BERKELEY – After 95 consecutive months of job growth, the United States unemployment rate has fallen to 3.7%, its lowest point since 1969. Yet wage growth remains stubbornly slow. In fact, after adjusting for inflation, the median weekly earnings of full-time workers are about the same as they were in 1979. In a related indicator of stress on American workers, the number of homeless people in the US actually rose in 2017 – the first increase since 2010 – partly driven by skyrocketing rents and housing prices.
West Coast cities are among the hardest hit. From Seattle to the San Francisco Bay Area and Los Angeles, tech workers earning six-figure salaries are dodging tent cities to get to work, and state and city governments are under increasing pressure to respond. At the same time, funding for US Department of Housing and Urban Development programs has fallen below what it was in 2010 (adjusting for inflation).
Getting an accurate count of the homeless is difficult, in part because it is an unstable population. People can be driven into homelessness by many contingencies, including income insecurity, eviction, transition from incarceration, domestic violence, drug abuse, and mental health issues. Recent estimates indicate that more than 550,000 people experience homelessness in the US on any given night, with about two-thirds ending up in emergency shelters or transitional housing programs, and one-third finding their way to unsheltered locations like parks, vehicles, and metro stations. According to the Urban Institute, about 25% of homeless people have jobs.
Homelessness also varies significantly by state. In 2017, California, New York, Hawaii, and the District of Columbia had the largest number of homeless per 10,000 residents. Not surprisingly, eight of the ten states with the highest rate of homelessness also had the highest median housing costs.
In California, which accounts for 12% of the US population but 25% of its homeless, this issue has moved to the top of the political agenda. In 2017, Los Angeles voters passed tax measures to raise $1.2 billion for additional housing for the chronically homeless and $355 million for expanded services for the homeless. Other revenue-raising measures are on local ballots in several California cities in the November election. In San Francisco, Marc Benioff, Chairman and co-CEO of Salesforce (one of the city’s largest employers), supports a proposed tax on gross business receipts to combat homelessness, though Mayor London Breed, a Democrat, and other tech employers (including Twitter) oppose the measure.
More funding is certainly needed. But for it to be effective, policymakers should focus on three key areas: prevention; immediate and direct support for the homeless; and assistance for those making the transition to more stable housing. Moreover, governments will need a more accurate assessment of the homeless population. A mother fleeing domestic abuse with her children has different needs than a veteran with post-traumatic stress disorder.
Preventing homelessness is both cost-effective and humane, but it requires that people have adequate incomes to cover basic needs, including housing. Of 3,007 counties in the US, a worker earning the federal minimum wage of $7.25 per hour can afford a one-bedroom rental in only 12. In San Francisco, where the median house price is over $1.5 million, a single mother earning the minimum wage would have to work 120 hours per week to meet her basic needs. And even outside of high-cost regions, nearly two-thirds of US households lack the savings to cover a $500 shock such as a car repair or health-care expense. For these families, one bad turn can result in homelessness.
Moreover, today’s inadequate safety net denies many citizens access to benefits that could prevent homelessness. Three out of four households that qualify for federal housing assistance are not receiving it, owing to conflicting eligibility requirements, duplicative applications, and complex multi-agency approval processes. Young people exiting foster care or incarceration, as well as people with serious health challenges, are too often left to fend for themselves. And local governments urgently need to do more to ensure that proper eviction standards are being followed.
Unfortunately, the surge in homelessness has strained municipal and local governments’ capacity to respond. For example, in Seattle, with the third-largest homeless population among US cities, a per-employee tax on large companies was soon repealed under intense business pressure. As a result, a shelter for the homeless is often provided by cash-strapped social-sector or religious organizations, and the waiting lines for admission to such facilities are long and growing.
Looking ahead, policymakers should bear in mind that the most successful solutions do not just offer emergency short-term shelter and daily services like showers and meals; they also help individuals make the transition to stable housing and access long-term support services. For example, Santa Clara County in California has launched Project Welcome Home, a pay-for-success initiative that provides housing and clinical services to 200 chronically homeless individuals. Los Angeles County has created an Office of Diversion and Reentry to train thousands of professional staff to help those being released from county jail. And San Francisco is collaborating with the non-profit organization Tipping Point to provide more affordable housing units and preventive programs.
Elsewhere, Utah has led the country in the “housing first” approach to homelessness, which focuses on putting the chronically homeless into permanent housing before tackling the main factors causing their homelessness. Salt Lake County, in particular, has been successful in implementing a program that addresses homelessness in the context of criminal-justice reform.
“Housing first” makes intuitive sense: to state the obvious, people are homeless because they don’t have homes. But to ensure ample affordable housing for all those at risk of homelessness, California would need to build around 180,000 more new housing units each year – about 100,000 more than are currently being built – just to keep up with population growth. Since 2010, eight times as many jobs as housing units have been added in San Francisco, where the average cost of building “affordable apartments” has jumped to $425,000. King County, Washington, which includes Seattle, estimates that it would need 14,000 more units to house its homeless population.
A crucial first step is to increase the production of housing at all price levels, with a particular emphasis on the lower end of the market. But that alone will not do. Much more is needed to address the complex and often overlapping factors that drive people out of their homes and into the streets in the first place.
Laura Tyson, a former chair of the US President’s Council of Economic Advisers, is a professor at the Haas School of Business at the University of California, Berkeley, and a senior adviser at the Rock Creek Group. Lenny Mendonca, Chairman of New America, is Senior Partner Emeritus at McKinsey & Company.