The most deadly and widespread war in modern history acted as a devilish bellows on the fire of the American economy. Developments in industry, aviation, medicine, electronics and atomic energy were accelerated; what would have taken years to evolve took months during the war. The national economy prospered as a result. The GNP before the war in 1940 was just over $100 billion; by 1955 it had tripled to $310 billion. Average Americans, with the horrors of war behind them, were enjoying unparalleled economic security.
Following the surreal images of World War II, the country desperately desired a return to safety and living the American dream – get a job, buy a house, marry and raise a family. The black-and-white decade of the 1950s – the “gee-whiz” decade – put in this context was certainly understandable.
Entering 1950, real estate markets in general – retail, office, industrial and hotel – were all entering a period of sustained growth kindled by the pent-up demand and the surging economy. The years following the War saw two pronounced trends. One was the movement of much of the population to newly formed suburbs fed by the expanding network of thruways – suburbanization. The other conspicuous real estate story of this decade was housing, or, more accurately, the absence of housing and the real estate industry’s slow response to the shortage.
First mass exodus to the ‘burbs Decades earlier, America made the transition from a rural based society to one based in urban areas. As cities expanded, high land prices and crowds persuaded people and commerce alike to search for cheaper and more accommodating real estate alternatives. Following World War II, the inner cities were busting at the seams. After many years urban growth spilled over into the suburbs. Widespread car ownership and the increased development of the freeway system, intensified by the Federal Highway Act of 1956, catalyzed the move. In a trend that has continued to this day, cities were increasingly losing population to the more open, cleaner rings of land just outside the city.
During the 1950s, land values in the suburbs increased rapidly – in some prime suburban neighborhoods as much as 3,000% – while population swelled by 45%. Nearly two-thirds of all industrial construction during the 1950s was taking place outside cities; residential construction in the suburbs accounted for an astonishing 75% of total construction.
The housing shortage By the end of the war in the mid-1940s, it was clear that there was a severe shortage of housing. The federal government was aware of the situation, and passed the Housing Act of 1949, which, in part stated as its goal, “…a decent home and suitable living environment for every American family.”
There were some substantial hurdles to clear. With the real estate industry dedicating all attention to wartime efforts, there had been very little private development activity. Residential development had been concentrated in areas surrounding defense-related plants and factories. The lack of new construction was combined with a massive influx of veterans returning to civilian life. Beginning in the mid-1940s through the early 1950s, almost 11 million men and women were released from the armed services.
Empowered with government insured loans that had low down payment requirements and thirty-year terms, veterans were ready and able to buy housing. Civilians were also well positioned to buy. Family incomes were at their highest levels in history, most households had saved their money during the war, and billions of federal dollars had been allocated for Fannie Mae and FHA programs.
It became clear, however, that the housing industry was not even close to being able to react to the incredible demand. The housing industry was fragmented and horribly inefficient. Instead of a steady surge in construction directly after the war, Americans endured steeply rising home and apartment prices. Fortune magazine dubbed the housing industry “the industry that capitalism forgot.”
A new housing-industry model The Levitt brothers were the country’s single most powerful weapons against the housing shortage. Their methods and approach to building homes, when duplicated across the country, put the American dream within the grasp of countless middle class families.
The product produced by the Levitts did not please everyone. One critic said, “The little Levitt house is American suburbia reduced to its logical absurdity…it can be excused only by a shortage that should never have existed and the inability of an entire industry to reform itself.” The “little Levitt house” had a powerful effect on the industry though. The eventual emergence of well-capitalized, large-scale homebuilders modeled on the Levitts resulted in a residential construction boom that housed a generation. By the end of the 1950s, no less than 15 million units were under construction nationwide.
The Levitt brothers were not newcomers to real estate. They had been developing residential property since the late 1920s. The father, Abraham Levitt, wasa lawyer that had to foreclose on many mortgages during the Great Depression. One particular piece of property was not selling after foreclosure, so the father and his two sons, William and Alfred, built a house on it. The trio’s efforts snowballed from there after the two young sons left college before graduating. William stated at the time that he “wanted to make a lot of money,” and Alfred simply informed the dean that the school had nothing else to teach him.
Levitt and Sons built and sold 600 luxury homes in relatively short order, and by America’s entrance into World War II had built 2,000 more. Like most industries during wartime, Levitt and Sons went to work for the United States, building close to 2,400 units for the Navy in Virginia. Unlike the luxury homes that the Levitts built in the private sector, these units demanded a slightly different approach if they were to make a profit. The low-cost mass building techniques that were employed to restructure an entire industry were being formed.
Following the War the Levitts applied what they had learned building for the Navy. Between 1946 and the early-1960s, they built three residential communities totaling more than 17,000 homes. At peak production 30 houses were finished in a day. The level of production barely kept up with demand; at the peak of demand, 1,400 contracts were signed for Levitt homes in a single day.
This level of production was made possible by transferring assembly line methods first used at the turn of the century. The brothers became known as the Henry Fords of the housing business. The spartan homes were a far cry from the luxury home they built in the earlier days, but the simplicity enabled them to break the process down to just twenty-six steps.
Trucks stopped at each site to drop identical, neatly bundled supplies: lumber, pipes, nails, shingles. Earthmovers appeared, dug for plumbing, and were followed by crews that performed a single phase of the construction. When they were finished, they moved on to the next house. Instead of the product moving down an assembly line, the assembly line moved along to the next product. Most of the assembly line consisted of subcontractors. Instead of going through a bid process, all crews were hired after negotiation. The Levitts also used non-union labor, which was practically unheard of in that time. Of labor unions, William Levitt said, “I am not against unions, I just think we can build houses faster without them.”
The Levitts went to impressive lengths to control costs. To cap lumber costs, they bought timberland and built a mill on the West Coast. Over the years, it is estimated they saved up to 40% on lumber.
Despite their frugality, few could point to shoddy work in their communities. Instead of using cheap materials, they came up with unconventional methods for the pricier phases of homebuilding. Levitt homes did not have cellars; they were built on concrete slabs with radiant heat. Walls were constructed with rockboard instead of plaster. Floors were of plaster rather than expensive hardwood.
Despite the Levitt’s appreciable efforts in providing housing, not everyone was impressed. The communities drew criticism from all directions, including architects, sociologists, the upper class – even the man on the street. Their sameness and simplicity led some to call them the “slums of the future.” Sociologists even got their whacks in, pointing to the sameness, aesthetically, as well as economically and socially.
In the early years this was partially true. The community was made up mostly of middle class veterans or professional families, and everyone was white. By the end of the 1950s, however, the first Levittown community had its first black family. After a period of angry mobs, a burning cross, and countless threats, a second black family moved in. Soon after,, the outward signs of racism subsided and the perfect little community returned to suburban tranquility. As families moved out and new families cycled in, the homogenous nature of the town shifted to reflect a more balanced population.
The communities were referred to as “sorority houses with kids,” “a lay version of Army-life,” “Russia with money,” and “a womb with a view.” Even the supporters conceded they were not things of beauty, and that residents, after having a few too many cocktails, did indeed stagger in the wrong door from time to time.
But, lost in the sociological studies and poo-pooing of the upper class, the fact remained that people liked their Levitt homes. These people, many of which were veterans, were happy to be homeowners out of the grime and crowds of the city. The American Dream provided by the two brothers from Long Island.
Following housing to the suburbs Housing was not the only property type to thrive outside of the cities. Real estate organizations that had prospered in the cities now looked to export their knowledge to the newly formed communities along the expanding highway systems.
Retail had followed the piecemeal development of the earlier suburban communities from as far back as the 1920s. But it was in the 1950s that regional shopping centers, which were not directly tied to a developed community, began popping up. Northgate Mall just outside of Seattle was considered a groundbreaker for its design as well as its location. Storefronts were rebelliously aimed toward the center of a central, open-air pedestrian mall away from the massive parking lot. In 1954 Northland Mall was built as the largest mall of this new design, and opened in a suburb of Detroit. By 1956 the same architect responsible for the design of the Northland produced the first enclosed, climate-controlled mall in Edina, Minn., a suburb of Minneapolis. What the new malls lacked in creativity with respect to names, they made up for in fresh approaches to culling money from consumers. One-anchor malls gave way to two-anchor malls. The seeds of what would become an American trademark had been planted.
Heavy industry and manufacturing also crept out along the new highways to the suburbs from the high priced land of cities. Trucking had largely replaced freight trains as the preferred transportation for industry, and industrial and R&D parks proliferated in the newly formed transportation hubs of suburbia. Trammell Crow Co. in Dallas and the investment firm of Cabot, Cabot & Forbes in Boston became industry leaders in the development of warehouses and industrial properties, first in their respective regions, and then nationwide.
Also stepping to the suburbs beginning in the 1950s were hotels and motels. Up to this point, the presence of lodging outside of urban areas was sparse. Most hotels were located either in resort areas or in the middle of cities. There were “roadside inns” outside city limits that had been hatched in the 1920s to provide lodging for those traveling by the new-fangled automobile, but these were almost always small scale, mom and pop outfits. The term “seedy motel” was coined in the 1950s.
In 1952 Holiday Inn “hotel courts” cleaned up the suburban roadsides with a family-friendly, cleaner, modestly priced alternative to the roadside motels. Holiday Inn was not alone in providing consumers with more respectable lodgings outside the city ring. Soon, larger hotel companies that had focused on the city for years followed the trend. Ramada, Howard Johnson and Travelodge also followed America’s expanded roadways and by the mid-1950s, the supply of motel rooms had surpassed the entire stock of hotel rooms. As highly respected and well-known operators entered the market, investment in this asset class became more prominent setting the groundwork for the sophisticated investment market we have today.