Homeownership in America

May 1, 2008

The age of industrialization hardly ushered in a society of home owners. By 1900, nearly 40 percent of Americans were living in urban areas, double the percentage from 40 years earlier. But 75 percent of those urban dwellers were renters. No doubt, many didn’t see homeownership as a realistic possibility.

It didn’t help that the country was in the midst of a depression. When President Grover Cleveland opened the World’s Columbian Exposition to the public on May 1, 1893, cracks in the economy were already beginning to show. The Panic of 1893 led to the failure of about 15,000 companies — including several railroads — and 500 banks. Unemployment remained high for years, and strikes — including the famous Pullman Strike of 1894 — were rampant. Urban and suburban expansion came to a standstill throughout the country.

Another bank panic in 1907 also shook the country, but by 1908, the economy was on the upswing and a wave of immigrants from Europe was swelling the ranks of U.S. households. The emergence of a single, unified real estate organization — working with various government bodies to espouse the benefits of buying — set the stage for growth in homeownership.

Almost immediately, the National Association of Real Estate Exchanges began collaborating with governmental agencies, other associations, civic groups, and private businesses to spread the concept that a home of one’s own represented a privileged consumer durable worth sacrificing for.

Several banking and tax law changes were needed, however, to make homeownership more attainable, ideas the national association actively supported.

Under President William Howard Taft, who served from 1909 to 1913, the idea of a national mortgage bank system gained momentum. In 1912, Taft asked the country’s ambassador to France to gather information on how the successful European land mortgage discount banks operated. The association’s 1912 president, Edward S. Judd, advocated adopting Germany’s land credit system, which would have made it possible for farmers to borrow money at rates lower than previously available.

During Woodrow Wilson’s presidency, the Federal Reserve Act of 1913 passed, allowing farm lending by national banks located outside central reserve cities. It was another three years, however, before national banks were authorized to make direct mortgage loans on urban real estate, and even those mortgages could be for a term of no more than one year and an amount no larger than 50 percent of the property’s value. It was also 1913 when Congress established the income tax system, making all loan interest, including home mortgage interest, deductible.

Beginning the following year, local boards put their energy into a new homeownership campaign that had been launched by the U.S. Department of Labor. The “Buy a Home” campaign — a reaction to socialist stirrings in Europe — told the American public that homeownership was in the national interest. When the United States entered World War I in 1917, private building was banned and the campaign was temporarily shelved.

After the war, the United States found itself in the throes of an influenza epidemic. By 1919, the flu would kill more than half a million Americans. But for lovers of free enterprise, including REALTORS®, another threat loomed: the growing presence of communism. The Bolsheviks had taken control of Russia and, in 1919, formed an international communist party in Moscow with the goal of spreading communism worldwide.

American business leaders responded in force. Motion picture industry executives devised propaganda campaigns to aid the government in its efforts. REALTORS® cooperated with the Labor Department in renewing its homeownership campaign. Association President William May Garland of Los Angeles said the department was acting on the premise that “ownership of the soil is the greatest insurance against Bolshevism.”

The campaign was renamed “Own Your Home,” and the Labor Department advertised it aggressively. Slogans ranged from “Thrift puts savings into a home” to “Construct now for a greater and still happier America” and “Own a home for your children’s sake.” Garland appointed an NAR liaison to coordinate “Own Your Home” activities.

Despite the drive, renting continued to outpace homeownership throughout the 1920s, and housing shortages brought on by the wartime construction freeze remained acute.

A Senate Select Committee on Reconstruction and Production reported that there were 121 families for every 100 homes. One reason was difficulty in obtaining construction funding. At its convention in Kansas City in 1920, NAR issued a statement: “A national emergency exists in housing conditions in all centers of population, largely aggravated by the drainage of mortgage money from construction.”

Association leaders blamed three federal tax policies — the income tax on real estate mortgages, the excess profits tax on real estate sales, and the tax exemption that was given to municipal, state, and federal securities — for driving investment funds away from real estate at a time when cities desperately needed more housing.

NAR called on the government to rectify the problem by, among other things, exempting the interest on real estate mortgages for an emergency period of six years and repealing the excess profits tax. NAR also called for an end to rent controls as a way to encourage more real estate investment. After the convention, NAR called a joint meeting of its committees on taxation, housing, homeownership, and legislation. The unanimous decision was to support a position against “all unjust exemptions.”

When Herbert S. Hoover was appointed Secretary of Commerce by President Warren Harding in 1921, NAR gained an ally in the Cabinet.

Hoover set up a Division of Building and Housing to coordinate housing policy. He called for a national conference to develop a standard building code and promoted zoning as a means to protect homeowners from business and factory encroachment into residential areas. The commerce secretary also surveyed members of the association — by then known as the National Association of Real Estate Boards — asking such questions as, “Is there a shortage of secondary mortgage money?” and “What percentage of the selling price of the house is usually required as a cash down payment?” NAR’s Committee on Federal Cooperation sent the survey to member boards requesting a prompt reply.

In 1923, the association formed a mortgage finance division and undertook a landmark study of mortgage practices to look at the methods and risks of mortgage lending.

NAR helped establish the low risk of making mortgage loans on small homes and exposed the painfully high costs to consumers of the existing mortgage system. Families were expected to buy their houses outright. Those who didn’t have the funds might be able to secure a mortgage but usually for only up to 50 percent of the cost of the house. The amount had to be repaid upon maturation, typically within one to five years, or the loan had to be refinanced at an additional cost. Interest rates ran as high as 15 percent to 25 percent. The research helped lay the groundwork for the development of the Home Loan Bank System and the Federal Housing Administration.

Also in 1923, the association appointed a committee to encourage and regulate homebuilding expositions throughout the country. Local real estate boards sponsored most of the shows, which displayed architectural plans, building materials, and household equipment to convince consumers to purchase houses. A Sept. 12, 1923, letter from NAR to the head of the American Construction Council discussed efforts to standardize those shows. The head of that council was none other than Franklin Delano Roosevelt, who would go on to promote homeownership when he became president.

Attendance and reaction to the home shows proved the public’s eagerness to be educated about the economic value, joy, and comfort of owning a home. Subsequent sales helped revive the construction industry and home building and worked toward easing the serious housing shortage that had developed during World War I.

Meanwhile, Hoover had put the government back into the business of promoting homeownership, and REALTORS® were among his partners in that effort. Hoover’s focus wasn’t just on increasing homeownership but on improving the quality of homes. For years, he headed an organization, Better Homes in America Inc., to educate homeowners about quality design and construction. Promoted by The Delineator, a popular Butterick women’s publication, the organization formed a national network of 9,000 local committees, whose members came from a wide range of business groups, including local real estate boards.

Annual contests were held for the best small houses erected in thousands of communities. Detailed specifications were provided so that contractors could build the houses without seeking further assistance from architects, and catalogs were also available throughout the country. As part of “Better Homes Week” in 1923, a demonstration home was built on the National Mall, in Washington, D.C., and activities and competitions were held around the country. That year, more than 1,000 demonstration homes went up around the country; by 1926, the number had increased to 3,000. Expositions continued for many years, even throughout the Great Depression.

But there were factors working against national efforts to expand homeownership. By 1920, more people were living in cities than in rural areas — and many city dwellers preferred the more modern heating, lighting, and plumbing typically found in rentals. As the NAR mortgage study had shown, lack of mortgage financing also deterred would-be home owners.

Addressing a National Crisis

Construction of housing units soared from 449,000 in 1921 to 937,000 in 1925. The following year, though, the air started coming out of the real estate boom. By 1929, construction had dropped to 509,000 units. In October, the stock market plunged; the Great Depression was on.

The Depression left many home owners unable to renew their mortgages at reasonable rates. Between 1930 and 1940, about 1,000 homes were foreclosed daily and homeownership plummeted more than 25 percent. By 1940 the homeownership rate was at 43.6 percent, below the 47.9 percent it had been 20 years earlier. The ranks of practitioners fell, too.

REALTORS® strongly believed any federal intervention in the economic crisis should come in the form of credit relief rather than government-built housing. One historian has called NAR “the most influential of the anti-public housing lobbies.” Indeed, the association consistently opposed reformers’ visions of government-developed and government-owned housing, arguing that the private market could do the job better and more efficiently.

In 1931, NAR Executive Secretary Herbert U. Nelson and NAR President Harry S. Kissell wrote an article for the Magazine of Wall Street with their idea for helping relieve the country’s financial crisis. They suggested creation of a mortgage discount bank system that would facilitate amortized, long-term installment-style mortgage payments at interest rates of 4 percent or less.

Hoover liked the idea. In December 1931, he held a White House Conference on Homeownership and Housing. Among the participants was 1930 NAR President Leonard Reaume, who reiterated the association’s support for a federal mortgage discount bank. In his State of the Union address, delivered just days after the Conference, Hoover called for creation of a Home Loan Discount Bank.

The resulting Federal Home Loan Bank Act of 1932 was a whittled-down version of the initial idea. For instance, Hoover had recommended to Congress that the plan be available to a wide range of lenders, including savings institutions, insurance companies, and farm loan banks. When the act was enacted, however, the plan could be used only by savings and loan associations and a few savings banks. Hoover also complained that the act was “tragically delayed.”

Nevertheless, the act set in motion a mortgage revolution that would widen homeownership by creating a network of mortgage lenders with a common credit pool and uniform lending standards.

When Franklin Delano Roosevelt succeeded Hoover as president in 1933, the Depression was at its height. The president recognized immediate credit relief for home owners was needed to prevent the mortgage system’s collapse. In a radio broadcast outlining the New Deal program on May 7, 1933, he said, “Congress is about to pass legislation that will greatly ease the mortgage distress among the farmers and the home owners of the nation by providing for the easing of the burden of debt now bearing so heavily upon millions of our people.”

The Home Owners’ Loan Corp. that Congress authorized in 1933 helped save thousands of distressed home owners from losing their houses. NAR was a key player in its creation. Cordell Hull, chairman of the Senate Banking Committee (and later Roosevelt’s secretary of state), invited NAR’s Nelson to help draft the bill. It called for the federal government to issue bonds that owners could exchange for home mortgages of up to $14,000 — or 80 percent of the current appraised value, whichever was smaller — on one- to four-family houses valued at not more than $20,000. HOLC mortgages would be amortized over a period of 15 years at a rate of 5 percent. Amendments in 1939 extended the term up to 25 years.

As unemployment in the construction trades continued, Congress passed the National Housing Act in 1934, establishing the Federal Housing Administration. The FHA provided mortgage insurance for one- to four-family homes and multifamily projects, permitted long-term amortized mortgages of up to 20 years (later extended to 30 years), and allowed buyers to put down as little as 20 percent and pay 6 percent interest. Once again, NAR leadership was directly involved in the legislation, as well as in drafting FHA insurance provisions. Within eight years, the FHA was insuring 24.7 percent of the nation’s home mortgages.

More readily available and affordable mortgages helped spur home building and buying, and NAR wanted to ensure the country stayed on the right path. Paul E. Stark, 1937 NAR president, called for a central mortgage bank to ensure a steady supply of mortgage funds at low interest rates. If interest rates were dropped 2 percent and the period of amortization increased to 30 years, he said, 5 million more American families could own their own homes.

With passage of the 1938 Housing Act, NAR got its wish in the form of the Federal National Mortgage Association, now known as Fannie Mae. Its original purpose was to purchase and hold or sell FHA-insured mortgages, thus replenishing the supply of funds to mortgage lenders. Over the years, it expanded to buy first mortgages backed by the Veterans Administration (today, the Department of Veterans Affairs) and later conventional mortgages. A 1968 law made Fannie Mae a private, shareholder-owned corporation. In 1970, the government chartered The Federal Home Loan Mortgage Corporation, or Freddie Mac, to ensure competition in the secondary mortgage market.

Meanwhile, NAR continued to promote the joys of homeownership. The association’s Land Developers and Home Builders Division — which would later split off from NAR to form the National Association of Home Builders — teamed up with McCall’s magazine to select a “Home of the Month.” Any REALTOR®-Builder erecting the house would have his name and the address of the house published in that month’s issue of McCall’s. It was a huge publicity opportunity, with 2.6 million copies of McCall’s sold every month.

The country’s entry into World War II again curtailed homebuilding, but even before the war’s end, the association was talking with government officials about how to meet the pent-up demand. And demand there was. Household formation—which many people delayed during the Depression and war years — was on the rise. Two factors encouraged returning troops to buy rather than rent: First, federal subsidies for rental dwellings were scaled back. Second, the Servicemen’s Readjustment Act of 1944, popularly known as the G.I. bill, made low-interest home, farm, and business loans readily available with 100 percent loan-to-value ratios.

“The home purchase provisions, in the opinion of responsible Washington officials, will be one of the greatest stimulants to homeownership this nation has experienced,” Nelson wrote in the June 19, 1944, issue of NAR’s weekly Headlines newsletter. “Every responsible service man or woman with 90 days’ service will have a chance to acquire a home.” Nelson estimated the number of eligible service men and women at 15 million. The loans and construction boom offered an opportunity — and responsibility — for practitioners, he said. “You will have unprecedented opportunity to sell houses and to create a vast new wave of homeownership.” But he cautioned them that they had a responsibility to offer “sound guidance, constructive advice, and wise counsel. Nothing short of that can be expected from REALTORS®.”

Before they could take advantage of those opportunities, REALTORS® and builders had to address the serious housing shortage that existed. “By 1947, you [had] millions of husbands and wives and children living . . . bunched up, crunched in with their in-laws. People would take any kind of a place that had a roof over it and a wall around it,” recalled Kenneth T. Jackson of Columbia University in “The First Measured Century,” a 2000 PBS documentary. “I think that we have never experienced in American history the kind of pent-up demand for housing that existed about 1947 [and] 1948.”

The housing boom that followed the war is one of the defining moments in America’s housing history. Homeownership increased more than 11 percentage points from 1940 to 1950 and jumped another 7 percentage points by 1960 passing the 60 percent mark, according to the U.S. Census Bureau. During the same period, the number of NAR members grew fivefold.

Over the next 40 years, the percentage of Americans owning their home continued to rise. NAR played a role in that growth, fighting challenges to the mortgage interest deduction and promoting incentives and affordable options for first-time and minority buyers.

Homeownership peaked at 68.9 percent in 2005, a year that marked the end of a prolonged housing boom. By that year, NAR membership had grown to 1.3 million. As the housing market slowed and the lending crisis began to take shape, NAR leaders stepped forward, as they had in previous economic crises, to propose solutions — such as reforms to the FHA and the establishment of a homebuyer tax credit — that would restore confidence to consumers. REALTORS® can be proud that, through 100 years of market ups and downs, their association has been by their side, helping them bring more Americans home.

Barbara Ballinger

Barbara Ballinger is a freelance writer and the author of several books on real estate, architecture, and remodeling, including The Kitchen Bible: Designing the Perfect Culinary Space (Images Publishing, 2014). Barbara’s most recent book is The Garden Bible: Designing Your Perfect Outdoor Space, co-authored with Michael Glassman (Images, 2015).