FHA and Segregation in St. Louis
I want to start off by saying that I believe the United States is an amazing place to live. After traveling to 10 different countries in Europe, North America, and the Middle East, I think the US is actually one of the least prejudice places I have been in the world. However, we do have a history of institutionalized racism, and I think it is important to remind ourselves of this from time to time. In fact, even after years of studying this, I’m still amazed at information I find. Looking at our history is important to understand why our region looks the way it does and plan for a stronger future. The implications of public policy decisions in the past affect all people in St. Louis. Public Policies have particularly influenced housing decisions greatly, and were as much or more a reason for flight from cities as the racial motivations that many attribute to this phenomenon. So I’ll explain briefly why I think government policy made moving to the suburbs financially appealing, and how this was racially motivated, but even non-racist people would have been induced to move.
The reason this is so important, is that many people claim that the suburbanization of America was a result of personal choice, and therefore unavoidable and “just the way it is.” However, this is not true, the federal government clearly influenced this phenomenon, as explained in City Politics: Private Power and Public Policy by Dennis R. Judd and Todd Swanstrom were the data for this post comes from unless otherwise noted. The housing market in the United States prior to 1934 was basically completely market driven, banks in essence loaned money to consumers and typically charged high down payments, often 30%-50%, and had short amortization terms, often 6-10 years. FHA insurance insured loans given by banks that followed certain criteria and allowed consumers to use 20% down payment and amortize the loan over 25 or 30 years. This program overwhelmingly benefited the suburbs, between 1935 and 1975 over 75% of the of the FHA insured mortgages insured new housing. About 33% of all homes bought in the 1950’s were VA or FHA insured. You may say, so just because people moved to suburbs with their loans, doesn’t mean there was anything malicious going on? Well Examine this excerpt from the 1938 FHA underwriting manual:
“Areas surrounding a location are [to be] investigated to determine whether incompatible racial and social groups are present, for the purpose of making a prediction regarding the probability of the location being invaded by such groups. If a neighborhood is to retain stability, it is necessary that properties shall continue to be occupied by the same social and racial classes. A change in social or racial occupancy generally contributes to instability and a decline in values.”
Notice the word “invaded”, if certain incompatible groups move into a white area it is considered an invasion by the FHA. Here are the definitions of invade from Websters Dictionary online:
1: to enter for conquest or plunder
2: to encroach upon : infringe
3 a: to spread over or into as if invading : permeate <doubts invade his mind> b: to affect injuriously and progressively <gangrene invades healthy tissue>
Is it really fair to say that when someone moves into a neighborhood, they are invading. So far none of this really shocked me, what shocked me was the ranking of favorable races that was submitted by Homer Hoyt in 1933 when he was an FHA advisor advisor. He later became the principal housing economist for the FHA from 1934-1940 which obviously includes the period when the 1938 underwriting manual was written. In his report Hoyt said:
“While the ranking may be scientifically wrong from the standpoint of inherent racial characteristics, it registers an opinion or prejudice that is reflected in land values; it is the ranking of races and nationalities with respect to their beneficial effect upon land values; Those having the most favorable effect come first in the list and those exerting the most detrimental effect appear last:
1. English, Germans, Scotch, Irish, Scandinavians
2. North Italians
3. Bohemians or Czechoslovakians
4. Poles
5. Lithuanians
6. Greeks
7. Russian Jews of lower class
8. South Italians
9. Negroes
10. Mexicans”
Apparently, which part of Italy you come from matters, probably because those from the south have darker skin color. I think the above information is substantial evidence that the federal government intentionally promoted segregation and provided “favorable” groups with much more favorable financing which allowed these people to greatly benefit from the greatest engine of wealth building for the average American, home equity.
