National Housing Act (1955)

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National Housing Act (1955)

Ross Rosenfeldand Jeff Zavatsky

The National Housing Act (P.L. 84-345, 69 Stat. 646), also called the Capehart Act, was a New Deal measure that Congress adopted with the intent to revitalize the construction industry. The act created the Federal Housing Administration (FHA) to provide long-term, low interest mortgage rates to potential homebuyers. Congress hoped that this federal financing plan would lead to an increased demand for new and remodeled homes, thereby enabling more construction workers to find employment.


During the Roaring Twenties housing construction averaged about 900,000 units a year; in 1925 alone, the construction industry built 937,000 new units. By 1933at the heart of the Great Depressionresidential construction had dropped to 93,000 units. Moreover, individuals could not repay loans, and banks began to foreclose on homes at a rate of 1,000 units a day. The construction industry was going bankrupt. Prior to the Depression, builders and bankers aligned themselves against government intervention in the real estate industry, but with the decline of the housing market, this trend changed. Many who had at one time feared "socialization" of the field now welcomed government assistance. Between July 1933 and June 1935, the Home Owner's Loan Corporationone of the many organizations created by the Roosevelt administration to help provide financingrefinanced one in ten of the nation's owner-occupied homes, successfully coming to the aid of more than a million people.

While the Home Owner's Loan Corporation worked to rescue homes, the National Housing Act was a law that financed their construction and restoration. By preserving a low interest rate, insuring up to 80 percent of a home's value, and extending the mortgage period from three or five to up to twenty years, the FHA made home ownership possible for millions of people. By 1940 the construction workers were back on the job, building more than 500,000 new homes. Within the next forty years, the percentage of Americans owning their own homes would increase dramatically.


After Congress adopted the National Housing Act, it faced another major housing dilemma when six million G.I.s came home from World War II in 1945, followed by another four million in 1946. Hundreds of thousands of these G.I.s became homeless due to the shortage of readily available housing. Two-anda-half million new or reunited families unable to afford their own homes sought shelter with relatives. Moreover, because twenty million women, employed for the war effort, were forced to give up their jobs and resettle with the return of the men, these housing problems were compounded.

Wisely, Congress began to prepare for this situation when the end of the war came into sight in 1944. It created a mortgage guarantee program that allowed returning veterans to borrow the full value of a home without having to make a down-payment. This was part of the famed G.I. Bill of Rights, arguably one of the finest bills Congress ever passed. A veteran back from the front might have been forced to wait months or even years to get housing for himself and his baby-boom family, but with Congress's financial assistance, the construction industry was able to build more homes faster. Many families waiting for housing were intent on having a new house. In a 1945 Saturday Evening Post poll, only 14 percent of the population said that they were willing to live in an apartment or a "used house," and this preference for new homes led to a demand for more than 12.5 million new units.

The government also faced the dilemma of providing housing for a standing army. The world had changed since 1941, and it was evident that a small army would not sufficiently assure the nation's safety in the new era. The new enemy of communism had quickly taken hold in the minds of U.S. officials, and this led to a postwar, peacetime army in the late 1940s that was about seven times larger than that of the 1930s. Congress had adopted the Lanham Act of 1940 to finance the construction of homes for war workers, but these units were meant to be temporary and were not adequate for the number of individuals who needed housing.


In 1949 Congress adopted the Wherry Act, named for its sponsor, Senator Kenneth S. Wherry (R-Nebraska). The act depended on the combined efforts of the FHA and the Department of Defense. The Defense Secretary made clear which army bases would remain active, and the FHA would then offer mortgage insurance to businesses from the private sector to provide long-term, low-interest loans to army officers at the bases. The units were capped at an average of $9,000, with the FHA guaranteeing 90 percent of the mortgage ($8,100). The program was voluntary, and the officers' basic allowances would be their means to pay back the mortgages. All married, career personnel were eligible.

The Wherry program, however, had many faults. The program relied heavily on the private sector, and the FHA could not always guarantee that a project was an "acceptable risk." The projects would go to the best bidder (the one who could meet government standards at the lowest cost), and often builders would try to undercut construction by building under the cap to collect "windfall" profits. Also, as time wore on and inflation increased, the $9,000 limit became inadequate for the purpose of building homes, and Wherry homes began to look like small, unappealing bungalows.


Congress addressed these problems by replacing Wherry's program with the Capehart Act of 1955. The act, named for Republican Senator Homer Capehart, stipulated that private builders be hired out for specific projects to be done on government-owned or government-leased land. The Secretary of Defense would recommend certain sites or facilities for construction projects, and if his recommendation met with FHA approval, the FHA would furnish a loan for 100 percent of the mortgage. Bidding would take place for the contract, with the understanding that the site would be governmentnot privatelyoperated. Congress also raised the average household cap from $9,000 under the Wherry plan to $13,500.

Capehart defended his plan by noting that it would cost the government nothing. The costs of the program, he said, would be covered by "the rents that the men in the service [would] pay." Still, the plan did have its share of detractors, many of whom were uncertain that Capehart's program would be cheaper than a direct funding program. "It's just a question of whether you want to sell bonds to build houses or whether you want to sell mortgages to build them," Capehart remarked. His plan, he argued, would get houses built without any economic pinch.


Yet the Capehart strategy had its flaws too. The $13,500 limit proved too low to match the bids of private contractors, and Congress was forced to raise the limit to $16,500 with the Housing Act of 1956. Size limitations were set by the new act as well, so that builders were forced to keep within price range. A lowranking enlisted soldier was afforded a 1,080-square-foot house, while a general officer warranted 2,100 square feet. Either way, the newly constructed units were larger than the average 831-square-foot Wherry unit, but still seemed small when compared to the National Homes and Levitt & Sons units being built elsewhere in the nation. Moreover, Wherry sponsors feared, correctly, that buyers would prefer the larger Capehart units to the smaller, though less expensive units. The government eventually acquired the Wherry properties but not at fair market value. The Defense Department, meanwhile, reported that it cost an average of $2,000 to convert a Wherry unit into a Capehart unit.

The most serious condemnations of the Capehart Act came in 1960. In that year, a scandal erupted involving California developer Hal B. Hayes. Hayes, a consistent defaulter, discontinued his construction project due to liens placed on the property by his subcontractors and suppliers. Not only did the government lose money when construction projects failed, but the General Accounting Office (GAO) criticized the government for wasting government money in other ways. The GAO issued a report that criticized the program for not taking note of housing available in the communities around military bases. Nor, the report suggested, did the Capehart program take note of those soldiers who preferred private housing. Thus the government tended to overestimate housing requirements and funded more units than necessary. The report also observed that an overwhelming number of Capehart units were valued at the $16,500 ceiling, despite the fact that Congress had set such a figure only to make certain that high cost areas were coverednot to encourage construction of such valuable units across the country. The report, combined with various other controversies, helped to signal doom for the act.

Congress held hearings in 1962. One Defense Department witness testified to Congress that "neither you nor we have been satisfied with private financing, since it is the most costly method of acquiring housing and has proven difficult to administer." Senator Capehart continued to defend his plan until it was finally forfeited by Congress that year in favor of appropriated funds. In another sweeping gesture, Congress authorized 1,400 new units and appropriated funds for half that number.

Despite their flaws, both the Wherry Act and the Capehart Act successfully created thousands of units for an army in need of housing. Between the two, approximately 200,000 new housing units were constructed for the Defense Department, and another 60,000 for the army.

See also: Housing and Urban Development Act of 1965; United States Housing Act of 1937


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Bernhard, Virginia, et al. Firsthand America: A History of the United States. St. James, NY: Brandywine Press, 1998.

Burns, James MacGregor. Roosevelt: 18821940: The Lion and the Fox. San Diego, CA: Harcourt Brace & Co., 1956.

"National Housing Act." Spartacus Educational. May 2003. <<.

"Neighborhood Design Guidelines for Army Wherry and Capehart Era Family Housing." Advisory Council on Historic Preservation. May 2003. <<.

Wright, Gwendolyn. Building the Dream: A Social History of Housing in America. Cambridge, MA: MIT Press, 1981.

Levitt & Sons

Levitt & Sons, founded by Abraham Levitt, was the most important private building firm in America during the housing shortage that followed World War II. In 1929 the Levitts had begun developing residential property, largely for wealthy customers, and by the start of the war there were more than 2,500 Levitt homes in existence. During World War II the firm was contracted to build 2,400 houses for the Navy. Unlike the prewar Levitt homes, the Navy houses had to be completed quickly and at a low cost, prompting the Levitts to develop mass-production building techniques. After the war, the firm used the same techniques to build more than 17,000 homes in the first "Levittown," a planned community in Hempstead, New York, and two more Levittowns followed in New Jersey and Pennsylvania. Simply designed, the houses were built with non-union labor and incorporated cost-saving measures such as concrete slabs rather than basements. The construction process was pared to twenty-six steps, allowing as many as thirty houses to be built in a day. With help from the Federal Housing Administration and Veterans' Administration, the Levitts could offer extremely favorable credit terms to their customers. While the Levittowns were criticized for their drab, uniform appearance, many postwar families jumped at their chance to buy into the dream of suburban homeownership. In 1949, fourteen hundred contracts for Levitt homes were signed in a single day.

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National Housing Act (1955)

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National Housing Act (1955)