American Nightmare. Randal O'Toole

a small home complete with boarders, in-home businesses, smelly foods, noisy children, and backyard livestock. Unlike today, urban neighborhoods in the 19th century tended not to be divided by income levels.

      This lack of security from working-class invaders encouraged the vast majority of middle-class urban families to rent or lease their homes in the late 19th century. Landlords in some cities offered leases for as long as 21 years, blurring the distinction between leasing and renting a home.¹⁸ Since middle-class workers had easier access to banks and other means of saving and investing their money, they did not feel the need to buy a home to use as a savings bank. As a result, working-class homeownership rates, especially among immigrants, were higher than for middle-class families.

      The 1890 census found that about 37 percent of nonfarm dwellings were owned by their occupants. However, about 40 percent of “nonfarm” homes were in rural areas; homeownership rates in urban areas, though not specifically recorded by the Census Bureau, appear to have been much lower. An 1890 survey of urbanites by the U.S. commissioner of labor found that just 17.6 percent were homeowners, which would put rural nonfarm homeownership at 62 percent.¹⁹ That figure sounds reasonably accurate since in other decades for which data are available, rural nonfarm and rural farm homeownership rates tend to be similar, and rural farm ownership was 66 percent in 1890.

      Homeownership rates for many ethnic groups, who were mainly working class, were much higher. As early as 1870, 27 percent of German families and 20 percent of other immigrant families owned their own homes in Chicago, and homeownership rates among these groups were probably even higher by 1890.²⁰ Since upper-class homeownership rates were close to 100 percent, middle-class home-ownership rates must have been below 10 percent.

      Housing Innovations

      Several innovations during the late 19th century made it even easier for working-class families to own their own homes. First was the development of new techniques that sped and simplified home construction. Balloon-framed houses held together with nails almost anyone could pound replaced traditional timber-framing methods that required skilled workers to make the mortise-and-tenon joints that held the house together. Sometimes called “Chicago construction” because it was widely used after the 1871 Chicago fire, balloon framing was made possible by the development of machine-made nails and standardized lumber sizes.

      The simplification of home construction stimulated another innovation, which was the growth of the home construction industry and the early application of mass production techniques to home building. Traditionally, subdividers would sell lots, and buyers would build or hire someone to build a home. But the 1880s saw the emergence of housing developers who would sell lots and build homes on those lots, both to order and on speculation.

      One of the largest developers in the country was Samuel E. Gross, a lawyer who began subdividing land and building homes in the Chicago area in the early 1880s. In little more than 10 years, he sold more than 40,000 lots and built more than 7,500 homes—more than any other Chicago homebuilder before or since—in 150 different subdivisions.²¹

      Chicago families could buy an S. E. Gross home for as little as $800, and $1,000 to $1,500 would buy a four-room house, the difference in cost depending on whether or not the house had indoor plumbing. Many of Gross’s early homes can still be found 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