The History of Housing Finance

Learn about the history of housing finance from the Homestead Act of 1862 to home loans in the 1970s, to how housing finance affects American society today.


| April 20, 2012



Housing Reclaimed Cover

“Housing Reclaimed” is a call to arms for nonconventional home builders. It examines how technological advances, design evolution and resourceful, out-of-the-box thinking about materials and efficiency can help us meet the challenge of building affordable, environmentally friendly, beautiful and unique homes.

COVER: NEW SOCIETY PUBLISHERS

With each act, grant and administration, the landscape of housing finance has changed significantly. Since the Industrial Revolution, most housing has become little more than mass-produced, quickly constructed, uniform boxes. At the same time, the invention and standardization of the 30-year mortgage and our ever-increasing reliance on credit has come to mean that most of us never own our homes outright. Learn about the history of housing finance in Housing Reclaimed: Sustainable Homes for Next to Nothing (New Society Publishers, 2011) by Jessica Kellner, editor of Natural Home & Garden. This excerpt is taken from Chapter 2, “A Brief History of Housing Finance.” 

“To move forward in housing finance, we must first examine how we got to the present.”

As we consider the sustainability of housing while we move into the future, we must include financial sustainability in the discussion. In many ways, the current housing market suffers when home values go down. Having a housing finance system dependent on continuously increasing home values isn’t sustainable as populations of low-income people in need of quality housing grow. The subprime mortgage crisis was a symptom of the problems inherent in this system. Reduced home values and increasing adjustable interest rates have caused millions of foreclosures. In the second quarter of 2010, 11 million American homeowners were “underwater” (they owe more on their homes than they’re worth), according to real estate analytics firm CoreLogic. Rather than suggesting that home values need to go back up, these effects are symptoms of a bigger problem: a system that’s dependent on ever-increasing home values most Americans can’t afford. If we look with a broader lens, we can see that it would be better for almost everyone if housing prices were to go down. Reduced home prices would allow more people to afford homes. It would bring more tax revenue to cities. It would reduce the amount of our incomes we must dedicate to housing, freeing up resources that could go toward higher-quality food and health care.

History of Housing Finance: History of Housing

With any endeavor, as we look toward the future, it’s best to first examine the past. Before we can understand the current housing finance system, we need to understand how it came to be.

Government and industry leaders have manipulated American land and housing pricing since the nation’s founding. In the very early years, distribution of government lands was chaotic and arbitrary. Boundaries, marked off by footsteps from geographic landmarks, were a common source of disputes. The Land Ordinance of 1785 formalized border markings by astronomical points and broke townships into 640-acre land parcels. Potential homesteaders were minimally required to purchase an entire 640-acre block of land at $1 an acre, just over $8,000 today, expensive during a time when housing finance didn’t exist. By 1800, minimum lot size was halved to 320 acres, land prices rose to $1.25 an acre, and homeowners could pay in four installments, according to the National Archive, but forces were still working against low-income citizens who hoped to obtain land.

In the South, large-scale farmers became wealthier as crop prices increased, and they bought up large swaths of land at the expense of low-income Americans. The already-settled Northeast held few opportunities, so potential landowners looked toward the growing West.





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