Homelessness is an economics problem

Instead of new buildings and taxes, local government should partner with charities on the issue.

The plight of the homeless has become a major issue. That is a good thing in that we’ve got our priorities straight. The human side of the problem is more important than the flood of real estate market statistics.

What is less good, though, is that we are largely ignoring the overall housing statistics and what they can tell us about the causes of, and cures for, homelessness.

Homelessness does not arise or exist in an economic vacuum. It can be the product of a major economic upheaval such as a depression, a recession or a technology-driven unemployment surge. Perversely, it can also be an unintended consequence of an economic boom, through its effects on the housing market.

We saw an accelerated example of how homelessness can be caused by an economic upturn in the North Dakota boomtowns of the shale oil cracking surge. Workers lured by jobs that paid very well flooded the existing housing market, including the suddenly growing room rental market and overflowed into “man-camps,” barracks-like dormitories filled with camp cots. Some workers slept in the cars and trucks they arrived in, which was not good in any environment but life-threatening in a Dakota winter.

Our area’s housing shortage was mostly involuntary and was also slower to develop. The statistics told us that the population pressure was still growing faster than our cities and suburbs could absorb even with a building boom. One of the results was that many workers in lower-paying jobs could no longer afford homess, even after bouncing down the quality staircase to its landing. They became homeless.

Charities stepped in and various religious and other private organizations helped individuals and families cope with their displacement. But the need exceeded, and still exceeds, their current resources, as it has in many cities, and governments began looking for ways to intervene.

If a city’s economic growth includes enough high-paying jobs to fuel a housing bubble, it drives out the existing residents who can no longer afford the rental costs of apartments, condos, or houses. It also raises the carrying costs of owner-occupied homes as assessments and taxes go up. Depending on their financial and employment situation, that situation motivates some to sell their houses and move to a less costly area.

Local governments are often driven to take action about the homeless or the affordable housing issues, or both. Unfortunately, most of the actions usually undertaken by governments have a history of disappointments.

The economics and the time-line of the homeless problem make it a tough problem for government to solve. Building new housing units in a city — apartment houses, town houses, or single-family dwellings — is expensive during a housing boom, often prohibitively so. That’s why many people can’t afford it and some eventually end up on the street.

If governments are not gifted with foresight, then, government’s direct building options are limited to building outside the city somewhere or “building up” — funding and managing high-rise apartment houses in the city itself. In addition, there is the option of mandating or subsidizing affordable housing. Also, government can use the permit-issuance process to induce developers to include some affordable units in its building.

Building outside the city is no longer an option for any municipality near the Tacoma-Seattle-Everett area, since “outside” the city has already been built up. Government high-rise projects, which are economically more efficient, have such a disastrous history of becoming centers of squalor and crime — Chicago’s notorious Cabrini-Green project, for example — that even a willful government would hesitate to launch one.

The non-building options such as rent control, mandated wage increases and head taxes for employers have never worked right. Instead of working with the prevailing economic environment they are trying to defy it — a process very much like surfing against the waves instead of with them.

Instead of building or mandating, the option that might be the most promising would be to subsidize charities in their work of getting the homeless off the streets. It would get the job done more efficiently not only because of the charities’ greater experience but also because they have neither the resources nor the resources to acquire dependents. They see their work as getting people back on their feet, so they can move out on their own and fit into the economy as it exists.

Instead of a history of disappointments, working with charitable organizations have worked well in the past. Both New York City and the federal government, neither noted for their management skills, have had successful, effective subsidy relationships with charitable organizations.

The bottom line for governments is that homelessness is fundamentally an economics problem. Unless a proposed solution recognizes that reality and works within it, it is doomed.

James McCusker is a Bothell economist, educator and consultant.

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