Ending homelessness is cheaper than doing nothing

Illustration about homelessness and the economy
Tiffany Ho/Staff

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Despite being the wealthiest nation on earth, the United States has a total homeless population of more than five hundred thousand. This situation is clearly abhorrent; yet, we fail to see any substantive effort made to improve the current circumstances. There seems to be an attitude that there must be a natural rate of homelessness, perhaps in the same way that there actually is a natural rate of unemployment.

However, this is simply not the case. Homelessness is a net negative, and if the federal government were to spend money to end homelessness, the economic benefit generated would more than cover the cost of solving the issue.

Aside from the obvious moral reason that no human should have to experience the trauma of extreme poverty, the existence of pervasive homelessness is also economically detrimental to a society.

Shelter provides a foundation that is necessary for an individual’s economic and financial growth. People with housing worry far less about surviving the elements, contracting diseases or becoming addicted to drugs than those who are unhoused. Having shelter drastically decreases medical costs and health risk factors.

In addition to the physical toil that a lack of shelter causes, homelessness can cause trauma and trigger PTSD when a previously unhoused person finds shelter. Even after enduring the difficulties of obtaining housing or a job or both, the horrors they have experienced haunt them and can often be so hard to surmount that they end up back on the streets.

In addition to the instability inherently caused by homelessness, the circumstances of homelessness push these desperate people to commit criminal acts even though there are often no other alternatives for them to realistically pursue. In most cities, lack of public bathrooms, affordable drug rehabilitation programs and food for the poor can result in incarceration for public urination, drug use and petty theft. The criminalization of these desperate actions makes it significantly harder for people without housing to escape their situation.

To put it simply, the average homeless person is far too preoccupied with trying to survive to be able to single handedly lift themselves out of their dire circumstances. These situations also cost the American taxpayer significantly by increasing funding for emergency health care services and policing. The status quo is a lose-lose equilibrium.

All of these issues, each of which is caused by a lack of shelter, makes it much harder for a significant portion of the population to contribute to the nation’s real GDP.

When someone’s basic needs are not met, it is nearly impossible for them to find work and even more unlikely that they amass enough income to afford housing. Essentially, they are unable to participate in the labor force. If instead their basic needs were met, the labor force would increase, resulting in an increase in the long-run aggregate supply — or the measure of a country’s full employment output of real GDP.

If the federal government during a bust period spent more time, effort and money on housing the unhoused, the United States could possibly experience one of its greatest periods of sustained growth along with seeing a massive decrease in poverty.

The basic economic principle that would cause this is the spending multiplier, or the idea that government spending — whether in the form of stimulus checks, Medicare or infrastructure — has a multiplier effect when people have an increased marginal propensity to consume, resulting in a rise to GDP. These types of fiscal measures are often undertaken during recession periods.

Here is a graphical explanation of the process.

It’s clear that the housing first model (or simply giving homeless people houses) works well in theory, but how well does it work in practice? Various forms of the model have been tried in several cities and regions across the United States and Canada.

As a result of its implementation in Utah, “chronic homelessness has declined 72 percent since 2005 and chronic homelessness among veterans has reached an effective zero.” In the five Canadian cities where the housing first policy was implemented, there was a 79% decrease in days spent in jail, a 66% decrease in days spent hospitalized, a 38% decrease in time spent in emergency rooms, a 41% decrease in Emergency Medical Service use and a 30% decrease in police interactions.

Even from a purely self-interested homo economicus point of view, the American taxpayer should endorse policies giving free housing to unhoused individuals.

Homelessness is not a necessary evil. It is a failure of the current economic system that harms everyone involved. However, we can collectively end this scourge. Not only do we have the potential to solve the homeless crisis, doing so will both massively grow our potential economic output and decrease the tax burden on Americans. Our status quo is not the result of economics, but rather due to a lack of political will to fix the issue.

Ajay Madala is a first-year intended economics major.