What image springs to mind when you picture “federally subsidized housing”? Most people imagine a low-income public housing tower, a homeless shelter, or a shoddy apartment building.

Nope — suburban homeowners are the single biggest recipient of housing subsidies. As a result, suburbs dominate housing in the United States. For decades, federal finance regulations incentivized single-family homes through three key mechanisms:

Insurance, National mortgage markets, and New standards for debt structuring

The housing market hides these details from the typical home buyer. As a result, most people are unaware of these subsidies. But their effects are striking — they determined the location and shape of development across America for generations.

A New Deal to restore the housing industry

Debt has a negative connotation these days. Credit cards, student loans, and auto loans are the anchors that keep many Americans in debt for most of their life. Meanwhile, we view mortgages very differently — they are seen as an investment, a symbol of adulthood, and a sign of financial stability.

This was not always the case. In the early 1900s, mortgages were just like any other kind of debt. Nowadays payments are spread out over decades, but back then they came due all at once after a few years. Most people didn’t have enough cash at the end of the term. It was standard to pay back some and negotiate a new loan for whatever they still owed.

This worked fine while the economy was booming, but investors refused to renew the loans after the 1929 stock market crash. Homeowners missed payments, and foreclosure rates doubled. The housing industry collapsed, taking the economy down with it.

New Deal policymakers realized that restoring the economy depended on restoring the housing sector. In 1934, they created the Federal Housing Administration (FHA) with two key mandates:

Revive the housing market, and Make homeownership attainable for more Americans

In pursuing these goals, the FHA determined the design, structure, and location of new private development. In turn, it made suburbia the dominant form of housing in the United States.