The Economics of Homelessness
September 06, 2018
Today’s homelessness crisis is at its core an economic problem rather than one of mental health or substance abuse. Broad economic forces, such as globalization and urbanization, have had substantial impact on both housing markets and basic income levels, contributing in large part to the current homelessness crisis.
Figure 1: The Effect of Rising Rents on Homeless Populations
The Current Situation by the Numbers
A review of the data can shed light on the scope of the issue. According to the 2017 Annual Homeless Assessment Report, 553,742 people experience homelessness on a given night in the United States of America. Two thirds of this number of represents individuals, and the remaining represents families; children comprise more than one-fifth of the total homeless population.
Of the total number of homeless Americans, 86,962 individuals experience homelessness in chronic patterns; this means that the individual has a disability and has been continually homeless for at least one year “or has experienced at least four episodes of homelessness in the last three years where the combined length of time homeless in those occasions is at least 12 months”. The rest have short-term experiences with homelessness. “It’s hard sometimes for people to appreciate. They’re so used to the stereotyped homeless populations, the visible homeless, if you will, who live outdoors in public locations and they’re not aware that there are literally hundreds of thousands of people, many of them working, who are homeless as well,” said Dennis Culhane, a University of Pennsylvania social policy professor whose research focuses on homelessness.”
Globalization, Urbanization, and Housing Crises
In the past three decades, globalization, the increased interactions between cultures, economies and societies, has continued to interconnect the globe and make the world a smaller place. While globalization has brought forth a lot of positive change such as technological innovation, cultural fusion, immigration, and global trade benefit large populations, it has disproportionately benefited richer populations, especially in cities like New York, Washington DC, San Francisco and Los Angeles. Globalization concentrates wealth in metropolitan financial hubs. These places hold much of the newly created economic opportunities, so urbanization has ensued. Unfortunately, these economic changes have resulted in two related, but distinct, housing crises.
In the aforementioned cities, rising rents due to urbanization and increasing income inequality have contributed to a homeless crisis. High rents are not inherently harmful so long as incomes increase with them. The results of a study on housing markets and income distribution suggested “that simple economic principles governing the availability and pricing of housing and the growth in demand for the lowest quality housing explain a large portion of the variation in homelessness among US metropolitan housing markets”. The supply of housing in highly-regulated housing markets cannot increase quite as rapidly as demand has already increased, leaving enormous populations unable to find affordable housing near places with economic opportunities. Combined with trends of increasing income inequality, homelessness can be largely thought of as a symptom of broader economic trends.
This situation of higher rent and lower incomes for many in these cities has created a class of working homeless. If you are spending a large portion of your income on rent, but not homeless, when misfortune strikes, you are not prepared and extremely vulnerable to falling into homelessness. In over saturated housing markets, rent increases have a strong connection with upticks in homelessness. According to a study by real-estate website Zillow, a 5% rent increase in New York City and Los Angeles would lead to nearly 3,000 and 2,000, respectively, more people without a place to live.
Second, low wages and high unemployment have resulted in large homeless populations in more suburban and rural areas. Because the forces of globalization and urbanization has concentrated wealth in cities and moved manufacturing jobs overseas, smaller cities, suburban areas, and rural areas have fallen behind as the economy has changed. The lack of economic opportunity, rather than affordable housing, has led to an increase in homelessness in recent years in these communities.
Possible Policy Response
While the economic forces of globalization and urbanization are likely to continue, there are options to fund affordable housing projects in urban communities, offer permanent supportive housing for chronically homeless populations, and provide vouchers in less populated housing markets. LA County, for example, which has both types of housing crises, has employed multifaceted solution tailored to the unique needs of each neighborhood’s situation. We can adapt to the changing economy in such a way that populations do not have to suffer during this period of transition.
Student Blog Disclaimer
The views expressed on the Student Blog are the author’s opinions and don’t necessarily represent the Penn Wharton Public Policy Initiative’s strategies, recommendations, or opinions.