The Housing and Urban Development Act of 1968 ...

Studies in American Political Development, 27 (October 2013), 165– 194. doi:10.1017/S0898588X13000102

ISSN 0898-588X/13 # Cambridge University Press 2013

Calling upon the Genius of Private Enterprise: The Housing and Urban Development Act of 1968 and the Liberal Turn to Public-Private Partnerships Alexander von Hoffman, Harvard University President Lyndon Johnson declared the Housing and Urban Development Act of 1968 to be “the most farsighted, the most comprehensive, the most massive housing program in all American history.” To replace every slum dwelling in the country within ten years, the act turned from public housing, the government-run program started in the 1930s, toward private-sector programs using both nonprofit and for-profit companies. As a result, since its passage, for-profit businesses have developed the great majority of low-income residences in the United States. The law also helped popularize the idea of “public-private partnerships,” collaborations of government agencies and non-government entities—including for-profit companies—for social and urban improvements. Remarkably, political liberals supported the idea that private enterprise carry out social-welfare programs. This article examines the reasons that Democratic officials, liberals, and housing industry leaders united to create a decentralized, ideologically pluralistic, and redundant system for low-income housing. It shows that frustrations with the public housing program, the response to widespread violence in the nation’s cities, and the popularity of corporate America pushed the turn toward the private sector. The changes in housing and urban policy made in the late 1960s, the article concludes, helped further distinguish the American welfare state and encourage the rise of neoliberalism in the United States.

I. INTRODUCTION: THE MOST MASSIVE HOUSING PROGRAM IN HISTORY In August 1968—just months after announcing he would not run for reelection—President Lyndon Baines Johnson again demonstrated his legislative mastery by winning congressional approval for the Housing and Urban Development Act of 1968. The omnibus housing bill, the president proclaimed to a nation beset by the urban crisis, provided a “Magna Carta to liberate our cities.” It was, he declared, “the most farsighted, the most comprehensive, the most massive housing program in all American history.”1

The author gratefully acknowledges the support of the John D. and Catherine T. MacArthur Foundation and The Ford Foundation for research that contributed to this paper and the helpful suggestions of the journal’s anonymous reviewers, Elisabeth Clemens, Patricia Strach, Anthony Chen, and Daniel Carpenter. 1. Lyndon B. Johnson, “Remarks upon Signing the Housing and Urban Development Act of 1968. August 1, 1968, John T. Woolley and Gerhard Peters, The American Presidency Project [online], Santa Barbara, CA: University of California (hosted),

No one could argue this last point. The new law set a target of building six million homes for low- and moderate-income families within ten years—an enormous increase in production intended to replace every slum dwelling in the country. To accomplish this formidable task, the act provided three new programs for low-income Americans: one for rental housing, one for home ownership, and one to finance housing development ventures. The bill carried a gargantuan price tag: $5.3 billion for the first three years and an eventual estimated cost of $50 billion. With such sweeping purpose and immense cost, the 1968 act would significantly expand the American welfare state. Just as noteworthy were the means by which the 1968 law aimed to achieve its breathtaking goals. The goal of the 1968 act, explained Johnson, was “the deeper involvement of the private sector” in housing policy. This meant turning away from

Gerhard Peters (database) [hereafter APP], http://www.presidency. ucsb.edu/ws/?pid=29056.

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public housing, the nation’s principal social-welfare housing program since it began under Franklin Roosevelt’s New Deal. In the public housing program, government agencies developed, owned, and managed dwellings, which they rented to low-income people. Unlike government-run public housing, the programs in the 1968 act would use private for-profit and nonprofit companies to provide homes for the poor.2 The perception of a failed policy and the onset of a national crisis propelled this turn to the private sector. The sluggish performance of the public housing program had frustrated leading liberals, including reformers who had helped create the program. In response, Robert Weaver, the nation’s top housing official under John Kennedy and Lyndon Johnson, not only initiated reforms to the public housing program, but also began to subsidize nonprofit and limited-dividend companies to produce and manage low-income housing. When violence convulsed the nation’s inner-city neighborhoods, however, it created a critical juncture in policy. Weaver’s boss, President Johnson, felt obliged to offer bolder programs to save America’s cities. Seizing on the growing willingness of business executives to help America’s disadvantaged and thereby share the cost of social programs, LBJ proclaimed a new era of government-business cooperation. He created a blue-ribbon commission dominated by corporate America to help his administration devise programs to rebuild America’s slums. The president then persuaded Congress to sweep aside the measured proposals of his political rivals and adopt his massive private-sector housing bill. The Housing and Urban Development Act of 1968 changed the trajectory of American housing policy. Before the 1968 act, the public housing program produced most of the subsidized low-income housing in the United States. After 1968, courtesy of locked-in political support that has been difficult to reverse, the act’s private-sector programs surpassed the public housing program in producing low-income dwellings, as did subsequent private-sector housing programs. Today the private sector develops almost all subsidized low-income housing in the United States. The 1968 law also transferred primary responsibility for social welfare housing to for-profit businesses. In keeping with the ideological traditions that produced public housing, Weaver’s first private-sector social housing programs emphasized the role of nonprofit and cooperative housing developers. The 1968 law similarly called on nonprofit and cooperative entities, but, in contrast, it also solicited for-profit

2. Lyndon B. Johnson, Special Message to the Congress on Urban Problems: “The Crisis of the Cities,” February 22, 1968, APP, http://www.presidency.ucsb.edu/ws/?pid=29386.

companies to develop and manage low-income housing, although its authors were divided on whether small or large businesses were best. Here too Johnson’s housing bill initiated a permanent shift in policy. Since the 1968 housing programs were implemented, private enterprise has produced the overwhelming share of subsidized low-income housing in the United States. Finally, the approach to domestic policy embodied in the 1968 law helped usher in the era of “publicprivate partnerships,” in which government agencies worked with nongovernment, including for-profit, entities to carry out programs of social betterment. LBJ celebrated the recruitment of the private sector to execute social welfare programs as a great innovation, hailing the 1968 housing law and similar initiatives as “a new partnership between business and Government.”3 In fact, government-business partnerships were hardly new, but the enthusiasm for funding businesses—rather than government or nonprofit agencies—to implement social welfare policy was novel. Regardless of its originality, the concept of publicprivate partnerships in urban policy proved to be ideologically protean. On the one hand, Johnson’s idea—government agencies working in tandem with business interests toward social welfare goals—took hold in America’s big cities. On the other hand, later American presidents invoked public-private partnerships to restrain federal spending and shed social programs to the private sector, a far cry from LBJ’s vision of expansive government in the cause of social justice. In either case, the 1968 housing act promoted the idea that business was better suited to carry out social programs and hence contributed to the neoliberal policies that came to dominate the American polity. Despite its importance in the development of American social policy, the Housing and Urban Development Act of 1968 has received relatively little attention from scholars. Some housing historians and experts have noted the law’s role in redirecting American low-income housing policy toward the private sector, but neither historians nor social scientists have studied the historical causes of this shift or its influence on broader social policy in the United States.4 Perhaps because they have tended to focus 3. Ibid. 4. The best account is Rachel G. Bratt, Rebuilding a Low-Income Housing Policy (Philadelphia: Temple University Press, 1989), 60– 62, 88–93, 131–35, passim, which attributes attacks on the public housing program and private industry lobbying to the shift toward publicly subsidized private housing. R. Allen Hays, The Federal Government and Urban Housing: Ideology and Change in Public Policy, 2nd ed. (Albany, NY: State University of New York Press, 1995), 88–89, 106–7, passim, notes the sweeping scale of the 1968 act’s housing programs and analyzes their results. David J. Erickson, The Housing Policy Revolution: Networks and Neighborhoods (Washington, DC: Urban Institute Press, 2009), 8, overlooks the

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on areas other than housing and urban policies, few students of the welfare state have examined the origins of the public-private partnership as a policy concept. In recent years scholars have studied the hidden influence of business in providing welfare benefits in the United States; however, they have neglected the moment when LBJ loudly and publicly invited business to carry out housing and urban social programs.5 This history illuminates the nature of the American welfare state, an elusive subject that scholars continue to probe. Over the years many observers have perceived the United States as backwards in providing social welfare, especially compared to European nations where central governments largely controlled social welfare benefits. Recently, students of the subject discovered that the United States developed a variety of alternatives to state-controlled welfare programs—such as employer-based health-care plans and tax expenditures—to produce an ample, if unequal, system of welfare distribution. More particularly, scholars have traced the American government’s use of nonprofit organizations to deliver social and community services, a trend that also occurred across the Atlantic.

importance of the 1968 act to the change in policy. See also Paul George Lewis, “Housing and American Privatism: The Origins and Evolution of Subsidized Home Ownership Policy,” Journal of Policy History 5, no. 1 (1993): 28–51; Roger Biles, “Public Housing and the Postwar Renaissance,” in John F. Bauman, Roger Biles, and Kristin M. Szylvian, eds., From Tenements to the Taylor Homes: In Search of an Urban Housing Policy in Twentieth-Century America (University Park, PA: Pennsylvania State University Press, 2000), 156– 57. Louis Hyman, Debtor Nation: The History of America in Red Ink (Princeton, NJ: Princeton University Press, 2011) does note the importance of the 1968 act’s home ownership program and mortgage credit instruments, but ignores its low-income rental housing and housing finance corporation provisions. 5. A few welfare state scholars have considered housing policy, but mainly in connection with home ownership. See, for example, Christopher Howard, The Hidden Welfare State: Tax Expenditures and Social Policy in the United States (Princeton, NJ: Princeton University Press, 1997); Dalton Conley and Brian Gifford, “Home Ownership, Social Insurance, and the Welfare State,” Sociological Forum 21, no.1 (March. 2006): 55–82. Some scholars have considered the historic trajectory of the new concept of the “public-private partnership” mode of governance, but most erroneously date its origin in the late-1970s. See, for example, Max O. Stephenson, Jr., “Whither the Public-Private Partnership: A Critical Overview,” Urban Affairs Review 27, no. 1(September 1991): 109–27; Katharine C. Lyall, “Public-Private Partnerships in the Carter Years,” Proceedings of the Academy of Political Science 36, no. 2 (1986), 4– 13. Berger, in contrast, identifies a Lyndon Johnson program, the National Alliance of Business (described below) as an early example of a government-business program and notes without further elaboration that the “concept of privatesector initiatives has a long history.” See Rene´e A. Berger, “PrivateSector Initiatives in the Reagan Administration,” Proceedings of the Academy of Political Science 36, no. 2 (1986): 14–15. For diverse perspectives on collaborative practices and public-private partnerships in American cities, see Gregory Squires, ed., Unequal Partnerships: the Political Economy of Urban Redevelopment in Postwar America (New Brunswick, NJ: Rutgers University Press, 1989).

The history of housing and urban policies in the late-1960s sheds further light on the distinctiveness and complexity of the American welfare state. It reveals a highly decentralized, pluralistic, and redundant approach that delegated responsibility for social housing to diverse agents: nonprofit entities, forprofit firms, as well as traditional public housing authorities. Strikingly, the politically liberal supporters of the 1968 law were comfortable with private enterprise carrying out social programs, an indication of the influence of pro-business sentiments on social policy in the United States. The public-private housing and urban development projects were unique and open-ended, unlike the kind of planned and controlled process that might be expected in a European context. Nonetheless, for all their irregularities and inefficiencies, the social welfare policies set in motion by the Housing and Community Development Act of 1968 proved to be flexible and highly productive. II. EXPANDING GOVERNMENT THROUGH COLLABORATION Despite the persistent myth of a weak American state, the powers of the U.S. government have expanded in myriad ways. Since the late nineteenth century, the federal government frequently extended its reach by carrying out programs in conjunction with other parties. Starting with the passage of legislation for land grants for agricultural and industrial education, especially the second Morrill Act of 1890, the federal government introduced grants-in-aid as a way to induce state or local government agencies to participate in schemes for vocational education, road building, and public health, including antivenereal disease campaigns and maternal and child health clinics. The New Deal drastically expanded the method of federal matching grants to the states for highway and public assistance and relief. During Johnson’s Great Society, the number of federal grants-in-aid exploded to encompass a vast array of activities: antipoverty measures; aids to education; new provisions for health care—including treatment for drug and alcohol abuse—support for humanities and the arts; mass transit, and even highway beautification.6

6. This survey emphasizes the power and influence of the federal government, although countless smaller and more local governmental jurisdictions also exercise authority in the United States. William J. Novak, “The Myth of the ‘Weak’ American State,” American Historical Review 113, no. 3(2008): 752–72; Elisabeth S. Clemens, “Lineages of the Rube Goldberg State: Building and Blurring Public Programs, 1900– 1940,” in Ian Shapiro, Stephen Skowronek, and Daniel Galvin, eds., Rethinking Political Institutions: The Art of the State (New York: NYU Press, 2006), 187– 215; Morton Grodzins, The American System: A New View of Government in the United States, edited by Daniel J. Elazar (Chicago: Rand McNally, 1966); Robert Reischauer, “Fiscal Federalism in the 1980s: Dismantling or Rationalizing the Great Society,” in Marshall Kaplan and Peggy Cuciti, eds., The Great Society and Its Legacy: Twenty

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The federal government’s most frequent collaborator in these types of joint ventures was another body of government. For most of the twentieth century, the federal government sent grants-in-aid to state governments and their agencies. To help the unemployed, for example, Roosevelt’s Federal Emergency Relief Administration issued matching grants to state agencies, even though some lacked the capability to hand out relief. In fighting the War on Poverty, Johnson administration officials often bypassed state governments, which previously had dispensed most federal program funds, out of fear that state officials would not implement programs for the poor or enforce civil rights laws. Instead, they funneled federal grants to alternative public jurisdictions: city government departments, school districts, special function districts, and Model Cities agencies, which the federal government had called into existence. As a result of LBJ’s initiatives, the federal government was able to exert an unprecedented scope and scale of influence over state and local government agencies.7 Federal monies for domestic policies also flowed outside the public sector to nonprofit organizations. From the New Deal onward, federal public works projects benefited nonprofit organizations, as well as local government institutions. Roosevelt’s Public Works Administration and the Works Progress Administration, for example, built nonprofit hospitals during the Depression. During World War II, the Community Facilities Act of 1941 funded construction of schools and hospitals, and after the war the Hill-Burton Act of 1946 enabled federal grants-in-aid for hospital construction. Besides subsidizing construction projects, some government social programs provided financial assistance to nonprofit service providers. The engine of LBJ’s war on poverty, the Office of Economic Opportunity, for example, used such programs as Head Start, Job Corps, and Community Action to fund nonprofit educational job training and community organizations.8

Years of U.S. Social Policy (Durham, NC: Duke University Press Books, 1987), 181–83; David Walker, “The Nature and Systemic Impact of ‘Creative Federalism,’” in Kaplan and Cuciti, eds., ibid, 199–201; Thomas Gais and James Fossett, “Federalism and the Executive Branch,” in Joel D. Aberbach and Mark A. Peterson, eds., The Executive Branch (New York: Oxford University Press, 2005), 490– 94. Courts have also extended federal authority via the federal court system, the Department of Justice, and the rulings that protect the power of other departments. The role of the judiciary is outside the scope of this article, but for the 1960s, see David M. Rosenbloom, “The Great Society and the Growth of ‘Juridicial Federalism’—Protecting Civil Rights and Welfare,” in Marshall Kaplan and Peggy Cuciti, eds., The Great Society and Its Legacy: Twenty Years of U.S. Social Policy (Durham, NC: Duke University Press Books, 1987), 207–15. 7. Reischauer, “Fiscal Federalism in the 1980s,” 179, 182–84; Walker, ibid. 8. According to Daniel Patrick Moynihan, three-quarters of the community action agencies established in the first year of the

III. GOVERNMENT, PRIVATE ENTERPRISE, AND SOCIAL POLICY By the late twentieth century the federal government also operated countless programs for and in conjunction with private for-profit businesses to assist businesses, stimulate economic development, and regulate economic activity. From the earliest days of the Republic, government officials granted special charters and monopolies to businesses—including mills and waterworks—that they believed provided needed public services and gave subsidies to encourage certain business activities, such as building canals and railroads. During both wartime and peacetime, the U.S. government contracted with private businesses to provide not only military goods but also mail and freight services. As the federal government expanded, so did the amount of government contracting, although it usually constituted a temporary hiring, not an ongoing collaboration.9 Sometimes the federal government created specialpurpose private corporations—the Emergency Fleet Corporation during World War I and the New Deal’s Tennessee Valley Authority, for instance—to perform work that neither the private sector nor existing government agencies were equipped to do. At other times the federal government created or funded entities that provided funds to for-profit companies to undertake such activities. During the Great Depression, for example, the federal Reconstruction Finance Corporation lent money to private companies to stimulate economic activity.10 Most government programs that made use of forprofit businesses were not social welfare programs per se. The proponents of social reform took little interest in promoting businesses and economic development. To the contrary, moral and social reformers often aimed to suppress commercial practices of which they disapproved. In the nineteenth and early twentieth century, supporters of temperance worked to limit or eliminate the alcohol industry, whereas Progressive-era reformers worked to stop employers

programs’ operation were nonprofit entities. Harry Perlstadt, “The Development of the Hill-Burton Legislation: Interests, Issues, and Compromises,” Journal of Health & Social Policy 6, no. 3(1995): 77– 96; Daniel Patrick Moynihan, Maximum Feasible Misunderstanding: Community Action in the War on Poverty (New York: Free Press, 1969), 130. 9. James F. Nagle, A History of Government Contracting, 2nd ed. (Washington, DC: George Washington University, 1992, ed. 1999); Richard White, “Information, Markets, and Corruption: Transcontinental Railroads in the Gilded Age,” Journal of American History 90, no. 1(June 2003): 19– 43. 10. Gail Radford, “William Gibbs McAdoo, the Emergency Fleet Corporation, and the Origins of the Public-Authority Model of Government Action,” Journal of Policy History 11, no. 1(1999): 59– 88; Kevin R. Kosar, Congressional or Federal Charters: Overview and Current Issues (Washington, DC: Congressional Research Service, Library of Congress, 2005) available at http://www.policy archive.org/handle/10207/bitstreams/4190.pdf.


from hiring children. When reformers did utilize businesses to meet social welfare goals, it was generally by means of coercion. Through the Social Security Act of 1935, the landmark social welfare legislation of Roosevelt’s New Deal, for example, the government forced business owners to help fund unemployment and old age insurance programs. Hence, until the late twentieth century, the federal government did not usually pay private for-profit companies to carry out social welfare programs. In general, federal agencies themselves ran programs in domestic policy areas that for-profit businesses either ignored, such as providing for the poor, or were unable or unwilling to enter, such as building highways or investing in economically depressed areas. In such cases, federal officials generally either carried out the activity themselves or contracted some portion of the work to private companies. In the New Deal’s public-works programs, the government did both, as government officials alternated between directly managing projects and contracting them out.11 The postwar policy of urban redevelopment used public-private collaborations in the name of improving slums, although in practice most of the projects were aimed at raising the status and economic value of the chosen sites. Title I of the Housing Act of 1949 allowed the federal government to distribute funds to state-chartered urban redevelopment agencies to acquire and clear blighted areas, which the agencies then turned over at reduced cost to private real estate developers to rebuild. Early urban redevelopment projects often included housing— sometimes public housing but more often privately developed moderate-income housing. The 1949 law did not require construction of social housing of any sort, however, and the urban renewal amendment of 1954 gave redevelopers even more leeway. As a result, urban renewal soon became a vehicle for creating luxury housing, commercial complexes, office buildings, and civic centers. Instead of furthering social welfare, urban renewal was frequently antithetical to the interests of low-income people, especially those whose homes it destroyed. Nonetheless, some liberals believed that removing substandard homes would improve the lives of the urban poor and continued to support urban renewal.12

11. Jason Scott Smith, Building New Deal Liberalism: The Political Economy of Public Works, 1933–1956 (Cambridge: Cambridge University Press, 2006), 40– 42, 108– 12, 203– 10. 12. In some urban renewal projects, the housing component consisted of rehabilitating old buildings to “conserve” neighborhoods from the threat of blight, which in this context meant lowincome residents, frequently of color. The 1954 act offered builders mortgage insurance for homes developed for families displaced by urban renewal projects. Jon Teaford, The Rough Road to Renaissance – Urban Revitalization in America, 1940 –1985 (Baltimore: Johns Hopkins University Press, 1990); Jon Teaford, “Urban Renewal

Over time the government adopted various other hybrid arrangements in which it used for-profit companies to help fulfill a social goal but retained responsibility for implementation. Some of these arrangements involved government contracting, others subsidized particular activities in the name of social goals, and many combined elements of such relationships in ways that make them hard to categorize. Many of LBJ’s programs blurred the boundaries. In the 1965 Medicare program, for example, the government functioned as an insurance agency for retired Americans, but at the outset it farmed out administration to the large nonprofit company Blue Cross/Blue Shield while paying doctors and hospitals for their services.13 IV. THE IDEA OF PARTNERSHIP IN FEDERAL GOVERNMENT PROGRAMS The expansion of government authority by dividing it among different agents has obscured the nature and extent of governance in the United States. Indeed, the mechanisms for domestic social programs have been so bewilderingly complicated as to constitute, in the words of sociologist Elisabeth Clemens, a “Rube Goldberg welfare state.” Analyzing the trend toward divided or delegated governance, many social scientists characterized and often decried the resulting forms of government as the “hollow state,” “shadow bureaucracy,” and “government-by-proxy.” 14 Twentieth-century American presidents looked on the government’s complex federal programs more favorably than scholars have. Seeking to allay fears of an imperious Washington, they described the collaborative arrangements between the federal government and other entities as “partnerships.” In his Second Fireside Chat delivered in May 1933, Franklin Roosevelt drew an analogy between New Deal

and Its Aftermath,” Housing Policy Debate 11, no. 2(Summer 2000): 443–65. 13. Kimberly J. Morgan and Andrea Louise Campbell, The Delegated Welfare State: Medicare, Markets, and the Governance of Social Policy (New York: Oxford University Press, 2011), 22; Edward Berkowitz, “Medicare: the Great Society’s Enduring National Health Insurance Program,” in Sidney M. Milkis and Jerome Mileur, eds., The Great Society and the High Tide of Liberalism (Amherst, MA: University of Massachusetts Press, 2005), 320–50. 14. Clemens, “Lineages of the Rube Goldberg State”; Kimberly J. Morgan and Andrea Louise Campbell, “Exploring the Rube Goldberg Welfare State.” Paper delivered at the International Sociological Association, Montre´al, Canada, August 21, 2009; Morgan and Campbell, The Delegated Welfare State ; Howard, The Hidden Welfare State; John P. Heinz, Edward O. Laumann, Robert L. Nelson, and Robert H. Salisbury, The Hollow Core (Cambridge, MA: Harvard University Press, 1993); H. Brinton Milward and Keith G. Provan, “Governing the Hollow State,” Journal of Public Administration Research and Theory 10, no. 2 (2000): 359–80; Paul Starr, “The Meaning of Privatization,” Yale Law & Policy Review 6, no. 6 (1988): 6–41; Donald F. Kettl, Government by Proxy: (Mis?) Managing Federal Programs (Washington, DC: CQ Press, 1988).

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legislative proposals and joint-business ventures. The bills to regulate farms and railroads and through the National Industrial Recovery Act to impose production and price controls, he asserted, represented partnerships—not a “partnership in profits” as in a business proposition, FDR explained, but “rather a partnership in planning” and implementation.15 On other occasions Roosevelt used the term to define programs in which the federal government collaborated with state and local governments, such as the Civil Works Administration’s jobs project, or private institutions and organizations, including social work agencies and voluntary art committees. Instead of a socialistic takeover, the partnership idea suggested a mutual agreement between equals.16 Roosevelt’s successors of both parties also justified programs that expanded federal influence as partnerships. Democratic president Harry Truman applauded the partnerships between federal agencies and state and local governments that built a dam in Kentucky, constructed the nation’s highways, and established community hospitals.17 Republican 15. Although presidents as early as Andrew Jackson used the term “partnership” in their public addresses, they did so to refer to business collaborations. A search of the public statements by American presidents from 1789 onward indicates that Franklin Delano Roosevelt was the first president to employ the term in its modern political usage: as a metaphor or analogy to the business relationship in order to describe a particular mixed form of government. I conducted the survey of presidential public communications in The American Presidency Project (online at the University of California at Santa Barbara), an invaluable resource for historians and social scientists compiled by John T. Woolley and Gerhard Peters, at http://www.presidency.ucsb.edu/. 16. Franklin Delano Roosevelt (FDR), Second Fireside Chat, May 7, 1933, APP, http://www.presidency.ucsb.edu/ws/ ?pid=14636; FDR, Speech to Civil Works Administration Conference in Washington, November 15, 1933, APP http://www.presidency.ucsb.edu/ws/?pid=14555; FDR, “Address to the National Conference of Catholic Charities,” October 4, 1933, APP, http:// www.presidency.ucsb.edu/ws/?pid=14522; FDR, “Radio Address for the Mobilization for Human Needs. October 14, 1938,” APP, http://www.presidency.ucsb.edu/ws/?pid=15549; FDR, Address at the Dedication of the National Institute of Health, Bethesda, Maryland, October 31, 1940, APP, http://www.presidency.ucsb.edu/ws/ ?pid=15888. “Neither the American people nor their Government intends to socialize medical practice any more than they plan to socialize industry,” Roosevelt explained. “Since the passage of the famous Social Security Act with its health provisions in 1935, Federal, State and local health and medicine are cooperating more broadly than ever before . . . the Public Health Service is helping and must continue even more greatly to help. That partnership—and I emphasize that word in regard to health and medicine throughout the land—is making definite progress against many diseases” (italics added); FDR, Statement on Art Week, November 29, 1940, APP, http://www.presidency.ucsb.edu/ws/?pid=15905. 17. The agencies were the Tennessee Valley Authority, the Federal Works Agency, the National Institutes of Health, and the Federal Security Agency, respectively. Harry S. Truman (HST), “Address and Remarks at the Dedication of the Kentucky Dam at Gilbertsville, Kentucky,” October 10, 1945, APP, http://www.presidency.ucsb.edu/ws/?pid=12318; HST, “Special Message to the Congress on Highway Construction,” February 9, 1948. APP, http:// www.presidency.ucsb.edu/ws/?pid=13050; HST, “Address at the Dedication of the National Institutes of Health Clinical Center,”

president Dwight Eisenhower commended such partnerships as a barrier to federal government bureaucratic domination. In “cases where Federal participation is necessary,” Eisenhower proclaimed in 1954, his administration would “develop partnerships rather than an exclusive and often paternalistic position for the Federal Government.”18 Presidents John F. Kennedy and Lyndon B. Johnson were more enthusiastic, invoking partnerships to embrace the expansion of federal authority. Both men extolled the federal collaborations with other government bodies and private citizens to promote economic development, agriculture, irrigation projects, vocational training, social welfare programs, transportation, and so on.19 Kennedy and Johnson singled out a particular type of partnership between government and private businesses. In a 1961 speech to Congress, Kennedy praised the depression-era Federal Housing Administration mortgage insurance and the postwar Veterans Administration mortgage guarantees as “a partnership between industry and government.” Two months after he took office in November 1963,

June 22, 1951, http://www.presidency.ucsb.edu/ws/?pid=13816; HST, “Address in Philadelphia at the American Hospital Association Convention,” September 16, 1952,, http://www.presidency. ucsb.edu/ws/?pid=14249. 18. Dwight D. Eisenhower (DDE), “Annual Budget Message to the Congress: Fiscal Year 1955,” January 21, 1954, APP, http://www. presidency.ucsb.edu/ws/index.php?pid=9919; DDE, “Annual Message to the Congress on the State of the Union, February 2, 1953,” APP, http://www.presidency.ucsb.edu/ws/?pid=9829. “The best natural resources program for America will not result from exclusive dependence on Federal bureaucracy. It will involve a partnership of the States and local communities, private citizens, and the Federal Government, all working together.” At an “Address at the Dedication of McNary Dam, Walla Walla, Washington,” September 23, 1954, Ike condemned the idea of universal federal provision of hydroelectric power and celebrated “voluntary pooling of public and private generating and transmission facilities” as “a splendid partnership.” Available at APP, http://www.presidency.ucsb.edu/ ws/?pid=10065. See also DDE, “Remarks at the Governors’ Conference, Seattle, Washington,” August 4, 1953, APP, http://www.presidency.ucsb. edu/ws/index.php?pid=9663; DDE, “Address at the Annual Convention of the Future Farmers of America, Kansas City, Missouri,” October 15, 1953, APP, http://www.presidency.ucsb.edu/ws/ index.php?pid=9730; DDE, “Annual Budget Message to the Congress for Fiscal Year 1957, January 16, 1956,” APP, http://www.presidency.ucsb.edu/ws/index.php?pid=10505. 19. John F. Kennedy (JFK), “Remarks in Los Banos, California, at the Ground-Breaking Ceremonies for the San Luis Dam,” August 18, 1962, APP, http://www.presidency.ucsb.edu/ws/?pid=8822; JFK, “Remarks in the Public Square, Cleveland, Ohio,” October 19, 1962, APP, http://www.presidency.ucsb.edu/ws/?pid=8981; JKF, “Remarks at the Arkansas State Fairgrounds in Little Rock, Arkansas,” October 3, 1963, APP, http://www.presidency.ucsb. edu/ws/?pid=9456; Lyndon B. Johnson (LBJ), “Remarks in Concord, California, at the Groundbreaking for the San Francisco Bay Area Rapid Transit Test Track,” June 19, 1964, APP, http://www.presidency.ucsb.edu/ws/?pid=26322; LBJ, “Special Message to the Congress on Area and Regional Economic Development,” March 25, 1965, APP, http://www.presidency.ucsb. edu/ws/?pid=26833.


Johnson referred to the same programs as “the longestablished partnership between private industry and Government in housing and community development” that had “made possible good housing and widespread home ownership for millions of our citizens.” Of the many public-private collaborations that had sprouted in the United States, it seemed, some of the most successful examples could be found in the housing field.20 V. THE TWO TRACKS OF AMERICAN HOUSING POLICY Federal housing policies adopted during the twentieth century ran the gamut of types of government intervention but generally followed two separate tracks.21 During the Great Depression, government officials created several agencies and programs dedicated to reviving the ailing private housing industry. To aid private building and loan societies, Herbert Hoover in 1932 signed the law creating the Federal Home Loan Bank Board (FHLBB) and its regional banking system. To rescue mortgage lenders and home owners from rampant foreclosures, Roosevelt’s New Deal administration in 1933 set up the Home Owner’s Loan Corporation. To revive the housing industry by reducing financial risks to private lenders, the National Housing Act of 1934 established the Federal Housing Administration (FHA), which issued mortgage insurance, and (in 1938) the Federal National Mortgage Association (FNMA or Fannie Mae), which would purchase and sell the FHA-insured mortgages and assist the secondarymortgage market. Taken together, these schemes created a lasting policy of buttressing the for-profit production and finance of housing. Avidly courted by housing industry trade associations and supported by sympathetic members of Congress, the panoply of agencies and programs greased the machinery of private enterprise to stimulate the national economy and to help middleand upper-middle-class Americans become home owners. In the postwar period the industry-oriented housing policies of such agencies as the FHLBB and the FHA enjoyed unchallenged political success. Supported at the grassroots level by small builder, broker, and lender businesses and nationally by trade associations and powerful congressional supporters, these 20. JFK, “Statement by the President on the Forthcoming U.N. Conference on the Application of Science and Technology for the Benefit of the Less Developed Areas,” January 25, 1963, APP, http://www.presidency.ucsb.edu/ws/?pid=9431; JFK, “Special Message to the Congress on Housing and Community Development,” March 9, 1961, APP, http://www.presidency.ucsb.edu/ws/ ?pid=8529; LBJ, Special Message to the Congress on Housing and Community Development, January 27, 1964, APP, http://www.presidency.ucsb.edu/ws/?pid=26035. 21. For the two tracks or tiers of housing policy, see Gail Radford, Modern Housing for America: Policy Struggles in the New Era (Chicago: University of Chicago Press, 1996).

federal housing agencies became as accepted a part of the landscape as the sprawling suburbs that they helped create. Their programs, like the “hidden” social policies in health care and social security, chiefly benefited better-off Americans.22 Roosevelt’s New Deal, however, also inaugurated a social welfare branch of housing policy to help lowincome Americans. Its main program, public housing, was the result of a campaign by housing reformers, including social workers and labor leaders, to rescue the inhabitants of the slums by placing them in “decent, safe, and sanitary” homes.23 The Roosevelt administration and Congress first introduced public housing in 1933 as part of the Public Works Administration (PWA). In the PWA public housing program, officials in Washington developed housing projects in local communities, but this centralized method ran afoul of the judiciary’s understanding of the prerogatives of state and local governments. After that effort reached a dead end, the president and the national legislature agreed in 1937 to establish a permanent public housing program. To avoid such constitutional issues, the authors of the 1937 act divided responsibility between the federal government and local government agencies known as housing authorities, which had responsibility for choosing sites and building and managing lowincome housing projects. The federal government picked up almost the entire tab for construction of housing projects and thus freed the local housing authorities to charge low rents, which were to pay for the maintenance of the projects. The permanent public housing program was far more generous than European social housing programs and therefore, according to historian Gail Radford, “was in some respects the most radical aspect of the New Deal.”24 The opposite of a partnership with business, the public housing program was built on the principle of government construction, ownership, and management. Private companies were hired to build the housing communities, but only as contractors who

22. Among the works that discuss the federal role in suburbanization are Kenneth T. Jackson, Crabgrass Frontier: The Suburbanization of the United States (New York: Oxford University Press, 1985); Dolores Hayden, Building Suburbia: Green Fields and Urban Growth, 1820– 2000 (New York: Pantheon, 2003); and Lizabeth Cohen, A Consumers’ Republic: The Politics of Mass Consumption in Postwar America (New York: Knopf, 2003). For hidden aspects of social welfare policy, see Howard, The Hidden Welfare State; Jacob S. Hacker, The Divided Welfare State: The Battle over Public and Private Social Benefits in the United States (New York: Cambridge University Press, 2002). 23. The phrase comes from the preamble to the United States Housing Act of 1937, U.S. Statutes at Large (75th Congress, 1st Sess., 888–99). 24. The delegation of responsibility to local housing authorities contrasts with many other New Deal programs in which the federal government made grants to state agencies. Radford, Modern Housing for America, 91.

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had no say over the development or management of the projects. This was not coincidental: Progressive Era and New Deal reformers aimed to correct the inequities— or, in a later generation’s term, “failures”—of the private market. Moreover, public housers, as the advocates of public housing called themselves, despised the private housing industry for building and profiting from America’s slums.25 The feeling was mutual. The lenders, builders, and brokers who made up the housing industry could not abide public housing. They were the type of American small businesspersons who fervently supported “free enterprise,” a concept that combined ideas of economic opportunity and liberty. Moreover, during the 1940s and early-1950s, it seemed possible that the United States would enlarge the public housing program to serve masses of Americans, which would have deprived the housing industry of a substantial amount of business. To prevent such a calamity, the National Association of Home Builders (NAHB), the National Association of Real Estate Boards (NAREB), and other housing industry trade associations led national campaigns to eliminate public housing, which they labeled socialist and an unwarranted giveaway, even as they lobbied for new government subsidies for their members to carry out urban redevelopment projects. Throughout the postwar period, industry spokespeople defended government support for the FHA and the Veterans Administration mortgages while adamantly opposing any congressional appropriations for the program that they called a dangerous intrusion by government into the free market. The public housers, however, fought back to preserve their program. In legislative battles in Congress, they could flex the lobbying muscle not only of their own groups—such as the National Housing Conference (originally called the National Public Housing Conference) and the National Association of Housing and Redevelopment Officials (NAHRO)— but also of the powerful labor unions’ and mayors’ organizations. In Congress, Northern liberals and Southern conservatives (as long as racial segregation was left untouched) backed the cause. Even “Mr. Republican,” Sen. Robert Taft (R-OH), sympathized with the goal of government-sponsored housing for the poor and supported public housing at key moments. Nonetheless, the running battles between 25. For the market-failure rationale for public housing, see D. Bradford Hunt, Blueprint for Disaster: The Unraveling of Public Housing in Chicago (Chicago: University of Chicago Press, 2009). For the ideological roots of public housing in Progressive Era reform, see Daniel. T. Rodgers, Atlantic Crossings: Social Politics in a Progressive Age (Cambridge, MA: Harvard University Press, 1998); Robert B. Fairbanks, Making Better Citizens: Housing Reform and the Community Development Strategy in Cincinnati, 1890 –1960 (Urbana and Chicago: University of Illinois Press, 1988); John F. Bauman, Public Housing, Race, and Renewal: Urban Planning in Philadelphia, 1910 –1974 (Philadelphia: Temple University Press, 1987).

the opposing interest groups ended in a political stalemate in which the public housing program survived but produced only a small fraction of the country’s dwellings.26 VI. A SENSE OF POLICY STAGNATION: PUBLIC HOUSING The election of John F. Kennedy in 1960 seemed to augur well for public housing. Robert C. Weaver, the nation’s top housing official, had been an early public houser who had helped to administer the program in its infancy. Both as administrator of the Housing and Home Finance Agency (HHFA) from 1961 to 1965 and as the first secretary of the Department of Housing and Urban Development (HUD) from 1965 and 1968, Weaver tried to strengthen public housing.27 Lyndon Johnson was an unabashed supporter, even more so than Kennedy. LBJ liked to brag that when he was a congressman in Texas during the 1930s, Roosevelt’s public housing agency awarded its first funds to a project in his congressional district. Once Johnson became president and Democrats won large congressional majorities, he helped Weaver garner significant budget appropriations for public housing in several housing acts, including the 1968 bill.28 The problem was that by the 1960s the public housing program, never popular, had become increasingly controversial. As suburban development opened up previously white neighborhoods to African Americans, the urban working class mostly chose to live in privately owned apartments and houses. The increasing number of poor tenants in public housing reduced the rental income that paid for maintenance. As poverty increased and buildings

26. The political struggles over public housing are recounted in several sources, including Mark I. Gelfand, A Nation of Cities: The Federal Government and Urban America, 1933– 1965 (New York: Oxford University Press, 1975), 106– 205; Richard O. Davies, Housing Reform during the Truman Administration (Columbia, MO: University of Missouri Press, 1966); Alexander von Hoffman, “A Study in Contradictions: The Origins and Legacy of the Housing Act of 1949,” Housing Policy Debate, 10, no. 3 (Summer 2000): 299–326; Nathaniel S. Keith, Politics and the Housing Crisis Since 1930 (New York: Universe Books, 1973), 53–134; Leonard Freedman, Public Housing; the Politics of Poverty (New York: Holt, Rinehart and Winston, 1969), 58–75. 27. For Weaver’s life and career, see Wendell Pritchett, Robert Clifton Weaver and the American City: The Life and Times of an Urban Reformer (Chicago: University of Chicago, 2008). An earlier attempt by the Eisenhower administration to use the National Housing Act’s FHA mortgage insurance to promote private development of housing on urban renewal sites and for displaced and low-income families had produced few results. 28. After Weaver organized the Department of Housing and Urban Development, the funds for the first public housing project that the new department approved went to Johnson’s hometown, Johnson City, Texas. “The Great Society Begins at Home,” Time, November 26, 1965; Memo, Robert Murray to Hayes Redmon, November 20, 1965, Folder Dept. of HUD 10/30/ 65-11/20/65, Box 252, LBJ.


deteriorated, especially in large cities, public housing entered a downward spiral of disorder, increasing vacancies, and further unpopularity. The most advanced case was Pruitt-Igoe, a St. Louis housing project, where—despite a multimillion rescue effort by the federal government—tenants launched a rent strike to protest living conditions. At the same time, middle-class whites and their political representatives successfully fought against situating projects in their districts. Partly as a result, housing authorities fell far short of building the number of dwellings for which Congress had appropriated funds. As the plight of public housing worsened, many local public housing officials seemed to surrender. In the large cities, they frequently proved unable to cope with vacancies, social problems, and eventually basic upkeep of their buildings. “A spirit of lassitude and disillusionment,” a veteran public houser observed, “appears to affect the local housing authorities.” Longtime supporters, including Catherine Bauer, an author of the bill that created public housing, and Sen. Paul H. Douglas (D-IL), had come to despair of making public housing the vibrant and innovative program they had envisioned. Liberals now sought ways to renew and enhance public housing.29 In Washington, Weaver tried to revive the program, which since the days of the New Deal had been an important piece of the nation’s social welfare policy. In 1961 he appointed Marie McGuire, the former executive director of the San Antonio Housing Authority, to lead the federal Public Housing Administration and reform the system. From her first year in office, McGuire urged local housing authorities to break with their past and buy or lease existing homes for low-income families, hire private firms to manage their properties, help tenants “graduate” to home ownership, and allow commercial facilities to operate in housing projects. But the local bureaucracies resisted change. By 1964 the top agency officials were forced to admit that their pleas for innovations had failed to arouse “enthusiasm and concrete activity” among public housing officials.30 29. Warren Jay Vinton, “Working Paper,” Interim Report on Housing the Economically and Socially Disadvantaged Groups in the Population; Proceedings and Working Papers of Conference held February 26–27, 1960, in Highland Park, Ill. (Chicago: Metropolitan Housing and Planning Council of Chicago, 1960), 33 (quotation); Catherine Bauer, “The Dreary Deadlock of Public Housing,” Architectural Forum 106, no. 5 (May 1957): 140–42, 219, 221; Paul H. Douglas to William J. Thebus, July 2, 1957, Box 723 (Legislative File Correspondence Urban Affairs and Housing 1957), Folder General Housing July-September 1957, Paul Douglas Papers, Chicago Historical Society, Chicago, IL. For the malaise besetting the public housing program, see Alexander von Hoffman, “The Quest for a New Frontier in Housing,” Working Paper, JCHS, 2009; D. Bradford Hunt, Blueprint for Disaster: The Unraveling of Public Housing in Chicago (Chicago: University of Chicago Press, 2009). 30. Pritchett, Robert Clifton Weaver, 235; Marie McGuire to commissioners and staffs of local housing authorities, October 30, 1961,

While trying to resuscitate public housing, Weaver also tried to expand federal social housing policy through alternative approaches. Soon after taking over HHFA in 1961, Weaver proposed a new program modeled on a New York law that relied on public-purpose corporations as opposed to for-profit builders. In 1955, when he was deputy commissioner of housing for New York State, Weaver had helped implement the Limited-Profit Housing Companies Act aimed at “middle-income” families who earned too much to be eligible for public housing but not enough to afford new apartments in the private market. The law offered mortgages with interest rates below market rates to cooperative, nonprofit and limited-dividend companies—such as those formed by labor unions and veterans’ organizations—to build affordable rental housing projects. Soon after taking the helm of HHFA in Washington, Weaver and his staff drafted a similar law, Section 221 (d) (3) of the National Housing Act, known as the Below-Market-Interest Rate program because of its method of subsidy. Passed in 1961, it too allowed nonprofit, cooperative, and limited-dividend companies to develop and manage rental apartment buildings for moderate-income families. Four years later, Weaver persuaded Congress to approve a version of rental subsidies, which for decades public housers had opposed and the housing industry had supported. The federal subsidy in the Rent Supplement program helped pay the rents of low-income households in projects built or renovated by private non- or low-profit companies, such as those who had developed housing under the Below-Market-Interest Rate program. Seeing the new programs as alternatives to public housing, the National Association of Home Builders (NAHB), after initially hesitating, dropped its longstanding opposition to federal subsidies for lowincome housing.31

Carl A. S. Coan Collection in Housing and Urban Affairs, Box 8 Folder 344, Georgetown University Library, Special Collections Division, Washington, D.C. (hereafter CC); David B. Carlson, “The New Look in Public Housing—Too Little and Too Late?” Architectural Forum 119, no. 1 (July 1968): 116– 19; “Address,” Joseph Burstein, General Counsel, Public Housing Administration, before the Second National Housing Workshop of the National Association of Housing and Redevelopment Officials, Sheraton-Cadillac Hotel, in Detroit, MI, October 28, 1964, 5 (“failed” quotation), CC. 31. Hays, Federal Government and Urban Housing, 123– 25; Morton J. Schussheim, interview by author, Washington, D.C., July 20, 2006; Bratt, Rebuilding a Low-Income Housing Policy, 60–93; Alexander von Hoffman, “The Quest for a New Frontier,” Working Paper, Joint Center for Housing Studies (JCHS), 2007. Weaver also supported experiments with private nonprofit and forprofit developers of low-income housing. See Office of the Administrator, United States Housing and Home Finance Agency (HHFA), Low-income Housing Demonstration Program: Project Directory (Washington, DC: 1961); Low-Income Housing Demonstration Staff, Office of Program Policy, HHFA, Low-Income Housing

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Starting in 1965, Weaver even began to allow what McGuire called “greater participation of the private home-building, renting, and financing industry” in the public housing program. First, the federal housing agency encouraged local authorities to lease existing homes for public housing and to share ownership of projects with local nonprofit groups. Then, in 1966, with much fanfare Weaver and McGuire unveiled the Turnkey program, in which private developers built housing projects for local public housing authorities.32 if Weaver opened the door to for-profit developers, he nevertheless remained wary of their ability to provide good low-income housing. He restricted private industry to an auxiliary role in public housing and circumscribed their ability to earn profits in the alternative low-income housing programs. The housing chief hoped socially conscious nonprofit organizations and cooperatives would produce the bulk of new social housing. VII. THE URBAN CRISIS COMES TO A CLIMAX Despite Weaver’s initial steps down the new policy path, the adoption of public-private social welfare programs was not inevitable. The Below-MarketInterest Rate and the Rent Supplement programs attracted few housing developers, primarily because Weaver and his staff had hedged them with regulations aimed at preventing the for-profit sponsors from earning excessive profits or producing inferior products. Hence, seven years after it was set up, the Below-Market-Interest Rate program had produced only 23,660 units. The Rent Supplement program was in worse shape, besieged by Congressional critics who feared it would promote racial integration of white neighborhoods. In 1968, three years after its establishment, the Rent Supplement program had produced only 2,800 dwellings in 119 properties. The early experiments in enlisting private sponsors of low-income housing were going nowhere and, if events had not dictated otherwise, might have continued to progress slowly or even recede.33 It was the crisis in America’s cities that turned social housing policy definitively in the direction of private

Demonstration. . .a Search for Solutions (Washington, DC: U.S. Government Printing Office [hereafter GPO], 1964). 32. Circular Memo, Marie McGuire to Central Office Division and Branch Heads Subject: New Methods of Housing Low-income Families, March 16, 1965, CC; Monroe W. Karmin, “Housing the Poor,” Wall Street Journal, June 6, 1966. 33. Keith, Politics and the Housing Crisis, 145; National Commission on Urban Problems, Building the American City: Report of the National Commission on Urban Problems to the Congress and to the President of the United States, (Washington, DC: U.S. GPO, 1968), 147–51; Nathaniel Keith, Housing America’s Low- and Moderate-Income Families, National Commission on Urban Problems Research Report No. 7 (Washington, D C: GPO, 1968), 8–9.

enterprise. From the 1950s onward, American journalists, politicians, and intellectuals had become increasingly troubled by the state of the cities. At first they worried mainly about planning issues— such as the decline of downtowns—but over time their concerns spread to encompass a variety of social and economic problems. Then at the peak of the civil rights movement, riots broke out in African American neighborhoods and catalyzed the multiplying worries into a matter of utmost national urgency, the “urban crisis.”34 Today it is difficult to recapture the shock and fear that these eruptions engendered among the white leaders of the United States. Beginning in 1964 with the first large outbreak in New York’s Harlem and Bedford-Stuyvesant neighborhoods, the riots seemed to multiply and grow larger every year. The alarming August 1965 riot in the Watts district of Los Angeles was followed the next year by upheavals on Chicago’s West Side and Cleveland’s Hough neighborhood. The summer of 1967 brought unheard of levels of violence in numerous cities. The worst events occurred in Detroit, where after four days 43 people were left dead, nearly 1,200 were injured, and 2,500 stores were looted or burned. While the fires were still smoldering in Detroit, President Johnson named the National Advisory Commission on Civil Disorders—known as the Kerner Commission after its chair, Illinois governor Otto Kerner—to determine what was causing the violence and how it could be stopped. As black inner-city neighborhoods exploded with violence during the long hot summers of the 1960s, the nation’s leaders cast about in all directions for explanations and solutions. Although some called for a crackdown on lawlessness, many observers— including some who espoused a “law and order approach”—felt that deep-rooted problems were partially or mainly to blame for the violence. President Johnson condemned the violence of the 1965 Watts riot but the next year put forward the Model Cities program, which funneled diverse government resources to new community agencies, as a way of uprooting the sources of urban violence.35

34. It is important to distinguish between the perception of “the urban crisis,” which peaked in the late-1960s and the reality of the living conditions of African Americans and race relations in American cities, both of which have considerably longer histories. See, for example, Robert A. Beauregard, Voices of Decline: The Postwar Fate of US Cities, (Cambridge, MA.: Blackwell Publishers, 1993), 161–81; Wendell E. Pritchett, “Which Urban Crisis? Regionalism, Race, and Urban Policy, 1960—1974,” Journal of Urban History 34 (2008): 266– 86; Thomas J. Sugrue, The Origins of the Urban Crisis: Race and Inequality in Postwar Detroit (Princeton, NJ: Princeton University Press, 1996). 35. Lyndon B. Johnson (LBJ), “Statement by the President Following the Restoration of Order in Los Angeles,” August 15, 1965, APP, http://www.presidency.ucsb.edu/ws/?pid=27159; LBJ, “Remarks in Indianapolis at a Luncheon with Indiana Business,


The sense of crisis created by the riots, particularly those of 1967 and 1968, precipitated the full turn toward private-sector participation in housing and urban policy. A long tradition of environmental determinism inclined Americans to see the nation’s slums and ghettos as one of the principal sources of the violence. Since the nineteenth century, the belief that one’s living environment can shape one’s character and behavior had motivated numerous reform efforts—from public schools to housing. In 1966 both Vice President Hubert Humphrey and HUD Secretary Robert Weaver strongly condemned “the deprivations of the environment,” urging action “to heal their sickness before they explode.” Two years later, the Kerner Commission concurred with this interpretation.36 Hence, many officials concluded that improving the homes of the lower classes—along with providing more jobs and better education—would help prevent urban violence. In the aftermath of the 1967 riots, Edward Brooke (R-MA) declared on the floor of the United States Senate that “the plainest and most pressing urban need today is housing. We do not need a study to tell us that much of the housing occupied by the poor is dilapidated, deteriorating, and dismal.”37 Across the aisle the feeling was even stronger. “Everyone agrees,” Democratic congressman Wright Patman wrote to Johnson in August 1967, “that bad housing is one of the major causes of the social unrest and discontent. This is a time when we should be accelerating our housing programs to serve lower income families.”38 Yet public housing, America’s long-standing program to serve low-income families, seemed incapable of accelerating production. VIII. THE NEW POPULARITY OF BUSINESS If not public housing, what then would provide impoverished Americans the new homes they seemed to need so desperately? American businesses, the nation’s leaders concluded, would answer the problems of ghetto poverty. Several trends led to

Labor, and Professional Leaders,” July 23, 1966, APP, http://www. presidency.ucsb.edu/ws/?pid=27734. 36. For an example of earlier environmental determinism, see Jacob Riis, How the Other Half Lives (New York: Charles Scribner’s Sons, 1890); James L. Sundquist, Politics and Policy: The Eisenhower, Kennedy, and Johnson Years (Washington, DC: Brookings Institution, 1968), 284–85 (quoted words are Weaver’s); Report of the National Advisory Commission on Civil Disorders (New York: Bantam Books, 1968), see esp. 467–82. 37. United States Senate, Committee on Banking and Currency, Subcommittee on Housing and Urban Affairs, Housing Legislation of 1967 Hearings, Ninetieth Congress, First Session (Washington, DC: U.S. GPO, 1967) (hereafter Housing Legislation of 1967), 1157. 38. Wright Patman to the President, August 23, 1967, WHCF: FA Box 16, Folder FA4 11/2/65, LBJ.

government officials to decide that private enterprise could be an engine of social justice and urban revival. To begin with, federal officials had long deferred to large-scale businesses in the interest of promoting economic growth. The Eisenhower, Kennedy, and Johnson administrations each cultivated institutional relationships with corporate leaders, and, despite an occasional burst of anti-trust prosecutions, acceded to corporate oligopolies and price-fixing. In the name of stimulating growth, Kennedy’s signature fiscal program cut taxes not only for wealthy individuals but also for businesses. By the 1960s, the old arguments about how to divide the wealth between workers and capitalists had given way to strategies for economic growth that would benefit all citizens. The answer was not to slice the pie differently, went the saying, but to bake a larger pie.39 In this context, theories about the causes of poverty served to elevate the potential role of the private sector in solving social problems. During the Cold War era, intellectuals and policy makers had come to believe that economic “development” could act as a lever against backward poverty both at home and abroad. No longer, as in the 1930s, did they find the cause of poverty in the failings of capitalism. Now poverty resulted from the failure of poor people— often mired in a “culture of poverty”—to adopt capitalistic ways. This idea called for extending private investment to slums, both in the United States and in undeveloped nations.40 At the same time, many Americans in the 1960s had come to admire corporations. Today the images of civil rights and antiwar protests and the counterculture have obscured the dynamism of business in that era. In the 1960s the earnings of the top “nifty fifty” corporations, including high-value technology companies such as IBM and Xerox, dazzled investors and powered a great bull market. Furthermore, research and development and engineering companies in the defense and aerospace industries associated business with the nation’s military might. Old firms, such as General Electric and Bell Labs, as well

39. McQuaid, Uneasy Partners 120–23. 40. Sheyda Jahanbani, “‘This Underdeveloped Nation in our Midst’: The Development Paradigm and the Rediscovery of Poverty Amidst Plenty, 1949– 1964.” Paper delivered at the Charles Warren Center for Studies in American History, Cambridge, MA, February 22, 2011; David Ekbladh, The Great American Mission: Modernization and the Construction of an American World Order (Princeton, NJ: Princeton University Press, November 2009); Nils Gilman, Mandarins of the Future: Modernization in Cold War America (Baltimore: The Johns Hopkins University Press, 2003). Seminal texts propounding culture of poverty and social pathology theories include Oscar Lewis, Five Families: Mexican Case Studies in the Culture of Poverty (New York: Basic Books, 1959); Michael Harrington, The Other America: Poverty in the United States (New York, Macmillan, 1962); U.S. Department of Labor, Office of Policy Planning and Research (Daniel Patrick Moynihan), The Negro Family: the Case for National Action (Washington, DC: U.S. GPO, 1965).

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as younger companies, such as Lockheed, TRW, Northrop, and Raytheon, produced awe-inspiring rockets, satellites, computers, and sophisticated mathematical systems. Starting in the mid-1960s, many of these companies bid on government contracts to apply systems planning and engineering methods to urban problems.41 Most significantly perhaps, the national mood inspired businesspeople to volunteer to solve the nation’s domestic problems—as a matter of conscience rather than profit. This activity grew in part from the long tradition of civic involvement typified by local Community Chest campaigns. But in the 1950s, a small but influential group of corporate executives began to espouse the notion of corporate social responsibility (sometimes for self-interested motives), and a few housing industry leaders, led by Baltimore mortgage banker James Rouse, tried to tackle urban issues. As the sense of national emergency deepened during the 1960s, corporations funded policy conferences on business solutions to urban problems, and businesspersons signed up to help the urban and racial-minority poor.42 By 1968 across the United States, employees of private firms enlisted in hundreds of programs run by government agencies, nonprofit organizations, and their own companies. Perhaps most of these civic projects concerned employment of the “disadvantaged” because businesses could most directly help in this arena. Corporations such as General Electric, IBM, and Litton Industries, for example, operated most of the urban centers of the federal government’s Job Corps program, a key part of the War on Poverty. Many other business projects, however, dealt with housing, education, safety, economic development, and social work. At the height

41. Jennifer S. Light, From Warfare to Welfare: Defense Intellectuals and Urban Problems in Cold War America (Baltimore: Johns Hopkins University Press, 2003); David R. Jardini, “Out of the Blue Yonder: The Transfer of Systems Thinking from the Pentagon to the Great Society, 1961– 1965,” in Agatha C. Hughes and Thomas P. Hughes, eds., Systems, Experts, and Computers: The Systems Approach in Management and Engineering, World War II and After (Cambridge, MA: MIT Press, 2000), 311– 57. 42. Judith Fox, “Policy and Ideology in 20th Century America: the Rise of Corporate Liberalism” (A.B., honors thesis, Harvard University, 1981); Urban America, Inc., The Action Council for Better Cities, The Troubled Environment: Business Examines Social and Economic Barriers to Improving Our Cities; the Record of a National Symposium conducted December 8, 9, 10, 1965 (New York: Urban America, 1966); Nicholas Dagen Bloom, Merchant of Illusion: James Rouse, America’s Salesman of the Businessman’s Utopia (Columbus: Ohio State University Press, 2004); Christy Ford Chapin, “Rethinking Corporate Social Responsibility: Health Insurance and Home Loans after WWII.” Paper delivered at the annual meeting of the American Historical Association, January 9, 2011. An example of and leading force for business “social responsibility” was the accession in 1962 of H. Bruce Palmer, president of the Mutual Benefit Life Insurance Company and founder of several nonprofit organizations, to the presidency of the National Industrial Conference Board. See http://tcb.org/pdf_free/TCB_HistoryTimeLine.pdf.

of the urban crisis and the rising liberal political tide, many business leaders dropped their categorical opposition to government social welfare programs and joined the search for policy solutions to the problems of the cities. Even the ultraconservative United States Chamber of Commerce proposed joining hands with labor, civil rights groups, and the government to take on the problems of ghetto poverty. Whether moved by idealism, a sense of crisis, or political expediency, corporate America in the 1960s stood ready to help.43 IX. CALLING UPON THE GENIUS OF PRIVATE INDUSTRY The acceptance of underdevelopment theories, the improved public image of corporate America, and the personal involvement of business executives in domestic social issues made it easier for liberal political leaders to ask private enterprise to carry out plans for rescuing urban America. Liberals like Sen. Robert F. Kennedy (D-NY) mistrusted the administration’s big-government programs and felt this approach offered a different way of tackling urban poverty. Despite the “many hostilities to the business and conservative community,” which he and his close aide Richard Goodwin claimed to share, Kennedy recruited corporate executives to help him devise an alternative to Model Cities and other Great Society programs.44 In December 1966 Kennedy started an experimental program to revive the BedfordStuyvesant neighborhood in Brooklyn by means of a locally based community organization supported by the power and wealth of big business—specifically a committee that included the chairs of IBM and First National City Bank (Citibank).45 43. Sar A. Levitan and Garth L. Mangum, Federal Training and Work Programs in the Sixties (Ann Arbor, MI, 1969) cited in Robert Hamlett Bremner, Children and Youth in America Vol. 3. 1933– 1973, (Cambridge, MA: Harvard University Press, 1974), 441–42; John G. Heimann, The Necessary Revolution in Housing Finance; an Urban America Report on Business in Urban Development (Washington, D.C.: Urban America, 1967); Barbara J. Flower, Business amid Urban Crisis; Private-Sector Approaches to City Problems (New York: National Industrial Conference Board, 1968); Jean M. White, “U.S. Chamber Acts on City Problems,” Washington Post, February 23, 1968. 44. Goodwin apparently referred to his and Kennedy’s dislike of conservative businessmen in particular, because Kennedy had many connections to business executives—not to mention his father who had been a highly successful businessman. Jeff Shesol, Mutual Contempt: Lyndon Johnson, Robert Kennedy, and the Feud that Defined a Decade (New York: W.W. Norton, 1997), 248. 45. Republican Sen. Jacob Javits and Mayor John Lindsay supported Kennedy’s effort. The original scheme of a committee of community leaders, who were mainly black, and an oversight committee of business executives, who were all white, was soon scrapped for a single local group. Community democracy of various forms, including Black Power organizations, was another strain of urban policy, which the Johnson administration expressed in its Community Action Program. Alice O’Connor, “Swimming Against the Tide: A Brief History of Federal Policy in Poor Communities,” in Ronald Ferguson and William Dickens, Urban Problems and Community


“For the first time,” the Kennedy team explained, “the leaders of the American business community have assumed the primary responsibility for dealing with problems of the ghetto.” Or as Daniel Patrick Moynihan put it, the Bedford-Stuyvesant Restoration Corporation project would “get the market to do what the bureaucracy cannot.” In fact, the BedfordStuyvesant Restoration Corporation—like the community development corporations that would proliferate in the 1980s and 1990s—relied not on the market, but on financial aid from government, foundations, and corporations. Regardless, Moynihan expressed the growing impulse to tap business know-how and resources to solve social problems.46 At the national level, the president had additional motives for turning to the private sector. Far more than the Kennedys, Lyndon Johnson admired great business leaders. From his early days in government during the New Deal, LBJ had exploited the many political advantages of government contracting in public works projects—tangible improvements in the lives of voters, job creation and patronage, and, not least, the loyalty and financial support of grateful contractors. Indeed, Johnson’s political career and financial success were inextricably bound to his long relationship with George and Herman Brown of the Brown and Root Construction Company.47 Fiscal issues also compelled LBJ to seek ways to address social problems that would not cost or at least appear not to cost the government too much. The soaring costs of the growing American involvement in Vietnam, plus Johnson’s ambitious domestic programs, threatened to raise federal spending above the debt limit. Under fiscal pressure, Johnson in 1966 retreated from his Great Society programs or at least from fully funding them. He also tried to reduce the federal budget through such means as having Fannie Mae selling bonds (known as participation certificates) backed by pools of its mortgages. Feeling the painful budgetary constraints, LBJ sought partnerships between business and government in part so that the private sector could help pay for new public policies.48

Development (Washington, DC: Brookings Institution Press, 1999), 105– 8; see also Personal Papers of Thomas M. C. Johnston and Robert F. Kennedy Papers, John F. Kennedy Library, National Archives and Records Administration, Dorchester, MA. 46. William P. Ryan, “Bedford Stuyvesant and the Prototype Community Development Corporation,” in Mitchell Sviridoff, ed., Inventing Community Renewal: The Trials and Errors that Shaped the Modern Community Development Corporation (New York: Community Development Research Center, New School University, 2004), 67–96, 74 (“primary responsibility” quotation); Shesol, Mutual Contempt, 249 (Moynihan quotation). 47. Robert A. Caro, The Years of Lyndon Johnson: The Path to Power (New York: Alfred A. Knopf Inc., 1982); Robert A. Caro, The Years of Lyndon Johnson: Means of Ascent (New York: Alfred A. Knopf Inc., 1990). 48. Fearing inflation, LBJ reluctantly called for a tax increase in 1967. Robert Dallek, Flawed Giant: Lyndon Johnson and His Times,

For many reasons then, the Johnson administration avidly sought ways to utilize corporate power to solve the crisis of the cities. In May 1966, the White House assembled about one hundred business leaders—including the top executives of Ford Motor, American Airlines, and RCA—at the State Department to hold a “Business-Government Conference on Urban Problems,” which Weaver and Detroit Mayor Jerome Cavanaugh addressed. That June HUD held a seminar on science and urban development, an aide reported to the president, to bring together “profit-motivated business leaders who are alert to what science and technology can contribute to their private gain” and public officials who could influence “private enterprise to serve public services.”49 On January 10, 1967, in his State of the Union address, Johnson proclaimed to the nation his new business-oriented approach to urban policy. “We should call upon the genius of private industry,” LBJ declared, “and the most advanced technology to help rebuild our great cities.” In June he announced the formation of a committee to map out specific ways that businesses could rebuild the slums, “which shame the nation and its cities.”50 The president wanted to ensure that private industry dominated the housing committee. He named Edgar Kaiser, president of the corporate conglomerate Kaiser Industries and an old ally, to head the committee and loaded it with executives. Although he placed his favorite labor and civil rights leaders on the panel, LBJ appointed mostly businessmen: construction and building supply company executives, home builders and developers, and a prominent Chicago banker. Significantly, he did not invite a single public houser to join a group charged with crafting urban housing programs. Going beyond the usual deference to industry lobbyists, LBJ invited private-sector representatives to write their own program.51 Although central to Johnson’s business-oriented urban strategy, the Kaiser Committee was by no means its only component. In September 1967, for

1961– 1973 (New York: Oxford University Press, 1998), 329– 39, 391–405, 515– 19; Sarah Quinn, “Things of Shreds and Patches: Credit Aid, the Budget, and Securitization in the Postwar Era,” Working Paper, University of Michigan, Society of Fellows, 2010. 49. Memo, John W. Macy to the President, May 5, 1966, Box 5 (Gen HS 2 7/1/67), Folder HS 3 1/1/66-12/31/66, Lyndon Baines Johnson Library, Austin, TX (hereafter LBJ); Memo, Milton P. Semer to the President, June 8, 1966, Box 253, Folder 04/07/ 66-09/16/66, LBJ. 50. Lyndon B. Johnson (LBJ), “Annual Message to the Congress on the State of the Union, January 10, 1967”; LBJ, “Statement by the President on the Formation of a Committee to Rebuild America’s Slums,” June 2, 1967, reprinted in President’s Committee on Urban Housing, A Decent Home: The Report of the President’s Committee on Urban Housing (Washington, DC: GPO, 1969), 222–23. 51. President’s Committee on Urban Housing, A Decent Home, iii.

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example, LBJ jubilantly announced a pledge by 348 life insurance companies to redirect $1 billion from their normal investment stream to the impoverished sections of America’s cities. Administration officials, congressional leaders from both parties, big-city mayors, civil rights leaders Roy Wilkins and Whitney Young, and National Association of Home Builders’ president Leon Weiner attended the announcement at the White House, which garnered national attention. Gilbert W. Fitzhugh, the head of the Metropolitan Life Insurance Company and the chair of the life insurance industry’s Joint Committee on Urban Problems, explained that the industry’s leaders had concluded that they could most effectively help “hard core ghetto areas” by financing housing projects and job-creating enterprises. Much to the delight of Johnson and HUD Secretary Weaver, the insurance executives proposed to funnel money immediately into government housing programs, particularly the Rent Supplement program—an implicit endorsement of a program that House Republicans had refused to fund.52 Buoyed by this development, LBJ ordered all his cabinet secretaries—from Agriculture to Defense!— to come up with more ways the private sector could solve the problems of America’s cities. Some of the departments’ ideas seemed far-fetched—Commerce, for example, proposed that major oil companies sponsor service station maintenance firms in the ghetto—but others such as the Job Opportunities in Business Sector (JOBS) Program bore fruit. Through the JOBS program, the Departments of Labor and Commerce would train the “hard-core unemployed,” and a new volunteer organization, National Alliance of Businessmen, would find the trainees gainful employment.53 The National Alliance was a corporate affair. Henry Ford II of the Ford Motor Company and Paul Austin,

52. For its part, the Department of Housing and Urban Development (hereafter HUD) was to provide FHA mortgage insurance for what were considered to be high-risk loans. Max Frankel, “Insurance Groups to Invest Billion in Slum Property,” New York Times, September 14, 1967; Robert Young, “Life Insurance Firms to Invest Billion in City Slum Areas,” Chicago Tribune, September 14, 1967; “Life Insurers Give Rent-Subsidy Plan ’Boost’ of $1 Billion,” Wall Street Journal, September 14, 1967; “Slums: The $1 Billion Pledge,” Los Angeles Times, September 15, 1967; Charles Moeller, Jr., “Economic Implications of the Life Insurance Industry’s Investment Program in the Central Cities,” The Journal of Risk and Insurance 36, no. 1 (March 1969): 93– 101. 53. Charles Maguire to Secretaries Gardner, Trowbridge, Weaver, and Wirtz, September 16, 1967, Folder 09/17/66-11/30/ 66, Box 253, LBJ At the cabinet meeting of September 20, 1967, the Postmaster General and the secretaries of HUD; Commerce; Health, Education, and Welfare; Interior; Defense; the Treasury; and Transportation departments delivered reports on ways to involve the private sector in solving urban problems. See, for example, Memo, Frederick Simpich, assistant to Secretary of the Department of Commerce to Charles Maguire, October 25, 1967, EX HS 3 1/1/1967 Box 6, Folder 10/25/67-1/31/68, LBJ.

president of the Coca-Cola Company, headed its executive committee. The chief officers of some of the largest corporations in the United States—IT&T, Aluminum Company of America, and McDonnellDouglas Aircraft, for example—chaired its nine regional committees. Beneath them, leading business executives from the fifty largest cities in the country directed local committees. The collaborative program was bound to be a great improvement, the president asserted, over the government “make-work projects . . . we had back in the thirties.”54 Johnson began to describe this type of hybrid social policy in terms that would become familiar to future policy makers. On October 6, 1967, LBJ became the first president to use the phrase, “public-private partnership,” which he did to laud the accomplishments of the Truman administration’s Hill-Burton hospital construction program. The next month, LBJ thanked the members of the NAREB for supporting his administration’s social housing programs, which involved private developers and landlords. The realtors, he announced, “had demonstrated the good that can come from business-government partnership.”55 X. CONGRESS SEARCHES FOR A CURE FOR SLUMS AND GHETTOS Despite Johnson’s enthusiasm for new sorts of publicprivate initiatives, the administration was caught unprepared when Detroit and Newark exploded in violence during the summer of 1967. The previous fall, Weaver felt he had his hands full organizing HUD and implementing the Rent Supplement and Model Cities programs and so decided not to draw up any major bills for the following year. John Sparkman, the powerful chairman of the Senate Committee on Banking and Currency and its Housing and Urban Affairs Subcommittee, concurred, emphasizing that the government should spend less time 54. Lyndon B. Johnson, “Remarks to the Press on the Message ‘To Earn a Living: The Right of Every American,’ ” January 23, 1968, APP, http://www.presidency.ucsb.edu/ws/?pid=28860. For analysis of the later activities of the National Alliance of Business, see Cathie Jo Martin, “Business and the Politics of Human Capital Investment Policy: A New Institutionalist Perspective,” Polity 32, no. 2 (Winter 1999): 203–32. 55. Lyndon B. Johnson (LBJ), “Statement by the President upon Appointing a National Advisory Commission on Health Facilities,” October 6, 1967, APP, http://www.presidency.ucsb.edu/ws/ ?pid=28471; LBJ, Statement to NAREB, printed October 12, 1967, event November 10, 1967, Folder 10/13/67-01/03/68, FG 170, Department of Housing and Urban Development, Box 254, LBJ. Like other presidents before him, Johnson also referred to the national highway program as a partnership between private enterprise and government. See LBJ, Statement by the President upon Signing Order, “Effective Date of Department of Transportation Act,” March 30, 1967, and Remarks upon Signing Proclamation 3834 “National Defense Transportation Day and National Transportation Week, 1968,” March 7, 1968.


devising new programs—which Democratic losses in the 1966 elections made more difficult to pass—and more time administering existing ones. Hence, in 1967 federal officials had no major legislation— private, public, or in-between—to propose to calm the ghettos. On the last day of the Detroit upheaval, Johnson responded by establishing a committee, the National Advisory Commission on Civil Disorders, to investigate the causes and make recommendations. “Even as our cities went up in flames,” chided Congressman William Widnall (R-NJ), the adminstration offered “only housekeeping amendments.”56 In the summer and fall of 1967, members of Congress leapt into the legislative vacuum left by the White House. They submitted dozens of bills—too many even for Sparkman to read at hearings—to reconstruct America’s inner cities. Most congress people called for increasing existing housing programs, usually by immense amounts. LBJ’s political rivals, Robert Kennedy and Sen. Charles H. Percy (R-IL), submitted bills that garnered the most support. Both proposals depended on the private sector, albeit in strikingly different ways, to solve the problems of the urban slums.57 As he had in his Brooklyn experiment, Robert Kennedy looked to big business to help end the urban crisis. In the 1930s, Kennedy explained, the private sector had failed and government had stepped forward to save the nation. Now the situation was reversed; it was government’s social welfare policy that was broken. In a slap at Johnson’s record, Kennedy declared that the greatest failure of the government’s antipoverty efforts was the “failure to involve and rely on the private enterprise system, which is the basic strength of the Nation.”58 To redress this flaw, in July 1967 Kennedy submitted legislation to encourage “private enterprise to

56. In addition, Weaver believed that local communities, especially suburbs, used zoning and other regulations to prevent low-income housing development and wanted to wait for the National Commission on Urban Problems, which was charged with finding ways to remove such roadblocks, to issue its report. Pritchett, Robert Weaver and the American City, 301– 2; Frank Lalli, “Weaver’s Frustrating Year—Errors, Politics Mar HUD Start,” House and Home 29, no. 10 (October 1966): 12, 14; Carl A. S. Coan Jr., “The Housing and Urban Development Act of 1968: Landmark Legislation for the Urban Crisis,” The Urban Lawyer 1, no. 1 (Spring 1969): 6; National Commission on Urban Problems, Building the American City: Report of the National Commission on Urban Problems to the Congress and to the President of the United States (Washington, DC: U.S. GPO, 1968); Howard Moskof, interview with author, Chevy Chase, MD, June 18, 2008; Address By Hon. John Sparkman, U.S. Senator from Alabama, Before the 36th Annual Convention of the National Housing Conference, Hotel Statler Hilton, Washington, DC; Congressional Quarterly Almanac 90th Congress 1st Session. . .1967, Vol. 23 (Washington, DC: Congressional Quarterly News Features, 1967), 501. 57. Housing Legislation of 1967, 2– 3. 58. Congressional Quarterly Almanac. . . 1967, 498; Robert F. Kennedy, “Industrial Investment in Urban Poverty Areas, 113 Congressional Record, July 12, 1967, 18443.

provide adequate [rental] housing in urban poverty areas for low-income and lower middle income persons.” Extrapolating from private-market housing policies, he offered large-scale low-income housing developers fifty-year FHA-insured mortgages at 2 percent interest, gave their corporate investors tax credits and accelerated depreciation tax write-offs, and paid city governments half the revenue losses from abating the developers’ taxes. Kennedy also submitted a companion bill that used a combination of tax benefits and subsidies to lure large corporations to set up new factories in economically deprived areas like Bedford-Stuyvesant. Reflecting the appeal of his approach, Kennedy was able to persuade a number of other senators—including Republicans— to cosponsor his inner-city development bills.59 At hearings held by the Senate Finance Committee in September 1967, the bills received an enthusiastic response—except from the White House and its allies. While administration officials privately deemed Kennedy’s housing proposal worthy of serious consideration, Weaver publicly criticized the bill as inadequate and more expensive than expanding current low-income housing programs. The treasury department also weighed in, dismissing the proposal because its tax incentives would aid too few people. Where it mattered most, the White House’s opposition outweighed support: the finance committee, chaired by longtime Johnson ally Russell Long, never reported either bill to the full Senate. The following year, Kennedy continued to push his approach until Howard Moskof, the Kaiser Committee’s chief of staff—sent by the White House on a personal mission—visited Kennedy at his home and, while tolerating the drooling affection of the senator’s pet Springer Spaniel, Freckles, persuaded Kennedy to set his housing bill aside and support the administration’s own private-sector proposal. Nonetheless, Kennedy’s general approach was in line with that of Johnson’s policy makers, and, as we will see, in the following years different forms of subsidized mortgages, accelerated depreciation accounting, and tax credits would become part of American housing policy.60 59. The housing mortgages were to cover 80 percent of the construction cost. Committee on Finance, United States Senate, Tax Incentives to Encourage Housing in Urban Poverty Areas—Hearing Before the Committee on Finance United States Senate, Ninetieth Congress, First Session on S. 2100. . .September 14, 15, and 16, 1967 (Washington, DC: U.S. GPO, 1967); “Major Housing Legislation, S 2100— Kennedy Plan,” Congressional Quarterly Almanac 1967, 501; Robert B. Semple Jr., “A Kennedy Plan Seeks Slum Jobs and Lower Rents,” New York Times, July 5, 1967. Kennedy’s inner-city factory legislation originated the concept of enterprise zones, according to Frank Mankiewicz, “The Origins of Enterprise Zones,” Letters to the Editor, Washington Post, October 30, 1992. 60. Moskof’s most convincing points were that the Kennedy proposal would not sufficiently lower rents for tenants but would increase developers’ profits, which the Kaiser Committee staff had found were already sufficient to attract development. Mortgage subsidies and accelerated appreciation were part of the system

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XI. CHARLES PERCY’S INNOVATIVE HOME OWNERSHIP ACT In contrast to Kennedy’s corporate strategy, Charles Percy devised an innovative scheme that operated largely outside the private enterprise housing system to enable low-income families to purchase houses. Where Kennedy’s programs sought investments by large corporations, Percy’s scheme relied on nonprofit agencies. Based on the ideas of Charles Abrams, one of the original public housers, the proposed quasi-public entity—the National Home Ownership Foundation—would lend or guarantee loans to nonprofit, cooperative, or limited-dividend groups to build or rehabilitate “safe, decent, low-cost” homes. The low- and moderate-income purchasers of the houses—not private lenders—would receive direct subsidies on mortgages from the Department of the Treasury. Percy’s home ownership bill contained farsighted features: home buyers training and counseling; low-income home owners’ insurance against foreclosure as a result of illness or unemployment; and the potential for buyers to invest “sweat equity” by contributing their own labor to defray construction costs.61 Had Percy been a Democrat or had Robert Weaver concocted this bill inside the Johnson administration, it would have stood a good chance of passing. The proposal’s nonprofit agency and government subsidies to low-income consumers fit squarely within the New Deal social-welfare policy tradition. Ordinarily, liberals, many of whom were Democrats, would support such a low-income housing bill, but its authorship by a Republican confused the usual lines of political support. Glad to have a legitimate Republican policy alternative, Percy’s fellow Republicans rallied to the bill: all 36 Republican senators and

established by the Section 236 program of the 1968 housing act and reinforced in the Tax Reform of 1969 (see analysis below in “A Government-Sponsored Enterprise for Low-income Housing” section and note 103), and tax credits for investment in low-income housing were adopted in 1986 (see discussion in “A Shift toward For-Profit Developers” section). Memo, Robert C. Wood to Joseph Califano, June 28, 1967, Box 3 (EX HS 2 11/22/63), Folder 11/ 1/67-8/31/67, LBJ; Moskof, interview. 61. The foundation was to be funded like many government programs by the sale of bonds to private investors. A. Scott Henderson, Housing and the Democratic Ideal: The Life and Thought of Charles Abrams (New York: Columbia University Press. 2000), 206– 9. For the act and the reasoning behind it, see S. 1592, A Bill to Charter a National Home Ownership Foundation, and for Other Purposes, 90th Congress, 1st Sess., reprinted in Housing Legislation of 1967, 1414 –46; Explanatory Statement Submitted by Senator Percy” in Housing Legislation of 1967, 1517– 42; Warren H. Butler, “An Approach to Low and Moderate Income Home Ownership,” Rutgers Law Review 22, no. 1 (Fall 1967): 67–101; John McClaughry, “The Troubled Dream: The Life and Times of Section 235 of the National Housing Act,” Loyola University Law Journal 6, no. 1 (Winter 1975): 1–45; Christa Lew Carnegie, “Homeownership for the Poor: Running the Washington Gauntlet,” Journal of the American Planning Association 36, no. 3 (May 1970): 160– 67.

106 of 187 House Republicans signed on as cosponsors. Percy persuaded four Democratic senators to cosponsor the act, and several others would have joined the effort but declined to endorse an act authored by a likely Republican candidate for the presidency. Feeling politically threatened, Johnson and his allies attacked Percy’s bill from numerous fronts. Weaver, like many public housers, was genuinely skeptical about home ownership for the poor but exaggerated his opposition, blasting Percy’s bill as a “gimmick” and “simply inadequate.” The housing interest groups steered clear of Percy’s plan because they preferred working with the existing government agencies and were wary of offending the president and congressional Democrats. Hence, the liberal AFL-CIO condemned the proposal as a “cruel hoax,” and both the National Housing Conference and the NAHRO rejected Percy’s bill. The industry trade associations NAREB and NAHB were also cool to the Republican’s idea.62 Ominously for Percy, Sen. Walter F. Mondale (D-MN) pushed an alternative home ownership program to be carried out by for-profit businesses— using the FHA mortgage insurance system and private mortgage financing—rather than nonprofit organizations. The chair of the Banking and Currency Committee, John Sparkman (D-AL), instructed Mondale and Percy to come up with a compromise between their two bills, but the lopsided result of the negotiations produced a bill that left only the goal of low-income home ownership from Percy’s bill. Seeing that Percy was losing control of the bill, Republicans began to drift away from it.63 Still the White House was not ready to move on its own, so at Weaver’s request, Sparkman stalled long enough

62. Used to dealing with HUD and the FHA, the housing interest groups disliked Percy’s independent nonprofit housing foundation. Statement of Robert C. Weaver, Housing Legislation of 1967, 8– 9; Robert C. Weaver to John Sparkman, July 14, 1967, Subject: S. 1592, 90th Congress (Senator Percy et al.) reprinted in Housing Legislation of 1967, 1447 –49; Carnegie, “Homeownership for the Poor,” 161–64, note 16 (167); Pritchett, Robert Weaver and the American City, 307; Horace Busby to Charles L. Schultze, July 30, 1965, Box 288 (Papers of LBJ, EX FG 240-1 6/1/68), Folder FG 245 Housing and Home Finance Agency 6/11/65—9/23/65, LBJ; Bratt, Rebuilding a Low-Income Housing Policy, 131–32; National Housing Conference, “Report of the Committee on Providing Homeownership for Lower Income Families,” reprinted in Housing Legislation of 1967, 327– 33, 329 (quotation); Housing Legislation of 1967, 255, 272–73, 395–96, 1152–57, 1194, 1200. 63. Even the home ownership assistance of Percy’s proposed nonprofit foundation was watered down to encourage all lowincome housing opportunities, not just home ownership. McClaughry, “Troubled Dream,” 11–14; United States Senate Committee on Banking and Currency, Housing and Urban Development Act of 1967: Report to Accompany S. 2700 Together with Individual and Additional Views (Washington, DC: U.S. GPO, November 28, 1967), 1–24; Robert Ellickson to President’s Committee, November 15, 1967, PCUH, Box 56, Folder Originals for November 16, 17 Meeting, LBJ.


on reporting the bill for the Senate leadership to declare it too late to consider during this session.64 XII. NEEDED: LARGE-SCALE PROGRAM TO REBUILD AMERICA’S SLUMS The president knew that the urgency of the moment required more than quashing the bills of his political rivals. Having charged the Kaiser Committee with finding ways to rebuild all of America’s slums, LBJ now directed Weaver “to put together a ten-year housing program that would eliminate all the substandard housing in this country.”65 Thus, the president assigned responsibility for what would become the 1968 housing bill to both the Kaiser Committee and HUD without distinguishing their roles. Meanwhile, the Congress, led by Senate Banking and Currency Committee chair Sparkman, worked on its own legislative proposals. The three centers of power pushed ahead simultaneously, alternately consulting and jousting with one another while they advanced their own particular agendas.66 Because many, including the president, believed that only a massive housing construction program could save the ghettos and stop the riots, it made sense that the legislation would set a production goal.67 Kaiser organized a subcommittee, and Howard Moskof, the Kaiser committee’s chief of staff, assigned two technical consultants and economists from HUD, the Council of Economic Advisors, and the NAHB to come up with a target for housing production. The experts calculated current supply and volume of rehabilitation, rate of home building and demolitions, likely future demand for housing based on demographic information such as immigration and household formation, “national housing needs” for particular income groups (e.g., to replace substandard units and end crowding of poor families), and the ability of the private-market

64. Carnegie, “Homeownership for the Poor,” 164–66; Robert C. Weaver to John Sparkman, August 10, 1967, WHCF, Box 3 (EX HS 2 11/22/63), Folder 11/1/67-8/31/67, LBJ; John Sparkman to Honorable Russell B. Long, January 16, 1968, Sparkman Accession 70A4063, Box 6, Folder 11 Housing General, John J. Sparkman Papers, W. S. Hoole Special Collections Library, University of Alabama, Tuscaloosa, AL (hereafter Sparkman Papers). 65. Califano admitted such an enormous job might be impossible to achieve, but he and Kaiser believed it necessary to set high goals to make serious progress in the next few years. Joseph Califano to the President, November 10, 1967, FG 170 Box 254, Folder 10/13/67-01/03/68, LBJ. 66. Lyn Shepard, “Housing-bill Chefs Toil over Recipe,” Christian Science Monitor, January 18, 1968. 67. An example of enthusiasm for tremendous housing productions is the measure, introduced in 1967 by three Democratic members of the House Housing Subcommittee, to expand the supply of low- and moderate-income housing in the United States by 1,000 percent. Congressional Quarterly Almanac, 90th Congress, 1st Sess., 1967, vol. 23 (Washington, DC: Congressional Quarterly Service, 1967), 501.

system to supply the homes for all groups. In the end, the committee accepted a goal for the next ten years of building or rehabilitating 26 million dwelling units of which 6 million would go to low- and moderate-income families.68 Despite the seeming objectivity of the statistical computations, the NAHB was the driving force for the idea of national housing goals, only one of several instances in which the home builders shaped national housing policy. A national commitment to produce a great number of dwellings appealed to the home builders’ self-interest. In 1967 NAHB president Leon Weiner, a pro-business liberal, brought industry and reform interest groups together in two conferences that endorsed the idea of housing goals. By lobbying and coordinating interest groups on the outside while Weiner pushed inside the Kaiser Committee, the NAHB was able to add a provision in the 1968 legislation that the government annually review progress toward meeting the goals. Liberals wanted an enormous production program as well and applauded when Sen. William Proxmire and Rep. Henry Reuss inserted the annual reporting provision.69 A delighted White House jumped on the big target for housing, even while the bill was pending. In his January 1968 State of the Union address, the president put the Kaiser Committee figures forward as a national goal. Johnson called for 300,000 new housing units for low- and middle-income families next year—more than half of the production of the previous ten years—and a total of 26 million new dwellings in the following decade.70

68. Howard Moskof, Staff Report: The President’s Committee on Urban Housing, September 28, 1967, President’s Committee on Urban Housing (hereafter PCUH), Box 55, Binder “Staff Report,” LBJ; Memo, unsigned [probably Howard Moskof] to The President’s Committee on Urban Housing, Subject: “The Elusive Search for the All-Purpose Housing Solution—The Need to Analyze Each of the Several Components of the Problem,” September 15, 1967, Papers of LBJ, EX FG 647 Box 379 Folder Committee to Rebuild America’s Slums (11/22/63—12/31/67), LBJ; Moskof, interview. 69. Groups attending the policy conferences included the lending trade associations interested in mortgage credit, the National League of Cities with the U.S. Conference of Mayors, NAHRO, National Association of County Officials, the U.S. Chamber of Commerce, and the AFL-CIO. William Lilley III, “The Homebuilders’ Lobby,” in Jon Pynoos, Robert Schafer, and Chester W. Hartman, eds. Housing Urban America, 2nd ed. (New York: Aldine Publishing Company, 1980), 39 ( first published as “Washington Pressures/Home Builders’ Lobbying Skills Result in Successes, ‘Good-guy Image,” National Journal, February 27, 1971, 431– 45); Proceedings of the Twenty-Third Annual Convention of the National Association of Home Builders, Meeting of the 1966 Board of Directors, morning session, December 7, 1966, Chicago, IL, NAHB archives, 10–12; Presidents Committee on Urban Housing, Minutes, November 16–17, 1967, PCUH, Box 41, Folder Minutes, LBJ; “NAHRO’s Contribution to Housing and Urban Redevelopment Act of 1968,” Journal of Housing 25, no. 7 (August 1968): 362. 70. Lyndon B. Johnson, “Annual Message to the Congress on the State of the Union, January 17, 1968.”

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Not everyone was pleased by the gargantuan target. The previous year John Sparkman had hammered many of the housing proposals into legislation that was never put to the full Senate for a vote but served as a useful draft for a 1968 housing bill. As he listened to the president deliver the State of the Union message, the senator had a sinking feeling that the president had “smothered what I considered a fine, but modest, housing bill.” Sparkman was correct: setting sky-high goals would require powerful new engines of housing production.71 XIII. A BIG BUSINESS APPROACH TO LOW-INCOME HOUSING The high goals for housing raised the stakes for the 1968 housing legislation but left unanswered the question of how to attain them, a quest that chief-of-staff Moskof labeled “The Elusive Search for the All-Purpose Housing Solution.” The White House pushed the idea of new building technologies, but the Kaiser staff, with the help of NAHB expert testimony, convinced the committee to keep this approach small and experimental. That left the committee members to struggle over whether small or big business was better suited to mass-produce housing. Kaiser, for one, liked large-scale operations. The large business model had great allure, especially when compared to the small-scale, localized, and fragmented home building industry. Echoing a long and widely held criticism, a Kaiser Committee memo lamented, “The industry has no GM, GE, IBM, Esso, AT&T or similar unit with the size and market power adequate for the tasks now before it.” Some committee members envisioned a public-private profit-making corporation—like the Communications Satellite Corporation (Comsat) or the recently created Corporation for Public Broadcasting—that would build apartment buildings and houses.72 Those who represented the housing industry, which was dominated by small businesses, objected. “Proposals for vast joint Government-industry

71. John Sparkman to Robert De Kruif, January 23, 1968, Sparkman Papers. 72. A number of people in the 1960s dreamt of a public-private Comsat for housing. See Urban America, The Troubled Environment, 138. For examples of criticisms of the housing industry as too fragmented, see “An Agenda for Policy: Housing and Community Development, Working Draft,” presented at the Newark Conference on the ACTION Program for the American City, May 4, 5, and 6, 1959, 2, 20; National Commission on Urban Problems, Building the American City: Report of the National Commission on Urban Problems to the Congress and to the President of the United States (Washington, DC: U.S. GPO, 1968). Comsat was authorized by Congress in 1962; Johnson signed the act enabling the Corporation for Public Broadcasting on November 7, 1967. Internal Memo of the President’s Committee on Urban Housing, November 24, 1967, Subject: Better Urban Dwellings Corporation, PCUH, Box 57, Folder Original December Package, LBJ.

corporations are more dramatic than realistic,” wrote Weiner, the head of the home builders’ association. “Such mechanisms would be cumbersome and unworkable in an industry where flexibility is the first consideration. . .. A new, huge corporation—whether purely private or quasi-Governmental, whether profit or nonprofit—will succeed only in concentrating a myriad of small problems into one massive impossibility.”73 Over time, the Kaiser Committee revised the concept of the housing corporation into a national finance agency, which embodied in name and functions the concept of the public-private “partnership.” The proposed National Corporation for Housing Partnerships would raise money from corporate members and investors and use it to provide the working capital for local development projects. To attract investors, Kaiser proposed federal tax benefits that would allow them to deduct losses and depreciation from the venture. “Private enterprise would invest [and] get the tax benefits,” Moskof explained, to set up “a well-funded organization that would assist local . . . builders and nonprofits to build housing all over the country.” Hence, the corporation would carry out two types of government-business partnerships: one in which the federal government aided corporations to invest in housing projects, the other in which the new private government-sponsored entity formed alliances with local housing developers, be they nonprofit or for-profit entities.74 Although the Kaiser Committee’s young staff members protested that the scheme was a boondoggle for corporations and the politically connected corporate lawyer Lloyd Cutler (whose firm would profit from the transactions), Moskof overruled them. After the heads of IBM, General Motors, and other Fortune 500 executives indicated they would be willing to participate, Kaiser convinced skeptical committee members such as Weiner to agree to the new corporation. The White House enthusiastically approved the idea, and in his Crisis of the Cities speech to Congress on February 22, 1968, LBJ trumpeted it as an ideal way to harness the productive power of the private marketplace for the public good of low-income housing. The following month HUD staff worked with John Sparkman to incorporate a provision for a for-profit entity, the National Corporation for Housing Partnerships, in the proposed housing bill.75 73. Bohen to Califano, November 25, 1967; NAHB Policy Statement for 1968, Approved by NAHB Board of Directors, December 6, 1967, Chicago, IL, Section V. Housing Our Urban Poor, 2. 74. Larry Levinson to Joseph Califano, December 26, 1967, EX HS 2 11/22/63 Box 3, Folder 9/1/67-12/31/67, LBJ; Coan, “The Housing and Urban Development Act of 1968,” 23; Moskof, interview; Carl A. S. Coan Jr., interview by author, June 9, 2006, Washington, DC. 75. Joe Califano to the President, February 10, 1968, 8:30 p.m., Papers of LBJ, EX FG 647 Box 379 Folder Committee to Rebuild


XIV. THE SMALL BUILDERS GET THEIR PROGRAMS Weiner and the home builders could tolerate the inclusion of the National Corporation for Housing Partnerships because they knew the law contained numerous other provisions to their liking. Besides leading the effort for numerical housing goals, NAHB representatives had consulted with Senate and House committees, HUD, and the Kaiser Committee on the two new large low-income housing programs—one for home buyers and the other for renters—that comprised the core of the 1968 housing bill.76 Section 235: Low-income Home Ownership In the case of the home ownership provision, titled Section 235 of the National Housing Act, the bill’s authors—primarily the Senate banking committee and HUD’s general counsel’s office—transformed Percy’s small-scale plan for nonprofits into a large-scale home building program located within the FHA-private industry system. To begin, they authorized HUD to pay private lenders of a new FHA-insured mortgage an amount that lowered the home buyer’s monthly mortgage payments to 20 percent of his or her income. The program’s authors boosted Section 235’s number of eligible borrowers by lowering the mortgage interest rate to 1 percent—to reach the low-income group—and raising the limits on the home buyers’ incomes— adding moderate-income customers. To pump up production—via the home building industry—they required that by the third year all the subsidized homes must be new or substantially rehabilitated.77 The framers of the act stripped down regulations to speed lending and purchasing to low-income home buyers. To push the FHA to insure the new mortgages in inner-city neighborhoods, they loosened credit requirements for borrowers and lowered criteria for viable neighborhoods. Section 235 even created a Special Risk Mortgage Fund for mortgages that were “not intended to be actuarially sound.” The program also minimized the first-time buyer education that Percy had emphasized in his scheme.78

America’s Slums (1/1/68—9/30/68), LBJ; Lyndon B. Johnson, “Special Message to the Congress on Urban Problems: The Crisis of the Cities,” February 22, 1968; “Hearings Begin on Urban Development Proposals”, Congressional Quarterly Weekly Report 26, no. 11 (March 15, 1968): 526–27. 76. Lilley, “The Homebuilders’ Lobby,” 39. 77. During Section 235’s first fiscal year, up to 25 percent of its funds could be used to subsidize the purchase of existing homes; the next year the figure dropped to 15 percent of authorized funds; the year after that it dropped to 10 percent; and from there on no funds could go to existing dwellings. Lilley, ibid; Charles L. Edson, “Sections 235 and 236—The First Year,” Urban Lawyer 2 (1970): 15. 78. McClaughry, “Troubled Dream,” 17– 21.

Having geared the program for maximum volume, its authors estimated that if fully funded, within three years Section 235 could subsidize 500,000 units. “By calling for significantly more housing than [Percy’s bill] had countenanced, and by ruling out a prominent role for local, nonprofit housing organizations,” Abrams scholar Scott Henderson observes, “it was the Democratically influenced Housing Act of 1968—not the Republican-initiated and Abrams-inspired National Home Ownership Act—that was predicated on virtually unrestricted private sector participation.”79 Section 236: Rental Housing In contrast to the public housing program, the 1968 bill’s private-sector rental housing scheme was designed so that private agents, not government entities, initiated and carried out housing projects. They would choose when and where the housing would be located. Private developers were responsible for acquiring the site and obtaining the financing to develop it. The developers would then design, build, own, and finally manage the dwellings, which they would lease at affordable rents to low-income households. As with its predecessor, the 1961 Below-Market-Interest Rate program, the private developers could be nonprofit organizations, cooperatives, or limited-dividend companies. Worried about the previously poor track record of nonprofit groups, the bill’s authors added a section that authorized HUD to provide loans and technical assistance to nonprofit housing groups. In crafting the Section 236 program, Weaver, Kaiser Committee members, and representatives of the major interest groups sought to boost the feeble output of the 1961 Below-Market-Interest Rate program. To achieve, as Weiner put it, “intensification” of rental housing production, HUD counsel Carl Coan Jr. devised a new subsidy method. Instead of the government insuring and purchasing mortgages with below-market interest rates, Section 236 of the 1968 act offered rental housing developers an annual subsidy that reduced their mortgage interest rate to 1 percent. This type of subsidy enabled owners to charge lower rents than the Below-Market-Interest Rate program had and, for added political benefit, allowed the government to record as a budget expenditure only the interest reduction rather than the entire mortgage. The drafters of the legislation predicted that with the same amount of funding as the home ownership program received, Section 236 could produce 725,000 or almost half again as many dwellings.80 79. Housing and Urban Development Act of 1968 (Public Law 90-448), Title I, Sec. 101, 4; “Major Housing Bill Cleared,” Congressional Quarterly Weekly Report, August 2, 1968, 2031; Henderson, Housing and the Democratic Ideal, 211. 80. Adapting a mechanism from Percy’s home ownership proposal, Coan proposed paying the difference between the fair market interest rate—what a for-profit developer would need to

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Despite enlisting the private sector, Lyndon Johnson’s low-income housing programs would significantly increase government spending. The 1968 act authorized appropriations of up to $250 million for both Section 236 rental housing and Section 235 home ownership programs over their first two years and permitted spending $300 million on each for subsequent fiscal years. In addition, the act authorized additional spending for public housing and rent supplements, which brought the cost of building or rehabilitating a targeted 1.7 million housing units within three years to $5.3 billion. The estimated price tag for reaching the ten-year goal of 6 million new lowincome dwellings, or about five times the amount authorized in the act, was about $200 billion. Clearly, the purpose of the administration’s public-private housing programs was to expand the government’s housing policy through generous federal funding.81 A Host of Other Provisions Despite the excitement about the new programs, the 1968 act also reaffirmed and funded several existing housing programs, which the administration and Congress felt would be needed to help meet the national housing goals. The act boosted funding authorizations for the public housing program—which HUD officials hoped would develop 420,000 units. The bill’s authors attempted to improve public housing by discouraging high-rise designs, making available new subsidies to help pay the rent of large and extremely low-income families, and authorizing $20 million in “social management funds” to provide social services to low-income tenants. In addition, the bill approved considerable sums for recent Great Society programs: $140 million for rent supplements (enacted in 1965), which officials estimated could produce 262,000 apartments; $150 million for the revolving fund that provided renovation loans to low-income home owners (enacted in 1964), and an eye-popping $1 billion for Model Cities (enacted in 1966). Finally, as a long-term solution to the crisis of the cities, the bill included government support for the creation of planned “New Communities,” like the privately financed cities of Columbia, Maryland, and Reston, Virginia.82

operate a project—and the basic or subsidized interest rate of 1 percent. The subsidy in Section 236 was still not as deep as the one in the Rent Supplements program. PCUH, A Decent Home, 65; Coan, interview; Moskof, interview; Minutes, Subcommittee New and Existing Programs, Meeting of December 14, 1967, Box 47 unmarked folder, 10, LBJ; Alex F. Schwartz, Housing Policy in the United States (New York and London: Routledge, 2006), 130– 31. 81. Housing and Urban Development Act of 1968 (Public Law 90-448), Title I, Title II Part A—Private Housing, Part B—Low-Rent Public Housing; Robert B. Semple Jr., “Johnson Approves ‘Massive’ Program to House the Poor,” New York Times, August 2, 1968. 82. The bill also provided more money for urban renewal (while aiming to slow down its bulldozers), expanded urban

The need to finance the bill’s schemes for enlarging the volume of residential construction dovetailed with the NAHB and other trade associations’ long-standing desire to pump up the amount of credit available for market-rate housing. Representatives of the builders, mortgage bankers, and real estate brokers yearned to tap swelling pension funds—whose directors preferred other forms of investment—to expand their business. Since 1966, moreover, the trade association leaders had complained loudly that soaring interest rates drained funds from savings-and-loan associations and badly squeezed their industry. Hence, the authors of the 1968 legislation wrote in a number of measures intended to spur private investment in the general housing market. The bill removed the ceiling interest rate on FHA-insured mortgages, set off Fannie Mae as a private corporation (thus freeing it from the budget restraints so it could purchase more FHA and VA mortgages), created a new government secondary-market agency, Government National Mortgage Association (GNMA or Ginnie Mae), to purchase special assistance mortgages, and gave both FNMA and GNMA the authority to guarantee privately issued securities collateralized by pools of mortgages. Industry representatives found all these measures pleasing, but for immediate results they looked most eagerly to the removal of the interest cap on FHA loans and Fannie Mae’s and Ginnie Mae’s secondary-market activities.83

planning grants, and set up government-industry insurance programs for properties damaged by riots and floods. 83. United States House of Representatives, Subcommittee on Housing of the Committee on Banking and Currency, Housing and Urban Development Legislation and Urban Insurance: Hearings . . . Ninetieth Congress: Second Session on H.R. 15624, H.R. 15626 and related bills (Washington, DC: U.S. GPO, 1968), Part 1, March 12, 13, 14, 15, 18, 19, 20, 21, and 22, 1968 (hereafter, U.S. House, Hearings. . .Ninetieth Congress); Michael S. Carliner, “Development of Federal Homeownership ’Policy,’” Housing Policy Debate 9, no. 2 (1998): 309–10; Murray Seeger, “Senate Passed Housing Bill Brightens Mortgage Picture,” Los Angeles Times, June 3, 1968, D11, 14. Although Hyman, Debtor Nation: The History of America in Red Ink (Princeton: Princeton University Press, 2011), 225–28, correctly points out the impact of mortgage-backed securities eventually had on the housing market, his account misinterprets this element as a tool for subsidized low-income housing—this and the other FNMA provisions primarily aimed at market-rate housing—and exaggerates the confidence that contemporaries placed on the relatively untested idea of mortgage-backed securities. On the latter point, note NAHB testimony proposing an additional regulation that would require investors to invest in housing or HUD Assistant Secretary Brownstein’s statement that he hoped the securities would be effective, but also believed that the president’s proposed tax legislation should improve the mortgage market. (See Hearings and Seeger, cited above.) Hyman also neglects completely Section 236 (and the funding for Rent Supplements and public housing), by which the bill’s authors hoped to stimulate development of the rental apartments that would house by far most low-income households. See Coan, “The Housing and Urban Development Act of 1968,” 18, 21.


XV. CLEAR SAILING As the Congress took up the big housing bill in the spring, Lyndon Johnson’s task force strategy began to pay off. In March 1968 Sparkman and his counterpart in the House, William Barrett (D-PA), introduced and held hearings on the legislation. First, HUD Secretary Weaver, then the president’s urban housing committee chair Edgar Kaiser endorsed the legislation. A noteworthy parade of interest-group representatives followed suit. Remarkably, the longtime supporters of public housing—including the AFL-CIO, U.S. Conference of Mayors, National Housing Conference, and NAHRO—favored the new social programs to be implemented by nongovernment agents. Meanwhile, the traditional enemies of public housing—NAHB, the Mortgage Bankers Association of America, American Bankers Association, and the conservative U.S. Chamber of Commerce— endorsed the bill despite its provisions of funding for public housing. What induced members of these housing lobby groups to put aside their long-standing principles to support the 1968 bill? First, both reformers and representatives of industry shared a deep sense that the urban crisis demanded a massive rebuilding effort, which current housing programs could not accomplish. Speaking for the social work contingent of the housing movement, DeLeslie Allen, president of the National Federation of Settlements and Neighborhood Centers, argued that the bill’s unprecedented housing production goal was not high enough to fulfill her organization’s aim of eliminating all “slums, blight, and deterioration in our country in the shortest possible time span.” Housing reformers—and, of course, the industry leaders—believed, however, that the public housing program was incapable of producing the huge quantity of new construction needed to solve urban problems. It was necessary to supplement public housing with new programs, National Housing Conference president Nathaniel Keith explained, “to expand the volume of housing and broaden the participation in meeting urgent needs.” In this critical moment, the imperative of production trumped ideology.84

Second, by 1968 people of all stripes in the housing field had grown accustomed to the idea that privatesector entities, including businesses, could help implement social welfare policy. During the 1960s nonprofit and limited-dividend for-profit agents had used Below-Market-Interest Rate, Rent Supplement, Turnkey, and other programs to make housing that was affordable to low-income Americans. Hence, despite doubts that private enterprise and technology could act as urban “miracle drugs,” William Rafsky, the president of NAHRO, and Dorothy Gazzolo, the longtime editor of the organization’s magazine, saw great potential in new collaborations between government and business. A longtime champion of increasing governmental powers to achieve social change, United Auto Workers (UAW) chief Walter Reuther declared that now the housing and urban development fields required “the growth of nongovernmental institutions . . . to end slumism.” As for the private housing industry, its representatives preferred almost any nongovernment program to public housing, which they disdained.85 Third, the bill offered an array of approaches and implementing agents from which to choose. This allowed the leaders of the diverse interest groups to acclaim the programs they liked and criticize or ignore those that did not appeal to them. Proponents of nonprofit developers, such as Mayor James H. J. Tate of Philadelphia and DeLeslie Allen, the settlement house leader, praised the provisions that would build up neighborhood nonprofit housing corporations but said nothing about limited-dividend builders. Edgar Kaiser, not surprisingly, praised the bill’s National Corporation for Housing Partnerships for involving “large industry,” whereas Lloyd Clarke of the NAHB celebrated the role of small-scale private enterprise in the Section 236 rental housing program, pointedly asserting that “big capital and large organization” was less efficient in homebuilding.86 Organized labor’s spokespeople endorsed the private-sector programs—not unexpectedly, perhaps, considering labor’s postwar support for employer distribution of social benefits—but they too differed on whether small or large business was best. AFL officials threw their “enthusiastic support” to the Section 236

84. The members of the National Housing Conference, which had helped birth public housing, approved of the 1968 bill’s proposed corporation for housing partnerships because it could “enlist the private capital and talents of American industry in the production of low and moderate income housing.” DeLeslie Allen, Statement, U.S. House, Hearings. . .Ninetieth Congress, 774; Nathaniel S. Keith, Statement, ibid, 393, 396; Andrew Beimiller, (AFL-CIO Department of Legislation), ibid, 538. NAHB agreed CQW, 653; William F. Rafsky, “What Are the Potentials and the Limits of Private Enterprise on the Urban Front?” Journal of Housing 25, no. 7 (August 1968): 338; Lloyd E. Clarke (NAHB), Statement, ibid, 831; See also quote of Thomas R. Byrne (Mayor of St. Paul, MN, speaking for the National League of Cities),

“Housing, Urban Development,” Congressional Quarterly Weekly Report 26, no. 28 (March 29, 1968): 654. 85. William F. Rafsky, “Potentials and Limits of Private Enterprise?” 338, 341, 345– 48; Dorothy Gazzolo, “Is It a False Hope or Bright Promise that Private Enterprise Can Avert Urban Crisis?” Journal of Housing 25, no. 7 (August 1968): 337; Keith, Statement, U.S. House, Hearings. . .Ninetieth Congress, 408; Walter P. Reuther, Statement, U.S. House, Hearings. . .Ninetieth Congress, 725. 86. Tate asserted that nonprofit groups had built almost 1,000 units of low-income elderly and family housing in his city. James H. J. Tate, Statement, U.S. House, Hearings. . .Ninetieth Congress, 235–45; Allen, Statement, ibid, 776; Edgar F. Kaiser, Statement, ibid, 515– 16; Clarke, Statement, ibid, 843.

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House approved it by an almost two-to-one margin. The chambers adopted the conference report by similar margins, and on August 1, 1968, Lyndon Johnson signed the Housing and Urban Development Act of 1968 into law.90

rental program because they believed it would enable small-scale developers—nonprofits, cooperatives, and small builders for whom building tradespeople traditionally worked—to produce the most housing in the shortest time. In contrast, the leader of the industrial unions—United Auto Workers president Walter Reuther—barely mentioned Section 236, disparaged homebuilders for being antilabor and inefficient, but celebrated the “private profit-making corporations” to be created by the Corporation for National Housing Partnerships as an innovative step towards a large-scale and efficient housing system.87 Last but not least, the 1968 bill strengthened existing housing programs, giving the interest groups further incentive to support the bill in its entirety. For example, liberal interest groups such as the AFL-CIO and National Housing Conference praised the bill’s generous funding for public housing and rent supplements. Industry groups such as NAREB and NAHB were highly enthusiastic about the mortgage-industry sweeteners—particularly raising the cap on FHA-insured mortgage interest rates and turning Fannie Mae into a private corporation—and approved funding current private-market low-income housing programs such as Rent Supplements and leased public housing.88 By packing the 1968 act with highly desired provisions, LBJ and the Democratic leadership encouraged the interest groups to participate in a kind of social policy log-rolling. The liberal reform and housing industry lobby groups thus found common cause in supporting the 1968 housing bill, which helped end their long political war and begin an era of collaboration on urban and housing policy issues.89 With such unanimity of support—and the memory of the riots that followed the assassination of the Reverend Martin Luther King Jr. still fresh— members of Congress were not disposed to alter the legislation greatly. They fussed with the formulae for eligibility for the housing programs—attempting to restrict the programs to relatively lower-income families—and slightly reduced the administration’s requested large authorizations. But, for the most part, the bill enjoyed clear sailing. In May it passed the Senate by a roll call vote of 67-4; in July the

As its creators had hoped, the 1968 housing law helped produce plenty of new dwellings. Between 1969 and 1979, under presidents Richard Nixon, Gerald Ford, and Jimmy Carter, the United States generated almost 19.5 million housing starts, the largest volume of housing construction for any decade in American history. All the more impressive, this volume of production occurred in a period of economic turbulence marked by inflation and spikes in oil prices. The 1968 act’s low-income programs contributed significantly to this achievement. Thanks in part to zealous implementation by President Richard Nixon’s HUD Secretary George Romney, in 1970, the first year the new housing programs ran at full capacity, the Section 235 and 236 programs produced about 12 percent of the nation’s total housing starts. Over the course of the 1970s, Section 235, the lowincome home ownership scheme, produced approximately 419,000 new units. Section 236, the rental housing program, also produced many units—about 540,000 by the end of the decade, three-quarters of which were built by 1975. The passage of the 1968 law permanently shifted production of new social housing in the United States away from public housing and toward private development and ownership. A headline writer for the trade journal, House and Home, summed up the emerging policy, “General Grantsmanship Bows to Pvt. Enterprise.”91 Despite a surge in public housing construction—made possible by appropriations procured by the Johnson administration—the two new private-sector low-income programs together generated more dwellings during the late-1960s and early-1970s than did the venerable government-based program. For the decade 1969 to 1978, the Section 236 program by itself created more low-income rental

87. Beimiller, Statement, U.S. House, Hearings. . .Ninetieth Congress, 540; Walter P. Reuther, Statement, ibid, 725; United Auto Workers leaders opposition to the private housing industry dated from at least 1941, see Sarah Jo Peterson, Planning the Home Front: Building Bombers and Communities at Willow Run (Chicago: University of Chicago Press, 2013). 88. Biemiller, Statement, U.S. House, Hearings. . .Ninetieth Congress, 539–40; Keith, ibid, 399– 402; Clarke, ibid, 833–34; Lon Worth Crow, Jr., Statement, ibid, 278–81. 89. Six years after the law’s passage, Leon Weiner was elected president of the National Housing Conference. Prior to the implementation of the 1968 law, the idea of a home builder leading the original national public housing interest group was simply unthinkable. U.S. House, Hearings. . .Ninetieth Congress.

90. “Dr. King’s Death Brings Pressure for Action” Journal of Housing 25, no. 4 (April 1968): 177–78; “Massive Omnibus Housing Bill Passed by Senate,” Congressional Quarterly Weekly Report 26, no. 28 (June 7, 1968): 1429 –32; “Housing Bill Amendments,” idem, June 21, 1968, 1506– 67; “House Passes Housing Bill,” idem, July 12, 1968; 1708– 77; “Major Housing Bill Cleared,” idem, August 2, 1968, 2016–93; Milton Semer, Julian H. Zimmerman, Ashley Foard, and John M. Frantz, “A Review of Federal Subsidized Housing Programs, in HUD, Housing in the Seventies Working Papers, National Housing Policy Review (Washington, DC: U.S. GPO, 1973), 124– 27. 91. Bruce Agnew, “Housing the Poor: Gen. Grantsmanship Bows to Pvt. Enterprise,” House and Home 32, no. 5 (November 1967): 5.

XVI. THE PRIVATIZING OF HOUSING AND URBAN POLICY


homes than the public housing program created, and after 1978 the private-sector rental housing programs that succeeded Section 236 also outpaced public housing.92 A Shift toward For-Profit Developers By placing for-profit companies at the forefront of low-income housing production, the 1968 housing act moved social housing policy far from the antibusiness spirit of New Deal social reform. Weaver’s first attempt at a private-sector rental housing program, the Below-Market-Interest Rate program, had favored nonprofit and cooperative developers, who between 1961 and June 1967 built more than half of its 569 new housing projects. In the Section 236 program, in contrast, between 1969 and 1978 forprofit developers produced 71 percent of subsidized rental projects, leaving nonprofits and cooperatives to build the remaining 29 percent.93 Following the precedent set by Section 236, subsequent low-income rental housing programs relied on the private sector. In 1974 Congress sought to improve upon Section 236 by creating the Section 8 New Construction and Substantial Rehabilitation (NC/SR) program.94 Dropping the limited-dividend restriction, the new legislation bluntly invited “any private person or entity” to participate as long as the owner assumed “all ownership, management, and maintenance responsibilities” for the subsidized rental housing. Section 8 NC/SR produced homes even faster than had Section 236, reaching 778,000 units by 1986. By 1981—if not before—there were more privately owned, publicly subsidized low-income rental dwellings than there were public housing apartments.95 92. Between 1969 and 1973, the Section 235 and 235 programs added 508,013 new homes (of which Section 235 contributed about 415,000), far more than the 359,664 apartments built by the public housing program. From 1969 through 1978, the Section 236 program added 541,460 rental units, while public housing added 485,664. Edgar O. Olsen, “Housing Programs for Low-income Households,” National Bureau of Economic Research, Working Paper 8208, 2001, available at http://www.nber.org/papers/ w8208, 6, Table 5; John M. Quigley, “A Decent Home: Housing Policy in Perspective,” Brookings-Wharton Papers on Urban Affairs (2000), Fig. 1, 59; Tab. 1; 63. 93. For-profit developers’ share of the Below-Market-InterestRate projects was a little more than two-fifths. Keith, Housing America’s Low- and Moderate-Income Families, Tab. 9, 16; Elmer B. Staats, Section 236 Rental Housing: An Evaluation with Lessons for the Future, 1978. Report to the Congress from Comptroller General. 14, 21– 25; Hays, Federal Government and Urban Housing, 123. 94. The Section 8 legislation authorized housing assistance payments to low-income families in new construction, substantially rehabilitated, and existing housing, each of which was administered as a separate subprogram. Hays, Federal Government and Urban Housing, 148–53. 95. In 1981 the number of units created under Section 235, Section 236, and Section 8 reached 1,252,210 units, whereas the public housing program had produced 1,204,000. If dwellings that received housing assistance under two smaller programs,

The administration of Ronald Reagan opposed federal support for construction of low-income housing and in 1983 pulled the plug on the Section 8 production program. Even so, political support for privately produced subsidized housing had grown so strong that Congress created a new low-income housing development program as part of the tax reform legislation of 1986. The Low Income Housing Tax Credit (LIHTC) provided a tax break to low-income housing developers, who usually sold the credits to investors for equity capital. The LIHTC has been highly prolific: between 1987 and 2010 it helped private developers to finance nearly 2,235,000 housing units.96 Developers often employed the LIHTC to extend the life of old private-sector social housing, including dwellings subsidized under the 1968 law. In more than a third of LIHTC projects, the tax credit was used to refinance and rehabilitate existing housing. Most of these properties had been developed in the 1960s and 1970s under Section 236 and other privatesector programs, but had reached the time when their mortgages could be paid off or their subsidies had expired. Refinancing with LIHTC kept them affordable to low-income families for at least twenty-five more years.97 As with Section 236, economist Edgar O. Olsen calculates, “for-profit firms have accounted for the majority of the units” produced under both Section 8 NC/SR and LIHTC programs. In 2001, according to a national survey, nonprofit groups owned only 8 percent of all subsidized properties and 13 percent of all subsidized dwelling units. Nonprofit organizations fared better under the tax credit program, yet between 1995 and 2009, for-profit sponsors developed nearly 73 percent of completed LIHTC projects. Hence, since the passage of the Housing and Urban Development Act of 1968, for-profit companies have produced and owned far more government-assisted low-income rental housing than nonprofit groups.98

Section 515, a rural housing program similar to Section 8, and Rent Supplements are added to the above mentioned programs, the total number of privately owned, subsidized units exceeded that of public housing in 1978. Edgar O. Olsen, “Housing Programs for Low-income Households,” NBER Working Paper 8208 (2001), Tab. 5. 96. HUD, Data Sets, Low-Income Housing Tax Credits, About the LIHTC Database, http://www.huduser.org/portal/datasets/ lihtc.html#about. 97. Abt Associates, HUD, Updating the National Low-Income Housing Tax Credit Database: Projects Placed in Service Through 1999 (Washington, DC: HUD, 2002), http://www.huduser.org/portal/ Datasets/lihtc/report9599.pdf, 12; HUD, New Low-Income Housing Tax Credit Property Data Available (2011), http://www.huduser.org/ portal/Datasets/lihtc/topical9509.pdf, 9. 98. In the Residential Finance Survey, cooperatives owned .2 percent of the subsidized projects and 3 percent of the subsidized units. Under the Low Income Housing Tax Credit program, nonprofit groups benefit from a requirement that at least 10 percent of tax-credit dollars allocated in each state must be used in

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The 1968 law’s low-income home ownership program, Section 235, also favored for-profit agents. As we have seen, the Johnson administration decided to scuttle Charles Percy’s nonprofit approach for a large program implemented by home builders and real estate brokers. The home builders and real estate brokers embraced the program, helping to generate nearly 300,000 units in its first two years of operation. Its popularity in the housing industry was not altogether altruistic: in 1970—a time of tight money for house construction—the members of the Tennessee Home Builders Association adopted the motto, “Stay alive with 235.”99 Inserting the profit motive into social policy had its pitfalls. Without Percy’s constraints, the home ownership program soon produced a major scandal. In 1972 FHA field officers and private lenders and appraisers were charged with deceiving uninformed low-income buyers into buying poor-quality, overvalued properties. Setting aside cases of fraud, agents did a poor job of screening buyers. Not surprisingly, the program was plagued by high rates of foreclosure, 18 percent of the total. Some blamed HUD Secretary Romney either for failing to prepare FHA officers for the new assignment of insuring mortgages to lowincome borrowers or for pushing local FHA administrators too hard to carry out the program at top volume. In Romney’s defense, the authors of Section 235 had explicitly replaced the previous FHA standard for loans, “economic soundness,” with the looser criterion of “acceptable risk,” and even so, 80 percent of the sales to low-income households were financially viable. A more lasting problem was that the use of private enterprise reinforced patterns of racial segregation: housing industry agents funneled white buyers to new homes in the suburbs and black buyers to existing urban homes in the inner city.100

nonprofit projects. State governments (usually through state housing finance agencies) allocate the tax credits to housing developers, and some states exceed the federal set-aside by requiring at least 25 percent of the tax credit allocations go to nonprofits. Olsen, “Housing Programs for Low-income Households,” 5; HUD and U.S. Census Bureau, Residential Finance Survey, 2001, micro-data analysis courtesy of Michael Carliner. HUD, “New Low-Income Housing Tax Credit Property Data Available,” September 2011, http://www. huduser.org/portal/Datasets/lihtc/topical9509.pdf (viewed April 17, 2013), 9, Tab. 3: Additional Characteristics of LIHTC Projects, 1995 –2009. 99. Lilley, “The Homebuilders’ Lobby,” 39–40 (quotation); Hays, Federal Government and Urban Housing, Fig. 9, 112, Fig. 10, 118, Fig. 11, 127; Carliner, “Development of Federal Homeownership ’Policy,” 313; Olsen, “Housing Programs for Low-income Households,” Tab. 5. 100. Robert Schafer and Charles G. Field, “Section 235 of the National Housing Act: Homeownership for Low-Income Families?’’ in Pynoos, Schafer, and Hartman, eds., Housing Urban America, 460– 71; Hays, Federal Government and Urban Housing, 117–21; McClaughry, “The Troubled Dream”; Kevin Fox Gotham, “Separate

Section 236, the rental housing program, was not plagued by major scandal, but it too was poorly conceived. Whether through haste or inexperience, the program’s authors placed most of the financial incentives in the early phase of development. As a result, many for-profit developers (working as limited-dividend entities) inflated their stated construction costs to increase returns and obtain higher subsidies and then underestimated their projected operating costs to get FHA approval of their projects. Once they had built the projects, however, they had little stake in maintaining them. In addition, the personnel of many nonprofit housing sponsors were novices who knew little about real estate underwriting and property management. So great were the problems that in 1974 the federal government replaced Section 236 with Section 8 NC/SR, which relied on a different and simpler subsidy mechanism—rental assistance—to achieve the same end. Nonetheless, during the 1970s an alarming proportion of Section 236 projects slid into financial trouble. Inflation and oil price rises pushed up their operating costs, which in many cases had been underbudgeted. (Such economic shocks also plagued public and private-market housing.) As operating costs escalated, owners fell behind on their mortgage payments, skimped on project maintenance, and allowed their buildings to deteriorate. Throughout the decade, foreclosure rates of Section 236 projects remained in the double digits. To stabilize the finances of Section 236 projects, government officials conducted several investigations and instituted two different programs, one that provided a rent subsidy and the other that offered inexpensive loans to cover either operating expenses or capital improvements.101

and Unequal: The Housing Act of 1968 and the Section 235 Program,” Sociological Forum 15, no.1 (2000): 13–37. 101. The two programs were the Loan Management Set Aside subsidy (drawn from Section 8 appropriations) and the Flexible Subsidy Fund, established in Housing and Community Development Amendments of 1978. In 2000 the government established a program to allow owners of Section 236 properties to continue to receive interest reduction subsidies for their first mortgage when they refinanced their properties that they maintained as lowincome housing. Task Force on Improving the Operation of Federally Insured or Financed Housing Programs, Report of the Task Force on Improving the Operation of Federally Insured or Financed Housing Programs Vol. 3, Multifamily Housing (Washington, DC : National Center for Housing Management, 1973), 60, 102–13; Elmer B. Staats, Comptroller General of the United States, Opportunities to Improve Effectiveness and Reduce Costs of Rental Assistance Housing Program, Report to the Congress, B-171630, (Washington, DC: Government Accountability Office, 1973), 9–15, 28–37; Final Report of the Multifamily Property Utilization Task Force (Washington, DC: U.S. Dept. of Housing and Urban Development, Office of Housing-FHA, 1978); Hays, Federal Government and Urban Housing, 122–28, Tab. 4.1.


A Government-Sponsored Enterprise for Low-income Housing The National Corporation of Housing Partnerships (NCHP), the third engine in the 1968 law’s drive to rebuild America’s low-income housing, accomplished far less than the rental and home ownership programs. This government-sponsored enterprise—and for-profit company—was supposed to raise capital from the private sector and then form partnerships with local builders, labor groups, community organizations, and residents who wanted to develop lowincome housing but needed financing and perhaps technical assistance. The NCHP succeeded in raising capital—$42 million from private investors— but, as NAHB representatives had predicted, few developers came calling.102 Instead, low-income housing developers received, thanks to the federal tax code, abundant equity funding from individuals. Investment in Section 236 rental housing deals offered tax incentives, especially the use of accelerated depreciation schedules in calculating losses on property investment. Further protected from tax recapture by a 1969 law, investors using accelerated depreciation could receive cash flows on Section 236 projects that earned 15 to 20 percent returns on their investments.103 With eager investors available, limited-dividend developers of low-income rental housing had little need of the NCHP. As a result, the NCHP in ten years helped develop only 40,000 dwellings, far short of its intended target of 100,000 units and a fraction of the number created by the Section 235 and 236 programs. After the creation of the LIHTC program in 1986, NCHP’s directors decided against

102. United States Senate, Committee on Banking and Currency, First Annual Report of the National Corporation for Housing Partnerships: December 16, 1968, to June 30, 1970, (Washington, DC: U.S. GPO, 1973); National Corporation for Housing Partnerships (NCHP) and National Housing Partnership (NHP), 1974 Report to the President of the United States of America (Washington, DC: NCHP and NHP, 1974). 103. Other tax incentives available to investors in Section 236 housing included “liberal provisions for the recapture of accelerated depreciation in event of sale, 5-year write-off of rehabilitation costs, deferment of taxable gain when it is reinvested in other subsidized housing, and allowance of a fair market value rather than depreciated cost as a deductible item when housing is donated to qualified charitable organizations.” The 1969 law is known as the Tax Reform Act of 1969. United States Congress, Joint Economic Committee, Subcommittee on Priorities and Economy in Government, Housing Subsidies and Housing Policies. Hearings, Ninety-second Congress, Second Session. December 4, 5, and 7, 1972 (Washington, DC: U.S. GPO, 1973), 15; Charles L. Edson, “Affordable Housing—An Intimate History,” in Tim Iglesias and Rochelle E. Lento, eds., The Legal Guide to Affordable Housing Development, 2nd ed. (Chicago: American Bar Association, Forum on Affordable Housing and Community Development Law, 2011), 12– 13; Charles L. Edson, “Sections 235 and 236—The First Year,” Urban Lawyer 2 (1970): 26–27; Michael J. Cenatiempo, “Tax Advantages under Section 236 of the National Housing Act,” Houston Law Review 8 (1971): 911–28.

reorganizing the company to take advantage of lowincome housing tax credits and eventually sold off its portfolio.104 In the long run, however, the NCHP model resurfaced in different forms. In 1978 the Congress established another private housing corporation, the Neighborhood Reinvestment Corporation, which provided technical assistance and loans from a revolving fund to affiliated local housing nonprofit groups. After 1986 nonprofit and for-profit syndicators took up the business of purchasing low-income housing tax credits for equity investment in housing projects. Similar to the original plan for NCHP, these equity funds attracted capital from institutional and corporate investors, who became partners with private low-income housing developers, and often provided technical assistance to the housing developers.105 The Strange Career of the Public-Private Partnership Perhaps the greatest contribution of the NCHP to American policy and governance was emblazoning the term “partnerships” in the name of a governmentsponsored for-profit social enterprise. During the 1970s government-business social programs, now frequently referred to as public-private partnerships, became popular. In cities across the United States, public-private alliances tackled a broad range of problems from central-city redevelopment to employment. Impressed by the breadth of these local collaborations, the Committee for Economic Development in 1982 conducted a lengthy study of urban public-private partnerships that further popularized the concept. In the following years, mayors and business leaders in many large cities responded to reductions in federal spending by starting more “partnerships” and “compacts” to deal with diverse issues including housing, education, and redevelopment projects. These were complex arrangements, in which sometimes business and city leaders and sometimes local nonprofit groups pushed projects forward. The supporting casts were large and could include civic elites, private real estate developers, financial intermediaries, foundations, and local, state, and federal agencies.106

104. The 1986 tax reform bill eliminated the tax benefits for investors in low-income housing projects, including NCHP projects. NCHP and NHP, Report to the President of the United States of America/ 1978 (Washington, DC: NCHP and NHP, 1978), 5. 105. The largest nonprofit syndicators are Enterprise Community Partners and the National Equity Fund (an affiliate of the Local Initiatives Support Corporation or LISC). Erickson, The Housing Policy Revolution, 89– 90; http://portal.hud.gov/hudportal/HUD? src=/program_offices/comm_planning/affordablehousing/training/ web/lihtc/basics/syndication (viewed May 1, 2013); http://www. enterprisecommunity.com/about/mission-and-strategic-plan; http:// www.lisc.org/docs/brochures/brochures/2006/national/low-income_ 8795.pdf. For an example of a for-profit regional syndicator, see http://www.mpequity.com/updates.html.

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At the federal level, the term “public-private partnership” also took hold. In doing so, however, it drifted away from Johnson’s idea of a large government social program carried out by private-sector agents. Instead, public-private partnerships began to connote a reduction of federal assistance, if not outright retrenchment. Faced with increasing fiscal problems, President Jimmy Carter deployed the term to describe new programs that used private-sector funds and volunteer efforts as a way of reducing the impact on the federal budget. In 1978 he announced “a new partnership” between government agencies at all levels, the private sector, and community groups as a way to stop the downward social and economic spiral of America’s cities. Carter then established an office of public-private partnerships in HUD and tailored programs such as Urban Development Action Grants to facilitate local public-private programs.107 The ambiguity of the partnership concept—limiting government involvement yet expanding the governmental sphere of action—rendered it malleable for widely different purposes. With its reliance on private enterprise, the public-private partnership could fit the emerging idea of using market mechanisms to reform government regulation and social welfare efforts. Milton Friedman and other libertarian economists had long argued for market approaches to solving social problems, and by the late-1970s they were joined by liberal neoclassical economists in forming a consensus of “neoliberal” orthodoxy. Indeed in 1976, Charles L. Schultze, who had served Lyndon Johnson as Director of the Bureau of the Budget and then Jimmy Carter as Chairman of the President’s Council of Economic Advisers, loudly criticized “command-and-control” governance and called for “the public use of private interest.” In the years to follow, such neoliberal ideas took firm hold in American policy-making circles.108 106. Lyall, “Public-Private Partnerships in the Carter Years”; Charles J. Orlebeke, New Life at Ground Zero: New York, Home Ownership, and the Future of American Cities (Albany, NY: Rockefeller Institute Press, 1997), 8– 9; R. Scott Fosler and Renee Berger, eds., Public Private Partnerships in American Cities: Seven Case Studies (Lexington, MA: Lexington Books, 1982); R. Scott Fosler and Renee Berger, Public-Private Partnership: An Opportunity for Urban Communities (Washington, DC: Committee for Economic Development, 1982); Lynne B. Sagalyn, “’Public/Private Development,” Journal of the American Planning Association 73, no. 1 (Winter 2007): 7–22; Squires, ed., Unequal Partnerships; Michael McQuarrie, “Nonprofits and the Reconstruction of Urban Governance: Housing Production and Community Development in Cleveland, 1975– 2005,” in Elisabeth S. Clemens and Doug Guthrie, eds., Politics and Partnerships: The Role of Voluntary Associations in America’s Political Past and Present (Chicago; London: University of Chicago Press, 2010), 237–68; Bratt, Rebuilding a Low-Income Housing Policy. 107. Jimmy Carter, “National Urban Policy Remarks Announcing the Policy,” March 27, 1978, APP, http://www.presidency. ucsb.edu/ws/?pid=30566; Lyall, “Public-Private Partnerships in the Carter Years”; Berger, “Private-Sector Initiatives in the Reagan Administration,” 27.

The idea that self-interested operations of the market would improve society differed from LBJ’s idea of a committed business class working to solve society’s problems; but policy makers could bend the concept of the business-government partnership to the new cause. Hence, during the 1980s President Reagan applauded public-private partnerships, volunteer efforts, and “Private Sector Initiatives” as ways to narrow the sphere of the federal government. Reagan’s assistant secretary at HUD championed public-private partnerships under the more sweeping term of “privatization” to divest the government of activities that administration officials felt were better left to private institutions or individuals. Ironically, the tool Lyndon Johnson had devised to expand government social policy had ended up in Ronald Reagan’s hands as a way to shrink it.109 XVII. CONCLUSION The Path to a New Order Not only is the passage and impact of the 1968 housing act important to the development of American social policy, but it also provides a narrative that conforms to a general model of policy change, sometimes called path dependency, developed by the historical institutional school of political science. The major phases in that model include a period in which a particular policy framework prevails, a series of events that disrupt the framework and allow policy makers to choose new strategies, and a subsequent period characterized by the resulting new order.110 In the history of the 1968 act, the old policy order prevailed until the 1960s. The federal government usually implemented social welfare policy through “partnerships” with state and local governmental

108. Charles L. Schultze, “The Public Use of Private Interest: Restructuring the Machinery of Government Regulation,” Harper’s Magazine 254, no. 1524 (May 1977): 43–62; Charles L. Schultze, The Public Use of Private Interest (Washington, DC: The Brookings Institution, 1977); David Harvey, A Brief History of Neoliberalism (Oxford, NY: Oxford University Press, 2005). 109. A further irony, perhaps, is that public-private partnership failed to stop the growth and spending of the federal government. In the post-Reagan era of a reduced federal domestic role, of course, the idea of public-private partnership has continued to grow in popularity. Berger, “Private-Sector Initiatives in the Reagan Administration”; E. S. Savas, Privatizing the Public Sector: How to Shrink Government (Chatham, NJ: Chatham House Publishers, Inc., 1982); E. S. Savas, Privatization and Public-Private Partnerships (New York: Chatham House, 2000), 3– 4; Stephen H. Linder, “Coming to Terms with the Public-Private Partnership: A Grammar of Multiple Meanings,” The American Behavioral Scientist 43, no. 1 36, no. 2 (September 1999): 35–51. 110. For introductions to path dependency theory, see Paul Pierson, Politics in Time: History, Institutions, and Social Analysis (Princeton, NJ: Princeton University Press, 2004); James Mahoney, “Path Dependence in Historical Sociology,” Theory and Society 29, no. 4 (August 2000): 507– 48.


agencies. The government also collaborated with the private sector but aside from contracting, usually did so to stimulate economic development or assist business, or both. Few for-profit private-sector government programs focused on the poor. Prior to 1968 the two tracks of federal housing policy generally followed this pattern. In the industry track, government agencies provided mortgage insurance and secondary-market operations so that forprofit companies could produce and sell homes to a broad swath of the public. In the social-welfare track, government agencies themselves developed, ran, and managed public housing for low-income Americans. When housing secretary Robert Weaver initiated a private-sector social housing program, he circumscribed the participation of for-profit companies in favor of nonprofit groups. For their part, housing-industry trade associations championed the FHA and Fannie Mae and harshly rejected government-subsidized social housing, particularly public housing. The dramatic events in the mid- and late-1960s, particularly the inner-city riots, upset previous patterns and made new policies possible, creating what political scientists have termed a critical juncture.111 Convinced that ghetto environments helped cause the urban crisis, political leaders made social housing a national priority and set mammoth goals for residential construction. But they felt that the New Deal-era program, public housing, was too beset by problems to be the main vehicle for rebuilding the ghettos. Meanwhile, a number of trends—including underdevelopment theory, the success of well-known corporations, and businesspeople’s increasing interest in social problems—spread the idea that private enterprise could solve urban problems. LBJ now trumpeted the idea of public-private partnership as an innovative response to the crisis. Events and shared beliefs, however, only set the stage for change. In this period of flux, individual leaders decided the precise nature of the housing programs in the 1968 act. President Johnson created the mandate for a tremendous private-sector effort and, with his White House staff, fostered the new legislation. The president entrusted the details of the legislation to his business-dominated special commission, HUD, and, to a lesser extent, Congressional leaders. NAHB leaders, particularly the strong-willed Leon Weiner, worked with all three bodies to make the bill acceptable to the home builders. Political scientists have posited that during periods of change, policy makers choose a particular 111. Giovanni Capoccia and R. Daniel Kelemen “The Study of Critical Junctures: Theory, Narrative, and Counterfactuals,” World Politics 59, no. 3 (April 2007): 341– 69; Pierson, Politics in Time, 53–55, 66– 70, 135, passim; Mahoney, “Path Dependence in Historical Sociology,” 513; Ruth Berins Collier and David Collier, Shaping the Political Arena (Princeton, NJ: Princeton University Press, 1991).

approach among other possible arrangements. To carry the main burden of new production, the authors of the 1968 bill bypassed a number of alternative approaches, including not only public housing but also a nonprofit method of promoting lowincome home ownership. Instead, they chose three industry-oriented programs. For the bill’s authors, the key question was not whether, but which kind of for-profit companies—large corporations or small businesses—could mass-produce low-income housing. Furthermore, the bill’s authors blunted interestgroup opposition by adding the new policy approaches without eliminating the old and, in fact, handsomely funding them. With newly authorized funds flowing into their programs, the supporters of public housing, Rent Supplements, and Model Cities had little motive to fight the subsidies for private-enterprise to produce low-income housing, even if they cared to. And because the public housing program had been unproductive and Model Cities was still untested, most liberals saw no harm in trying out additional housing programs keyed to a variety of private-sector agents. Once the 1968 law was put into effect, a new policy order emerged. The converging of the two tracks of housing policy placed the private sector, particularly for-profit companies, in charge of developing and managing new social housing. Trade representatives of the housing industry and investors in low-income housing joined housing reformers to form a powerful lobbying force for government-funded privately run social housing programs. Political support inside and outside government “locked in” the privatesector pro-business framework, out of which subsequent housing programs were created. Meanwhile, the idea of private-public partnerships took hold in federal and local urban policy. Hence, by encouraging nongovernment entities to implement social policy, the 1968 housing act helped build the “delegated welfare state,” particularly in the arena of lowincome housing.112 By the 1980s the sense of urban crisis had passed, and market-based neoliberalism had begun its ascent in American policy circles. Under President Reagan, opponents of large federal government programs reduced federal expenditures for social programs in the name of public-private partnerships, the opposite of what the free-spending Lyndon Johnson had intended. The privatization movement,

112. “Lock-in” is a key term for self-reinforcing factors in path dependency theory as used both in economics and political science. See, for example, William Barnes, Myles Gartland and Martin Stack, “Old Habits Die Hard: Path Dependency and Behavioral Lock-In,” Journal of Economic Issues 38, no. 2 (June 2004): 371– 77; Paul Pierson, “Increasing Returns, Path Dependence, and the Study of Politics,” American Political Science Review 94, no. 2 (June 2000): 251–67. Morgan and Campbell, The Delegated Welfare State.

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however, made little headway against the principle of public-private production of social housing, which Johnson’s bill had so firmly established and a phalanx of interest groups now protected. The 1968 Act and the American Welfare State A review of the essential elements of the policies that arose from the Housing and Community Development Act of 1968 and the general turn toward publicprivate projects in the late 1960s helps illuminate the distinctiveness of the American welfare state and the reasons for its distinctiveness. Observers have long noted that provision of social welfare in the United States took a path that diverged from the practices of European nations, including the United Kingdom. For many, American “exceptionalism” in social policy lies in a laggard provision of welfare. More recently, scholars have questioned this notion as they have begun to appraise the complex mechanisms of social-welfare delivery in the United States.113 Yet the history of the 1968 act does not conform to many of the reasons social scientists have offered to account for American exceptionalism. Traditional anti-statist and laissez-faire doctrines, two oft-cited explanations of the failure to enact social reforms, did not hinder the passage of the 1968 act’s large government housing programs, albeit ones the private sector would implement. At other times in history, the undeveloped capacity of government agencies and the fragmentation of institutional power may have held back social policy, but in the late 1960s various authorities—the president, the federal housing department, a presidential commission, and Congress—collaborated to expand social-welfare housing with strong bipartisan support. The weakness of trade unions does not explain the policy shift because at a time of relative union strength, the leaders of organized labor forcefully endorsed the 1968 law. Racial prejudice did not thwart a program that would benefit African Americans; the program was aimed at improving the lives of inner-city blacks. The fundamental assumption common to all these explanations is that conservatives foiled a social reform agenda, but in 1968 conservatives were not responsible for inserting private enterprise into social welfare policy. Rather it was liberals—liberal officials, labor leaders, and reformers—who invited businesses to join nonprofits in providing housing and urban programs subsidized by the government. They did so without abandoning their beliefs in public and nonprofit housing programs because 113. Using different lines of attack, scholars have also challenged the idea the United States is laggard in social welfare. Examples include Hacker, The Divided Welfare State; Novak, “The Myth of the ‘Weak’ American State”; Irwin Garfinkel, Lee Rainwater, and Timothy Smeeding, Wealth and Welfare States: Is America a Laggard or Leader? (Oxford, New York: Oxford University Press, 2010).

they had confidence in the ability of the private sector to deliver a high volume of social benefits. The pro-business attitude that inspired the 1968 housing law as well as public-private partnerships helped popularize the neoliberal idea that for-profit companies could deliver social welfare not only in housing but also in schools, hospitals, and social service agencies. Hence, an accommodating attitude toward business contributed to American “exceptionalism” more than many observers have realized.114 Analysis of the 1968 housing programs helps refine the concept of the “hidden welfare state” which scholars have identified as a key feature of social policy in the United States. The financing and implementing mechanisms increased the obscurity of social welfare in the U.S., but not through the tax expenditures that Howard and others have studied. Under the public housing program, the federal government appropriated funds to visible local government agencies, which created and managed easily recognizable low-income communities. In contrast, the 1968 low-income housing program subsidized interest payments on privately borrowed mortgage loans to nongovernment entities. That these nongovernment agents frequently developed stand-alone housing projects—in some cases resembling market-rate developments—made the program even less visible. Hence, the 1968 programs primarily used means other than tax expenditures, which—unlike the mortgage interest deduction—benefitted low-income—not middleclass—Americans. Eventually the U.S. did adopt a tax expenditure method, the low-income housing tax credit of 1986, which kept the housing subsidy as obscure as had the mortgage-interest-rate subsidies.115 By delegating responsibility for low-income housing to diverse types of entities, the act took an ideologically pluralistic approach, an aspect of the American welfare state that is not widely recognized. Like their European counterparts, American liberals strongly favored the idea that, along with public

114. See, for example, Seymour Martin Lipset, American Exceptionalism: A Double-Edged Sword (New York: Norton Press, 1997); Theda Skocpol, Protecting Soldiers and Mothers: The Political Origins of Social Policy in the United States (Cambridge, Mass.: Belknap/ Harvard University Press, 1992); Sven Steinmo, “Rethinking American Exceptionalism: Culture or Institutions?,” in Lawrence C. Dodd, Calvin C. Jillson, and Theodore J. Lowi, eds., The Dynamics of American Politics: Approaches and Interpretations (Boulder, CO: Westview Press, 1994), 106–31; Alberto Alesina and Edward L. Glaeser, Fighting Poverty in the US and Europe: a World of Difference (Oxford and New York: Oxford University Press, 2004); for a rebuttal to antistatism as a political force, Jill S. Quadagno and Debra Street, “Ideology and Public Policy: Antistatism in American Welfare State Transformation,” Journal of Policy History 17:1 (January 2005): 52– 71. 115. The limited-dividend companies operating under the 1968 act’s programs could claim tax advantages, which were also invisible to the public. Howard, The Hidden Welfare State; Clemens, “Lineages of the Rube Goldberg State.”


agencies, nonprofit and cooperative groups should implement social welfare programs. Hence, like many European states, beginning in the 1960s the U.S. government entrusted nonprofit organizations with responsibility for developing and managing lowincome housing projects. In the ensuing years, the nonprofit housing sector has grown in scale, scope, and efficacy; but it is still less important than in European nations, which rely heavily on nonprofit and cooperative housing organizations. In the United States liberal policy also utilized for-profit companies in social housing and public-private urban development projects. Indeed, unlike in Europe, private enterprise has developed and owned most of the social housing built in the United States since 1968. This history suggests the need for further research on the role of businesses, large and small, in the American welfare state, how and when for-profit firms have provided social welfare, and the institutional and political arrangements that supported such policies.116 Furthermore, encouraging different kinds of agents to carry out low-income housing projects incorporated redundancy into American social housing policy. To the earlier government-run scheme known as public housing, the 1968 legislation added incentives for nonprofit groups, cooperatives, and for-profit firms to develop shelter for poor citizens. As a result, in many cities in the United States, the local housing authority, nonprofit organizations, and for-profit developers have built low-income rental communities, and both nonprofit and forprofit brokers have sold single-family homes to lowincome households as well. Other sectors of the American welfare state, especially health care, have developed similar duplication and overlaps in the types of providers, which sets the United States apart from most other nations.117 Finally, the dependence on private initiative and public subsidies created highly decentralized, openended processes that have produced almost infinite variations in the implementation of housing and urban policy. Each housing development was initiated by individual developers and required its own unique financing and subsidy package; each urban public-private partnership orchestrated its

116. For the development of the nonprofit sector in social welfare policies, see Steven Rathgeb Smith and Michael Lipsky, Nonprofits for Hire: The Welfare State in the Age of Contracting (Cambridge, MA: Harvard University Press, 1993); Clemens and Doug Guthrie, eds., Politics and Partnerships. For the growth of the nonprofit sector in housing, Erickson, The Housing Policy Revolution; Katherine O. Reagan and John M. Quigley, “Federal Policy and the Rise of Nonprofit Housing Providers,” Journal of Housing Research 11, no. 2 (2000): 297– 317. 117. Morgan and Campbell, The Delegated Welfare State, describe the mixture of nonprofit and for-profit entities in social welfare programs generally, 23–25, and in the Medicare program in detail, passim.

own project with a unique set of actors. The American approach since 1968 has been a far cry from— for example—the relatively orderly systems of British housing associations and French nonprofit and cooperative HLM (Habitation a` Loyer Mode´re´) companies. To critics, the sharp differences between American social housing policy and the traditional European welfare-state seem to place the United States at a great disadvantage. Despite wide variations in programs, most European nations began with a relatively strong and often centralized state role in providing welfare benefits. European states primarily relied on visible agencies—government authorities, nonprofit housing associations, or hybrids such as municipal housing companies—to develop and run social housing projects. In contrast, American social housing policy is highly decentralized, and the agents and subsidies are relatively anonymous. The use of for-profit companies is out of tune with social welfare traditions in Europe, whether socialist or corporatist in origin. In comparison to European practices, the American way of delegating responsibilities for social housing is inefficient, expensive, and disorganized.118 However, it may be more fruitful to analyze the nature of particular interventions of the American welfare state, some scholars have observed, than to hold it up to the traditional European social welfare model. In the case reviewed here, the passage of the Housing and Community Development Act of 1968 created an unplanned and expensive housing policy. Although inefficient, however, redundancy in social policy potentially can broaden political support, provide opportunities for specialization, and—by betting on more than one horse—increase the chances of finding a viable approach to controversial goals such as low-income housing. As we have seen, the 1968 law locked in the support of political elites for social housing and spurred a vast increase in the volume of construction of low-income housing. Since the 1960s, public-private partnerships have carried out numerous projects that city governments by themselves were unable to do. And, in fact, since the 1980s many European nations have adopted market reforms that have moved their social housing policies closer to those that are in keeping with American practices.119 118. The literature on social housing in Europe is voluminous. Recent anthologies include Christine Whitehead and Kathleen Scanlon, eds. Social Housing in Europe II: A Review of Policies and Outcomes (London: London School of Economics and Political Science, 2008); Darinka Czischke and Alice Pittini, Housing Europe 2007: Review of Social, Cooperative and Public Housing in the 27 EU Member States. European Social Housing Observatory (Brussels: CECODHAS European Social Housing Observatory, 2007); European Journal of Housing Policy 4, no. 3 (December 2004). 119. Different European countries have to varying degrees decentralized policy systems and adopted private financing and/or

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These facts reveal different aspects of the American welfare state. Seen in this light, the housing and urban policies that the United States

management of social housing, private housing companies, forprofit developers’ provision of affordable housing, and lowincome home ownership including the sale of former public housing dwellings. Peter Baldwin, “Beyond Weak and Strong: Rethinking the State in Comparative Policy History,” Journal of Policy History 17, no. 1 (January 2005): 12– 33; Novak, “The Myth of the ‘Weak’ American State.”

adopted in the late-1960s appear not only anomalous and messy but also innovative, flexible, and productive.