Twenty-first century housing costs account for 30-50 percent of the typical American family budget, making housing the largest sector in the nation’s consumer economy. Housing prices and availability strongly influence labor’s costs to industry. Historically, both peaks and troughs in the housing market have created ripple effects influencing all aspects of the economy.
The modern residential real estate business in the United States rests on three legs: the contractor-developer, who oversees the planning and construction of multiple dwelling units; the realtor, who markets new and existing units to American families; and the lending industry, which provides capital both to the contractor-developer and to the
The population was overwhelmingly rural–95 percent in 1790, 89 percent in 1840. In urban areas, combining the owner’s residence with a store or workshop blurred the distinction between business and residential real estate. Real estate sales and loans associated with them were handled as a sideline by firms whose main source of income lay elsewhere–in the earliest days, with the maritime shipping industry, later with railroads.
The influx of large numbers of European immigrants during the 1840’s created an urban housing crisis, especially in New York and Boston. Core areas became increasingly densely packed and squalid, while dependence on foot travel for transportation limited peripheral expansion. Owners of rural property on the outskirts of large cities found it more profitable to sell lots dedicated to middle-class, single-family housing than to allow a mixture of manufacturing and substandard shantytowns to grow up spontaneously in these borderlands.
Marketing single-family homes, built and furnished in a style beyond the means of the average working-class family, as the centerpiece of the
Urban development in the last quarter of the nineteenth century took advantage of improved local transportation and large amounts of capital generated by railroads. Streetcar suburbs attracted lower middle-class and skilled working-class families, and included a high proportion of rentals. The master developer bought farmland, subdivided it, and sold lots in small batches to entrepreneurs, who in turn contracted with builders. Standardized designs and materials reduced the need for skilled labor and brought down overall costs.
In Chicago, Samuel Eberley
During the Panic of 1893 and the subsequent depression, many homeowners experienced foreclosure, a phenomenon that became increasingly prevalent in the next century, as mortgages came to be the standard method of financing houses. Between 1900 and 1920, home ownership remained flat at about 46 percent of American families, while the percentage of homeowners having mortgages rose from 27 to 38 percent and aggregate mortgage debt rose sixfold, to $6 billion.
Real estate sales as a distinct profession emerged in the United States during the 1890’s. Responding to a public perception that real estate and mortgage brokers were swindlers, brokers in major cities formed professional associations, membership in which guaranteed a buyer adherence to a code of ethics. Realtor associations regulated commissions, enforced exclusivity contracts, and provided local multiple listings that during the 1920’s had evolved into a nationwide network. Lobbying efforts by the
During the economic downturn immediately following World War I, the National Association of Realtors launched a massive campaign touting home ownership as a patriotic duty. At the same time, Henry Ford’s Model T (also known as the Tin Lizzy) made the average American much more mobile.
The real estate market began to sour in 1926, beginning with the collapse of a housing bubble in Florida, and was already in serious trouble when the stock market crashed in 1929. By 1932, new housing starts had nearly ceased and communities were devastated by massive foreclosures. Congress responded with the
The key to the FHA program was (and still is)
During the 1980’s, average home prices in the same markets (Florida and California) that experienced the bubble of the 1920’s reached levels the FHA would no longer insure. Lenders, counting on continued rapid escalation in property values, responded by issuing riskier and more costly mortgages and selling bundled mortgages to investors. Freed from the constraints imposed by the FHA, real estate markets in many parts of the country underwent exponential growth.
Levittown, Pennysylvania, seen in this aerial view around 1959, was a typical suburban development.
That growth came to an abrupt halt in 2007 with a wave of defaults and foreclosures and an investment community no longer willing to fund risky mortgages. As of mid-2008, the results of the meltdown of the subprime mortgage industry had spread to include a general tightening of consumer credit, rising unemployment, a fall in the stock market, and failure of a number of large financial institutions heavily invested in mortgages. Congress responded with the
Although a majority (68.9 percent) of American households live in owner-occupied units–including single-family site-built homes, manufactured homes, and condominiums–a substantial minority are renters. The percentage of rental households stood at 53.5 in 1900, remained relatively constant until 1940, dropped below 40 percent by 1960 during the post-World War II building boom, and has declined slowly since.
From a market point-of-view, rental housing provides the investor with return both in rents and in property appreciation. For several decades, market conditions in most areas have not favored constructing new units for low- and moderate-income tenants. Increasingly, the most desirable apartments in core city areas are being renovated and sold as condominiums to urban professionals. New multiple-unit construction in suburbia also favors condominiums over rentals.
The U.S. Department of
Virtually unknown before World War II, mobile and
During the early twenty-first century, Americans lived in 8.8 million manufactured homes, 8 percent of the nation’s total housing units. These were concentrated in rural and low-income areas. The market for manufactured homes and the laws pertaining to them are a curious hybrid between real estate and motor vehicles. Older units indeed had many of the characteristics of motor vehicles, notably rapid depreciation that deprived this nominal form of home ownership of much of its long-term value. Newer manufactured homes, especially when installed on a foundation on land the buyer owns, differ rather little from lower-end site-built homes and retain their value if meticulously maintained. FHA-backed financing is available for manufactured homes. They are an important source of affordable housing, particularly in the South.
In many areas, land occupied by rental trailer parks came under pressure to be used for more lucrative developments. A tendency of local planners to welcome eradication of something regarded as an eyesore was tempered by growing recognition of the vital role manufactured-home parks play in housing lower-income workers and elderly people on limited fixed incomes.
Duany, Andres, Elizabeth Plater, and Jeff Speck. Suburban Nation: The Rise of Sprawl and the Decline of the American Dream. New York: North Point Press, 2000. Contrasts the contrived development of suburbia with evolution of a village; critical of role of the FHA. Fletcher, June. House Poor: Pumped-Up Prices, Rising Rates, and Mortgages on Steroids. New York: Collins, 2005. Principally concerned with runaway development in the preceding decade, declining affordability, and the shaky creative financing that fueled these trends. Hayden, Dolores. Building Suburbia: Green Fields and Urban Growth, 1820-2000. New York: Pantheon Books, 2003. Thorough and well-documented account of real estate development including social and financial aspects; good coverage of the period before World War II. Hornstein, Jeffrey M. A Nation of Realtors: A Cultural History of the Twentieth Century American Middle Class. Durham, N.C.: Duke University Press, 2005. Emphasizes the interaction between the real estate industry and the American political system. sociological in approach. Wright, Russell O. Chronology of Housing in the United States. Jefferson, N.C.: McFarland, 2007. This time-wise look at American housing, from the arrival of the settlers to the twenty-first century, examines the transition from rural to urban life and issues such as sanitation, defense, and water supplies.
U.S. Department of Housing and Urban Development
Commercial real estate industry