What Is the National Housing Act?
The National Housing Act was groundbreaking legislation passed by Congress in 1934 aimed at revitalizing the residential real estate market and fostering homeownership. As a hallmark of the New Deal, this act created the Federal Housing Administration (FHA) that, through a federally guaranteed mortgage insurance program, enabled banks to offer lower-cost loans, making homeownership more attainable for a broader population.
Key Takeaways
- The National Housing Act of 1934 was a pivotal piece of New Deal law designed to promote homeownership.
- The act resulted in the establishment of the FHA, which not only stabilized the housing market during the Great Depression but also made loans more accessible.
- Although the FHA made homeownership feasible for many low- and middle-income borrowers, it also perpetuated racial discrimination and segregation in housing.
- The act introduced the federal role in home financing, setting precedents for future housing programs.
Understanding the National Housing Act
Enacted during the dire economic straits of the Great Depression, the primary goals of the National Housing Act were to enhance housing standards, create mutual mortgage insurance, and reduce family home foreclosures. In 1932, mortgage defaults were rampant, skyrocketing to around 1,000 per day. The act was a significant intervention, addressing these defaults and stabilizing the most affected.
Home financing was almost inaccessible for the average American, with loans demanding a 50% down payment and full repayment within five years, lacking any amortization—essentially balloon mortgages. The legislation marked substantial reform, leading to the establishment of agencies like the Federal Savings and Loan Insurance Corp. (FSLIC) and the FHA, instilling confidence in borrowers and lenders alike. An ‘FHA-approved lender’ soon became a standard of excellence.
Impact of the National Housing Act
The idea was simple yet profoundly effective: by insuring lenders, the government enabled more families to qualify for home loans, stimulating nationwide home purchases. This stabilization later led to long-lasting benefits, evidenced by the continuous success of the FHA, which was eventually absorbed into the Department of Housing and Urban Development (HUD) in 1965. Today, FHA loans provide key financial assistance to low- to moderate-income borrowers and first-time homebuyers, highlighted by their more lenient terms than other traditional mortgages.
Criticisms of the National Housing Act
While beneficial to many, the act was a source of systemic disparity, particularly affecting African Americans and other racial minorities. Its practices included limiting financing to predominantly White suburbs, marking minority neighborhoods as ‘risky,’ and supporting racial segregation via redlining. These practices reinforced socioeconomic divides ultimately quelled by the Civil Rights Act of 1964 and the Fair Housing Act of 1968—albeit their historical impacts endure to this day.
Effects of FHA Redlining
Explicit and implicit biases rationalized these exclusionary practices, premised on unjustifiable economic concerns about African Americans degrading property values. Even policy amendments made by subsequent civil rights laws haven’t fully resolved the disparities cemented by the FHA’s discriminatory origins.
Special Considerations
The National Housing Act paved the way for multiple governmental efforts during economic distress. Post the 2007-2008 subprime mortgage crisis, the Housing and Economic Recovery Act (HERA) revived aspects of federal intervention, prompting the emergence of the Federal Housing Finance Agency (FHFA). Programs like HOPE for Homeowners also offered loan restructuring for borrowers on the brink of default, availing affordable longer-term refinanced loans. During the 2020 COVID-19 pandemic, federal agencies again ensured housing stability through measures like foreclosure moratoriums and mortgage forbearance.
Did the National Housing Act Help Everyone?
The achievements of the National Housing Act in enabling home improvements and purchases for millions by the 1930s are undeniable. However, the cost of inclusion for many Blacks, Latinxs, and other marginalized groups cannot be overstated, showcasing entrenched racially-driven policies that shadowed the benefits.
Housing Act of 1949
The Housing Act of 1949 arose from the need to combat post-World War II urban decay, setting in motion efforts ineffective in slum clearance but moderately successful in boosting widespread home financing and public housing. Although expanding FHA’s scope, racial inequities persisted in housing provisions.
Fair Housing Act of 1968
Prohibiting discrimination in housing practices based on race, color, religion, national origin, and later, sex, disability, familial status, and other specified categories, the Fair Housing Act endeavors to resolve the legacies of suppliers’ prejudicial lending. Nevertheless, housing segregation and bias have lingered beyond enactments.
The Bottom Line
Significant in its vision and scope, the National Housing Act indelibly influenced the U.S. housing finance system, forming an integral part of the American Dream. Paradoxically, measures enacted under its aegis also sharply delineated racial inequities reflecting systemic challenges juxtaposed alongside broader socioeconomic progress.
Related Terms: Federal Housing Administration, Housing and Economic Recovery Act, Great Depression, subprime mortgage crisis, Civil Rights Act, Fair Housing Act.
References
- U.S. Department of Housing and Urban Development, HUD User. “HUD’s Historical Timeline”.
- U.S. Department of Housing and Urban Development. “HUD History”.
- U.S. Department of Housing and Urban Development. “Let FHA Loans Help You”.
- FRASER (Federal Reserve Archival System for Economic Research), Federal Reserve Bank of St. Louis. “Federal Reserve Bulletin: Volume 77, Number 11”, Pages 864–872 (Pages 22–30 of PDF).
- Govinfo, U.S. Government Publishing Office. “Role of the Federal Housing Administration (FHA) in Addressing the Housing Crisis”.
- Federal Housing Finance Agency. “Fannie Mae and Freddie Mac”.
- U.S. Department of Housing and Urban Development Archives. “Basic Facts for Lenders About the HOPE for Homeowners Program”.
- U.S. Department of Housing and Urban Development. “History of Fair Housing”.
- Federal Housing Finance Agency. “FHFA Extends Availability of COVID-19 Multifamily Forbearance”.
- The White House. “Fact Sheet: Biden Administration Announces Extension of COVID-19 Forbearance and Foreclosure Protections for Homeowners”.
- The Living New Deal. “National Housing Act (1934)”.
- Govinfo, U.S. Government Publishing Office. “Housing Act of 1949 (Section 2 and Title V)”.
- U.S. Department of Justice. “The Fair Housing Act”.
- Congress.gov, U.S. Congress. “H.R.1158 — Fair Housing Amendments Act of 1988”.
