Solving Homelessness
Can capitalism solve the problem it created?
It’s hard to argue that the primary cause of homelessness is NOT the cost of housing. But people try because any solution to that problem goes against the free market. We can’t go against the free market in the US. So we look to solve other problems like drug use and loitering. Attacking those issues does clean up the street where the police have just come through. But pushes the problem somewhere else without fixing anything.
San Francisco is trying something different. It’s not working, but we can learn from it. The city spends about $80K per year on each tent in designated areas for one homeless person or a couple. That doesn’t seem to be money well spent. You could just give a person $80K and they would suddenly not be homeless anymore. But there’s a lot more going on here, like mental health, drug addiction, physical health, sanitation, and other social issues that drive up costs. The city tried housing the homeless in empty hotel rooms during the Covid lockdown. It worked pretty well except like the tents, it was temporary and also not cost effective. The cost of housing in San Francisco is just too high to have any hope that social programs can solve the problem. San Francisco’s efforts really prove this point. In fact, it’s not just the homeless that can’t afford housing in California, Tesla and many other companies are fleeing for Texas because property is affordable there.
So, why don’t the homeless follow Tesla to Texas? Why do they stay in a city they cannot afford? Wouldn’t the problem go away if San Francisco just stopped all homeless services? The simple answer is maybe a few. Only 25% of homeless in San Francisco are from out of town and only 10% are out of State. So it’s not really the services that cause homelessness. But it is helpful to look at places like Texas to see what they are doing right. Low taxes attract businesses, but it’s the low cost of property that attracts residents. Governor Newsome recognizes that one of the factors that keeps Texas property from ballooning like California is less regulation. He hopes to streamline permitting in the State. That could help. But that is only a start. What can be done to produce more housing so the supply can meet the demand and bring the cost down?
It is in the best interest of property owners and developers to maintain scarcity to drive prices higher. Those that benefit from the current system will not enjoy the greater societal benefits of less expensive housing. Reducing the burden of regulation helps lower the burden on investors, but it doesn’t encourage them to build. Something more will be needed to create sufficient housing to lower prices so that everyone can afford property.
Singapore provides a good example of how to allocate housing effectively. The government owns nearly all the land and provides a tiered housing system suitable for most people. The Government recognized that the land constrained city state would encounter land use problems if it was left to the free market. So it stepped in and managed it. This has been done wll in Singapore. But in the US, suggesting the government build housing on public land is as politically palatable as making assault rifles illegal for teenagers. Even though it makes sense, it’s against the principles of a free market.
So, to make it politically more palatable, begin by focusing initially on redeveloping existing buildings for city employees like school teachers, police, and fire fighters. This would quiet the NIMBY forces by avoiding new projects for undesirables. Financing could be through a public/private partnership where the land is owned by the public, the developer is a private construction company, and the landlord is a public benefit non-profit with government oversight. With enough projects like this directed toward the mid-market, price pressure may help lower prices for lower market housing.
The location and type of building is also important. Ideally vacant buildings in town would be utilized. This would revitalize existing neighborhoods with minimal impact to the existing character. Mixed use facilities can provide greater opportunities for economic development building a dynamic feedback loop for new and old residents alike. Large blocks full of homeless people should be avoided. Integration is the key to success and smaller buildings are less disruptive.
Governor Newsom in California has enacted a new rule making it easier for developers to convert existing commercial buildings to residential, lowering the cost of redevelopment. San Francisco recently passed a vacant storefront fee to incentivize redevelopment. And eminent domain could be used to force recalcitrant owners to part with unused buildings. The seeds of this idea are there. Over time such a model would produce more housing security to the middle class, and eventually lead to less homelessness.
