Why Suburban American Homeowners Were Accused of Being a ‘Profit-Making Cartel’ in the 1970s

There’s a good deal of mythos around the idea that America is an “ownership society,” and an important part of maintaining that mythos is a politics that regards a request to build public housing to alleviate crowding as a communist plot yet considers the federal government greasing the sale of single-family houses as free-market forces at work. In the post-World War II period, as the nation confronted a housing shortage that was even more dramatic than today’s, federal programs also supported construction of apartments, but the dream of owning a house was ingrained in the American conscience. Renters were regarded as people who had failed, and buyers’ preference for detached houses with a small yard were rooted in pastoral notions older than the country. Compact buildings like row houses and cooperatives (a precursor to condominiums) were doomed to be a sliver of the market.

It was a good time to be a home builder. Beyond the explosion in demand, the federal government had bought into the real estate industry’s contention that the loan insurance programs developed by the Federal Housing Administration (FHA) during the Depression should continue to provide a generous backstop to the private housing market, allowing far more people to qualify for mortgages and creating an even more vast market for single-family houses. Builders started construction on 114,000 homes in 1944. They started 1.7 million in 1950. The surge of new building transformed America’s real estate industry from a collection of small one-at-a-time or a-few-at-a-time home builders to a business that was dominated by a handful of large regional builders that squeezed and streamlined until the haphazard world of outdoor construction was a tight industrial process on par with a General Motors assembly line.

As low-density suburbs arose on the edge of every city, low-cost houses with abundant space and creature comforts became a singular symbol of progress and proof that the American way was winning. Compared to the rest of the world, American houses were large and full of modern furnishings, the latest appliances and a range of packaged foods and consumer products like Frosted Flakes, Oreo cookies, Hawaiian Punch, Tupperware, Minute Rice, TV dinners, Play-Doh, Frisbees and Barbie dolls. In 1959, during a walk through an American exhibition in Moscow, Richard Nixon, then the vice president, highlighted a six-room model ranch house to the Soviet leader, Nikita Khrushchev. “Soviet propaganda had been telling Russians in advance that the ranch house they would see at the U.S. exhibition was no more typical of workers’ homes in the U.S. than the Taj Mahal was typical in India or Buckingham Palace in Britain,” according to a TIME magazine story. “Nixon made a point of telling Khrushchev that the house was well within the means of U.S. working-class families.”

Assuming those families were white. There was an invisible wall around subdivisions, erected in the form of dehumanizing racial covenants in which the prohibition of nonwhite owners was just an ordinary rule listed alongside the typical homeowners’ association requirements like keeping up your yard’s appearances and not putting billboards on the roof. On top of that were the redlining guidelines that prohibited even well-off families from getting loans to buy homes in black or integrated neighborhoods. Postwar suburbs didn’t create segregation, but they expanded it, industrialized it and turned subdivisions into a government-sanctioned apartheid: the mortgage guarantees that the federal government made to banks and mortgage brokers were premised on white-only neighborhoods; you could not get an FHA-backed loan in mixed-race neighborhoods.

And yet, residential real estate was not yet a good financial investment. In that period, home prices never rose fast enough to outpace the stock market, and Americans still regarded houses as first and foremost a place to live. They certainly didn’t expect to lose money on a home, but to the extent they thought about the money they would get when they sold it, they saw it as money stored instead of money multiplied.

That started to change in the early 1970s, when the cost of homes, like the cost of everything else, spiked upward. It was devastating for young couples looking to save what was left of their inflation-eroded paychecks for a down payment on their first house. For anyone who already owned a home, however, the declining buying power of their own salary was offset by the fact that they now owned an asset that was performing like a hot stock. This added a powerful financial motivation to the multiplying list of reasons to oppose nearby development. Home-ownership not only was suddenly very profitable but acted as a financial hedge against rising prices elsewhere, because most home owners have fixed-rate mortgages whose monthly payments never change. Also, unlike renters, they can deduct their mortgage interest and property taxes from their federal tax bill.

By the end of the decade, as real estate grew to encompass a much larger share of American household wealth, suburban cities became increasingly bold in passing growth moratoriums to slow the pace of new development and large-lot zoning ordinances to guarantee that whoever bought the small amount of housing that was being built would come with money. In a 1977 paper on growth controls, Robert Ellickson, then a law professor at the University of Southern California, described suburban homeowners as “a profit-making cartel.”

William Fischel called them “homevoters.” Fischel was an economist who spent the 1970s and 1980s developing a theory of suburban behavior that he eventually called “the homevoter hypothesis.” The theory went like this: Homes are an all-eggs-in-one-basket kind of investment. You can’t diversify them like a stock, and you can’t buy insurance on falling values. People can get their money back in the event their home is actually destroyed: you can buy fire insurance and flood insurance and earthquake insurance. But the one thing you can’t buy insurance on is the thing homeowners fear most, which is the fear that their neighborhood will go to hell and they’ll be stuck in a house nobody wants to buy.

And so began a vicious cycle in which the more home prices went up, the further people had to stretch to buy a home, the more motivated new homeowners became to protect their investment, the more home prices went up, the more people had to stretch, and so on. According to a Google analysis of old books, in the 1970s “housing prices” went from being a phrase that was only rarely used to a phrase that was so common it was used several times more frequently than “stock prices.” The phrases “exclusionary zoning” and “growth management” went from rare to common usage over the decade. Soon after they were joined by “NIMBY,” developer shorthand for “not in my backyard.”

From GOLDEN GATES: Fighting for Housing in America by Conor Dougherty. Copyright © Conor Dougherty, 2020. Published by arrangement with Penguin Press, a member of Penguin Random House LLC.