Streetcar Suburbs, Mortgage Finance, and the Depression of the 1890s

The late 19th century was a tumultuous period for US housing conditions. As tenement districts in urban centers became overcrowded, middle class households relocated to new suburbs made possible by the invention of electric streetcars. Mortgage lending by local building and loan associations allowed more families to own homes, but construction slowed during the 1893-98 depression. Using a new data set based on land records, we investigate this boom and bust cycle with Cincinnati, Ohio as a case study. We find a severe housing downturn in which quality adjusted prices fell by 20%. Early arrival of electric streetcars in a neighborhood produced a surge in sales and B&L mortgages, followed by more severe contractions. Some borrowers became highly leveraged with overly generous construction loans and second mortgages, and they could assume a previous owner’s loan without going through underwriting. In a weak market, B&Ls often held foreclosed properties for several years, restricting their ability to make new loans. While one in six associations failed, those with more female members had better survival rates. Cincinnati’s experience illustrates the severity of a housing and mortgage market crisis in a deflationary environment with low regulation, even without a prior price bubble.