Nothing but Palaces 2

American cities' homeless populations are exploding; why?

The first article in this series asked why, in the wealthiest nation in history, do so many people have so much trouble affording roofs over their heads?  As with most simple-sounding problems, the underlying causes are quite complicated.  This article beings our exploration of the causes of homelessness.

The Austin Statesman tells us:

On July 1 a new city policy took effect: Homeless people would be allowed to sleep or camp in public, with city parks, private property and City Hall exempted. After one month, it is abundantly clear that the results have been catastrophic for our city.

The accompanying photos, and other news articles, illustrate the problem: while Austin, TX, like most major cities, has always had a certain number of homeless people, they generally tried to stay out of public view and annoyance because the police could and would roust them off of sidewalks, out of public parks and playgrounds, and so on.  The mayor and city council, in their infinite wisdom, decide to make "camping" on public property legal.  This had the entirely predictable result that every unoccupied corner of Austin became instantly infested with hobo jungles.

Now, obviously the bums weren't born that fast; they have to have already existed but stayed out of public view. The change in city ordinances simply allowed them to make themselves more visible.

Whether that's an intolerable annoyance to taxpayers or a justified airing of legitimate grievances depends on your political point of view.  No doubt the good citizens of Austin, TX will make their opinion known at the next election, assuming they can safely reach the polling place through the piles of used needles and festering feces littering the sidewalks.

What's beyond debate, though, is that America has a large number of people who do not have a home.  Some of these, due to mental illness or substance abuse, are incapable of having a home even if someone gave them one for free because they'd burn it down or otherwise destroy it through their madness.  Others might be more or less sane, but lack either the skills or the will to maintain a home of any kind.

That's not all of them, though, and perhaps not even the majority.  As we explored in the first article in our series, housing prices have become so inflated that there are only a handful of American counties where a minimum-wage earner can afford even a single-bedroom apartment.  What's surprising is that in 3/4 of the country, the average income earner cannot afford the average home.

How is this mathematically possible?  There's no point in building homes that nobody can afford to buy.

For some locations, the answer seems obvious: Many of the people buying houses aren't from there, and don't intend to be.  Places like New York City and San Francisco are well known to the glitterati; to be regarded as a serious world-class billionaire, you need to have places in New York, London, and San Fransisco no matter what's on your passport.

Of course, being second (or third, fifth, or tenth) homes, they tend to sit empty much of the time.  That's fantastic for the city government: they collect property taxes on those zillion-dollar apartments but have to provide very few expensive services.  The maximum cost is pretty much an occasional fire department response if an alarm goes off.  There certainly won't be any costly public-school attendees coming from plutocrats' palaces!

But a glitzy apartment block full of empty apartments owned by wealthy folks who mostly live elsewhere is that many apartments which are unavailable for ordinary people to rent or to buy.  It seems logical that taking units off the market but not filling them with people, has to have some effect on rents, doesn't it?

Interestingly, recently this flow has slowed down a bit, but the numbers still are stunning.  The Wall Street Journal reports:

Foreign purchases of U.S. homes have dropped by half over the last two years, a fresh blow to the top end of the market in New York City, Miami and cities in California.

Foreigners bought less than $78 billion worth of U.S. residential real estate in the year that ended in March—a 36% decline from $121 billion the previous year.

This sounds bad, but the numbers involved remain enormous.  And foreigners have been buying property for years, so the total value owned is far more.

Still, compared to the total amount of property value in the entire United States, foreign holdings are a drop in the bucket.  Besides, this assumes that foreigners only buy existing housing, which isn't the case:

In Seattle, a prominent example of a housing project developed by foreigners—Canadians, in this case—is the 700-unit Insignia condo building, one of a handful of new large condo projects built in Seattle over the past decade. If foreign investors hadn’t built Insignia, up to 700 households would have been competing to buy homes elsewhere in Seattle.

From the perspective of an American seeking a home, it really doesn't matter whether the company that owns the apartment building is American, Canadian, Chinese, or Martian - the building is here, in the United States, and nobody will ever move it anywhere.  Superrich people who keep expensive penthouses empty on the off chance that they'll drop in may drive up high-end real estate prices in places like New York, but that isn't going to have any effect outside of the half-dozen world-class major-city counties that global billionaires consider "the United States."

No, blaming foreign absentee buyers is no explanation.  How about foreign occupants, though?

Consider that the vast majority of immigrants settle in a select few metropolitan areas. Further, immigrants usually settle in areas already populated by their diaspora—they self-segregate, and in doing so cluster in relatively small areas which are not able to absorb or disperse their economic impact.

For example, California alone is home to more than 10 million immigrants. This works out to 26 percent of the state’s population. Meanwhile, immigrants comprise 22.9 percent of New York state. This explains why 17 of 25 of America’s least affordable housing markets are in California and six are in New York...

Abeba Mussa, Uwaoma G. Nwaogub, and Susan Pozoc tested this theory in a 2017 paper. Their findings were startling: for every 1 percent that immigration increased the population in a metropolitan statistical area (“MSA”), rents in that area increased by 0.8 percent. Additionally, domestic out-migration caused rents in neighboring MSAs to increase by 1.6 percent on average.

This effect was magnified when looking at housing prices: housing prices increased by 0.8 percent for every 1 percent immigrant-driven rise in population in the destination MSA, but by a whopping 9.6 percent in surrounding MSAs. In this way, immigration not only raised rents and house prices, it primarily raised them for native-born Americans!

Foreign billionaires with posh American getaway apartments may get the blame, but there aren't enough of them to make much difference to ordinary people.

Immigrants who themselves are ordinary people, though, are a different story.  With the highest proportion of foreign-born residents in modern times being right now, there are more than enough immigrants to make a massive difference in housing prices - and, as the study referenced above proves, not just for the cities where the immigrants themselves mostly live, but for the entire surrounding region.

This makes apparent sense.  "White flight" has been a well-known phenomenon for most of a century; when lower-class blacks and Hispanics move into a previously working-class-white inner-city neighborhood, the old residents move out to the suburbs, which naturally increases demand for suburban homes just as the influx of new residents does for urban homes.

But here, too, is a logical problem.  Yes, if you dump a million new immigrants (legal or otherwise) into a given county, there will be pressure on the local housing stock and therefore on its price.  If respectable citizens decide to flee the incoming riffraff and decamp to the suburbs, that will tend to raise prices there.

In a market economy, though, what do the laws of supply and demand dictate?  When demand increases and supply remains the same, the price goes up.  And when the price goes up, some sharp-sighted capitalist will espy a market opportunity, start to provide additional supply, and the price goes back down again.  Hey, if there's any truth to the stereotype, a fair number of those immigrants work inexpensively in housing construction anyway!

But, apparently, that isn't working: we've stopped building enough houses.

America's population, both native-born and immigrant, has been steadily increasing for a long time.  Only in the last few decades, though, have we seen housing prices overall go through the roof and start to seriously hinder people's ability to achieve the American Dream.  For centuries - and for a long time even after the end of the frontier - our free-market economy ensured that an ample supply of housing wasn't a problem, at least not for very long.

Now it is.  Why?  We'll stick a toe into that, in the next article in this series.

Petrarch is a contributing editor for Scragged.  Read other Scragged.com articles by Petrarch or other articles on Economics.
Reader Comments

In my region, the houses being built are either high end or subsidized. Nothing is built that the average working person can afford. Even if such houses were built, the property taxes are so high as to approach the amount of a second mortgage, which would render them unaffordable. I don’t know as much about rentals, except that the conversion of warehouses and other commercial buildings into apartments is always at the high end. Ordinary people have to rent in old buildings in high crime areas. Panhandlers abound in the city, refugees are filling the north side, and the local rescue mission is overwhelmed. We don’t yet have feces on the street, and we actually have a sensible mayor, but the problems seem intractable.

Looking forward to the next installment.

September 12, 2019 11:51 PM

Good! Looking forward to reading more! A timely and pertinent article/subject! Thanks much! J

September 13, 2019 12:01 AM
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