The Elasticity of Supply of Homeless People
Why are social problems so intractable? We’ve spent trillions of dollars on a war on poverty, and yet we continue to experience widespread homelessness. A recent article in the OC Register provides some interesting data points:
Jamboree Housing, an Irvine-based company that builds communities aimed at helping the unhoused, with lower-priced dwellings and services aimed at helping tenants stay sheltered, estimates that local taxpayers spend about $100,000 a year for every chronically unhoused person, versus about $52,000 a year for providing them with a permanent home and related services.
This raises a few questions:
1. Wouldn’t both the homeless and the taxpayers be better off if we stopped spending $100,000 on each unhoused person and simply gave them each a check for $80,000 per year?
2. Why spend $100,000 on homeless people when you could provide them with both housing and social services for $52,000/year?
The first question is easy to answer. If we gave $80,000 to each homeless person, there would be a very dramatic increase in the number of homeless people. Many Americans would be willing to experience brief periods of homelessness in order to qualify for this sort of benefit.
You cannot solve complex problems such as poverty merely by providing cash to poor people. That’s why California doesn’t try to solve its homeless problem by giving each homeless person a check for $80,000. Government officials know that this solution will not work. But if you were to ask them why the solution won’t work, it’s very unlikely that you would get an honest answer. The progressives that run California don’t like to view poor people as responding to incentives.
So what about the other solution—spend $52,000 housing each homeless person. Isn’t that better than spending $100,000 on each “chronically unhoused person”?
I suspect that the same problem applies to this solution. Imagine if California were to put ads on national TV telling Americans that they will provide anyone with a $52,000 housing voucher if they move to California and end up without housing. As with the hypothetical cash benefit of $80,000, this would dramatically boost the supply of homeless people, drawn here by the generous benefits.
To avoid this situation, local governments develop extremely complex poverty programs. The complexity is a feature, not a bug—designed to discourage people from taking advantage of the benefits.
Consider the $100,000 spent on each unhoused person. How much of that spending actually benefits the unhoused person? If they remain unhoused despite this large expenditure, then clearly they are not living the lifestyle that we would typically associate with someone making $100,000/year. Taxpayers are spending lots of money, but the unhoused receives very little perceived benefit. I say “perceived”, as I am allowing for the possibility that there are benefits that are not seen that way by recipients. Thus there may be significant expenditures on counseling for drugs and mental health issues, which the homeless person would not purchase if simply given the cash.
From this perspective, the wastefulness of our poverty programs is a feature, not a bug. Governments do not wish to spend money alleviating poverty in the the sort of way that poor people would prefer, as they fear that this will encourage more poverty. But they cannot say that publicly, as that would appear to be “blaming the victim.” So instead they develop programs that cost $100,000 per homeless person, hoping that progressive readers of the OC Register won’t notice the absurdity of this system and start asking awkward questions.
Two points are worth keeping in mind:
If California allowed more housing construction, it would have fewer homeless people.
If California continued to have expensive housing but stopped providing expensive programs for its unhoused population, a portion of our homeless would move to cheaper states.
California has a vastly disproportionate share of America’s homeless due to a combination of NIMBY housing policies and expensive social welfare programs.
PS. It’s notable that America’s most successful poverty program (Social Security) is also the program where disincentive effects are of least concern. Social Security does somewhat discourage old people from working, but this is generally viewed as a less of a problem than when young people rely entirely on “welfare.”