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Community Capitalism: How Housing Advocates, the Private Sector, and Government Forged New Low-Income Housing Policy, 1968-1996
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Journal of Policy History 18.2 (2006) 167-204

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Community Capitalism:

How Housing Advocates, the Private Sector, and Government Forged New Low-Income Housing Policy, 1968–1996

The commonly accepted story about the U.S. welfare state is that it developed between the 1930s and the late 1960s and then suffered a series of policy and political setbacks during the 1970s, which triggered a political backlash. Conservative politicians from Richard Nixon to Ronald Reagan successfully harnessed white middle-class anger over government programs in order to roll back the welfare state. At first glance, the fate of federal programs that subsidize apartments for low-income tenants confirms this narrative: the federal government created housing programs during the New Deal; it added to them significantly during the 1960s. In the late 1960s and 1970s, bad press, conservative attacks, and policy mistakes triggered cutbacks in the 1980s.

The problem with this story is that you might have trouble hearing it over the din of construction of more than one million federally subsidized apartments for low-income tenants that were built in the 1980s and early 1990s.1 These units were built primarily by for-profit and nonprofit housing developers and funded largely with tax credits and federal block grants.2 The number of subsidized apartments was still only a fraction of the need, but by the late 1990s there were as many homes built under new government housing programs (post-1986) as there were subsidized apartments surviving from all the previous periods of government building [End Page 167] (1937–86).3 To be sure, these units were not targeted to tenants who were as poor as those in projects built during the Great Society, but to the working poor—tenants who earned less than 50 or 60 percent of their area's median income. Even so, this program managed to serve tenants who were poorer than the statutes required. A 1997 General Accounting Office (GAO) report that surveyed projects built with funding from the 1986 Low-Income Housing Tax Credit program, one of the new programs for subsidizing low-income housing, found that three-quarters of the households earned less than 50 percent of their area's median income.4

This article will trace the history of how the federal government began to use decentralized funding tools to finance local networks of nonprofits and private businesses to build housing for low-income tenants. This transformation took place over three distinct periods: (1) the rise and fall of federal bureaucracies, 1964–80, (2) federal cutbacks 1980–86, and (3) the decentralized funding era, 1986–96. The article ends in 1996, when the decentralized funding programs overwhelmed critics on Capitol Hill and established the policy era we are still in, where decentralized federal funds (block grants and tax credits) fund a network of for-profit and nonprofit affordable home builders. This shift in approach had its strengths and weaknesses; it also had significant consequences for understanding the evolution of the American welfare state. One of the most enigmatic changes was that the welfare state became less transparent, lost in a confusion of public-private partnerships and back-door financing techniques.

The History of Federal Housing Programs

Despite the lofty rhetoric of housing programs like the Housing Act of 1949, which promised "a decent home for every American," the federal government never financed many low-income units. In fact, in some years, it destroyed more units than it built. Before the creation of the Department of Housing and Urban Development in 1965, the peak annual production of affordable housing through the public housing program was 71,000 units in 1951.5 During the Great Society the numbers skyrocketed for a four-year period (see the chart below).6

Richard Nixon imposed a moratorium on new construction in 1973. HUD had one more burst of building during the Carter administration, but since then the number of units built has remained low.

Beginning in the mid-1980s, three funding programs began to subsidize...