However, individuals and families become homeless because, even if employed, they cannot afford housing prices in their areas. For example, the California Policy Lab study, February 2020, found that in Los Angeles County for all employed homeless average earnings were $9,970 per year before becoming homeless. Similarly, a study on New York City’s homelessness by the National Low Income Housing Coalition (April 2018) found that 45% of single homeless adults and 38% of homeless adults in families earned wage income at or near the poverty level.
The federal effort started with passage of the McKinney-Vento Homeless Assistance Act of 1987. It created varied grant programs to support homeless people and families. Grants to localities include prevention programs, housing subsidies and different housing and sheltering programs. However there is an overall lack of vision that recognizes the feedback loop between low income, housing prices and homelessness. Mental health, substance abuse, criminal record and domestic violence also result in the loss of employment opportunities and adequate income and are part of the same overall narrative for homelessness.
Low income with reduced supply of low-cost housing contributes to homelessness. When households owning and/or renting mid-income-level housing move out to higher-end housing or rental units, they leave behind units that filter down as low-cost units. Upward mobility affects housing prices at all income levels. But when the filtering process of homeowners, one of the main supply factors, slows down (as it is now) it causes housing prices to soar at all levels, including rental units.
Rental units’ residents have less incentive to maintain the current units, and landlords may not want to spend too much money on maintenance. Thus, landlords tend to filter the units down as low-cost housing. The study by the Joint Center for Housing Studies (JCHS) at Harvard University (September 2019) finds that affordability is dropping over the last three decades due to the decline in low-cost rental units for under $600 per month (inflation adjusted). This rent threshold is the maximum affordable rent for households earning $24,000 per year.
The homelessness problem is primarily a city problem. Low-cost housing threshold varies by cities both in low and high cost of living states. States such as Utah and Wyoming are low-cost states, but California and New York are high-cost states. The JCHS study found that, in Utah, rental units at the $600-per-month threshold and at earnings of $24,000 dropped by 47% from 1990 to 2017. In high-cost states, larger declines in low-rental units were at a $1,000-per-month threshold. M. Honing and R. Filer, American Economic Review, 1993, found that a 10% increase in low-quality housing rent increases homelessness by 12.5%.
In addition, new construction activity, usually at the high end of the market, has also dropped in many cities due to antiquated land use and housing regulations. According to the Council of Economic Advisers (CEA) (2019), varied deregulations to remove housing supply constraints in 11 metropolitan areas would decrease rental prices and reduce overall homelessness by 13% in the U.S. Construction and hence housing prices are also influenced by interest rates. For example, a 1% increase in interest rate decreases housing prices by 7.6% in San Francisco and 2.6% in Atlanta (see E. Glaeser and J. Gyourko, Berkeley Economic Press, October 2008).
A policy initiative that encourages more jobs skills, job assistance and mental health services to the homeless would reduce poverty, and deregulations and incentives for the construction of low-cost housing and rental units to increase supply would make a significant dent in homelessness. Utah is recognizing the problem of supply constraints and efforts are being made in Salt Lake City and Ogden to loosen zoning laws to encourage building affordable high-density housing and “mother-in-law” units.
Less emphasis should be given to public and private services to homeless people and families on a permanent basis (see CEA). Such activities provide disincentives to the homeless population to make an effort to seek and welcome gainful opportunities to get out of homelessness. Homelessness is a blemish on this rich and wealthy country.
Vijay Mathur is a former chair and professor in the economics department at Cleveland State University, Cleveland, Ohio. He resides in Ogden. It was published in the Standard Examiner, December 3, 2020.
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