Helping the Unhoused

Why the one thing government could do (allow builders to build cheap housing) is the one thing they refuse to consider

God I wish some kind of basic economics education was widely instilled in our population. I guess I feel the same about history… and literature… and logic… But more than those, I wish my fellow citizens understood the basic principles of economics. Here are some FACTS about economics that seem to hold in pretty much every situation:

• When you have competition among a healthy number of firms and no government intervention, you get a very high rate of efficiency. If you see prices or profit margins rise or seller behavior change (stores closing, layoffs, etc.) there is almost certainly a valid market-based explanation for this. State intervention (to pass minimum wage laws, or fix prices, or demand availability) will create negative effects that will distort other areas of the economy and ultimately be counter-productive.

• Price ceilings cause shortages (waste, because people with money aren’t able to buy products which should be available)

• Price floors cause surpluses (waste, because there is too many products on shelves and in the market and not enough customers who want to buy them)

• Labor regulations (maternity leave policies, healthcare laws, minimum wage rules) raise the cost of hiring employees and often create unemployment above what would otherwise occur

• Market regulations (restrictive zoning rules or safety rules or environmental restrictions) increase the cost of doing business and lead to less production than would otherwise occur

Pay particular attention to that last item.

Granted, sometimes the laws and rules are still preferable. It might be better for the market to allow 15-year old’s to work in stores but we have decided that there is a public interest against that and so we generally outlaw it, and try to keep them in school and with friends instead. There are a thousand examples like this and I support many of them. I’m no an anarcho-capitalists (although I love to read them… lol).

The issue arises when the trade-offs aren’t acknowledged. A responsible debate about these issues would accept the economic costs and educate people about them, and make their case anyway. Example: minimum wage laws will cause unemployment on the margins (affecting young and black and unqualified applicants disportionately) but they are still a net positive. Instead, we have a dialogue in which BOTH sides refuse to acknowledge that their policies have any trade-offs. Every economic policy and law has trade-offs and the people pretending that their favored ones don’t are not your friends.

California has a spiraling homeless crisis which hundreds of well-funded agencies (spending upwards of $1 billion each year now) have proven unable to solve, or even ameliorate. Los Angeles programs are ROUTINELY spending $30-40, 000 per month on programs that they’re not even directly administering. San Francisco recently created some homeless transitional units… at the price of $700,00 PER UNIT. The video below examines the dynamics of the funding cycle and the ways that it can become completely unmoored from the public interest.

(Above) A decent summary of the issue and why so much money is sloshing around an ever-worsening problem

Behold: some of the most valuable real estate in the United States!

I just want to mention that the reason for the homeless crisis is fairly straightforward. I haven’t found any economist who disputes the basic shape of the problem, and I’ve been looking. California is now the most expensive state in which to build houses, and much of the marginal cost relates to regulation (most restrictive in the country) and taxes (highest in the country). In addition, many municipalities have introduced their own zoning or environmental rules which further restrict the ability of builders to create cheap units. There is no homeless crisis in Florida or Texas (although there are certainly homeless people). That’s because we have a healthy housing and rental market which provides low-cost housing options to those on the margins.

THESE LAWS AND REGULATIONS MAKE THE BUILDING OF CHEAP HOUSING PROHIBITELY EXPENSIVE. Remember: market regulations increase the cost of doing business and lead to less production than would otherwise occur. That means that a unit which might run you $800 (monthly) for a bedroom or $1000 for a studio in Florida will cost you double or triple that in the most developed parts of California. It means that less building happens and the building which does occur is pricier. It means that drug addicts who would be able and willing to spend $750 (monthly) for shared, cheap housing in Florida would have to spend $2000 and they would rather live in a tent and spend the difference on drugs. It’s important to note: THERE IS NO WAY TO GET AROUND THIS EXTRA COST. EVEN IF THE GOVERNMENT BUILDS THE UNITS THEY WILL STILL BE INCREDIBLY EXPENSIVE… JUST NOT FOR THE RESIDENTS. EVERY UNIT BUILT BY THE GOVERNMENT WILL BE 4,5,6X MORE EXPENSIVE THAN ONE WHICH WOULD BE PROVIDED BY THE MARKET.

You cannot repeal the laws of economics, unfortunately. If you could the Soviet Union would still exist and it might be the Utopia that the American Left believed and hoped it would become for many decades. It does not and did not… and we won’t either if we adopt their policies.

Here are a few more general economic policy facts:

• Government is EXTREMELY wasteful when it spends money. It’s especially bad when it runs the programs through which the benefits are being distributed (i.e., owns the buildings, employees the workers, etc.). In such cases only 10-20% of the allotted money gets to the beneficiaries. The rest gets eaten up by government administrative costs and pensions and travel, blah blah blah.

• It’s often nearly impossible to determine the effectiveness of government programs. In the market we don’t need bureaucrats or committees to decide which products are popular or which businesses are successful: prices and profits do that. In the government and non-profit sector, however, the best that can be achieved is usually to find metrics and evaluate based on those. Unfortunately this distorts the entire effort. It then becomes about meeting those (often arbitrary) numbers, rather than doing maximum good. When state tests are used as a benchmark for evaluating and funding schools, for example, much of the schoolyear often comes to revolve around teaching students for the test rather than stimulating their curiosity or spreading broad and useful knowledge. In reality, many of the metrics used by the public sector are more perverse and senseless than state educational performance tests.

• Non-profits and government agencies tend to seek increased funding each year. This is obviously incompatible with SOLVING the problems they are tasked with addressing and, in places with compliant legislatures, it can result in runaway funding loops which deliver very little public benefit.

• Once agencies and nonprofits are established they become their own agents of political pressure with their own survival incentives. No one wants to be unemployed, so if there’s a choice between closing the case (well done!) and saving the public money… or continuing to bother politicians and the media and the public (even if this means exaggerating issues or alarming people) most organizations seem to prefer the second.

Business has a bad flavor on the Left… but businesses are ALL providing desired goods to willing consumers at decent prices. If they’re not, they cease to exist.

This isn’t the case with public services. The dream scenario for a government agency is to get massive amounts of money to address minor problems with little oversight. This isn’t a partisan issue. It’s a ‘human nature’ and ‘economic incentives’ one. I can still respect people who acknowledge all of the above and make their case regardless. Unfortunately there don’t seem to be many people fitting that description on the Left.

If you want poor people to have housing, give them some of yours. If you don’t want to do that, allow builders to create some cheap housing for them. If neither of those prospects is appealing I have some bad news: you’re looking at a homeless crisis. Good luck.