How proactive should the government be when it comes to housing? And, how successful can it expect to be? Perhaps the U.S. has learned the hard way not to be too heavy handed. In contrast, Gary Fleisher has provided a cautionary tale of Canada’s plans to boost housing affordability in his recent article, “From Wartime Blueprints to Bureaucratic Daydreams: The Absurd Revival of Canada’s Central Housing Playbook.” As Gary contrasts Canada’s current plans with their postwar experience, I’ve been motivated to elaborate further on the U.S. Government’s postwar experience. My recent article, “Home Building Technology, Part IV: The $6,000 Question,” highlights the boom in affordable housing that resulted from governmental action, but lest I give the wrong impression about that intervention, let me tell the larger tale about real and potential government overreach in the U.S.
My article shows the advantage of a light-handed government approach to stimulating housing construction, even though the initial execution of the Veterans Emergency Housing Act of 1946 was intended to be decidedly more heavy handed. If the bureaucrat in charge had his way, 2.7 million housing units would have been built by the government. But thanks to the loud protests of home builders and their national association, the NAHB, Congress refused to fund the act. Instead, a compromise was brokered that resulted in the private sector building millions of affordable units in record time. However, despite the rousing success of this approach, three subsequent governmental interventions took the opposite tact, with disastrous results.
The Housing Act of 1949 put the government in charge of building $2 Billion of low-income housing, unfortunately leading to the construction of high-rise slums. A perfect example was found in St. Louis, MO, where 33 11-story buildings were erected in the Pruitt-Igoe housing project. Intended to provide affordable housing, it instead became known for poor maintenance, crime, and high vacancy rates, leading to its (partially televised) demolition 20 years after construction.
In two subsequent instances, governmental actions produced devastating results for housing. In the first, mainly in Texas, the Tax Act of 1981 exacerbated overbuilding, and five years later, its reversal crushed the Texas housing market for many years afterwards. In the second instance, the entire country paid the price for the relaxation of lending requirements by Fannie Mae in the early 2000s. Even though its largest shareholder, Warren Buffett, warned management of the potential risk, Fannie Mae refused to alter course. By 2007, as many of these so-called subprime loans went into default, they initiated the massive housing recession. Not only did Fannie Mae’s stock became worthless, but the Great Recession of 2008–2009 had global impacts, causing widespread financial market volatility and economic contraction.
While the postwar U.S. experience has included bouts of governmental overreach alongside successful entrepreneurship, the postwar experience of Canadians mainly involves substantial government intervention. As Gary Fleisher aptly illustrates and I would like to reiterate, that would be a bad act to follow now. The solutions to housing shortages or affordability will not be found in massive government programs.