Owning a Piece of America

0:01My parents own a home. I'm a homeowner. My sisters are homeowners. Land ownership was just something that we understood was part of the American dream for us. For over 100 years, the U.S. government has helped everyday people pursue homeownership. It is this awesome challenge. But now this core part of the American dream is starting to feel more like a fantasy. And many people wonder if their own kids will have the same shot. When I close my eyes, I want to know that he has his own home. As an affordability crisis plagues the housing market, can the federal government once again put homeownership within reach?

0:46It's Sunday, June 28th. I'm Imani Moise for The Wall Street Journal. This is USA 250, a podcast series connecting America's economic present to its past. This is the fifth and final episode, Owning a Piece of America. Now know we that there is therefore granted by the United States unto the said Peter Clark the track of land above described. That's Bernice Bennett. She's reading a deed from 1896 signed by President Grover Cleveland, bestowing 159.33 acres of land in Louisiana to her great-great-grandfather, Peter Clark, who just years before was enslaved. I had chills when I opened it and I saw his name, his age, and understood that, wait a minute, he went through this process and he acquired that land.

1:48It's just told me that this man born enslaved was definitely determined to own land. Peter acquired the land at the ripe age of 38 through the Homestead Act of 1862, which granted citizens, or wannabe citizens of the United States, 160 acres of federal land for a small fee. You have a receipt because he had to pay money,$18. The catch? You had to farm that land for five years. They called it proving up. At the time, Home and Landownership was an exclusive club, made up almost entirely of wealthy white men. But that was about to change. Just about anyone could make a claim under the Homestead Act of 1862, as long as they hadn't taken up arms against the U.S.

2:41People came from all over, by ship, by train, by horse and buggy. There were men, single women, and even Black Americans recently freed from slavery. One historian has called it the most comprehensive form of wealth redistribution that has ever taken place in America. It helped support the notion that poor people could, if they worked hard, could rise in society. That's Rick Edwards, the director emeritus of the Center for Great Plains Studies at the University of Nebraska. Before Americans ever dreamed of owning a home, the key to building wealth in this country was through land. Well, in a farming society, the biggest asset you had was the land you owned or rented.

3:29And so the idea that if you move to this new area, you could get land for free was a bonanza. Edwards says about three million people tried their hand at homesteading, including tens of thousands of Black Americans like Peter Clark. And so it's the first piece of national legislation that did not restrict its benefits to white people. But that's not all. Hundreds of thousands of immigrants and single women heeded the government's call to the West. In fact, it was a really beneficial law to immigrants. It encouraged immigration. That's Jacob Freefeld, director of the Center for Lincoln Studies at the University of Illinois Springfield.

4:16He's also kind of like Edward's protege. And together, they've literally written the book on homesteading. And another thing you get is women claiming land too. It's progressive in that way, that women are allowed to claim land in their own name. But as egalitarian as the act was, it was only made possible through dispossession. Before America's homesteaders could settle the prairies, tens of thousands of Native Americans were pushed out. Success wasn't guaranteed either. Homesteaders arrived on a treeless prairie in the Great Plains. The only way to build a home was to quite literally dig up the ground beneath you and make heavy bricks out of dirt, grass, and roots.

4:57Sometimes people complain that snakes would come in and out of the walls because you're building your house out of their home, essentially. Homesteaders also had to answer to Mother Nature. One family from North Dakota spent three years building up a prosperous farm. But in one day, a fire tore through the prairie, burning their home, their barn, their livestock, and all of their crops. And again, this was the early 20th century. They couldn't just call State Farm. Of course they had no insurance. There was not a practice of having insurance at that point. And so after three years of very hard work building their farm, they had to start all over again.

5:40And banks were no help either. To get a loan, you needed a deed. And you couldn't get that deed until after you proved up. That was the thing about the Homestead Act. The government gave away this wild land, but it didn't help you tame it. Homesteaders joked that the government bet you 160 acres that you wouldn't last five years. And more than a million people couldn't hack it. People like Solomon Butcher, a photographer from Lincoln, Nebraska. He lasted two weeks. After two weeks, he said it was too hot, too buggy and too dirty. And so he returned to Lincoln and took up his photography business again.

6:21Thank goodness, because he gave us some of the most wonderful, penetrating photographs of homesteaders in the 1880s. The photos are incredible. They're black and white, but they paint a vibrant picture of prairie life. They're mostly taken outside, away from the homesteaders' dirt homes. One woman who was from Boston had her men carry out her organ into the pasture in front of the house so that people back in Boston could see that she still was somebody with culture. So here are people who are striving to create a new future for themselves. And what we find is that they're very proud of the accomplishments they have made.

7:08They don't look like people who are downcast and depressed. They look like, hey, look at us. Look at what we have. Bernice Bennett thinks her great-great-grandfather would have felt the same way. Ownership was important. I think economically, spiritually, it made it a part of what the family dialogue would be, that you need to own it, don't rent it, if you can, own it. Freefeld and Edwards say that of the 3 million people who staked a claim, more than half eventually owned land outright. And their descendants are now in the tens of millions. I think the idea that this incredibly important social policy touched not just so many Americans in the 19th century, but gave opportunity to perhaps 90 million Americans to the present.

8:06I think it's just an awesome legacy that I think is often overlooked when we talk about American history. The Homestead Act was instrumental in developing the West and giving many poor people a shot at a better life. But still, by the turn of the 20th century, the U.S. was a country of renters. When we come back, how the U.S. finally transformed into a society of owners. This podcast is brought to you by Atlassian Rovo, the AI that takes your team from AI novice to AI native. Using AI at work shouldn't feel like extra work. Rovo works inside the tools you already use, like Jira and Confluence.

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9:12For the first four decades of the 20th century, the homeownership rate in the U.S. never topped 50%. But that all changed after World War II. When the war ended in 1945, millions of soldiers returned to the U.S. He returns with a new sense of responsibility, of initiative, with new skills acquired, with old skills sharpened. And they needed somewhere to live. It just sort of lit a match, and the housing market just took off. Ben Eisen runs the Personal Finance Bureau at the Wall Street Journal. And he's actually in the midst of writing a book about the rise of the American mortgage market. You had these people who were starting families.

9:56They needed bigger homes. They didn't even have homes. Some of the descriptions of what it was like for these GIs returning home at the time, they were living in church basements and chicken coops. There was just such a demand for housing that they couldn't build fast enough. Enter home builder William Levitt, better known as Bill. What we've come out with is something new in city planning. Born in Brooklyn, Bill was a total character. He stood 5 '8", but told everybody he was nearly 6 feet tall. CNBC didn't exist at this time, but if it existed, he would be on it like every single day, shouting from the mountaintops and talking about the economy and talking about his business.

10:38That's just who he was. Bill took over his dad's construction business with his brother Alfred. And the two sons were ambitious. They bought thousands of acres of cheap, untouched land in what would become America's suburbs. Today at the eastern extremity of the state of Pennsylvania, a remarkable construction project is transforming the face of the countryside. You had people like William Levitt figuring out how to mass-produce housing on an incredible scale. That's Ed Glazer, an economics professor at Harvard University. This combination of the availability of extra land due to the automobile with the manufacturing genius taking techniques that Henry Ford had put in his moving assembly lines and then bringing them to housing construction, the sort of method where the plumbers and the carpenters would just go up and down a street, adding their little bit to each house as they went.

11:30That was sort of an amazing period in terms of post-war America, of just making ordinary housing available to mid-income Americans. The houses in these Levittowns were not like today's McMansions. They were tiny, about 750 square feet, and cookie cutter, mass-produced in just 27 steps. The four models vary slightly in overall design. But each has the same number of rooms. Two bedrooms, a large living room, part of which can be converted into a third bedroom. They cost about$7 ,000 in 1948, which is about$92 ,000 today. Even back then, this was an incredible deal. Overall, Levitt & Sons built more than 140 ,000 of these homes, making it the nation's largest developer in the 1950s and 60s.

12:20Not one to be humble, Levitt called his company the general motors of the housing industry. But how did he do it? With the backing of Uncle Sam. Here's Bill Levitt in his own words. You know, ours is the only business in the world that has every single branch of government as a partner. And I mean every branch, federal, state, county, and municipal. One of the big ways the federal government helped was by guaranteeing mortgages. Real estate is a very speculative industry, right? That's Wall Street Journal editor Ben Eisen again. You enter into a multi-year project not knowing if there's going to be demand at the end of the line or if you're going to recoup your money.

13:02But the risk to the project went down so tremendously when they already had pre-approval to sell these homes with FHA mortgages attached to them. To rewind a bit, FHA mortgages came out of the Great Depression when the economy and the housing market cratered. To stop the bleeding, the government created the FHA, or the Federal Housing Administration, to stabilize the mortgage market. It's hard to express just how unprecedented this was. Before 1929, the federal government wasn't really involved in housing finance. What you had was a very regional, piecemeal kind of market where the products looked very different in all different parts of the country.

13:45the interest rate in one place might be two percentage points different than somewhere else. A lot of people took out short-term loans, where they only paid interest, meaning the entire principal was due in one lump sum when the mortgage term ended. If you weren't flush with cash or couldn't refinance, you were sunk. What prevailed at that point were mortgages which were known as balloon mortgages or, even more descriptively, bullet mortgages. That's Susan Wachter, a real estate professor at the Wharton School. She says when the government got into housing, they effectively guaranteed the whole system, introducing and backing long-term fixed-rate mortgages with payments that covered interest and a portion of the original debt.

14:30The entire housing finance system was reinvented at that point. And it was reinvented in a way to make it safer, more sustainable, and also, and this is key, more affordable. And by the time Levitt came along, millions of Americans could access the new 30-year mortgage we all know today, a product as American as apple pie. The American mortgage is a unique mortgage. It's unique in several ways. First, it has a rate that stays the same over the life of the loan, not just two or three years. Most other countries, the rate changes with interest rates in the overall economy. Without this protection, American homeowners can suddenly find themselves paying hundreds of dollars more each month if interest rates rise.

15:19What also makes the American mortgage unique is that it can be prepaid. So while there's no threat of interest rates going up, if interest rates fall, borrowers can refinance pretty inexpensively. Another big difference in the United States is most mortgages are non-recourse, meaning in the very worst case, you only lose your home if you can't make payments. But in many countries, in fact, in most countries, even if you lose your home because you can't pay back your mortgage, if there's anything outstanding, and usually there is, then your wages get garnished. So this is something which is very important to U.S.

16:04economic democracy, the ability to start over. Between 1940 and 1960, the country's homeownership rate grew nearly 20 percentage points, thanks in large part to these affordable mortgages. But not everybody enjoyed this post-war housing boom. When the government got involved in guaranteeing mortgages, it needed a way to standardize lending. So it created color-coded maps. Green often meant good to go. Same with blue. Yellow was a little more suspect. But red? Red meant risky. If you were in those areas, you'd have a hard time getting a loan. Today, we call this redlining. And we know that most urban Black neighborhoods fell into this red bucket, meaning that Black people were effectively cut off from credit, a key way to build wealth.

16:54And on top of that, Levitt's early deeds barred non-white people from living in his developments. And that was a nightmarish component of the American dream because not everyone could move to these newly inexpensive, affordable, beautiful suburbs where you could commute to your job, short commute, and bring you up your children with a yard and with no threat to your life. your future living. Instead of buying in Levittowns, Black Americans bought where they could, in cities, as white Americans left for the new suburbs in droves. By the early 1980s, nearly two-thirds of Americans owned their homes.

17:39And by 2004, we hit a peak, 69%. Then, it all came crashing down. So what went wrong, and where do we go from here? That's after the break.

18:02Remember Peter Clark's great-great-granddaughter, Bernice Bennett? She is my one and only mother. That's her son, Dwight Bennett. Bernice believes she owns her home today because of her ancestors' early shot at ownership. But Dwight has grown up in a different era. So I'm 51 years old and I do intend to work well past 67, but a 30-year mortgage, I don't intend to work until my 80s to pay off the mortgage. So that now makes me rethink the possibility of even purchasing a home. The White's not alone. Last year, the share of first-time homebuyers was just 21 percent, a historic low. And the average age hit a record high of 40.

18:56So how do we get here? An ownership society is a compassionate society. In 2002, President George W. Bush set out an aggressive agenda to create millions of new homeowners. Achieving a goal is going to require some good policies out of Washington. and it's going to require a strong commitment from those of you involved in the housing industry. Everyone jumped in. Builders ramped up new construction, investors gobbled up securities backed by mortgages, and lenders raced to feed the machine. But instead of offering the safe, government-backed 30-year fixed mortgage, more lenders started hawking the modern-day equivalent of bullet mortgages.

19:37Adjustable rates, one - to two-year terms, interest only, and ballooning principles. One by one, we destroyed these sustainable factors, and we were back to the bullet loans of the Great Depression. Susan Walker from the Wharton School again. They transformed the American mortgage from a safe, sustainable instrument to a toxic, risky instrument, not only to the borrowers, but to the overall economy. These, let's say, creative mortgages worked fine as long as home prices went up. But when prices began to fall, well, we remember what happened. The American financial system is rocked to its foundation.

20:20What happened was the lending was so loose. The increase in people with high-risk mortgages, and now this week, the record number of foreclosures... 12 million households now owe more than their homes are worth. The crash didn't just wipe out homeowners. It devastated home builders, too. Half of developers disappeared in the wake of the Great Recession. Here's Ed Glazer again. One way to think about this is if America was building at the same rate between 2000 and 2020 that we did between 1980 and 2000, America would have 15 million more housing units. Glazer says that we just haven't built enough units since 2008.

20:56And homeowners who locked in rock-bottom rates during COVID are reluctant to sell. You see the combination of high prices and high mortgage rates, which makes things pretty brutal for anyone who wants to buy in. In fact, the median home price last year was nearly five times the median household income. Three times is considered affordable. It's at a point where almost everyone agrees that the housing market is broken. Younger Americans don't feel like they've got a great stake in the system. President Trump has floated the idea of a 50-year mortgage to help lower monthly payments. But experts say financial engineering alone won't solve a supply problem.

21:36Economists are able to differentiate demand shocks from supply shocks by looking at the combination of prices and quantities. And what we know in housing is that prices are way up and the quantity built is way down. And that's not compatible with any demand side story. That's compatible only with a supply side story. This past week, the president delayed signing the government's most ambitious housing legislation since the 80s. In a rare moment of unity, Democrats and Republicans had come together to tackle the inventory issue. by easing federal regulations and incentivizing local governments to increase home building.

22:12What's stopping us from building like William Levitt again? Well, it's almost impossible to imagine what community is going to let you do that. Glazer says today's neighborhoods have essentially closed their doors to newcomers. Over time, housing morphs from being like an electric toaster, which you just spit out of the factory whenever you need it, to being like a Rembrandt, like a precious object that no one's making any more of it. We've got to become a country for outsiders again, not just a country in which insiders get to freeze the community at exactly the level that they want when they bought it.

22:48Until those barriers are removed, it's unlikely people like Dwight Bennett, the great-great-great-grandson of homesteader Peter Clark, will get homes of their own. I think what I probably did is move back to my parents' place. And that will be my home. So the home of my childhood, that will be the home that I end my life in. I'll use my cash to help my daughter buy her first home with her family. Like many American families, the Bennetts view homeownership as something more than just a place to live. It's always meant, you know, that you've achieved part of the American dream. And it's unlikely that I'll have that experience.

23:56And that's it for this special edition of What's New Sunday for June 28th. USA 250, Owning a Piece of America, was produced by Alexis Green with supervising producer Jenna Heron. Additional support from Chris Sinsley. Sound design and mixing by Michael LaValle. Fact-checking by Aparna Nathan. Special thanks to Angela Bates, a descendant of America's original homesteaders. Michael LaValle also wrote our theme music. Aisha Al-Muslim is our development producer. And Chris Dinsley is our deputy editor. I'm Imani Moiz, and that completes our USA 250 podcast series. Links to previous installments are in the show notes.

24:35What's News will be back with a new episode tomorrow morning. Thanks for listening. In moments of seismic change, through crisis and transformation, it is our real-world experience that delivers. FTI Consulting. Experts with impact.