The Concise Encyclopedia of Economics


by Peter D. Salins
About the Author
America's high standard of living is, by and large, equaled today in a growing number of other wealthy developed nations. But when it comes to housing, an essential component of that living standard, the United States still commands first place. By many objective standards Americans are the best-housed people in the world. Their homes are 20 to 40 percent larger than those of northern Europeans, and about 10 percent larger than those of their near peers, the Canadians and Australians. These larger homes shelter fewer residents than those of other countries. While the housing stock of Japan and the most prosperous of the European nations allocates, on average, one room per household member, American dwellings offer nearly two.

American homes also are considerably newer and more frequently equipped with the latest in modern mechanical equipment. Virtually all U.S. homes have refrigerators (not yet the norm in Europe or Japan), two-thirds of them self-defrosting. Not only are nearly all American dwellings centrally heated, but a third of them are centrally air-conditioned as well, while most of the rest have unit air conditioners. Unlike residents of other rich countries, American families are more likely to live in detached houses than apartments, and far more likely to own rather than rent them. And perhaps most distinctively, the typical American home is surrounded by a large private yard.

If U.S. housing standards look good in comparative international terms, they are equally impressive when viewed against American housing conditions of even the recent past. In 1960 the typical dwelling contained 1,200 square feet and was occupied by a household of 3.1 persons. By 1987 the average home had grown to over 1,600 square feet, while its occupancy had fallen to 2.4 persons. In 1960 over 13 percent of American homes lacked some component of a modern kitchen or bath; by 1987 that applied to only 2 percent. The proportion of all American homes with air-conditioning grew from 12 percent in 1960 to over 60 percent in 1987. During this same period the percentage of fully detached single-family homes fell from 77 percent in 1960 to 66 percent in 1987. Not so much an adverse development as a reflection of changes in American life-style, this marginal increase in the popularity of townhouse living moved the U.S. housing stock a little closer to the European model.

Of course, not all the U.S. housing facts are so benign. A visit to any American city will reveal conditions of housing squalor probably unmatched in other wealthy countries, although even America's worst dwellings are actually quite spacious and amenity-laden by international standards. The key to both the best and worst aspects of U.S. housing conditions is America's vastly greater reliance on the private market for the production and maintenance of housing.

America's singular housing conditions owe a great deal to the singular economics of the U.S. housing market. For one thing, the United States spends more on housing than any other nation, in both absolute and relative terms. As a percentage of GNP, America's 12.3 percent far exceeds the European and Japanese average of 9 percent, and even outpaces Canada and Australia's 11 percent. But in contrast to most other countries, developed and less developed alike, most American housing is built and financed by the private sector, without explicit subsidies.

The United States has somewhat over 2 million publicly owned or managed dwellings, which is a mere 2 percent of the housing stock. In Britain, by contrast, public housing makes up 30 percent of the total number of dwellings, and even in Canada it exceeds 10 percent. Not only is most U.S. housing privately owned, but most of it is owned by its occupants. Since 1950, approximately two-thirds of all U.S. homes have been owned rather than rented, with the current proportion slightly over 64 percent. Much has been written of the alleged inability of young couples today to afford home ownership. Yet the average first-time home buyer is still under thirty years old.

All of the positive features of the American housing scene must be viewed against a backdrop of considerable public hand-wringing about contemporary housing conditions. Media coverage and official reports constantly remind Americans of the outstanding examples of housing distress: physically devastated parts of inner-city neighborhoods that are invariably compared to war-torn Beirut; widespread homelessness invoking comparisons with Calcutta, and for the vast urban landscape where no manifest housing problems can be discerned, the purported scourge is lack of affordability.

Such critiques are not new. Nearly a century ago Jacob Riis spurred a housing reform movement by describing how "the other half lives." It was not until a half-century later, when Franklin D. Roosevelt perceived that a third of the nation was ill housed, that people began looking to the government as the primary agent of housing amelioration. Ever since, successive generations of public officials and housing experts have proclaimed a "housing crisis" and proposed government action to end it. As a result a continuing stream of federal and state housing subsidy programs has been enacted since the passage of the National Housing Act of 1949, which promised "a decent home and suitable living environment for every American family."

The oldest and most direct of programmatic approaches, launched by the U.S. Housing Act of 1937, has depended on federal grants to underwrite the entire development cost of housing complexes owned and managed by local housing authorities, and since 1969, additional federal subsidization of roughly half their operating costs. While highly visible, especially in New York and some of the nation's other major cities, this "public housing" stock is available to only a small proportion of the urban poor.

By 1970 both its tenants and the general public were thoroughly disenchanted with this program, especially after journalists published a spate of highly critical accounts in the sixties of life in the public housing projects, showing large numbers of tenants abusing their new homes as well as their neighbors. Furthermore, direct public funding of new construction proved to be very costly, with modest apartments in bad sections of cities costing more than large private homes in the suburbs. Also, more and more people objected to having public housing in their neighborhoods. Thus, from the midsixties on, national, state, and local housing agencies have experimented with a wide variety of indirect subsidy approaches.

Although few old housing programs ever die completely, each presidential administration since the New Deal has promoted its own programmatic cure for the "housing crisis." Kennedy and Johnson favored mortgage subsidies. The Nixon and Ford administrations heavily promoted granting fifteen-year rental income guarantees to new or renovated housing developments tied to eligible tenants. The most recent Reagan and Bush administration policies represent a shift to consumer subsidies, including household rent supplements and the sale of housing authority apartments to their tenants. Parallel state and local efforts since the sixties have generally involved sponsorship and implementation of the changing menu of federal programs, or underwriting interest and tax abatement subsidies.

Whether the fifty-year effort of publicly funded housing assistance has made a great deal of difference in improving American housing conditions is hotly debated among housing specialists. Advocates of housing subsidies claim that the private sector can never build housing cheaply enough for the poor. On the other side, conservative housing policy analysts and a number of housing economists have published persuasive critiques of these programs, noting their high cost per household, the random distribution of their benefits by income class and region, and their likely role in displacing rather than supplementing the production of lower-priced homes by the private sector. In 1991 dollars few direct subsidy programs cost less than $80,000 per dwelling, and some cost more than $200,000, making most subsidized housing more expensive than privately built homes of comparable size. Because all housing programs are locally administered, they have been idiosyncratically implemented by place and time. And many of the beneficiaries of these programs have often been neither poor nor badly housed, but merely persistent or lucky.

Moreover, because the most egregious instances of housing squalor—broken windows and doors, graffiti, filthy streets and buildings, as well as distressing levels of neighborhood crime and vandalism—reflect the behavior of residents in poor urban neighborhoods rather than the physical deficiencies of their dwellings, they are not easily mitigated by dwelling-specific subsidies. At the same time, economists believe that most of the wholesale improvement in U.S. housing conditions since the depression is really due to a high rate of new housing production in the private market, which has permitted the retirement of the worst dwellings and reduced the quality-adjusted cost of all housing. In response, advocates of a continuing or growing role for the public sector allege that much of this "private" housing is indeed subsidized, by personal income tax deductions and public highways. (The deductibility of interest on home mortgages is indeed a subsidy—interest is not deductible in Canada, for example—and undoubtedly has contributed to the large private investment in housing.)

While this rhetorical debate between advocates of the private market and advocates of public subsidies rages on, at the practical level of policy implementation there continues to be an inexorable reduction in the level of government intervention in the U.S. housing market. In 1971 federal, state, and local programs subsidized the production of 483,000 homes. By 1981 the number had fallen to 211,000. Today, all government efforts together account for the construction and rehabilitation of no more than 100,000 dwellings per year.

With the decline in government's direct participation in subsidizing low-cost housing, the debate has shifted to the indirect effects of government policies. On one issue advocates of government subsidies to housing and their usual antagonists, conservative housing economists, agree. Both sides believe that among the greatest impediments to private market construction of "affordable" housing has been restrictive land-use regulation. With most new housing in the United States being built, of necessity, in the suburbs, local zoning, subdivision, and environmental regulations can increase housing prices, for new and older homes, by anywhere from 20 to 30 percent. The verbal protests of both the left and the right have provoked some court-mandated limits on the most restrictive local regulatory practices in New Jersey, Massachusetts, and a few other states. Yet protests against "exclusionary zoning" have not yet made much of a dent in suburban land-use policies.

About the Author

Peter D. Salins is provost and vice chancellor of Academic Affairs for the State University of New York. He was previously coeditor of the Journal of the American Planning Association.

Further Reading

Birch, Eugenie L., ed. The Unsheltered Woman. 1985.

Fannie Mae, Office of Housing Policy Research. Housing Policy Debate 2, no. 4 (1991).

Johnson, M. Bruce, ed. Resolving the Housing Crisis. 1982.

Rosenberry, Sara, and Chester Hartman, eds. Housing Issues of the 1990s. 1989.

Salins, Peter D., ed. Housing America's Poor. 1987.

Salins, Peter D., ed. "Toward a Permanent Housing Problem." The Public Interest 85 (1986): 22-33.

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