across the board
September 1989
By James Krohe Jr.

The world's best‑housed nation has a long way to go in correcting market distortions in housing.

Where We Live: A Social His­tory of American Housing
by Irving Welfeld. Simon & Schuster. 320 pp. $18.95.

Lucky members of the human race, which once dwelt ex­clusively in caves, today live in condos with views overlooking their mortgages. Historians carelessly describe the change as progress, but readers of Irving Welfeld's new book about housing in the United States may disagree. Welfeld, an attorney and analyst with the Department of Housing and Urban Development, is an informed observer whose book provides the advanced beginner with an introduction to what Welfeld calls "the American home and the social, political, and social economic landscape" of which it is a part.

Housing, of course, is at once an industry, a political issue, a special interest, and a social phenomenon. Welfeld describes how the organization and techniques of the U.S. housing industry evolved. He explains how accessible land and the availability of mortgage financing have given the United States a rate of home ownership matched only by Canada and Australia. He conducts a quick tour of the condominium‑which he describes as "the landlord's ulti­mate revenge‑and bravely explains why nearly everybody who hates his landlord probably shouldn't. He summarizes the relevant demographic trends and explores the knotty problem of racism in housing. He shows why so many savings‑and‑loan institutions have failed and analyzes the success of those that haven't.

It is a gloomy tale of mismanagement and mistakes, and of market forces distorted by greed and good intentions. Foreclosure rates on home loans have hit Depression levels. Thousands of physically viable apartments are being abandoned in America's big cities while people live on the streets. Alleged massive incompetence and fraud by savings‑and‑loan associations will require a Federal bailout of $166 billion over 10 years. High­rise public housing for the poor is an acknowledged disaster. Corporate relocation officials must consider the fact that in many parts of the country their nonexecutive employees will not be able to afford a house less than 50 miles from the office. Recent revelations of influence‑peddling and outright fraud at Reagan's Department of Housing and Urban Development show that HUD, though certainly not to blame for all of the nation's housing problems, needs to put its own house in order before it can get to work on ours.

Welfeld acknowledges that many housing‑assistance programs have had perverse results at best. He is prouder of the success of the centerpiece of U.S. housing policy: "Homeownershlp, as a way of life," he writes, "is alive and well in America," where about 65 percent of all households own the home they live in. Owning a single‑family detached suburban-style house is the dream of an overwhelming majority of U.S. households, Welfeld argues, and there is hardly another place on earth where that dream has been purchased by so many.

True, the average new house now costs well over $100,000, but it is bigger and more lavishly equipped than a decade ago. Many new houses of even middling price these days offer fireplaces or jacuzzis. But the houses in which those fireplaces stand are likely to be flimsily built, meant to last only as long as the mortgage that secures them. And though that fancy fireplace may whisper "cozy" to the buyer, it was probably built next to an underinsulated wall in a drafty room. The U.S. residential sector spends billions unnecessarily each year to heat and cool our poorly built houses, with predictable effects both on household and national budgets and on the environment.

The scale of recently constructed houses may excite the patriot in Welfeld, but the trend toward bigger homes, like the flush on the face of a child, may suggest fever rather than health. The motive behind many purchases of these huge houses is avowedly speculative. The rampant house inflation of the 1970s, Welfeld claims, "actually gave people an opportunity and a reason to buy homes." So it did, but at some risk that prices would eventually sag. There exists today a whole generation of aging suburbanites trapped in their now‑childless houses, unable to find buyers at inflated prices, and stretched by rising taxes and utility costs.

Many young couples still contrive to buy houses, but it's getting harder all the time. A Harvard study, released in June, confirmed that home ownership in the 25‑to‑34 age group was down to 45 percent in 1988 from more than 52 percent in 1980. Families that bought in the Sunbelt during the oil boom of the '70s, in particular, have since been overstretched, which has contributed to a near quadrupling of defaults on mortgages backed by the Veterans Administration since 1981.

Perhaps because of its appeal to the politically potent middle class, the single‑family owner‑occupied house, nevertheless, remains the focus of the attention of policymakers, developers, and financial institutions. That so many are sold may reflect what Welfeld calls our "lusting after ownership." It may also reflect the fact that in some markets practically no other type of housing is available. Welfeld argues that the traditional urban housing forms‑the townhouse, the three‑flat, the tenement block‑are outmoded because the city is outmoded. The dispersal of people and housing to what Welfeld calls the "suburban heartland" will continue because that is where‑and how‑people wish to live.

Welfeld does not expect much change in the way our houses are built, either. The system that has evolved is flexible, fast, and surprisingly efficient; construction costs account for only 45 percent of the price of an average new house. (He perhaps slights the extent to which factory techniques, after several stumbling starts, are now penetrating the business.) As noted, present methods are designed to produce cheap housing rather than good housing; in particular, the housing boom in Texas during the '70s was a reminder that shoddy construction will always be a problem as long as state and local building codes focus exclusively on safety and ignore durability, efficiency, and esthetics. Europe and Japan have been innovators in modular construction, with results generally superior to our balloon‑frame houses, which are built upon a nailed-together framework of lightweight lumber instead of heavy timbers or solid masonry walls. It is typical that the real innovations in the United States have come not in how our houses are built or heated but in how they are financed.

Relying on the market to provide housing is a risky policy in a nation in which disparities of income are so pronounced. Welfeld makes a devastating case against various public‑housing initiatives since the 1940s as being badly conceived, badly run, and badly structured. But the failures of the private­ housing market may be no less substantial. Rents are increasing most quickly at the low end of the apartment market, for example, because the number of poor households is rising while low‑cost rental units are being demolished by the tens of thousands each year‑all this while tens of thousands of upper‑end apartments, mainly in the suburbs, stand empty. Construction of what William Greider, in a Rolling Stone article, called "pricey condos and suburban mini-mansions and even second‑home vacation properties" has been strong, but reasonably priced "starter homes" for young families of modest means are hard to find -trends reflecting the fact that income growth in the 1980s has been concentrated on perhaps the top third of wage‑earners while stagnating for working people.

Apart from making the suburbs safe for the tract house, the United States can hardly be said to have a housing policy. Attempts by Washington to intervene in the private-housing market on behalf of the poor and the elderly have resulted in a lot of housing, but most of it has been of the wrong type or in the wrong place or at the wrong price.

No one reading Welfeld's accounts of Federal housing programs will yearn for their revival. Welfeld recalls, for example, how a "technical change" to the 1948 National Housing Act enabled a developer to recover both his up‑front money and his profit from garden-apartment projects "even if he builds in the middle of the Sahara Desert." In 1965 Congress approved what is known today as HUD's Section 8 program, under which local housing authorities lease apartments in private buildings for their tenants, with the Feds making up the difference between the market rents paid to the owners and the small percentage-of‑income rents paid to the local authorities by the tenants. The program, writes Welfeld, "began to blossom when an astute lawyer read the term 'existing' as the opposite of 'nonexistent.' " This opened the subsidy door to developers of new buildings. The result was a budget commitment over 20 years that will run into the hundreds of billions of dollars.

Welfeld argues that the Federal Government made a crucial error in focusing its efforts on becoming the landlord for the poor, an ap­proach he likens to buying new Buicks for people inadequately served by public transit. Rents in such projects are pegged to tenant incomes, often to the detriment of the local housing authority that runs them. "There are no market signals in public housing… Higher costs are passed on to the government rather than the tenant," Welfeld complains. The higher the cost of these subsidies per tenant, the lower the number of tenants who can be helped. Meanwhile, tens of thousands of private‑sector apartments‑seldom of even average quality, Welfeld says, though not substandard under the law‑are being abandoned every year while millions are pumped into the modernization of public housing.

The business of renting to people of any income is highly cyclical. In good times, Welfeld explains, the landlord's customers run off to buy houses, while in bad times nobody can afford to pay a decent rent. Most landlords own only one or two buildings and don't make much money on them; In recent decades, Welfeid says, the only reason anybody built rental housing was a lucrative Federal tax break.

A homeless family living in a car in Los Angeles (1987).

The author bravely essays some cures. No summary can capture the complexity of the details, but their main thrust is simple enough. He proposes, for example, that older homeowners now living in houses too big for them to heat or pay taxes on be given a stipend sufficient to cover taxes and upkeep if they move into condos. Such a program would put old people in smaller, easier‑to‑care‑for housing while relieving their anxiety about expenses, and would increase the availability of housing suitable for young families.

He also proposes to increase construction of new housing for low-income renters by use of a one‑time subsidy, applicable only to new buildings and carried only by the first generation of tenants. The subsidy would in effect pay for the building, so that rents would need to be set only high enough to cover maintenance costs. The developer gets his money, the tenants get low rents, and the Federal Government gets out of the business of maintaining buildings and landlords' cash flows year after year.

Welfeld's ideas are both imaginative and sensible, which probably dooms them in Washington. He seeks to exploit familiar market forces, but other critics argue the need to separate housing from the market‑not through local public-housing authorities but through nonprofit neighborhood and church corporations. Such organizations might build European‑style tenant cooperatives. Other reformers would require beneficiaries of Federal home-tax deductions to repay part of their tax savings out of their capital gains when the house is sold; the proceeds would subsidize affordable housing for presumably younger and poorer buyers. Still others have called for changes in local zoning laws, legalizing English‑style "granny flats' -small outbuildings on existing lots that could house teenagers or widowed parents or could be rented at low rates to non-family tenants.

Welfeld remains an optimist, based on his conviction that the United States is already "the best-housed nation in the history of the world." Compared with what others have, we are. Compared with what we might have for the same cost, however, we have a long way to go. If we define "decent" housing as sturdy, affordable by average people, cheap to run, simple to maintain, and conveniently located near schools, jobs, and stores, we are obliged to admit that the United States is not so well housed after all, no matter how high the national fireplace‑per‑person ratio has climbed.

James Krohe Jr. is a freelance writer based in Oak Park, Illinois, who writes frequently for Across the Board.