (by making his project more desirable to prospective buyers) and the owner (by protecting his property from “the deteriorating influence of undesirable neighbors”)”.[10]Even though the Supreme Court decision acknowledged that any government involvement in these practices would be deemed unconstitutional, this language would provide the backbone for the semantic loopholes the White House would use to allow federal policies to discriminate in much the same manner.

Although Wilson and Hoover had done much in the way of selling the American family on the ideological idealism of the single family suburban home through their propagandistic campaigns, they had been relatively unsuccessful in actually convincing them to become homeowners. It was still prohibitively expensive for most working-class families, and the Great Depression stalled the real estate and construction industries to a dead stop. In an effort to rescue debt ridden households, revitalize the economy, and combat the ever-present Red Menace, Franklin D. Roosevelt created the Home Owners’ Loan Corporation in 1933.[11]This body, in conjunction with the Federal Housing Administration, would completely dominate the American housing market until Shelly vs. Kraemer in 1948, and its allowances would not be nullified until 1972.[12]

The HOLC offered mortgages and loans with extremely generous repayment schedules, low interest rates, and most importantly they were amortized – which meant that homeowners with HOLC mortgages would slowly accumulate equity even while their properties were still mortgaged.[13]To ensure the sustainability of this venture, the federal government of course had to institute some way of assessing the financial risk of each loan. The resultant appraisal strategy is what we know today as “redlining”. The most important factor the HOLC used in gauging the financial risk of a neighborhood was race, a neighborhood would earn a red (high-risk) color if a few African American families lived there, even if it was a middle class neighborhood of single family homes.[14]

After the FHA was founded in 1934 it insisted on doing its own appraisals of the property for risk assessment purposes and would not accept appraisals from outside parties. As the Underwriting Manual the FHA used included whites-only language, it effects made racial segregation an official requirement of the federal mortgage assistance programs.[15]Even if it was a white neighborhood which they deemed likely to integrate in the future, the FHA viewed it as too financially risky to insure.

The Underwriting Manual of 1935 included such language: “A change in social or racial occupancy generally leads to instability and a reduction in values” and “all mortgages on properties protected against unfavorable influences [such as infiltration of inharmonious racial or nationality groups] to the extent such protection is possible, will obtain a high rating.”[16]This was applicable both on a neighborhood scale, as well as for individual properties. Despite numerous court cases the FHA would use this language to hide the racially oppressive intent behind the guise of business, capital, and risk. The leaders of the FHA office in Chicago responded to inquiries by saying they “have no responsibility for a social policy”, that they are “just a business organization”, and that “an interracial community was a bad risk”.[17]

The practices of the FHA and HOLC helped influence the rise of the Mail Order Home. As one of the most affordable and accessible options to take advantage of the federal assistance towards homeownership they skyrocketed in popularity. However, the DIY attitude had different articulations based on race and class, and often undesirable consequences. Often, catalogue houses such as those from Sears, Roebuck and Co. were marketed to sell the consumer on the idea of the house before tallying the final price. The structure was surprisingly cheap, largely because the labor, cabinetry, pluming, fixtures, etc. were sold separately causing many to purchase above their means.[18]What resulted were what author Richard Harris deemed a “garage suburb”, a development in which families would first purchase the land, construct a simple panelized garage as a temporary dwelling, and not accumulate enough means to build a proper house for themselves for decades.[19]The quality of life in these “garage” developments was astoundingly low, they were settled before utilities or transportation networks could be adequately developed, and local officials and planners were reluctant to spend large amounts of money to upgrade the services to such undesirable areas.[20]

Since they were systematically denied funding from the HOLC, most African American families could not even afford a mail order home. Instead, many families would purchase a small plot of land and with the help of friends and neighbors cobble together houses out of mostly salvaged architectural materials. Working on weekends and largely paycheck to paycheck, these developments took shape gradually and suffered from the same lack of servicing as the more typically white “garage suburb”.[21]Nonetheless, these communities became an immense source of pride for those who constructed them.

Beyond the awful realities and consequences of the segregation resultant from these policies, the effects of denying an entire demographic the ability to own property and accumulate capital are simply stupefying. As the homeownership campaign began as a political move it is clear that the government was painfully aware of the ideological implications of capital acquisition, and consciously made the choice to deny African Americans and other minorities the opportunity to get a footing in our capitalist society. Thereby solidifying their position at the bottom of the so-called ladder, removing the rungs above them, and leaving them with no tools with which to repair it. While the whites were accumulating wealth based on their property and real estate and passing it down from generation to generation, African Americans were stuck having their money siphoned off every month through rent payments.

While the campaign for home ownership began as a political and ideological effort, it quickly spiraled into an intertwined mess of race and capital. The New Deal and its predatory policies have made a lasting impression on our countries housing landscape, as well as our socio-economic makeup. The HOLC and FHA continuously utilized carefully formulated guidelines to mask racially discriminatory policies and intent behind the guise of financial risk assessments. These practices were initially upheld by the lower courts, but even when challenged by the Supreme Court, such language allowed them to sidestep the regulations on race-neutral funding by claiming their operations to be solely motivated by capital measures. The consequences of barring an entire demographic from beginning to accumulate collective capital have been immensely detrimental and are still felt today.

[1]Hutchison, Shaping Housing and Enhancing Consumption, 81

[2]Rothstein, The Color of Law, 60

[3]Rothstein, The Color of Law, 60

[4]Hutchison, Shaping Housing and Enhancing Consumption, 82

[5]Rothstein, The Color of Law, 61

[6]Rothstein, The Color of Law, 61

[7]Rothstein, The Color of Law, 61

[8]Rothstein, The Color of Law, 78

[9]Rothstein, The Color of Law, 82

[10]Rothstein, The Color of Law, 83

[11]Rothstein, The Color of Law, 63

[12]Rothstein, The Color of Law, 90-91

[13]Rothstein, The Color of Law, 63

[14]Rothstein, The Color of Law, 64

[15]Rothstein, The Color of Law, 65

[16]Rothstein, The Color of Law, 65

[17]Rothstein, The Color of Law, 87

[18]Hayden, Building Suburbia, 119

[19]Hayden, Building Suburbia, 115

[20]Hayden, Building Suburbia, 115

[21]Hayden, Building Suburbia, 111