It is a labor problem, not a land use problem

A small nugget of information but an interesting one. From Higher Rents Correlate to Higher Homeless Rates, New Research Shows by Brittany Shoot. That in itself is unsurprising. It is standard economics. As the price of a good rises, consumers first cut back elsewhere, then they seek substitutes. For housing, you start with a home. If the cost goes to high, you downsize to a smaller home. As the cost continues to rise, if you really want to be in that location and don't relocate somewhere else, you progressively pursue substitutes such as taking in a boarder, moving to an apartment, moving to a shared apartment, and at the far fringe of clash between remaining in that location and not being able to afford it, you might experience temporary homelessness.

Higher cost of living leads to higher homelessness is a commonplace but the study adds a little more meat to our understanding by identifying some inflection points.

In communities where individuals spend a third or more of their income on rent, rates of homelessness are likely to accelerate, according to new research funded by real estate listings database Zillow.

The study validates what has long been a rule of thumb among real estate professionals—the idea that generally speaking, people shouldn’t spend more than a third of their income on rent. That idea is based on the assumption that wages and salaries go up at roughly the same rate as rents—but in many places, that is no longer the case.

[snip]

The study examines federal statistics, such as the U.S. Department of Housing and Urban Development (HUD) estimate that more than 546,000 Americans experienced homelessness in 2017. But a Zillow researcher and several of his colleagues put those figures higher at just over 660,000, believing that the scale of the nationwide homelessness epidemic has been estimated 20% lower than it actually is.

The study identified two rent burden thresholds—22% and 32%—which can affect homelessness in a particular community. When rent affordability rises more than 22%, more people in a community experience homelessness. When the rent burden rises more than 32%, the overall rate of homelessness is likely to rise much faster in a particular area. To put it simply, even a modest rent increase can push many people to the brink, and very quickly, those individual hardships can add up to a community-wide crisis. The clusters of people most at risk for becoming homeless live in Boston, New York, Los Angeles, and Seattle, cities with a combined 15% of the U.S. population.

There are other factors underlying homelessness, mental illness and substance being two primary ones, but the underlying mechanism remains the same - substance abusers and the mentally ill frequently are also low income; they can't afford housing on top of all their other problems.

If validated and replicated, the finding that there is a strong correlation between affordability and homelessness and that that there are critical inflection points would be extremely useful. It also illustrates the challenging clash of principles and the unpleasant trade-offs.

Fundamentally it suggests that there are two broad approaches increase cheap housing or move people to where things are cheaper. But people at the margin often wish to remain in the place with which they are familiar (much as it might be changing) because that is where they have some situational awareness and support infrastructures, no matter how unpalatable or vestigial. Taking them away from that which is familiar and they are burdened with creating new knowledge, awareness, building new relationships and networks, etc. - things which people at the median take for granted but which can represent insurmountable barriers for people at the margin.

However, making cheaper housing available in an area of increasing attraction works counter to market forces and ends up exacting a tremendous burden on the State and taxpayers. You can implement rent-control laws which have never worked particularly well anywhere and which are badly market distorting. Rent control also is a large incentive towards State corruption which is unhealthy to the commonweal, particularly one which is founded on a high level of public trust.

You can relax local land use regulations which provides an incentive to dramatically increase the housing supply. Increased supply reduces cost, which would in turn reduce homelessness. Sounds like a great solution save for two issues. Those who are sitting on increasingly valuable land object to the increased supply because it will inherently reduce the value of their holdings.

Closely related to that is that land is frequently a positional good, i.e. goods whose value is linked to their social scarcity and that social scarcity is frequently driven by pricing. Functionally, a Patek Philippe watch is not materially different than a Timex, yet a very nice Timex might be priced at a hundred dollars while a Patek Philippe might be in the hundreds of thousands. A Patek Philippe is a positional good because their supply is limited and they provide social signaling of social status. An upper east side address in New York is a positional good because supply is scarce, prices high and the social status self-selecting based on that price. You increase the supply and you destroy the positional good value.

The rich tend to be especially effective in gaming the system to protect their assets so the capacity to increse housing supply through rezoning is usually limited.

If you can't move the homeless because it increases their risk and poverty, and if you can't convince the rich to release their asset values through rezoning and increasing housing supply, what else is there?

The solutions that never work but which everyone keeps trying because, bad as they are, no one has a better one. Rent-control, subsidized housing, affordable housing requirements for new development, vouchers, public housing, etc. Those places with the highest utilization of these strategies also tend to have the worst levels of civic corruption, the highest taxpayer burden and, seemingly paradoxically, the highest rates of homelessness.

Nobody wants a zoning wild-west, nobody wants to abrogate the property rights of already existing landowners, nobody wants anyone to be homeless, nobody wants to force anyone to move where they might afford housing, nobody wants to pay for someone else's housing simply because that person finds homelessness more tolerable than moving. This is the Gordian Knot which remains in place despite all the best ideas and fads.

My supposition is that homelessness is not, per se, the problem needing to be solved. The underlying problem is absence of personal productivity which might have many sources such as mental illness, physical incapacity, substance abuse, personality disorders, etc. Perhaps the land use problem is really a labor and health problem that needs to be solved.

Instead of pursuing all the land use solutions, none of which have worked, we need to be spending that money on care of the mentally ill, treatment of those with substance abuse and personality disorders, and creating an incentive structure in which even the most challenged have a way to earn their position in society, i.e. have the capacity for their own social status.