The Economics of Homelessness

[The text below was adapted from a speech I gave recently at the 2009 Taylor Symposium at IUPUI regarding the American Promise and its relation to housing]

Tremendous strides have been made to address homelessness over the last decade, but I fear the next few years will remind us of just how weak the economic safety net has become. The strain of homelessness we are about to witness is not the kind driven by antisocial behaviors; rather, the current financial environment will once again bring back the kind of homelessness driven primarily by economics.

Homelessness has traditionally been considered a sociological or behavioral phenomenon, not an economic one. But economics has much to teach us about homelessness. The fact is that housing is not one of those consumer goods with a nice smooth supply graph. Rather, for various reasons including property taxation, building codes, and zoning, not to mention NIMBYism, housing's supply curve gets cut short at the lower end of the supply function meaning that once a household desires just a little less housing than the socially acceptable lowest cost private sector alternative they suddenly risk slipping a long way down the supply curve - we refer to this as the at-risk population.

For example, imagine if housing were like rice or wheat, where I could buy a kernel, a pound, a bushel, a grain silo, a field, or a farm, all depending on how much I wanted to consume? Housing, when viewed from a quality perspective, used to be more like wheat - the private sector provided supply at the bottom end of the curve such as lower rent apartments, boarding rooms, single room occupancy hotels, cage hotels, dormitory style hotels, flop houses, or even a rope strung up in the barroom. But over time, we have lost all of those lower priced private sector options, some for good reasons and some not, such that now you can rent a modest apartment, but once you slip below that level the next step is doubling up, Section 8, or living in a charitable shelter. In the current economic environment, as households slip lower on the income and consumption scale, we are going to see a rise in the number of folks that loose a grip on that last ledge of housing choices, particularly families, falling not just to the next lowest level on the supply curve but all the way into homelessness.

In the next decade, we must look for ways to fill in that supply curve and economics offers a tool for assessing how to do that effectively. Solutions will and should require the best of our abilities in creating public/private partnerships to be successful.