Taking the Long Way Home: A Historic Look at Homeownership in Minnesota and the United States

By MNR News posted 06-03-2022 15:21

A house, a yard, a picket fence, and maybe a dog and a cat or two. Owning property is the foundation of the American dream. Whether you live on a small lot in Minneapolis, a sprawling estate on Lake Minnetonka, or a quiet cabin somewhere outside Brainerd, your home is the key to wealth, stability, and healthy, thriving economies and communities.

Although Minnesota has an extraordinary rate of homeownership—73% of us own our own homes, versus 65.5% nationwide—it is also home to persistent racial inequities. Only 25% of Black residents own their own home, marking the fifth worst racial homeownership gap in the nation. To understand how this uneven landscape evolved, it’s helpful to look at the history of homeownership in Minnesota, and more broadly the United States.

In the early years of the Republic, most people rented dwellings from a relatively small group of landlords. The nation’s founders saw owning property as the entry-level requirement for citizenship and voting. Those without land, they reasoned, would be too easily influenced by the landlords and employers they depended on for a living. And obtaining land was beyond the reach of anyone who could not afford to purchase it in a single cash payment.

The first major shift toward wider-spread homeownership came with the National Banking Acts of 1863 and 1864. By creating a system of national banks and a single national currency backed by the U.S. Treasury, the acts stabilized the economy at a critical time during the Civil War and paved the way for the first home mortgages.
Property ownership was also increased by the Homestead Act of 1862, which allowed white settlers to acquire 160-acre lots on formerly Native American lands by paying nominal registration fees. In Minnesota, over 75,000 people arrived within three years of the Act’s passage, displacing the indigenous Dakota as settlers spread out and built farms on the prairies. After the war, the process accelerated as the federal government opened vast new territories for mass “land grabs” in Oklahoma and other western states*.
Despite the allure of pioneer expansion, most Americans skipped catching a ride with the next Conestoga wagon-train and bought property closer to home via bank loans. By the 1890s, mortgages were growing in popularity, allowing almost 48% of Americans to purchase their own homes. Still, their terms were steep. The typical mortgage required a 50% downpayment and had to be repaid in just five years. Worse, borrowers had to make monthly, interest-only payments until the end of the term when they were obligated to pay off the principle in one lump sum. Despite the disadvantages, these mortgages opened homeownership to more people than ever before.
As the Great Depression took hold in the early 1930s, banks and borrowers ran out of cash, and droves of homeowners defaulted on their loans. At the height of the Depression, 10% of the nation’s homes were in foreclosure. To address the crisis, the Roosevelt Administration created three critical institutions: the Homeowner’s Loan Corporation in 1933; the Federal Housing Administration in 1934; and the Federal National Mortgage Association in 1938. This set the stage for the creation of borrower-friendly 15-year mortgages. Unlike their predecessors, payments on these loans went toward both principal and interest. That meant they were entirely paid off—or amortized—by the end of the term.
Tragically, as affordable mortgages were made available to more people than ever before, Blacks and other minorities were deliberately excluded from opportunities for homeownership. With the practice of redlining, the federal government used color-coded maps to identify “low-risk” neighborhoods that were worthy of government-insured mortgages, and “high-risk” neighborhoods that were not. Areas where property values were expected to decline were marked in red. Invariably, these underserved neighborhoods were home to a majority of Black residents. In the Twin Cities, many Black people had been steered into these neighborhoods for decades through restrictive racial covenants that forbade them from purchasing property in majority white neighborhoods†. By segregating them to poor, often run-down areas, the stage was set for generations of racial and economic inequity.
After World War II, hundreds of thousands of soldiers returned to civilian life, got married, and started raising families. Their need for homes accelerated the suburban building boom. To make obtaining a mortgage even more accessible, Congress authorized 30-year mortgages in 1948. This, combined with subsidized mortgages via the G.I. Bill, fueled the exponential growth of Minnesota communities across the state. By 1950, the national rate of homeownership had increased to 55%, and would build steadily with each passing decade.
Superficially, today’s housing market resembles the post-World-War-II boom era. Demand is high, and loans are relatively cheap (even with rising interest rates). The big difference is that existing inventory is chronically low, and builders can’t produce new homes to meet the state’s growing appetite. There are multiple factors at play. Shortages of both material and labor push construction costs high. Plus, state, county, and local regulations make it difficult—if not impossible—to build the low-cost, high-density homes that were a fixture of post-war suburbs like St. Louis Park, Golden Valley, and Edina.
On the legislative side, MNR’s Government Affairs team has been working at the Capitol to craft policies that will stimulate the production of affordable homes. This includes encouraging zoning laws that allow for denser housing and reevaluating regulations and building codes that add to the cost of construction. Additionally, bills like the “First-Generation Homebuyer Down Payment Assistance Fund” would help reduce Minnesota’s racial homeownership gap by creating a statewide, down payment assistance fund for homebuyers with limited savings.
Although many challenges remain, the long arc of history has swung toward ever wider homeownership. By working together, Realtors®, business leaders, legislators, and ordinary citizens can build a brighter future where every Minnesotan who wants a home can own one.
*Learn more by reading MNR’s book review of Land: How the Hunger for Ownership Shaped the Modern World.
†To learn more, watch Jim Crow of the North, from Twin Cities Public Television.