Fed Policy is Driving Homelessness

In a society with a weak social safety net, homelessness is the inevitable result of exuberant real estate prices. Those living on the street are the indirect victims of loose monetary policy and low interest rates that foster high property and rental prices.

First, the good news: HUD data show that between 2007 and 2017, homelessness fell nationwide by about 15%, before increasing by 6% by 2020. Roughly two-fifths of these unfortunate folks are “unsheltered,” i.e., living in the open or in their vehicles.

The situation is worse, though, in the nation’s priciest large cities – New York, Los Angeles, San Francisco, Seattle, Honolulu, and San Jose – where homeless rates have skyrocketed above 350 per 100,000, that is, more than 0.35% of the local population.

Sound personal finance dictates that it’s unwise to spend more than 30% of income on either rent or a mortgage; not unsurprisingly, one academic study found that once the median housing cost rises above 22% of income, homelessness begins to rise; and above 32%, that increase accelerates.

Counterintuitively, a depressed local economy, because it lowers real estate prices, does not necessarily increase homelessness; even casual observers in the nation’s superstar cities cannot help but notice that the problem is far worse in those places than it was in the immediate aftermath of the global financial crisis (2007–2009).