UC Berkeley

This dissertation seeks to explain gaps in federal housing policy and the loss of public capacity in housing and urban development since the 1970s amid growing unmet need for affordable housing. The key questions I ask are: What are the institutional constraints on federal housing policy in the United States? How have changes in politics and institutions associated with financialization contributed to the loss of public capacity in housing and urban development since the 1970s? Based on analysis of administrative, legislative, and real estate industry archives and the secondary literature on housing markets, I argue that federal housing policy shifted from supply to demand-side strategies following changes in the dominant housing policy coalition from a liberal-builder to a financialized policy coalition. The financialized policy coalition provided a weaker basis for aligning private interests with public goals, linking economic and social policy, or otherwise expanding federal housing provision for groups left out.

The weak federal response to affordable housing was not preordained. The New Deal provided a rationale for federal intervention in housing markets based on market-failure in low-cost housing production. Following World War II, liberal policymakers, labor, and housing advocates advocated for expanding federal housing supports to low-and moderate-income households through direct federal loans for moderate-income cooperative and rental housing. In the 1960s and early 1970s, a liberal-builder coalition comprised of liberal policymakers, home builders, labor, mayors, and local officials advocated for expanded federal credit and subsidies for developers to build low-cost housing and tools, incentives, and support for local governments to facilitate the development of low-cost housing, mitigate urban inequality, and promote balanced development. If federal policy initiatives to develop affordable alternatives to commercial housing production for low- and moderate-income households and build on longstanding partnerships with the homebuilding industry and local governments to advance federal policy goals had found lasting success, they could have preserved a federal role in housing production and provided tools to address affordable housing and urban inequality today.

Federal policymakers, with the backing of the liberal-builder coalition, expanded federally subsidized housing production and federal urban aid in the 1960s and early 1970s. However, the federal government’s key partners—home builders and mayors— thwarted federal policy initiatives to overcome weak oversight mechanisms and rationalize the allocation of federally subsidized housing and federal urban aid because their market and political strategies reflected and reinforced their primary priorities in subdivision development and the commercial redevelopment of central cities, respectively. Moreover, at key moments, segments of the real estate industry whose interests were threatened by production-oriented housing policy, such as Realtors, and proponents of conservative macroeconomic policy, including the Federal Reserve, blocked the development of new credit facilities and subsidies for moderate income housing, further marginalizing racial minorities and the poor by restricting the development of alternatives to subdivision development on the urban fringe and commercial redevelopment of the urban cores that had excluded and displaced marginalized groups.

Beginning in the 1970s, however, the liberal-builder coalition’s capacity to influence policy declined as the economic conditions it depended upon crumbled and the institutional locus of federal credit support shifted from Congress and federal housing agencies to large financial institutions, the government-sponsored enterprises, and the Federal Reserve. In response to political gridlock over how to respond to economic and mortgage market cries, federal policymakers adopted market-stabilizing policies that expanded passive federal support for the mortgage market. The housing finance and real estate industries adapted to new opportunities and challenges associated with financialization, financial volatility, and deteriorating affordability by consolidating and offering more segmented products.

In the 1980s and 1990s, a financialized policy coalition replaced the liberal-builder coalition as the dominant housing policy coalition. The financialized policy coalition preserved a federal role in mortgage markets and sanctioned federal low-income housing programs, but it cemented a shift away from production-oriented federal policy. A new policy consensus prescribed a dual federal role in meeting the needs of low-and-moderate-income households through credit and subsidizing housing for the poor at prevailing market rates. However, the new nexus of finance and real estate aligned interest-rate sensitive finance and real estate interests behind restrictive fiscal policy to balance their prioritization of liberal monetary policy. Consequently, in the 1990s and 2000s, a new, more diverse generation of first-time home buyers faced more barriers and a less affordable housing market than previous generations and federal subsidies have not scaled with the need for them among either low-and-moderate income households or the poor, perpetuating inequality in homeownership, housing attainment, and economic security.