The first housing commissioner: Part 7, “Unlawful to declare any greater dividend”

December 19, 2016 | Affordability, Ellen Axson Wilson, Eminent domain, George M. Sternberg, Housing, MEEs, mission entrepreneurial entities, Slums, Theodore Roosevelt, Urban renewal, Urbanization, Washington Sanitary Housing Company, Woodrow Wilson

By: David A. Smith


[Continued from the preceding Part 1, Part 2, Part 3, Part 4, Part 5, and Part 6.]


As we saw in the previous part, for Army Surgeon General George M. Sternberg and his strategic campaign to conquer ambient disease in the nation’s capital, one thing kept leading to another. 


A man of the Civil War generation, stern and fired: George Sternberg, 1850s


His work with disease led him to Washington’s alleyway slums, where he found breeding grounds of typhoid, tuberculosis, and consumption. 


Coupled with this work, General Sternberg took a lively interest in appropriations for the health department, as well as for the conversion of inhabited alleys into minor streets.  He very properly emphasized on occasion that no matter what night be accomplished by legislation in the elimination of the alleys “it should be remembered that the evil of overcrowding will only be transferred to other localities outside of the alleys unless a sufficient supply of houses at low rentals is in some way provided for unskilled wage-earners of this city.” 


He determined that for the poor to be sanitary, they needed sanitary accommodations that were also affordable.


Clean up the slums and the death rate plummets


Rather than sanitary housing being considered an inherent component of quality affordable housing, in fact affordability was inferentially presumed to be a precondition of achieving and sustaining sanitary housing. 


A modern definition


In plain English, the poor would never keep their homes sanitary unless they could afford the upkeep. 


View of insanitary shacks with box and barrel privies, six squares form Dupont Circle


The need for the poor to have proper homes with sanitation and ventilation led him to create the Washington Sanitary Improvement Company. 



Sources used in this post


An Act To incorporate the Washington Sanitary Housing company (Library of Congress, April 23,1904; pickle font)

The History and Development of the Housing Movement in the City of Washington, DC, by George M. Kober, 1907 (lavender font)

Report of the Committee on Building of Model Houses, George Mr. Sternberg (1908); more President’s Homes Commission materials here

Letter to Committee on District of Columbia, January 20, 1910 (cinnabar font)

George Miller Sternberg, a biography, Martha Sternberg, May, 1920 (deep purple font)

Eleanor Roosevelt, Volume I; Blanche Wiesen Cook (buff blue font)

America’s First Ladies, Nancy Hendricks (burnt umber font)

The House History Man blog, February 23, 2012, Paul K. Williams



That company’s inability to compel substandard owners either to sell their property or to clean it up led him to lobby President Teddy Roosevelt, via mutual friends, for the Rough Rider himself to discover the unhealthy communities growing in his own city. 


\A typical accumulation of rubbish beside a set of shanties: photographed by Mr. Weller in 1902


That inspection led the president to convene the President’s Homes Commission, which would lead to a proposed slum clearance law entailing the public-health justification for deploying eminent domain – though, what with one thing and another, it would not be enacted until Alley Dwelling Act of 1918.


In the meantime, General Sternberg discovered, as so many after him have discovered, that when a mission entrepreneurial entity is constituted as a for-profit, the mission will eventually come into tension with the fiduciary duty to give the investors what they expect (properly and fairly) in their returns. 


By rigid economy and careful business methods the directors were able to pay a dividend of 5 per cent per annum from the very inception of the enterprise.  The company continued to erect homes from year to year, and in 1900 was awarded a gold medal at the Paris exposition. 


He determined he needed a new kind of entity, one whose mission credential were imbued from birth and whose cap on yields was likewise a predestined by birth.


A mustache ever facing forward: General Sternberg in 1905



8. The first government housing non-profit: Washington Sanitary Housing Company


When he made up his mind to do something, General Sternberg went straight to the top: he petitioned Congress to charter his company by law:


General Sternberg, to whose zeal and energy the success of the improvement company was largely due, felt that a 5% investment could not directly benefit the day laborers, laundresses, and other humble wage-earners.  In the interest of the health and morals of this class, he determined in 1904 to organize a new company with dividends limited to 4%, and secured a charter from Congress, April 24, 1904.


In forming his new company, General Sternberg lashed himself to the mission mast:


Don’t you want a higher yield, general?


And provided further, That it shall be unlawful for the officers or directors of said corporation to declare any greater dividend to the stockholders than four per centum per annum upon the capital stock outstanding at the time of any such dividend.


If I have my taxation history straight, back then before the income tax, there was no practical difference between for-profits and non-profits, and no benefits accrued to being a non-profit.  So if you wanted to take money from the public – even the great and good public – and use it to pursue a limited-return mission, you needed something more than just the articles of incorporation.


Even with that statutory cap and implied advantaged rate, capital had its say in defining the affordability levels that could be reached:


While the original intention of the organizers was to provide homes for the alley residents with a view to removing the slums, it was considered best to begin by providing improved dwellings for the better class of wage-earners


Skimming the upper layer of the laboring poor was justifiable on two grounds, first on exigency:


A white girl rescued from evil home by agents of the Associated Charities


Had the company acted otherwise the undertaking would probably have resulted in failure.


[That is General Sternberg’s widow and biographer talking, so she may be biased, but she was an eyewitness.  – Ed.]


Secondly, targeting the upper laborers was justified by a rationalization that’s been around ever since, and might even be true:


– so that houses vacated by them might be rented by the next grade and so on until the bottom of the ladder was reached. 


Part 2 of the WSH enumeration questionnaire: “If any of the family is out of employment, what is the cause?”


While existing housing supply behaves like a solid (things are fixed in place, have defined and firm shape, and hard to move), and new housing supply arrives like a liquid (the tide coming in, a particular area filling rapidly), housing demand acts like a gas – it spreads throughout the space.  As a result, adding rentable supply anywhere decreases pressure throughout the system.  [I emphasize ‘rentable’ because new supply that is developed or acquired and then deliberately held vacant might as well not exist for all the good it does in relieving rent pressure. – Ed.]


And it also offers a proof-of-concept/ positive-deviance demonstration of what is possible and what the market will soon expect:


As it is, it has established a standard of sanitary homes at reasonable rentals, which other landlords are obliged to adopt, or the company will supply the demand.  / Page 253


Affordability and durability stemmed from practical design:


The plans for the apartments, largely General Sternberg’s own work, were for him a source of great pleasure and relaxation. 


I met him in 1984-85 and yes, he always had that Cowardly-Lion beard


The general was also an early proponent or what Oscar Newman would later call defensible space’:


He was wont to say that there should be no common architectural features, and that each of the two-story apartments should have separate entrance, exits, and yards.  / Page 254


The Sternberg design, presented typologically seventy years later


In May, 1904, the company purchased ground and built twenty houses, which were occupied in October of the same year.  These houses are now [1920] rented by respectable colored tenants who pay $7 a month for three rooms and bath, and $8 a month for four rooms and bath.  / Page 255


What inference do we draw from the necessity to include ‘colored’ in the description of tenants?  I can think of several possibilities but am unsure of any of them.


[Continued tomorrow in Part 8.]