The Economics of Homelessness Is Varied, Complex

photo of handsEconomics, particularly the cost and availability of housing and lack of employment, is a major factor in homelessness.

Some research has indicated that housing prices and availability, more than overall economic conditions, were behind the significant rise in homelessness during the 1980s and '90s. Two University of California-Berkeley economists, John M. Quigley and Steven Raphael, found in a 2000 study 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 U.S. metropolitan housing markets."

Brendan O'Flaherty of Columbia University reached similar conclusions in his 1996 book, Making Room: The Economics of Homelessness. O'Flaherty, a member of the executive committee for Columbia's Center for Homelessness Prevention Studies, concluded that income inequality is an important factor behind homelessness in North America. "Income inequality went up the most in those cities with the most severe homelessness," he writes.

Related Links
Atlanta Fed FYI
Columbia Center for Homelessness Prevention Studies off-site image
National Alliance to End Homelessness off-site image
National Low Income Housing Coalition report off-site image
Atlanta Children's Shelter off-site image
Atlanta Regional Commission on Homelessness off-site image
2007 Pathways Atlanta Homelessness Survey highlights off-site image pdf document

The shrinking middle class
O'Flaherty argues that today's homelessness is largely a response to changes in the housing market, linked to a widening gap in the incomes of rich and poor. That widening gap has shrunk the middle class, he notes, so now fewer houses and apartments are handed down from middle-class people to lower-income people and rents are higher for the housing that is available.

Housing costs in recent years have risen faster than incomes, according to the National Alliance to End Homelessness. An estimated 15.8 million households—roughly 15 percent of the nation's total—pay more than half of their income for housing, the alliance reports, citing 2006 data from the Joint Center for Housing Studies at Harvard University. In 2006, the national housing wage, or the hourly wage needed to afford rental housing and utilities and not pay more than 30 percent of income, increased to $16.31 an hour, according to the National Low Income Housing Coalition. In Southeastern states, the housing wage ranged from $11.44 an hour in Alabama to $18.10 an hour in Florida.

Addressing chronic homelessness
In addition to the economic factors that cause people to become homeless, the phenomenon of homelessness creates large economic costs.

Joblessness, abuse, housing big issues in Atlanta

In Atlanta, joblessness is a major underlying cause of homelessness.

A November 2007 survey of 717 homeless adults in metro Atlanta found two dominant causes for homelessness: substance abuse and job loss. Forty-two percent of the respondents cited losing a job as one of the reasons they had no home, while 48 percent mentioned alcohol or drugs.

Homelessness is a concern in cities, towns, and rural areas across the Southeast. In the Atlanta area, about 13,000 people each day wake up with no home, including about 2,500 children, according to the Atlanta Children's Shelter. The shelter—which provides free day care, emotional support, an educational curriculum for homeless children, and social services for their families—served 78 families and 106 children aged five and younger in 2007.

Family problems, domestic violence, and loss of employment are the three leading causes of homelessness for the people who come to the Atlanta Children's Shelter. Lois Berthaume, a senior vice president at the Federal Reserve Bank of Atlanta, is a member of the shelter board of directors.

Many of the families who seek assistance at the Atlanta Children's Shelter have paid more than half their income for housing, said Jackye Brown, the shelter's executive director. Because of economic pressures, some families will share housing with another family or even two others, a situation that often becomes untenable and results in a family coming to the shelter, Brown said.

In the current economy, rising prices for food, utilities, and gasoline are exacerbating the underlying problems of poverty and a dearth of affordable housing. "If it's hard for the average working person, it's doubly so for our clients," Brown said.

While those costs include such things as emergency medical care and jails, the largest cost is for services to the homeless, such as job training and shelters. The chronically homeless make up roughly 20 percent of the total homeless population, yet they use more than half of the services, according to the National Alliance to End Homelessness. As defined by the Department of Housing and Urban Development, a chronically homeless person is someone who is unaccompanied, has a disabling condition, is living in an unsheltered location or in emergency shelter, and who has been homeless more than a year or more than four times in the past three years.

Therefore, attacking chronic homelessness would appear a logical way to blunt the related economic costs. The most successful way to do that is to provide permanent supportive housing, the National Alliance and other homeless advocates say. For example, a program in Denver that moves the long-term homeless into permanent housing reduced the public cost of services per person by $15,773 a year, more than offsetting the $13,400 annual cost of the supportive housing. Portland, Oregon, and New York City also realized significant savings through similar programs.

An Atlanta study suggests that people placed in housing tend to stay put. The Regional Commission on Homelessness tracks over 700 people in supportive housing in Atlanta, and its data show that 92 percent who have moved into housing have stayed there, even after a year.

Amid myriad challenges, there is some good news regarding homelessness. U.S. Department of Housing and Urban Development Secretary Steve Preston reported at the National Alliance to End Homelessness Annual Conference in July that the nation's chronically homeless population fell from 175,914 in 2005 to 155,623 in 2006 and even further to 123,833 in 2007.

This article is only a glimpse of the economics of homelessness. To read more, access the related links.