America Heads for The Suburbs

“Another Pleasant Valley Sunday, charcoal burning everywhere … Another Pleasant Valley Sunday, here in status-symbol land!” – “Pleasant Valley Sunday” – The Monkees

Visit most major cities outside the United States and one thing strikingly different about them is that the affluent generally live in the city while the poor live in the surrounding suburbs.

In America, of course, it’s the opposite. Since the 1940s, upper- and middle-class Americans have fled the city for the suburbs in droves, and although there are many reasons for this — better schools, more room, less crime — the largest single factor has been actions taken by the federal government.

One was the Home Owners Loan Corporation (HOLC), created this week (June 13) in 1933, during the Great Depression, which totally revamped home mortgage financing. Previously home loans were for no more than 10 years, which necessitated large down payments and hefty monthly mortgage payments, restricting home ownership to the wealthy. HOLC stretched loans out to 20 and even 30 years, reducing substantially both the down payments and the monthly payments. This opened up home ownership to millions more Americans.

Still, banks were cautious lenders until the Federal Housing Administration was created to insure banks against losses should a client default on a loan. With a government guarantee that they would be reimbursed should anything go wrong, banks were only too happy to make loans to millions more people. And once the federal government also passed laws allowing homeowners to deduct from their federal income taxes both their down payment and the interest on their mortgage, those millions of people were only too happy to take out the loans. This is arguably today’s greatest middle-class entitlement.

Of course, to get to the suburbs, and to get to work from the suburbs, Americans needed affordable and convenient transportation, and two additional government initiatives made this possible. The first was government investment in automobile transportation infrastructure. Chief among these initiatives was the Interstate Highway Act, passed in 1956, which constructed approximately 42,000 miles of highway. It is still America’s largest public works project ever.

The second was the government’s decision to keep gasoline prices low — relatively speaking — by keeping federal taxes on gasoline low. In 2013, on average, federal gasoline taxes were about 49 cents a gallon, which most Americans think is outrageous. Tell it to Europe’s motorists who, on average, pay around ten times what we pay in taxes for every gallon of gasoline.

Voila! The cumulative effect of these federal initiatives transformed America into the world’s first suburban nation, and today about half of America lives in suburbs. One interesting result of which is that today Americans spend more than $40 billion a year on lawn care.