Ending Homelessness

City+officials+have+begun+what+they+are+calling+a+slow+and+methodical+clean-up+and+removal+of+a+large+homeless+encampment+along+the+Santa+Ana+River+Trail+in+Anaheim%2C+California%2C+U.S.%2C+January+22%2C+2018.++++++REUTERS%2FMike+Blake+-+RC113659B920

REUTERS

City officials have begun what they are calling a slow and methodical clean-up and removal of a large homeless encampment along the Santa Ana River Trail in Anaheim, California, U.S., January 22, 2018. REUTERS/Mike Blake – RC113659B920

By Wyatt McElroy, Assistant Reporter

My last article, “Poverty Is Violence” outlined many issues plaguing the American people but did not propose any solutions. With this article, I will be attempting to provide a path towards ending homelessness in the U.S. 

First, we must examine the problems in our current legislation. Exclusionary single-family zoning prevents the construction of many homes which results in both homelessness and gentrification. In simpler terms, the government decides that only detached single-family homes may be built in a certain area. The development of single-family homes in place of multifamily structures prices out previous residents. Furthermore, suburban areas created by these policies often require more upkeep due to more roads and other infrastructure necessary to account for the spread-out nature of the communities. Due to this, suburbs are financially unable to sustain themselves and require subsidies created by more economically productive areas.  In most cities, about 3/4 of the land is regulated in such a way. Upzoning legislation would, in theory, allow for an increased supply of housing. However this is not always the case, a 2019 study entitled “Upzoning Chicago: Impacts of a Zoning Reform on Property Values and Housing Construction,” found that there was little increased development, and instead upzoning lead to increased property values as speculators sat on land anticipating the increase in land value due to interest from actual developers. The solution to this issue is simple; replace property tax with a tax based upon the value of the land. Land speculators buy large sums of land and slow development as they wait for land prices to rise while paying little in property tax due to the lack of development on their land. Replacing this with a tax on land value, assessed independent of the property/improvements on said land, would disincentivize speculation as any increase in land value would lead to a large increase in taxes. Land value, however, does not disincentivize development because land is inelastic, meaning one cannot create more or less land. One may point out that the surplus of housing vastly outnumbers homeless people. This is true and is something I noted in my last article, but it is important to acknowledge that not all of these vacant houses are in areas where there are large homeless populations. This also may be due to land speculators simply not wanting to rent out, sell, or develop the properties, or reluctant landlords looking for higher rents. Overall, it is not a problem with the supply of resources to build housing, but rather an issue with how our current policies impact the housing market which leads to undeveloped properties and lack of housing supply where it is most necessary. The land value tax could help address this by incentivizing the development\, as again, speculators would be forced to either use their land or lose it because they would no longer generate passive income off of it, only the improvements built. After being instituted in Harrisburg, PA in 1982, a policy that taxed land at a much higher rate than it did property (changing between ratios of 3:1, 4:1, 5:1, 6:1 throughout the years before settling at 6:1) seemed to have many positive effects on what was a quickly declining area. In 1994, the mayor, Stephen Reed wrote, “With over 90% of the property owners in the City of Harrisburg, the two-tiered tax rate system actually saves money over what would otherwise be a single tax system that is currently in use in nearly all municipalities in Pennsylvania. We, therefore, continue to regard the two-tiered tax rate system as an important ingredient in our overall economic development activities.”

It is worth noting that the City of Harrisburg was considered the second most distressed in the United States twelve years ago under the Federal distress criteria. Since then, over $1.2 billion new investment has occurred here, reversing nearly three decades of very serious previous decline. None of this happened by accident and a variety of economic development initiatives and policies were created and utilized. The two-rate system has been and continues to be one of the key local policies that has been factored into this initial economic success here.”

The number of vacant structures in Harrisburg declined from over 4200 in 1982 to under 500 by 2001.  The downtown—previously a ghost town—is alive, even at night. The number of businesses on the tax roll has grown from 1,908 to 8,864. Other analyses on the effects of this tax up to 2010 have observed an increase of 4.8 billion worth of investments, increased taxable properties from $212 million to $1.6 billion, residential units increased., vacant structures decreased by 80%, the crime rate decreased by 28%, and an increase of new jobs totaling in the thousands. A similar outcome can be seen in Allentown, PA which saw 70% of residential homes receive a tax decrease, in the poorest neighborhoods more than 90% of homes had their taxes reduced. Meanwhile, the number of taxable building permits surpassed past neighboring areas, market investment returned, and capital improvement reappeared in city budgets. Some may point towards the potential difficulty with calculating a land value tax, but Denmark has found success implementing the tax at a national level and many areas that have committed to implementing the tax have done so successfully.

To ensure that the new housing built is affordable, community land trusts (nonprofit community-owned and operated, landholding organizations that sell or rent the units on land they own, to keep that housing affordable long term) and housing co-ops (multiple family buildings owned collectively by the residents) should also be incentivized by the local and/or federal government. One study found that homeowners in CLTs were 10 times less likely to default on their mortgages than traditional homeowners during the Great Recession. According to the study, 82 percent of CLT homeowners who were seriously overdue in payments in 2010 were able to either sell or remain in their home with financial assistance from the trust, avoiding foreclosure. Moreover, quoting the conclusion of a case study on Champlain Housing Trust in Burlington, Vermont, “This case study analyzes the Champlain Housing Trust’s program of providing homeownership opportunities to low-and moderate income families. Of the 683 families who purchased CHT (same as CLT) homes, 92.1 percent for whom we have information were first-time homebuyers. Despite restrictions on the appreciation that they could realize upon resale, CHT homebuyers who sold their home realized a median internal rate of return of 30.8 percent. This high average meant that most resellers saw returns well above what they would have earned if they placed their down payment in either the stock or bond market: 75.4 percent had higher returns than they would have seen in either. A high percentage of resellers (68%) invested their earnings in purchasing another house or condominium, stepping into market-rate homeownership for the first time. Although CHT homeowners, on average earn 52.3 percent of the HUD median family income in Burlington, only 2 of CHT’s current 435 homeowners (0.5 percent) had a mortgage in foreclosure. This is a foreclosure rate that is half that of the surrounding regions. Rather than using high-cost loans, CHT’s homebuyers financed their purchases with mortgages that are underwritten with standards that allow for sustainable homeownership over time. In total, 15 homes (2.2 percent) have entered the foreclosure process, and 7 of 683 homeowners (1.0 percent) have lost their home to a completed foreclosure. Despite a significant run-up in area home prices, the CHT program still was able to sell its homes to low-income buyers. CHT’s program has seen little erosion of affordability. The income required to purchase an CHT home (as a share of area MFI) increased by 0.9 percentage points between purchase and resale; the absolute income required to purchase an CHT home at resale increased by an average of 1.1 percent per year, indicating little change in units’ affordability between their initial and subsequent resale. Given the recent foreclosure crisis, the program managed by CHT provides a potential model for increasing homeownership opportunities to families who may not be able to afford market rate homes, and does so in a manner that promotes wealth creation without placing these buyers at an undue risk of losing their homes.”

Housing Co-ops can have similar benefits, quoting the conclusions of an Urban Institute Case study of Dos Pinos Housing Cooperative, “Dos Pinos Housing Cooperative, a 60-unit limited-equity cooperative, has provided affordable homeownership opportunities since its completion in 1985. To assess outcomes of housing affordability, wealth creation, security of tenure, and mobility, we examined client-level information on 276 sales. Approximately 40.3 percent of these sales were to first-time homebuyers, and the median sales price paid for cooperative shares was $18,363 (in 2008 $). This sales price provided homeownership opportunities for households with incomes below the area median: Dos Pinos’ resident members had a median household income of $51,988 (in 2008 $), which is 73.2 percent of the surrounding county’s median household income. In addition to the initial share price, all of which was paid at purchase, cooperative members are responsible for a monthly charge that currently ranges from $627 for a one-bedroom unit to $1,076 for a three-bedroom townhouse. During a period when the Sacramento area’s housing market was undergoing considerable appreciation, pushing rents and prices beyond the reach of many households, the cooperative units at Dos Pinos retained—and even increased—their affordability. Living in the home for an additional year is associated with a 1.6 percent decrease in income needed. When factoring in the change in real median family incomes it is clear that Dos Pinos saw net gains in affordability. 16 With a near-absence of delinquencies on monthly cooperative assessments, the Dos Pinos cooperative has clearly been both an affordable and secure investment for these families. Dos Pinos’ limits on the equity that its resident members may receive when leaving the cooperative do not appear to limit mobility. An average of 8.4 percent of Dos Pinos’ residents resold their shares each year. Resellers walked away with a median of $19,585 (in 2008 $) in cash from the closing table. Most of these funds came from the cooperative member’s initial share purchase (median of $18,363). About a fifth of the resellers’ proceeds came from appreciation on the value of their shares. However, resellers earned a relatively low rate of return on their $18,363 investment— 6.5 percent. This return is somewhat less than alternative investments realistically within their reach. Resellers may have been able to accumulate additional savings during their residency at Dos Pinos if the monthly cost of buying and occupying a cooperative unit was lower than what they would have had to pay to rent a comparable apartment in Davis.”

To ensure further affordability the government must be aggressive in incentivizing the creation of community land trusts and housing cooperatives. The government can subsidize, or pay in full for, the creation of these structures. After the creation, they may be run as usual by the residents to avoid the decadence associated with traditional state-run public housing. From there, the government can supply universal rent vouchers for all low-income people. All individuals whose income falls below the cost of living calculated by the US Bureau of Labor Statistics for the county where they reside should automatically qualify for the vouchers, regardless of work status or any other factors. For homeless individuals, rapid re-housing programs have seemed effective. “Rapid re-housing was designed to move families quickly from homelessness into permanent housing by helping them locate appropriate housing, providing temporary financial assistance for housing-related expenses, and addressing service needs linked directly to housing stability. Though there is limited, but growing, evidence about the effectiveness of the approach, early evaluation and program data indicate that rapid re-housing reduces returns to homelessness.” One study done by the Urban Institute on the matter concludes. Analysis of other studies done on rapid re-housing programs has found similar results, “There is a large and growing evidence base demonstrating that Housing First is an effective solution to homelessness. Consumers in a Housing First model access housing faster and are more likely to remain stably housed. This is true for both PUSH and rapid re-housing programs. PSH has a long-term housing retention rate of up to 98 percent. Studies have shown that rapid re-housing helps people exit homelessness quickly—in one study, an average of two months —and remain housed. A variety of studies have shown that between 75 percent and 91 percent of households remain housed a year after being rapidly re-housed. More extensive studies have been completed on PSH finding that clients report an increase in perceived levels of autonomy, choice, and control in Housing First programs. A majority of clients are found to participate in the optional supportive services provided, often resulting in greater housing stability. Clients using supportive services are more likely to participate in job training programs, attend school, discontinue substance use, have fewer instances of domestic violence, and spend fewer days hospitalized than those not participating. Finally, permanent supportive housing has been found to be cost efficient. Providing access to housing generally results in cost savings for communities because housed people are less likely to use emergency services, including hospitals, jails, and emergency shelter, than those who are homeless. One study found an average cost savings on emergency services of $31,545 per person housed in a Housing First program over the course of two years. Another study showed that a Housing First program could cost up to $23,000 less per consumer per year than a shelter program.” The government should act by massively increasing funding for these housing-first programs.

A tax on vacant houses can also be considered to pressure property owners into renting out their lots rather than waiting for rents to rise. One study on the effects of this tax in France found “the tax accounted for a 13% decrease in vacancy rates between 1997 and 2001. The impact is especially concentrated in long-term vacancy. Results also suggest that most of the vacant units were turned into primary residences.” The only problem with this tax is that it may decrease the long-term supply created by developers in fear of being taxed on the excess vacant lots created. Further studies on the long-term effects of vacancy taxes on housing supply are necessary. One may also advocate for rent control, and although it can have some positive effects on housing stability, it is not without its faults as it has been known to decrease the supply of housing, possibly increasing prices and lowering quality long-term. One analysis by the D.C. Policy Center states, “Broadly speaking, researchers have found that while rent control measures keep rents from rising as quickly as they would otherwise for the affected units, they also reduce the quantity and quality of available housing stock over time, as some landlords respond to lower revenues by selling or converting rental buildings to condominiums, declining to rent units that require extensive maintenance, or expending fewer resources on rent-controlled buildings through maintenance or renovations.” Although there have been some examples of rent control helping stabilize prices, at least short-term, for existing residents, attempts at implementing such policies should be done with great caution.

Lastly, it is important to realize that homelessness and housing issues are not humanitarian crises, but it also has severe negative economic effects. Looking at a 2016 case study done by the Urban Institute, “The competition for limited housing units pushes job-seekers away from centers of economic activity. Ganong and Shoag (2013) find that over the past 30 years the flow of less-skilled workers to cities that offer high-paying jobs and opportunity has greatly declined as a result of prohibitively expensive housing. Hsieh and Moretti (2015) chronicle how the US economy suffers as a result of the insufficient supply of housing in high-cost cities. Their analysis estimates how land-use restrictions have shaped economic growth over the past 50 years. Examining the contribution of 220 metropolitan areas (metros) to economic growth, Hsieh and Moretti find that if workers were able to freely move to metros with more robust economies, the US economy would have grown 0.3 percent more a year from 1964 to 2009. This amounts to nearly $2 trillion more in economic gain and an annual wage increase of $8,775 for the average worker. Hsieh and Moretti also found that the fast productivity growth in New York, San Francisco, and San Jose increased local housing prices and local wages, but employment did not expand accordingly. As Richard Florida sums up, “Instead of fueling productivity and growth, too much of America’s urban economic power is simply being wasted on higher housing bills.”

In conclusion, the evidence suggests that homelessness is not an inevitable evil, but rather one created by policy errors. Upzoning suburbs while implementing a land value tax will increase the supply of housing where it is necessary, while government subsidies of community land trusts and housing cooperatives will ensure a large supply of affordable housing. A vacancy tax may be further explored and implemented if the findings are favorable. Any attempt at rent control must be done very cautiously as to not promote the supply and quality issues it has created in the past. For any struggling individuals, the government should invest heavily in both non-means-tested rent vouchers and housing-first programs that have proven successful. A strong commitment to these policies would effectively end homelessness in the United States once and for all.

 

 

 

 

Citations:

McCluskey, William J. Land Value Taxation: A Case Study Approach. Lincoln Institute of Land Policy, 2001, www.lincolninst.edu/sites/default/files/pubfiles/100_McCluskeyFranzen01.pdf.

Vincent, Joshua. “Non-Glamorous Gains: The Pennsylvania Land Tax Experiment.” Strong Towns, Strong Towns, 8 Mar. 2019, www.strongtowns.org/journal/2019/3/6/non-glamorous-gains-the-pennsylvania-land-tax-experiment.

“Harrisburg, Pennsylvania.” Wikipedia, Wikimedia Foundation, 10 Apr. 2021, en.wikipedia.org/wiki/Harrisburg,_Pennsylvania.

https://www.urban.org/sites/default/files/publication/83656/2000907-strategies-for-increasing-housing-supply-in-high-cost-cities-dc-case-study.pdf

PENNSYLVANIA’S anti-sprawl LEGISLATION. (n.d.). Retrieved April 15, 2021, from http://yarbroughlaw.com/Publications/pubs%20enviro1%20PA%20anti%20sprawl%20legislation.htm

Bloomberg.com. (n.d.). Retrieved April 15, 2021, from https://www.bloomberg.com/news/articles/2019-04-29/alternative-homeownership-land-trusts-and-co-ops

Cunningham, M. (2020, May 15). It’s time to reinforce the housing safety net by adopting universal vouchers for low-income renters. Retrieved April 15, 2021, from https://www.urban.org/urban-wire/its-time-reinforce-housing-safety-net-adopting-universal-vouchers-low-income-renters

Dougherty, C. (2021, February 12). Build build build build build build build build build build build build build Build (PUBLISHED 2020). Retrieved April 15, 2021, from https://t.co/Curi7BVmdp

Rent control literature review. (2020, April 02). Retrieved April 15, 2021, from https://www.dcpolicycenter.org/publications/rent-control-literature-review/#:~:text=Broadly%20speaking%2C%20researchers%20have%20found,by%20selling%20or%20converting%20rental

Rutgersdoct11. (2012, June 26). Living in fear of tomorrow – Harrisburg pa. Retrieved April 15, 2021, from http://aspanational.wordpress.com/2012/06/26/living-in-fear-of-tomorrow-harrisburg-pa/

Schuetz, J. (2020, March 16). To improve housing affordability, we need better alignment of zoning, taxes, and subsidies. Retrieved April 15, 2021, from https://www.brookings.edu/policy2020/bigideas/to-improve-housing-affordability-we-need-better-alignment-of-zoning-taxes-and-subsidies/?amp

Segú, M. (2019, November 27). The impact of taxing vacancy on Housing markets: Evidence from France. Retrieved April 15, 2021, from https://www.sciencedirect.com/science/article/abs/pii/S0047272719301409

Segú, M. (2019, November 27). The impact of taxing vacancy on Housing markets: Evidence from France. Retrieved April 15, 2021, from https://www.sciencedirect.com/science/article/abs/pii/S0047272719301409

Zhu, L., & Pardo, S. (2020, November 05). Understanding the impact of property taxes is critical for effective local policymaking. Retrieved April 15, 2021, from https://www.urban.org/urban-wire/understanding-impact-property-taxes-critical-effective-local-policymaking

[email protected], & Segú, M. (1970, January 01). The impact of taxing vacancy on Housing markets: Evidence from France,. Retrieved April 15, 2021, from https://ideas.repec.org/a/eee/pubeco/v185y2020ics0047272719301409.html

Cunningham, M. (2015, June). Rapid Re-housing What the Research Says. Retrieved from https://www.urban.org/sites/default/files/publication/54201/2000265-Rapid-Re-housing-What-the-Research-Says.pdf

Manville, M. (2019, December 6). It’s Time to End Single-Family Zoning. Retrieved from https://www.tandfonline.com/doi/full/10.1080/01944363.2019.1651216

Mulvihill, G. (2018, December 17). U.S. homelessness climbing overall, but some key cities make progress. Retrieved from https://www.pbs.org/newshour/nation/u-s-homelessness-climbing-overall-but-some-key-cities-make-progress

Temkin, K. (2010, October). SHARED EQUITY HOMEOWNERSHIP EVALUATION: CASE STUDY OF CHAMPLAIN HOUSING TRUST. Retrieved from https://www.urban.org/sites/default/files/publication/29286/412243-Shared-Equity-Homeownership-Evaluation-Case-Study-of-Champlain-Housing-Trust.PDF

Temkin, K. (2010, October). SHARED EQUITY HOMEOWNERSHIP EVALUATION: CASE STUDY OF DOS PINOS HOUSING COOPERATIVE. Retrieved from https://www.urban.org/sites/default/files/publication/29261/412238-Shared-Equity-Homeownership-Evaluation-Case-Study-of-Dos-Pinos-Housing-Cooperative.PDF