Homelessness, Political Ideology, and the Fallacy of the Single Cause

Today, the paradoxical connection between a city’s prosperity and the severity of its homelessness crisis is obvious to even the most casual observers, and is the subject of the fascinating new book, Homelessness is a Housing Problem, by Gregg Colburn and Clayton Page Aldern.

First, a word about the authors: Aldern’s background – Ivy League education, Rhodes Scholarship, and silent bylines in the Economist – marks him as a card-carrying member of the punditocracy. Colburn, on the other hand, spent nearly two decades working in the engine room of U.S. income inequality at Goldman Sachs and Citadel Investment before founding his own hedge fund. In 2017, he abruptly changed careers and attached himself to the public policy apparatus at the University of Washington to focus on poverty and homelessness; his acquaintances have joked that his switch to an academic job served as repentance for his prior work.

The book is a nonpareil example of how a serious person should analyze a complex social issue. Although the authors don’t explicitly name it, they studiously avoid an analytical thought crime committed by ideologues at both ends of the political spectrum, namely, the “fallacy of the single cause.” Second Amendment enthusiasts will point that that since mass shootings are largely committed by the mentally ill, the easy availability of assault weapons cannot be to blame. Neither is the left immune to this fallacy; just because a broken taillight can be a mortal danger to the African American motorist doesn’t mean police forces haven’t been demoralized by defunding advocates.

Homelessness is a mind-numbingly complex phenomenon and is subject to another analytical flaw, what the authors call the “ecological fallacy”: the discordance between individual-level and city-level characteristics. We’ve already encountered one example of this fallacy, namely that while individual poverty is obviously a risk factor for homelessness, because of prosperity’s effect on housing costs the opposite is true at the city level – that is, the cities with the highest/lowest poverty rates tend to have the lowest/highest homeless populations. More importantly, while mental illness and character flaws certainly predispose to homelessness, it beggars common sense to posit, as many on the right suggest, that people in the highest income cities for some odd reason have dramatically higher incidences of fecklessness and schizophrenia.

For example, an editorial in the National Review blamed Seattle’s high homeless rate on drug abuse; while no one would gainsay that at the individual level drug abuse predisposes to homelessness, that’s clearly not true at the aggregate city level, since the incidence of drug abuse in Seattle is, if anything, far lower than in economically depressed locales like Cincinnati or Wilmington NC, where homeless rates are low.

Another “analysis” from the Manhattan Institute blamed Seattle’s homelessness on the decline of private mores and the quality of public behavior. The Institute presented no data to suggest that the Seattleites’ behavior, on average, was any worse than in any other cities – because there were no such data.

What about mental illness? There’s no question that at the individual level the presence of major psychosis, which is present in about a quarter of the homeless, is a major risk factor. But beware the ecological fallacy – at the city level, there’s actually a slightly negative correlation between a city’s prevalence of mental disorders and homelessness rate.

The same is true of race. At the individual level, there’s no question that African Americans, because of lower average income, wealth, and social status, have higher homeless rates, but once again, there’s no relationship between a city’s African American population portion and its homeless rate – witness that two of the nation’s biggest homeless crises are in Portland and Seattle, two of its whitest.

The authors demote much more of the conventional wisdom on the subject to the status of urban folklore, to wit:

• There is no correlation between a city’s overall rate of homelessness and the agreeableness of its climate. What does correlate with temperature is the portion of the homeless that are unsheltered, since cold weather cities, loath to see its residents freeze to death, build them more shelter space.

• A common trope is that cities run by Democratic administrations attract the homeless by providing them with generous benefits. Besides being inconsistent with the data, this notion also fails common sense, since the cities with the lowest homeless rates, such as Detroit, Baltimore, and Chicago, are Democrat run.

• Aggressive policing – “sweeps” that banish the homeless – do not reduce the homeless population by even a slight amount, but simply move them to less visible locales, where they are less liable to upset residents and tourists.

Obviously, something else is going on here, and as already alluded to, it’s housing costs. Somewhat unintuitively, there’s no relationship between a city’s median rental burden – the portion of income spent on housing – and the homeless rate. Rather, it’s the absolute dollar-amount median rental price that really matters; the Detroit renter with a $3,000 monthly income who has seen her rent rise from $1,000 to $1,500 can easily “trade down,” since the city’s median one-bedroom apartment goes for $650, but not if she lives in San Francisco or Boston, where vacancy rates are minuscule and the median one-bedroom rents for well in excess of $2,000.

Just as there are “natural” rates of interest and unemployment, above or below which distortions arise, so too is there a natural rental vacancy rate that accounts for renter mobility, generally agreed to be around 4.5%; in San Francisco, it’s 3.5%. Moreover, for every apartment available for rental there, there are two units that are only “seasonally” rented, owned either by those with multiple residences or by holiday rental companies such as Airbnb.

Colburn is an economist by training, and he saves the last section of the book for its money shot: its treatment of housing’s supply and demand curves. First, demand: he all but blames, and correctly so, Seattle’s high homeless rate on Amazon (and, implicitly, on Microsoft as well), whose populations of skilled, high-income employees drive the city’s rental and home price markets into the stratosphere.

The supply curve is even more critical, with the blame placed squarely on its low “elasticity” in many high-homeless locales, where the housing supply increases anemically to demand. Perhaps the primary determinant of housing supply is geography: cities surrounded by mountains and water, such as Seattle and especially San Francisco, tend to be both more desirable and have less available land than cities that are not, such as those in the Midwest and South; Charlotte’s economy has grown even more rapidly than Seattle’s, but its flat, open geography, and its more pro-business politics have allowed for more building. It is no accident that red states, which tend to view real estate development more favorably, have far less homelessness than blue states.

This phenomenon even has a catchy name, the “Homevoter” Hypothesis, which posits that homeowners are naturally incentivized to protect what is, for most of them, their major asset by complaining to their elected officials about congestion and “neighborhood character.” One does not have to be overly cynical to recognize these issues as racist dog whistle subtle enough to be acceptable even on the left. (The authors also point out that the Homevoter Hypothesis represents not only a political/geographic divide, but a generational one as well, with priced-out millennials being more open to loosening zoning regulations than their boomer parents.)

The book ends with policy suggestions, none of which will surprise the reader: acute housing relief to the unsheltered, a public spending bargain if ever there was one, since the law enforcement and emergency care costs for this population run between $30,000 and $100,000 per person per year; housing vouchers; and a sharp turn away from the Homevoter-driven zoning policies and regulations favored by neighborhood associations.

The good news is that the public is gradually turning away from the blame-the-victim personal responsibility narrative of homelessness, as if it’s even remotely possible that people in Seattle are somehow less responsible than those in Charlotte and Detroit. Further, younger voters priced out of the housing market have become more receptive to “yes in my neighborhood” (YIMBY) housing policies. Finally, it should not escape notice that the cities with the most homelessness are also the most prosperous, and thus best able to afford remediation. (The authors note that Washington state has no income tax, and that “It shouldn’t be a surprise that two of the wealthiest people in the country – Bill Gates and Jeff Bezos – call Washington home.”)

This reviewer cannot recommend this title highly enough; not only is it a compact and eminently readable gateway to understanding homelessness, but its bibliography will expertly guide those desiring a deeper understanding of it.

William J. Bernstein is a neurologist, co-founder of Efficient Frontier Advisors, an investment management firm, and has written several titles on finance and economic history. He has contributed to the peer-reviewed finance literature and has written for several national publications, including Money Magazine and The Wall Street Journal. He has produced several finance titles, and four volumes of history, The Birth of Plenty, A Splendid Exchange, Masters of the Word, and The Delusions of Crowds about, respectively, the economic growth inflection of the early 19th century, the history of world trade, the effects of access to technology on human relations and politics, and financial and religious mass manias. He was also the 2017 winner of the James R. Vertin Award from the CFA Institute.

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