The Housing Act of 1937, also called the Wagner-Steagall Act, is the federal law that created permanent public housing in the United States. It set up a federal agency to fund construction, authorized $500 million in bonds, and put local housing authorities in charge of building and running the projects. The statute is still on the books as the backbone of the public housing program, but Congress has amended it so heavily since 1937 that the program today looks very different from the one President Franklin Roosevelt signed into law on September 1, 1937.
What the 1937 Law Did
The Act created the United States Housing Authority as a new federal agency to run the program.1FDR Presidential Library & Museum. FDR and Housing Legislation The USHA did not build housing itself. It set standards, reviewed proposals from local agencies, issued loans, and audited any project that received federal money. That role now belongs to the Department of Housing and Urban Development, which absorbed the program’s functions when HUD was created in 1965.2National Archives. Records of the Public Housing Administration
The financing structure was unusual and has proved durable. Congress authorized the federal government to issue $500 million in bonds over three years for construction capital.3Franklin D. Roosevelt Presidential Library and Museum. Found in the Archives Federal loans covered 90 percent of a project’s development cost, and local sources covered the remaining 10 percent. On top of the upfront loans, the Act created annual contributions contracts: recurring federal subsidies designed to bridge the gap between what a project cost to operate and what low-income tenants could afford to pay. Local authorities could also pledge those annual contributions as security for their own construction bonds.4U.S. Government Publishing Office. United States Housing Act of 1937 Public housing was never designed to pay for itself. It has always depended on a permanent federal subsidy.
The 1937 Act also tied new construction to slum clearance. For every new public housing unit built, local authorities had to retire an equivalent slum dwelling, either by demolishing it, condemning and closing it, or forcing the owner to bring it up to code.5U.S. Department of Housing and Urban Development. What the Housing Act Can Do for Your City This “equivalent elimination” rule lasted decades and later became the main obstacle to redeveloping distressed projects. Congress finally removed it in 1995.
Local Housing Authorities Do the Work
Congress deliberately kept the federal government out of construction and property management. States passed enabling laws to create local housing authorities, which operate as independent public corporations with power to buy land, hire architects, run projects, and in most states exercise eminent domain. The local authority selects tenants, collects rent, maintains buildings, and enforces occupancy rules.
Federal leverage over these local bodies is financial. The annual contributions contract requires the authority to meet federal standards, submit to audits by HUD and the Comptroller General, and keep its books open for inspection.4U.S. Government Publishing Office. United States Housing Act of 1937 Because so much depended on local competence and funding, the quality of public housing has always varied sharply from city to city. Today about 3,300 housing authorities manage the country’s public housing, and current law requires each authority’s governing board to include at least one public housing resident.6Office of the Law Revision Counsel. 42 USC 1437 – Declaration of Policy and Public Housing Agency Organization
Who Qualifies for Public Housing
The original Act limited occupancy to families whose incomes were too low to afford safe housing on the private market, and it used a rigid formula known as the five-to-one rule: gross family income could not exceed five times the total rent, including utilities. Congress eventually replaced that formula. Under current law, eligibility is defined in terms of “low-income families” at the point of admission, with HUD setting specific limits tied to area median income.6Office of the Law Revision Counsel. 42 USC 1437 – Declaration of Policy and Public Housing Agency Organization
Federal law also restricts assistance based on immigration status. Under Section 214 of the Housing and Community Development Act of 1980, HUD cannot provide housing assistance to a noncitizen unless the person falls into specified categories of lawful status, such as permanent residents, refugees, and asylees. When a household has both eligible and ineligible members, assistance is prorated based on the number of eligible people rather than denied outright.7GovInfo. Housing and Community Development Act of 1980
What Tenants Pay: The Brooke Amendment
For the first three decades of the program, the 1937 Act’s income-to-rent ratios governed what families paid. By the late 1960s, this system was squeezing the poorest tenants hardest, and in 1969 Congress passed the Brooke Amendment, named for Senator Edward Brooke of Massachusetts. It replaced the old ratios with a percentage cap on rent tied to income. The original ceiling was 25 percent. Congress later raised it to 30 percent, which is still the standard.
Under the current statute, a family in public housing pays the highest of three amounts: 30 percent of monthly adjusted income, 10 percent of monthly gross income, or the welfare rent designated by a public assistance agency for that family’s housing costs.8Office of the Law Revision Counsel. 42 USC 1437a When tenants pay their own utilities rather than having them included in rent, the housing authority calculates a utility allowance for reasonable consumption and subtracts it from the tenant’s rent obligation. The 30 percent standard has since become the baseline affordability benchmark across nearly every federal housing program.
The Amendments That Reshaped the Program
1974: Section 8 and a New Federal Approach
The Housing and Community Development Act of 1974 was the most sweeping revision of the 1937 Act. It reorganized the statute (the original policy declaration at 42 U.S.C. § 1401 was omitted and replaced by § 1437) and created Section 8 housing assistance.9Office of the Law Revision Counsel. 42 US Code 1401 to 1404 – Omitted Section 8 shifted the federal approach away from building government-owned projects toward subsidizing rents in privately owned housing. Eligible families got vouchers or certificates covering the gap between what they could afford, generally 30 percent of income, and the market rent for a qualifying unit. The 1974 law also required that 30 percent of families assisted under Section 8 be “very low-income,” meaning no more than 50 percent of area median income.10Congress.gov. S.3066 – Housing and Community Development Act of 1974
HOPE VI: Demolishing Distressed Projects
By the early 1990s, deferred maintenance and concentrated poverty had left many public housing projects in serious physical and social decline. A national commission estimated that roughly 86,000 of the country’s 1.3 million public housing units were “severely distressed.” Congress launched HOPE VI in 1992. The program initially focused on renovation but quickly pivoted toward demolishing the worst projects and rebuilding them as mixed-income developments. When Congress removed the one-for-one replacement requirement in 1995, that shift accelerated. Former residents received Section 8 vouchers, and the rebuilt sites mixed subsidized units with market-rate housing to avoid reconcentrating poverty.11U.S. Department of Housing and Urban Development. HOPE VI Mixed-Income Redevelopment
1998: The Faircloth Cap
The Quality Housing and Work Responsibility Act of 1998 pushed public housing further toward deregulation. It gave local authorities more administrative flexibility, expanded tenant screening to allow rejection or eviction for drug or alcohol abuse, and promoted homeownership as a goal for residents. The same law included the Faircloth Amendment, which set a hard ceiling on the total number of public housing units nationwide. HUD cannot fund construction of new public housing unless an equal number of existing units are demolished first, which has effectively frozen the public housing stock at its late-1990s level.
Segregation in the Program’s History
The 1937 Act’s text did not require racial segregation, but the program was thoroughly segregated in practice from the beginning. In the South, projects were built under explicit de jure segregation with separate developments for Black and white families. Elsewhere, the USHA and local authorities followed the “neighborhood composition rule,” tenanting projects to match the race of the surrounding area. A project in a white neighborhood housed white families; one in a Black neighborhood housed Black families. Federal approval effectively ratified the residential segregation that already existed.12U.S. Department of Housing and Urban Development. The Location and Racial Composition of Public Housing in the United States Site selection reinforced the pattern by concentrating projects in already-segregated neighborhoods with limited economic opportunity. Long after civil rights laws banned housing discrimination, the geography set by decisions from the 1930s through the 1960s continued to shape American cities.
Public Housing Now
The Act’s current policy declaration has drifted a long way from 1937. Where the original law focused on remedying unsafe housing and an acute shortage of affordable homes, the modern statute also emphasizes giving well-performing housing authorities maximum flexibility, acknowledges that the federal government alone cannot house every citizen, and promotes private-sector involvement in affordable housing.6Office of the Law Revision Counsel. 42 USC 1437 – Declaration of Policy and Public Housing Agency Organization
About 970,000 households currently live in public housing managed by roughly 3,300 housing authorities.13U.S. Department of Housing and Urban Development. Public Housing Program The stock is old, and the maintenance backlog runs into the tens of billions. HUD’s Rental Assistance Demonstration program now lets housing authorities convert public housing units to project-based Section 8 contracts so they can tap private financing for renovations the traditional funding stream cannot cover. Whether that conversion preserves the public housing model Congress created in 1937 or gradually replaces it is one of the sharpest debates in federal housing policy.