American Nightmare. Randal O'Toole

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СКАЧАТЬ in Chicago with relatively few modifications other than the addition of indoor plumbing if the home was not originally so built.²²

      In 1886, a Cincinnati subdivider named W. E. Harmon conceived of the idea of a “contract for deed,” in which a buyer would not receive the deed to the property until it was completely paid for. Initially, Harmon sold lots with less than a 10 percent down payment; eventually, he reduced that down payment to as little as 1 percent.²³

      Such contracts were quickly adopted by other subdividers and homebuilders. By 1889, Samuel Gross was offering to sell a $950 home with as little as $50 down followed by payments of $8 a month.²⁴ Though the loans were nonamortizing—meaning buyers faced a balloon payment every five or six years—Gross bragged that he never foreclosed on a loan, instead renegotiating new loans when needed.²⁵ Like General Motors’ encouraging auto buyers to step up from Chevrolet to Buick and Cadillac, Gross helped workers trade up to larger and better homes as their fortunes improved.

      Gross has been lauded for having “altruistic motivations” in selling homes to working-class families on such generous terms.²⁶ Yet he was no altruist, building a fortune estimated in 1895 to be $4 to $5 million.²⁷ He had merely combined several ideas into a successful business model that focused on a customer base of people who preferred to own, rather than rent, their homes.

      Credit Innovations

      A third innovation was the growth of building and loan associations (B&Ls, later known as savings and loan associations). Unlike commercial banks, which had owners and customers, the original B&Ls were cooperatives: people who opened accounts and saved money were members. Instead of investing for maximum profits, the associations worked primarily for their members, loaning them money for real estate and other purposes. The first American B&L opened in the Philadelphia area in 1831. By 1893, more than 5,500 such associations across the country had helped more than 300,000 families acquire homes.²⁸

      Building and loan associations pioneered the use of amortizing loans as early as the 1880s. Amortizing mortgages were less risky for both the buyer and the seller, and they made it possible for many families to become true homeowners instead of mortgagees more rapidly. Before 1913, national banks were not legally allowed to make real-estate loans, and from 1913 to 1934 they could lend only half the appraised value of a property for just five-year terms. Although state banks could make such loans, they relied on non-amortizing loans into the early 20th century. A few developers, such as Boston’s Robert Treat Paine, offered amortizing mortgages to homebuyers as early as the 1890s.²⁹ However, amortizing mortgages from B&Ls were “commonplace by the late nineteenth century,” and the vast majority of such mortgages before 1930 were provided by these associations.³⁰ B&Ls also loaned as much as 70 percent of the appraised value of a home, offered terms as long as 12 years, and generally charged lower interest rates than banks.

      Public Health

      Even as these innovations made housing more affordable, another innovation made it less affordable: sanitary sewers and water supplies. Clean water delivered to a kitchen or bathroom sink was arguably a private good, and private water supply companies sprang up in many American cities soon after the Revolution. By 1800, Americans had built waterworks in 17 cities, 16 of which were private; by 1830, there were 45 waterworks, 36 of which were private.³¹

      If clean water was a private good, polluted water was a public bad. Economically, a public good is one that benefits everyone even if only some pay the cost; national defense is the classic example. Conversely, a public bad is one that potentially harms everyone even if only a few are responsible for the problem.

      Poor sanitation had been the bane of cities ever since the first cities were built. Before the 19th century, many European cities had higher death rates than birth rates and were able to grow only because of people emigrating from rural areas. These problems were transmitted to the new world as soon as cities grew to a significant size and particularly when world trade expanded the range of microorganisms that were once limited to one or two countries.

      One such microorganism is cholera, which one historian called “the classic epidemic disease of the nineteenth century.”³² Before 1800, cholera was largely confined to India, but in 1817 an epidemic affected much of the Old World. An 1832 epidemic reached the New World, killing thousands of people in Chicago, Cincinnati, New York, and many other cities along the Mississippi and Ohio rivers, the Erie Canal, and the Great Lakes. At the time, most people suspected the disease was transmitted through the air; many years, and several more epidemics, were required before public health officials realized that the real problem was contaminated drinking water.

      Cholera is a bacterium that infects the human intestines, leading to serious diarrhea. Since many people obtained their water from easily contaminated rivers or wells, the disease could spread rapidly. Cholera was a particularly frightening disease because dehydration killed 50 to 60 percent of infected patients within a few hours; it was not until the 20th century that medical doctors realized that massive rehydration could reduce mortality to 1 percent.

      As early as 1842, an English social reformer named Edwin Chadwick called for replacing cesspools and privy vaults with a citywide sewage system consisting of pipes that would use household water to transmit fecal matter and other waste to a single location where it could be composted and sold as fertilizer.³³ Chadwick himself failed to understand the dangers of drinking contaminated water; instead, he believed that cholera, typhoid fever, dysentery, and other waterborne diseases were spread through “foul air,” so his goal was to move sources of contagion downwind of the cities.³⁴

      The first proof that cholera was spread by contaminated drinking water had to wait until 1854, when an English physician named John Snow found that nearly every victim of a cholera epidemic in south London lived near and drank water from a single well. The well was later found to be only three feet from a cesspool that had been contaminated by cholera.³⁵ Although Snow’s report led the city to remove the pump handle from that particular well, Snow’s theory of waterborne contamination remained controversial for many years.

      Although most American waterworks were eventually taken over by city governments, they could potentially be private and their costs, even when government owned, have largely been paid for out of user fees. From a public health view, however, voluntary user fees might be inadequate to pay for sewers; as long as anyone could refuse to pay the fee and continue to dump their wastes in a cesspool, water supplies could potentially become contaminated. Chadwick’s hope that fertilizer sales would cover the costs of a citywide sewage system was unrealistic, and the high cost of sewers combined with debates over the actual causes of diseases kept most American cities from installing universal sewage systems for several decades.

      Chicago, for example, built one of the first American municipal sewer systems dealing with human wastes in 1856.³⁶ Yet 37 years later, a survey found that nearly three out of four Chicago residents still relied on privies rather than indoor plumbing.³⁷ The reason was Chicago paid for the sewers out of user fees, and the only homes connected to the sewage system were those whose owners could afford to pay for indoor plumbing and hookup fees.³⁸ It was not until 1902 that Chicago mandated that all new homes be hooked up to sewer systems. This law exempted existing homes, and by increasing the cost of new housing, it made it more difficult for working-class families to buy a home.³⁹

      The cost of indoor plumbing fixtures and connections to city water and sewer systems could nearly double the price of a small, single-family home.⁴⁰ Mandating such hookups would price many working-class families out of the homeownership market.

      Boston took a different approach from Chicago’s. Though it did not begin to construct an integrated sewer system until after the Civil War, when it did so it paid for the capital costs out of general funds, СКАЧАТЬ