By Rod Arroyo, FAICP
As the United States struggled to escape the Great Depression, it elected a new President, Franklin D. Roosevelt, in 1932. In his acceptance speech for the Democratic nomination, he spoke of a New Deal for forgotten Americans. Many federal policies and actions taken as part of the New Deal created jobs and stimulated economic growth.
Following WWII, the federal government approved a new G.I. Bill to boost home ownership, education, and more for returning veterans. By the 1960s, the United States had established a robust middle class, with the Baby Boomer generation later becoming the wealthiest generation in history.
The crafting of legislation for and the implementation of New Deal programs and G.I. Bill benefits overwhelmingly benefited White Americans. Black Americans faced federal and state policies, rules, and guidelines that had explicit segregationist elements and unequal access to education, housing, and job programs that White Americans used to grow wealth. Many of these policies also promoted new residential development in sprawling suburban areas, rather than supporting compact development that was less automobile-dependent.
Pre-New Deal Era
First, a brief examination of the Herbert Hoover era as Secretary of Commerce (1921-1928) and later as President (1929-1923) provides some insight into the philosophies that spawned the growth of mostly-White suburbs years later.
During his time as Commerce Secretary, Hoover led the Department’s effort to establish state enabling legislation for zoning laws across the country (State Standard Zoning Enabling Act). While this was an important tool to allow local government to enact land use regulations, it also established a framework where communities could enact exclusionary zoning ordinances.
In President Hoover’s address to the White House Conference on Home Building and Home Ownership, he said, “There is a wide distinction between homes and mere housing. Those immortal ballads, Home, Sweet Home; My Old Kentucky Home; and the Little Gray Home in the West, were not written about tenements or apartments. They are the expressions of racial longing which find outlet in the living poetry and songs of our people.” He went on to add, “That our people should live in their own homes is a sentiment deep in the heart of our race and of American life.”
Housing Assistance
One key component of President Roosevelt’s New Deal legislation of the 1930s was federal mortgage assistance. Federal dollars were made available to insure mortgage loans to bolster the housing market, with the federal government promising to pay if there was a default.
In 1944, the G.I. Bill was created, including housing programs that guaranteed mortgages and slashed minimum downpayment amounts. The median downpayment was nine percent, but between one-fifth and one-third of VA loans were 0% down between 1950 and 1970. In 1949, the conventional FHA system shifted from 20 percent down to 10 percent down. The FHA introduced the 30-year mortgage for new construction in 1948, and it became the industry standard. It was expanded to apply to new construction in 1954.
The FHA and VA programs also included widespread discrimination based on gender, race, and class. Examples include the following:
Planning Neighborhoods for Small Houses
The FHA Publication “Planning Neighborhoods for Small Houses,” rev. 1939, included a variety of design standards, promoting suburban patterns of development, separation of land uses, and more. For example, it states: “The gridiron plan which has been so universally adopted in most of our cities has several very decided disadvantages when applied to residential areas….it causes the installation of more expensive type of paving by dispersing the traffic equally through the area, which in turn creates an increased traffic hazard.” It goes on to say that “Homes located on culs-de-sac, or dead-end streets, and on courts or crescents may offer distinct advantages, especially to families with small children.” Today, the grid pattern has been embraced by many town planners, and suburban design patterns have been rejected as wasteful and fiscally unsustainable by many experts.
This FHA Technical Bulletin also included a section entitled “Typical Restrictive Covenants,” where the following was stated: “It is sometimes found desirable to include a clause limiting the use of the property to a particular race or nationality for whom the premises are intended.” This federal nod to race discrimination set the framework for race-based covenants to be recorded for new residential lots, excluding Black Americans from wealth-building opportunities.
Underwriting Manual
No document was more potent in determining lending practices than the Federal Housing Administration’s “Underwriting Manual.” The FHA “Underwriting Manual” was issued in 1935. It describes the techniques used by the Federal Housing Administration to determine whether or not mortgages are eligible for insurance under Title II of the National Housing Act. Eligibility is determined by risk rating. This process consists of an examination of mortgage risk and embraces valuation.”
The “Underwriting Manual” reflected negatively on “interior locations” in the city, stating: “Interior locations…have a tendency to exhibit a gradual decline in quality.”
Next is a listing of key sections of the Underwriting Manual (rev. 1938) that explicitly promoted segregation and racist lending practices:
Special Considerations for Rating Undeveloped Subdivisions and Other Sparsely Developed Areas, it states that to protect from adverse influences, “generally, a high rating should be given only where adequate and properly enforced zoning regulations exist or where effective restrictive covenants are recorded against the entire tract, since these provide the surest protection against undesirable encroachment and inharmonious use. To be most effective, deed restrictions should be imposed upon all land in the immediate environment of the subject location.” Recommended restrictions should include “Prohibition of the occupancy of properties except by the race for which they are intended.” This clause was similar to the one found in the Technical Bulletin, Planning Neighborhoods for Small Houses,” but including in the Underwriting Manual was even more impactful as it applies to determination of risk for all FHA-backed loans.
In the section Motivation in Relation to Transaction, it states: “The borrower who acquires property for occupancy in a location inhabited by a class or race of people that may impair his interest in the property – and thereby affect his motivation – should be ascribed a lower rating in this feature to reflect the diminishing importance of the property to the borrower.” This is a powerful statement that suggests that people may impair interest in a property merely because a person (or persons) is a member of a “class” or race.
Determination of Derived Capital Value, it states: “The matters listed below are considered to be significant factors in estimating the degree of owner-occupancy appeal.” Item d. states: “The degree of social and racial compatibility of the inhabitants of the neighborhood. The presence of socially or racially inharmonious groups in a neighborhood tends to lessen or destroy owner-occupancy appeal.” The federal government was clearly seeking to promote racial segregation and make it difficult to impossible to get funding to build where homogenous racial neighborhoods did not exist.
Protection From Adverse Influences, it states: ”Areas surrounding a location are investigated to determine whether incompatible racial and social groups are present, for the purpose of making a prediction regarding the probability of the location being invaded by such groups. If a neighborhood is to retain stability, it is necessary that properties shall continue to be occupied by the same social and racial classes. A change in social or racial occupancy generally contributes to instability and a decline in values.” This is an example of a federal document suggesting that the probability of “invasion” by one racial group should be assessed, suggesting once again that the mixing of races shall be a basis for high risk and likely disapproval of federal loan insurance. This excluded Black Americans from wealth-building in neighborhoods that were White.
Adequacy of Civic, Social and Commercial Centers, it states: “When considering the question of schools, distances to the schools should be related to the public or private means of transportation available from the location to the schools. The social class of the parents of children at the school will in many instances have a direct bearing. Thus, physical surroundings of a neighborhood area may be favorable and conducive to enjoyable, pleasant living in its location. However, if the children of people living in such an area are compelled to attend school where the majority or a considerable number of the pupils represent a far lower level of society or an incompatible racial element, the neighborhood under consideration will prove far less stable and desirable than if this condition did not exist. Frequently, upon payment of a fee, children in such an area could attend another school with pupils of their same social class. However, desirability of the neighborhood, when compared with competitive locations, might be adversely affected by the additional expense. In many instances where a school has earned a prestige through the quality of instruction and adequacy of facilities, it will be found that such ··attributes will be an element in maintaining the desirability of the entire area comprising the school district. In cases where schools are not immediately present, consideration is given to convenience and cost of required transportation.” Here the federal lending guidelines state that it is not desirable for schools to be integrated, rather, it suggests that one racial group – White – will need to seek out private schools or other out-of-district schools that are also all White, and this excess cost and inconvenience may pose a risk to lending.
Based on the above, it is not surprising that between 1945 and 1959, less than 2 percent of all federally insured home loans went to African Americans. The discriminatory and segregationist actions of the federal government were rooted in the principles and guidelines codified in key FHA documents.
G.I. Bill and Veteran Housing
The G.I. Bill of 1944 was intended to provide World War II veterans with financial assistance for education, housing loans, unemployment benefits, and job training. On the surface, the G.I Bill was very successful. The G.I. Bill helped double the number of bachelor’s degrees in 1950 compared to 1940, and it contributed to an expansion of home ownership in the U.S. from 44 percent to 55 percent during the same period. Between 1940 and 1960, the rate of home ownership increased from 44 to 62 percent.
Black veterans did not benefit equally, as discrimination and racism impacted the crafting and administration of the G.I. Bill.
During the drafting of the law, the chair of the House Veterans Committee, Mississippi Congressman John Rankin, insisted that the program be administered by individual states instead of the federal government. This allowed for inconsistent application of the law; it promoted segregationist actions in states with a history of such behavior.
The worst abuses were in the South, “where 79 percent of all Black veterans lived; in some Southern states, a group representing Black veterans said in 1947, postmasters wouldn’t even deliver to Black households the applications necessary to receive terminal leave pay for wartime service.”
There was also discrimination in the North and elsewhere. “In New York and New Jersey, 67,000 mortgages were insured through the G.I. Bill. Of those, fewer than 100 went to nonwhites. Levittown, the most famous postwar suburban development, explicitly excluded Blacks. As one Levittown lease stated, ‘The tenant agrees not to permit the premises to be used or occupied by any other persons than members of the Caucasian race.” Black veterans could not move to many new subdivisions, as deed restrictions, redlining lending practices, and other factors limited their choices.
The V.A. did not grant loans under the G.I. Bill; rather, it guaranteed payment of a portion in the event of loan default. Only 0.7 percent of the 1.3 million Black Americans who served in World War II were successful in getting home loans under the GI Bill. Those who were successful were excluded from most new suburban developments, which were White-only.
The post-war Baby Boom generation, those born between 1946 and 1964, is the wealthiest generation in the U.S., holding approximately one-half of the $156 trillion in assets. However, the racial divide in wealth is staggering. In 2022, for every $100 in wealth held by White households, Black households held only $15.
The factors noted above illustrate that the post-WW II economy benefited White workers because they had full access to educational institutions, government-backed and private lending institutions, suburban housing developments, and much more. Before WWII, only 10-15 percent of young Americans were able to attend college, meaning it was attainable primarily by the wealthy. By 1947, 49 percent of college admissions were veterans using the G.I. bill.
Black Americans faced segregationist policies at all levels, and did not have full access to the same educational, lending, and housing options. At the conclusion of World War II, Blacks wanting to attend college in the South were restricted in their choices to about 100 public and private institutions delineated in the Office of Education publications as ‘Colleges for Negroes,’ as segregation in public higher education remained a legal mandate in many southern states. Across all private and public institutions in the South, White institutions accounted for 92 percent of total expenditures in 1943-44; among public institutions alone, colleges and universities for Whites accounted for more than 94 percent of expenditures.” Many Black higher education facilities were underfunded and overcrowded. Black Americans also faced racism and discrimination regardless of where they lived or worked. In fact, many forms of discrimination were still legal until the passing of the Civil Rights Act in 1968.
Transportation Improvements / Neighborhood Destruction
Another blow to many African American neighborhoods was the construction of the federal highway system. The Federal-Aid Highway Act of 1956 (also known as the National Interstate and Defense Highways Act) was approved by Congress, and it established funding for an interstate highway system. This led to the systematic decimation of predominantly Black neighborhoods and Black-owned businesses throughout the United States. The I-75/I-375 construction in Detroit removed most of Hastings Street, the predominantly Black-owned business corridor in Detroit, and also destroyed more of what remained of the Black Bottom residential neighborhood. Many other cities were impacted including, but not limited to the following:
- Chicago. IL: Dan Ryan Expressway (1-90) displaced 81,000 people (64% Black) and divided Bronzeville from the White Bridgeport neighborhood.
- Cincinnati, OH: The West End was home to 25,000 predominantly Black residents who were forced to relocate in the name of freeways (I-75) and urban renewal
- Flint, MI: When the highway paths were finally cleared, approximately 3,000 families had been moved out. Over 58% of the families displaced to build Flint’s highways were Black, while comprising only 28% of the city’s population.
- Miami, FL: Overtown, the Harlem of the South, was decimated by a large freeway interchange, displacing over 15,000 and damaging much of the main Black business district.
- Pittsburgh, PA: I-579 devasted the Hill District, displacing thousands of Black residents. More than 400 businesses were lost.
- St. Paul, MN: Rondo Avenue, a thriving corridor of Black-owned businesses and residents, was destroyed by I-94, taking 300 businesses and displacing 600 families.
The Federal-Aid Highway Act of 1956 authorized the construction or about 41,000 miles of highways, 16,000 entrances and exits, nearly 55,000 bridges and overpasses, and scores of tunnels at a final cost of $128.9 billion (1991). It restructured urban America. African-Americans in almost every region of the country faced displacement, neighborhood disruption or removal, and much more.
A Lasting Legacy
The actions of the federal government to boost homeownership and discriminate against Black Americans left a legacy of loss during a critical time for building wealth in the U.S. This happened during a period when interest rates were low and housing prices were historically affordable. In 1950, single-family homes cost less than 2.5 times the median household income (1950 data), versus 5.3 times the annual income today (2023 data).
In the Levittown example cited above, each new home there in 1947 cost about $8,000, or $7,600 for those on the G.I. Bill. That $8,000 would be worth $118,000 in 2025 dollars, applying the Consumer Price Index (CPI). Today, homes in Levittown sell for about $680,000 because real estate values have far outpaced the CPI. If the original home 1947 home – or the proceeds from the net gain in that home – was passed down in the family, over $560,000 of additional intergenerational wealth would be realized.
Most Black Americans missed this crucial window for home acquisition at a uniquely advantageous time, and it leaves a negative legacy that will be felt for generations.
A Chronological Summary of Key Federal Actions that Led to Racist and Segregationist Consequenses
1932: Presidential Candidate Franklin D. Roosevelt promises a New Deal for forgotten Americans.
1933: The Homeowners Refinancing Act – also known as the Home Owners’ Loan Act of 1933 and the Home Owners’ Loan Corporation (HOLC) Act – was passed by Congress and went into effect June 13, 1933. The HOLC was established to assist homeowners who were in default on their mortgages and in foreclosure. The HOLC worked with local real estate professionals to create “Residential Security” maps, which documented how professionals evaluated mortgage lending risk. Neighborhoods were graded A (best) to D (hazardous). Predominantly Black neighborhoods were generally always given a D rating – which was a red color on the map – thus leading to the practice known as redlining.
1934: The Wagner-Steagall Housing Act, also known as the National Housing Act (NHA) was signed into law on June 27, 1934 by President Franklin D. Roosevelt. It created two federal agencies, the Federal Housing Administration (FHA) and the Federal Savings and Loan Insurance Corporation (FSLIC). The FHA began insuring home mortgages in White-only neighborhoods.
1935: The FHA Underwriting Manual is first published and revised again in 1938. This manual codified its segregationist and racist policies.
1936: The FHA issues Technical Bulletin No. 5, Planning Neighborhoods for Small Houses, which continues to state segregationist and racist guidelines.
1938: Congress created the Fannie Mae, the Federal National Mortgage Association. Fannie Mae was intended to boost homeownership levels by improving access to low-cost loans. It does this by buying mortgages from local banks and securitizing them, freeing up the local banks to increase mortgage lending to others. Only two percent of the $120 billion in new housing subsidized by the federal government between 1934 and 1962 went to non-Whites.
1944: The Servicemen’s Readjustment Act – The G.I. Bill – is passed by Congress to provide World War II veterans with financial assistance for education, housing loans, unemployment benefits, and job training. It was successful but did not provide equal opportunity to Black veterans due to a variety of discriminatory and segregationist policies, laws, and private restrictions that were in place.
1947: Levittown, New York was one of the first large-scale suburban housing developments built to attract post-World War II veterans. Levitt & Sons rapidly produced homes on slabs – no basements – which helped with speed of construction and price. The FHA and VA backed this development despite its explicit restriction to sell to “Caucasians only.” This project set a pattern for post-war housing in the U.S.
1948: The Federal Housing Administration introduces the 30-year mortgage for new construction only. This improves housing affordability and encourages a suburban development pattern.
1949: The Federal Housing Administration lowers the minimum down payment for qualified buyers to 10 percent. Congress passed the Housing Act of 1949, which provided federal funding for urban renewal, “slum clearance,” and redevelopment. This funding was used to help destroy much of Detroit’s Black Bottom community, and it led to the construction of a new development that was predominantly White (Lafayette Park).
1954: The FHA 30-year mortgage becomes available for existing homes.
1956: The Federal-Aid Highway Act of 1956 (also known as the National Interstate and Defense Highways Act) is approved, which established funding for an interstate highway system. This led to the systematic decimation of predominantly Black neighborhoods and Black-owned businesses throughout the United States. The I-75 / I-375 construction in Detroit removed most of Hastings Street, the primary Black-owned business corridor in Detroit and it also removed more of what remained of the Black Bottom neighborhood.
1968: The Fair Housing Act (Title VIII of the Civil Rights Act of 1968) is approved by Congress. It prohibited discrimination in the sale, rental, and financing of housing based on race, religion, national origin, sex, (and as amended) handicap and family status. As of 2023, the Census Bureau states that 73.8% of White Americans own their own homes, followed by Asian Americans (63%), Hispanic Americans (49.8%) and Black Americans (45.9%).
Sources:
Fetter, Daniel. How Do Mortgage Subsidies Affect Home Ownership? National Bureau of Economic Research, https://bit.ly/MortgageSubsidies
Hanchett, Tom. The Other “Subsidized Housing” Federal Aid To Suburbanization, 1940s-1960s in HistorySouth.org and https://www.grarate.com/article/history-30-year-mortgage
Federal Housing Administration, “Planning Neighborhoods for Small Houses,” Technical Bulletin No. 5, Rev. 1939, pg. 12
Federal Housing Administration, Underwriting Manual, Underwriting and Valuation Procedure Under Title II of the National Housing Act (rev 1938), Sec. 909
Noah, Timothy, Let’s Give Black WWII Vets What We Promised, New Republic, https://bit.ly/Black-WWII-Vets
Blakemore, Erin, How the GI Bill’s Promise Was Denied to a Million Black WWII Workers, History.com, https://bit.ly/GI-Bill-Promise-Denied
Porter, Tom, A Land Fit for (Some) Heroes: How the GI Bill Helped White Vets More Than Black Ones, Bowdoin.edu https://bit.ly/GI-Bill-Impacts
Mae, Angela, More Than Half of US Wealth Belongs to Baby Boomers: Will Other Generations Catch Up? Nasdaq.com, https://bit.ly/Baby-Boomer-Wealth
Perry, Andre M., Hannah Stephens, and Manann Donoghoe, Black Wealth is Increasing, But So Is The Racial Wealth Gap, Brookings Institute, https://bit.ly/Racial-Wealth-Gap
Centre for Public Impact, The US’ GI Bill: The “New Deal for Veterans.” https://bit.ly/4hhAtx6
American Society of Civil Engineers, How the Interstate Highway System Connected – And In Some Cases Segregated – America, asce.org, https://bit.ly/Interstate-Highway-Segregation and https://www.fhwa.dot.gov/infrastructure/50estimate.cfm
Deborah Archer in White Men’s Roads Through Black Men’s Homes: Advancing Racial Equity Through Highway Reconstruction in Vanderbilt Law Review (vol. 73, no.5 October 2020)
https://massbudget.org/2021/08/06/a-history-of-racist-federal-housing-policies/