The New Deal Strikes Again  
By Martin Harris

You read a lot about failed nation-states these days –e.g., the argument that there’s not a country in Africa which "works", as measured by fairly low-level First World 20th century expectations— but you don’t read a lot about failed cities within the US. Maybe that’s because no one drawing a paycheck in the domestic "future-of-urbanism" business wants to admit to failure. There’s an exception which, you might say, proves the rule: the city of New Haven, Connecticut, as described in the pages of  "City: The End of Urbanism" by Douglas Rae.

In some 500 pages of charts and text he documents the founding, rise to pre-eminence, decline, and near-collapse of  a place which started out as eight squares of buildings around a central common in a 17th century wilderness; rose to regional industrial dominance in the late 19th century; and by the 1920’s was beginning to experience serious flight of exactly those middle- and upper-class populations without which urban centers can survive only by constant outside subsidy.

Rae is a member of the professoriat of Yale University, which was a minor contributor to New Haven’s rise from minor ag-service and colony-governance center to major manufacturing complex during the first three centuries of its history. Now, all that manufacturing industry is gone, Yale is by default the city’s single largest employer and (intellectual) wealth-creator, and he writes with typical academic urban-advocate nostalgia and admiration for what he calls a "sidewalk republic", in which wage-earning factory workers walked back and forth to and from their mill jobs, there were tiny little A&P grocery stores (most in the 1000 SF size range) ever few blocks in residential neighborhoods of fairly-tightly packed single- and multi-family housing, and the locals embraced their fraternal organizations, churches, and neighborhood parks for Saturday afternoon outings. His fake nostalgia wasn’t shared by the folks who actually lived in that environment. They fled it as soon as they could, starting with the first street-car lines to the less-densely-developed suburbs starting in the 1890’s. All the quotes below are from his book, which focuses on the city’s decline. He blames it on the feds.

"In New Haven’s case, three episodes of deliberate federal intervention stand out in scale, in drama, and in impact on the governance of the city. The first, dating to FDR’s New Deal, was the Home Owners’ Loan Corporation (HOLC). This agency, intended to reduce mortgage failure rates nationally [during the Great Depression ‘30’s], conducted detailed housing market studies across the country, especially in and around important cities. The effect was to send a powerful signal to bankers, that the city’s historical neighborhoods were high-risk places, from which a prudent investor would withhold credit for the purchase, renovation, or repair of housing". Second and third were subsequent forays into low-income housing construction and urban renewal.

The HOLC survey of New Haven housing used nationwide A, B, C, and D grades to evaluate structural condition and neighborhood quality, and these letter grades were color-coded green, blue, yellow, and red. "Not one inch of working-class neighborhood in 1913 won high praise [an A or B] from HOLC in 1937", he writes. In contrast, "Typical of the top suburban locations would be a section of Spring Glen, in Hamden, just north of the city. The HOLC report certifies the entire absence of Negroes, foreign-born, and relief families in this neighborhood of business and professional residents".   Rae continues: "One inclusion in the C grade is the lower Livingston Street neighborhood, then as now an important residential area for Yale staff, including myself at this writing…HOLC reports absolutely no black families living in any of the 11 C-grade neighborhoods…any acknowledgment of blacks in a neighborhood almost automatically placed it in category D, which put the red in redline". He goes on to describe the credit and lending implications, describing HOLC’s area D-5 of frame tenements and multi-family homes (which he idealizes in his "sidewalk republic" look-back) "this was a neighborhood which bankers should avoid like a case of syphilis…we have the government issuing a decisive signal to banks and their loan officer: this is beyond the range of acceptable risk". With credit thus shut off by the New Deal, these neighborhoods went into slow and inevitable social and structural collapse and were bulldozed for low-income housing and urban renewal in subsequent years.

Thus, it turns out that the New Deal invented through HOLC exactly the red-lining that the Carter administration sought to end with 1977 rules ordering banks to lend to non-credit-worthy applicants under the Community Reinvestment Act, which "cure" has just imploded. It’s a one-two-three-punch: first create a problem, then a "cure" and now a "cure" for the cure, for which consecutive goofs expansive government ought to be, but won’t be, blamed. As for the original New Deal invention of red-lining: Who knew? More next week.

Martin Harris is a former Chairman of Citizens for Property Rights