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In addition to providing a variety of services to meet the needs of ethnic, working-class, and low-income neighborhoods, the settlement house movement was at the center of much urban reform during the Progressive Era and has continued to play a role in urban reform and the provision of neighborhood-based social services since then. Originally, its defining characteristic was that some well-to-do people would actually move into the settlement house, thus becoming “neighbors” to those they sought to help while gaining added insights into the causes of poverty and urban problems. Other people, often college educated, contributed their time as volunteers teaching classes and leading clubs. As such, the settlement house provided a meeting ground for different social classes within the city.

Stanton Coit, a minister of Ethical Culture, visited the first settlement house in the world, Toynbee Hall, in London, then established the first settlement house in the United States, Neighborhood Guild, soon to be renamed University Settlement, in 1886. It was located on the Lower East Side of New York City, an ethnic neighborhood known for its East European Jewish immigrants, but actually overcrowded with recent arrivals from a variety of countries. Three years later, Jane Addams established Hull-House in an impoverished ethnic neighborhood in Chicago. Other settlement houses rapidly followed, including Lillian Wald's Henry Street Settlement, also on New York's Lower East Side. Like Wald and Addams, most settlement house heads, residents, and volunteers were single women. The college-dormitory-like living quarters of settlement house residents and the large common dining rooms challenged traditional family life; but a few settlement leaders, such as Graham Taylor of Chicago Commons, did bring up their children in the settlement house. The United States was entering a period of extremely heavy immigration, and most of the immigrants were heading for the urban slums or working-class neighborhoods that surrounded the settlements. Thus, many settlement houses found a heavy demand for Americanization programs (English and citizenship classes), which they encouraged public schools to adopt. In cities like Cleveland and Chicago, they also pioneered in opening up supervised playgrounds, then persuaded local governments to add tax-supported playgrounds to city park systems. The “demonstration project” was one way they pursued urban reform.

Also, some reformers used the settlement house as their base of operations or as a way of tapping into a network that could broaden support for their causes. These included the crusader for better working conditions, Florence Kelley, who served as factory inspector for Illinois for several years in the mid-1890s, using Hull-House as her base. She then left for New York to head the National Consumers League, where she developed close connections with Henry Street Settlement. To further their advocacy of social issues, such as those raised by Kelley, as well as to facilitate interaction among themselves, settlement houses formed the National Federation of Settlements in 1911.

With the sharp drop in the number of immigrants entering the United States and growing social conservatism, settlement houses experienced a decline in their prestige following World War I, but they showed their versatility in continuing to serve their impoverished neighbors and to advocate for better welfare programs. When the New Deal arrived, a second generation of settlement house leaders helped to shape the revolution in welfare that it brought. Helen Hall, Wald's successor at Henry Street and the head of the National Federation of Settlements, served on the Advisory Committee that helped to draft the 1935 Social Security Act. Disappointed that national health insurance was excluded, she continued to provide testimony on behalf of this program for the Harry S. Truman administration. Hall also joined other settlement house workers and housing advocates in pushing for federally subsidized housing for low-income people. That meant supporting Public Works Administration (PWA) housing projects, the Wagner-Steagall Housing Act of 1937, and post–World War II public housing and urban renewal programs. Locally, settlement house workers also consulted with housing officials and politicians to improve housing in their neighborhoods.

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