Housing for the Homeless

Over the course of the past year and a half the issue of homelessness in New York has been growing more and more visible to the public eye. According to coalition for the homeless, 2016 saw the highest level of homelessness in the city since the Great Depression. While the population of the city has obviously grown, the growth in admittance to city run shelters is truly sobering:

homeless

As the issue has grown, so too have the political ramifications for a mayor who centered his 2013 campaign on a “Tale of Two Cities,” vowing to fight an increasing divide between the increasingly wealthy folks pouring into the city and poorer communities. In September of 2015, deputy mayor for Health and Human Services (the main agency overseeing homeless services) Lilliam Barrios-Paoli resigned, and was quickly followed by Department of Homeless Services Commissioner Gilbert Taylor quitting abruptly in December of 2015. In November of 2015, in response to a call from de Blasio for the state to “step up” and help shoulder some of the costs associated with homelessness, an aide to Governor Cuomo took a shot at the mayor in the press by telling the Daily News “[I]t’s clear that the Mayor can’t manage the homeless crisis” and suggesting that maybe de Blasio isn’t smart enough to solve the problem. While we’ve all come to expect the perpetual pissing match between our dearly beloved mayor and governor, this exchange was particularly pointed. In April of last year, the report summarizing the state of homelessness ordered by the mayor was released. This report brought together staff from City Hall, the Human Resources Administration, the Department of Homeless Services and the Mayor’s Office of Operations to systematically examine why things had gotten so out of hand. Out of this report grew the current proposal to build 90 new shelters around the city.

All of this, of course, has taken place against the broader discussion of the city’s role in promoting housing development. From the conversation surrounding the  renewal of the 421-a program (which provides tax incentives for building on vacant or mostly vacant land in the city) to last spring’s drawn out battle surrounding Mandatory Inclusionary Housing (a program requiring developers to designate a certain percentage of their units as affordable for a fixed amount of time), to the wildly popular new blog Thoughts About Cities, it seems like all anyone is talking about these days is housing (or maybe that’s just what I read?).

What, then, is the immediate backdrop behind the current situation? New York City is under legal requirement to provide a bed for anyone who enters a public shelter looking for one. When there are no available beds, families are generally put up in motels around the city. As the homeless population has risen much more quickly than shelter beds, the result has been an enormous increase in the cost to the city – the Times reported last month that the City spends around $400,000 a day on hotel rooms. Moreover, the rise in homelessness that has bedeviled the mayor for the past three years will almost certainly be used against him as his campaign for re-election this fall ramps up. It’s no surprise, then, that the de Blasio administration is making this push now.

I’ve been following the conversation with interest because one of the most strenuously opposed shelters is supposed to open this week two blocks from my apartment at 1173 Bergen Street. Whether or not it will in fact open is unclear at this point due to community opposition [UPDATE: The opening has been indefinitely postponed]. As Gothamist reported last week, the shelter is supposed to have 100 beds reserved for men over the age of 62. The building, nestled among the Brooklyn brownstones, wasn’t being used for anything prior to its renovation. But the backlash against this shelter raise much more interesting questions than the anger directed at the proposed shelter in Maspeth last fall. The neighborhood of Maspeth, Queens, had no shelters when the mayor proposed the siting last fall, despite the fact that around 250 people from the neighborhood lived in city-run shelters outside the neighborhood. The conversation was characterized by classic NIMBY (“not in my backyard”) lines such as the anonymous resident assuring the local reporter, “We’re not against homeless people, we’re just against where the shelter is.” Whether or not you find their story sympathetic, it was hard to deny the fact that this community wanted to keep the unhoused folks “over there” – anywhere but Maspeth. Maspeth residents were ultimately successful in their fight to keep the shelter out.

Crown Heights, however, is different. As the Daily News reported earlier this month, Brooklyn’s Community Board 8 (in which the Bergen Street shelter is located) already has 679 homeless beds. This figure is far higher than neighboring Community Board 6 in Park Slope. CB6 (the mayor’s neighborhood, current residence at Gracie Mansion not withstanding) has just 267 beds, despite having roughly 10% more residents. Community Board 8 sits in an area that was historically red-lined, is 67% black, and has a poverty rate of 26%. Community Board 6, on the other hand, is 75% white and has a poverty rate half that of Crown Heights. The concentration of existing shelter beds, minority population, and poverty have led to understandable claims that the neighborhood has become a dumping ground for the unhoused. Moreover, as Nikita Stewart  explained earlier this month, the current plan “runs directly counter to a new City Council effort to strengthen the Fair Share Law, aimed at equitably spreading social service and other programs and amenities around the city.” (To be sure, CB6 is not the neighborhood with the lowest level of shelter beds, nor is Crown Heights the highest – though their adjacency does make the discrepancy jarring)

On the other hand, the City has argued that as they site the new shelters, they are looking at placing them in the districts experiencing the highest levels of homelessness and poverty. The thinking behind this is simple: people (in the case of the Bergen shelter, senior men) should have the option to have shelters in their communities. These guys likely have friends and family in the neighborhood, and one can make the argument that siting shelters in these districts respects the existing community. These ties could also lead to informal dissemination of job opportunities through casual interaction. The well-known but unremarked-upon secondary fact is that property tends to be less expensive in these areas, leading to a lower cost per bed – something that should be taken into account.

Unfortunately, the City has put the neighborhood in an impossible spot. They either complain about the location of the new shelters and come across as heartless, or they simply allow the City to assume that there will be less resistance to unpopular policies in poorer communities of color. Luckily, the press has distinguished this case from the case of Maspeth last fall and largely refrained from casting Crown Heights residents as NIMBYs. Indeed, while residents are currently pointing to the discrepancies in the locations of the shelters, calls for reductions of current shelter beds are muted. The current debate is centered not on whether Crown Heights ought to have any shelter beds, but rather about the inherent fairness of concentrating homeless shelters in historically marginalized communities.

This is a tough one for me. On the one hand, the idea of a homeless shelter down the street doesn’t bother me at all. In fact, my system of ethics compels me to provide shelter for the unhoused without reservation, so resistance to a shelter at any level is uncomfortable for me. On the other hand, to ignore the historical complexities of the issue would be a mistake. Traditional public housing projects have often failed in the past in large part because the concentration of poverty in a particular district prevents the formation of social ties that can often lead to better opportunities for lower income folks. Furthermore, much of the current concentration of poverty in minority areas can be directly traced to racist housing policies employed by the federal and local governments. To now say that these neighborhoods are alone responsible for dealing with the results of those policies is wrongheaded and cruel. What’s more, the willingness of the City to back down from the introduction of a single shelter bed in Maspeth (a whiter and wealthier area than Crown Heights) means that any imposition of the current plan over the objections of residents becomes, rightfully, much more loaded. So, while I do want the City to continue to build shelter beds, I have to agree with my neighbors that the placement of this shelter is ill-advised. The City ought to be taking current beds and historical factors into consideration when siting shelters. If, however, 1173 Bergen does open as a shelter to senior men, I look forward to chatting with them on the stoop, hearing their stories, and welcoming them to our neighborhood.

The Folly of Home Ownership as an Investment

PSST
I’ve got a hot investment tip for you.
Interested?
Good.
Here’s the deal: First off, it’s tied to supply and demand characteristics of a singular small geographical area, so it’s very highly… focused (let’s not use annoying terms like “undiversified”). Speaking of “focused”, each share of this asset will likely account for the majority of your entire portfolio. Its value can be negatively impacted in radical ways by choices your neighbors make. Decisions made by the government, from the federal level down to a neighborhood associations, will also play an outsized role in its growth potential. Ownership of the asset will give you financial incentive to fight the poor (via affordable housing) and private and public organizations supporting these folks (such as homeless shelters, rehabilitation clinics, and that church that’s running a food pantry). You’ll become emotionally attached to this asset, too, and any attempt to separate its role as a financial instrument from its emotional role will be difficult. Ownership of this asset will make moving for any reason (like a higher paying job) even tougher. Oh, and if you’re like most people, you’ll end up borrowing huge sums of money to buy the asset – general wisdom calls a 4:1 leverage ratio prudent, though the government will help you boost that ratio to 28:1 if you haven’t bought the asset previously.

Still interested?

I’m talking, of course, about home ownership.

Finances and home ownership have a tricky relationship. So before you curse at me and close the tab, I’ll explain what I’m not saying.

I’m not saying that home ownership can’t make financial sense. If we think about it as an asset, a home does produce “income”- the income produced by a home can be thought of as the amount you’d pay in rent each year. In New York, for instance, an apartment that rents for $1,000 a month sells for, on average, $427,800.  Thus, we can think of the average home in NYC as being similar to a bond paying 2.8% per year, before principal appreciation. Here’s a table showing that average return for a few different cities:

annual_returns

In lots of big coastal cities the return is actually lower than mortgage rates. This is one of many explanations for why so many people rent in cities. However, these returns actually improve with time due to inflation. While the principal investment doesn’t change over time, the implied income (what you’d pay per month for an equivalent home) does increase. Broadly speaking, that’s why it generally makes more sense from a financial perspective to own your home if you’re planning to live in it for a long time than if you’ll stay only a few years. That logic is roughly borne out in the NYT tool you may have seen a while back. Home ownership also provides a buffer against rent-hikes, an enormous psychological benefit, especially for older folks on a fixed income (of course, as I wrote about when discussing historic preservation districts, home owners are still subject to higher property taxes as the values of their homes rise). But these implied income numbers are small, and only get smaller when you account for the fact that renters are generally not responsible for repairs, maintenance, yard work, or most of the other upkeep associated with home ownership. What’s more, the numbers assume outright ownership without a mortgage.

I’m also not saying that home ownership is a bad thing generally. Many people would choose to own their own home even if they realized that ownership is generally more expensive than renting – they receive positive benefits from ownership (pride, freedom to remodel or make changes, etc.) that are worth paying more for. What’s more, many neighborhoods restrict rentals, which means that “equivalent homes” is often a myth; one couldn’t find an equivalent home even if she did want to rent.

Finally, since someone will no doubt make this argument: yes, studies do show that home owners tend to participate more in their communities than renters. However, since most people aspire to home ownership, this could be almost entirely explained by the relative stability of renters versus owners. In places where renting is more common and there are fewer differences in income, age, and education between renters and owners, these differences in “civic participation” disappear. The civic participation argument has mostly been disproved as the racist propaganda that it is.

Phew. Okay. So that’s what I’m not saying. And to be transparent, I’m reasonably ambivalent about home ownership myself. While not having to worry about my plumbing or shoveling my stoop is nice right now, I won’t be surprised if at some point I decide that I’m willing to pay more money to own than I am to rent – but this won’t ever be a financial decision.

What I am talking about are people who, understandably, think of their homes as a good investment for capital investment. In the United States, we’ve completely mythologized home ownership since the late nineteenth century. From FDR’s a “nation of homeowners is unconquerable”, to William Levitt’s completely-serious “[n]o man who owns his own house and lot can be a Communist. He has too much to do”, to the mortgage-interest tax deduction (which, say it with me, costs the United States more than all public housing programs and goes overwhelmingly to the rich), the idea of owning one’s own land is part of our national identity. It’s no surprise that, in order to rationalize this mythology, we’ve told ourselves that it’s a financially prudent choice.

While the first paragraph above tried to poke fun at all the reasons why home ownership is a bad investment for principal appreciation, it’s worth spending a few serious moments with. If you follow financial trends at all, you’ll know that there’s been an explosion in index funds since the Great Recession. Why’s that? People are finally realizing that the key to a financial portfolio is diversification. People are buy these funds that track, say, the S&P 500 precisely because they give them exposure to the entire market. Rather than be loaded up in just tech stocks or just companies in Florida, individual investors are learning that spreading assets out (even within a single sector) leads, mathematically speaking, to lower risk without concomitant decreased expected reward.

Aside from the very wealthiest households, homes now represent more than 50% of holdings for American families. One single home, in one single neighborhood, subject to the economy of one single region. And we’re still being told that it’s a good financial investment. However, the raw numbers show that average house prices haven’t gone up anywhere near as quickly as the S&P 500 over the past 40 years:

sp_hpi.PNG
For both series, 1980Q1 = 100. S&P data hereHPI data here.

Of course, the odds of hitting that orange line exactly were next-to-none. Home owners either vastly exceeded or vastly undershot that orange line because of all the issues of non-diversification discussed above. The orange line above shows what a portfolio perfectly allocated among all homes in the United States would have done – not the incredibly undiversified portfolio including precisely one (or maybe two) homes. That said, even the average of all of home buyers in 1980 saw their down payments grow by only 20% of what the S&P 500 would have returned (with dividends reinvested). This does, of course, ignore the “implied income” discussed earlier, but even when we add that in, the numbers aren’t close.

At a macro level, why does this matter? Last month, the Upshot had a really excellent piece on what would happen if Americans stopped thinking of housing as an investment, but rather thought of it as any other consumable good. In the piece, they review a recent paper by economists Joe Gyourko and (you knew this was coming) Ed Glaeser. The paper is great, too, but I’m told I have a higher tolerance for academic economics than most people. Their central thesis is that if we stopped thinking of homes as investments and thought of them as service-providers, home values would probably come down. While this would understandably upset folks who have bought into the notion of housing an investment, it would provide a massive shot in the arm for the economy as a whole – they estimate that it could increase domestic product by roughly 10%. This is due, in large part, to an increase in labor force mobility (people aren’t as geographically constrained and can move to where they would be more productive and thereby receive higher wages) and the shift in capital away from a relatively unproductive asset (housing) into the stock market where it would be put to more dynamic use.

There are many reasons why home ownership can be a rational decision for an individual. Homes are never just a financial asset – they form the center of most of our lives, and are rightly bound up in our sense of self, our familial identity, and our connections to our communities. However, our personal finances and, to a large extent, our national economy would be well served if we thought more clearly about the costs we pay, not the money we save, to own our own homes.

Canutillo, Texas

I’ve been thinking all day about an article I read this morning about a school board outside El Paso, Texas, considering a resolution to oppose public housing on the grounds that students that would hail from these apartments would be “too costly to educate.” According to the article, the draft resolution points to “additional financial demands” as well as increased social problems.

A few weeks ago I made my way through Kenneth T. Jackson’s Crabgrass Frontier, and found his discussion on the history of annexation in American cities particularly interesting- probably because I didn’t previously know anything about it. Prior to the twentieth century, American cities had pretty much free reign when it came to the annexation of outlying areas surrounding their cities (think the five boroughs in New York becoming one city in 1898, or the gradual growth of older cities such as Chicago). As wealthy residents moved further from city centers, the cities were able to incorporate these newer areas, thereby preserving their tax base. The richer, outlying areas were used to cross-subsidize poorer areas. This system made sense; residents of these areas were likely to work in the city, and to draw on centralized utilities and infrastructure. Proximity to cities conferred benefits on these residents, and their taxes reflected it.

Jackson details the awakening of these out-lying areas to the realization that they could fight for suburban incorporation and therefore remain independent of the more urban areas they had left behind. He points especially to the collection of towns in Westchester County, directly north of the northern border of New York City. These areas continued to work in and receive benefits from the city, but their economic contributions to the metropolis were substantially cut.

Fast forward to 2017, and the result of the withdrawal of these relatively wealthier enclaves-become-independent cities becomes abundantly clear. The Canutillo Independent School district does not cover a particularly large portion of El Paso County. A metropolitan-wide school district would be relatively indifferent regarding the placement of public housing if it knew that, regardless of which block the housing was located on, the district would be responsible for educating its residents. It’s hard to fault the Canutillo school board too much here. If the new housing not only brings in families with below-average incomes but also causes wealthier families to move out of their catchment area, they are hit on both ends.

Of course, suburban municipalities are often set up, at least implicitly, in order to ensure that families are able to send their kids to well-funded public schools (because the median household income in Canutillo is roughly the same as all of El Paso County, that’s not likely the case here). An excellent CityLab article from earlier this month details how families selected segregated neighborhoods based on the quality of their schools, and worked to keep poorer and blacker families out of their districts. While less racially explicit now, laws such as minimum plot sizes ensure that lower income families are unable to purchase homes in suburban areas with good school districts, thereby maintaining high per-student funding and household incomes.

Rage all you want about the incompetence of Betsy DeVos. And unprepared she is. But so long as suburban municipalities are able to reap the benefits of living near a city but avoid a cross-subsidization of their lower-income neighbors, American public schools will continue to face yawning performance and funding disparities. So, remind me where you’re moving so you can send your kids to a good public school?

Social Services in the Suburbs

The past few months have seen a slew of articles critiquing the common narrative proclaiming the renaissance of the city in America. In fact, only a small slice of the US population (the young, the white, and the educated) is becoming more urban. While those with the most economic and social capital move to the cities, everyone else is still moving into less dense, more spread out, and more car dependent neighborhoods. This trend has wide-ranging implications for how we administer social services to the poor.

Measuring a city’s ability to serve its low-income residents is notoriously tricky. Cities providing the fewest social services to their residents are often abandoned by those residents, leading to artificially low rates of poverty. Cities with robust safety nets often see the reverse effect. The difficulty of analyzing the effectiveness of these policies often distracts from a more fundamental question: Do cities have a unique ability to care for the poor by virtue of their density? The answer seems to be a resounding yes.

Here in New York City, representatives from Riders Alliance and others have been pushing for subsidized MetroCards. This is hugely important, as reliable access to jobs and services vastly increase the earning potential for lower income residents of the city. A subsidized MetroCard, or its equivalent, is much less effective at ensuring economic access in a less dense region without a sufficient network of public transportation options. What, in the suburbs, would a program like this look like? Subsidized car ownership certainly doesn’t make much sense. The result is often bleak: The Federal Highway Administration estimates that transportation costs consume 25% of the average family income in auto dependent areas, but only 9% of family income in denser regions. While the poor in every city are the most likely to use public transportation, public transportation is not an effective link the wider community in suburban areas built on the expectation of ubiquitous car ownership. A family is forced to choose whether they will be at the mercy of a stigmatized, ineffective public transit system or pump a quarter of their income into car ownership.

Similar arguments can be made for everything from soup kitchens to food pantries, from job training sites to homeless shelters. In areas where people are spread out, these social services don’t have the dense concentration of users that enable them to be cost effective. The effective, efficient provision of social services are dependent on density.

Mayor de Blasio’s Mandatory Inclusionary Housing and Zoning for Quality and Affordability plans have been the subject of intense debate. These plans have often centered on the issues of displacement and neighborhood ownership. With good reason, many have lamented that the city is becoming increasingly unaffordable and that the character of long established neighborhoods is at risk. Much ink has been spilled about rising prices forcing lower income residents to leave the city behind, and the potential impact of losing touch with the network and support system often attendant in neighborhoods. We have rightly lamented the loss of community, but we have not paid enough attention to the economic and employment effects of those being displaced from the city. Unfortunately, low income residents being forced to leave the city due to rising prices are losing more than just community- they are losing access to dense, urban neighborhoods that are uniquely suited to provide them with the services they need.

Gentrification will continue to be a loaded, tense word for years to come. Rents will still be much too high for too many people. But as we continue to disagree over and to debate the merits of plans for affordable housing, we cannot lose sight of the fact that more than just community character is at stake. If we are unable to accommodate our lower income neighbors, we will be forcing them to move to areas systemically unable to provide for their needs anywhere near as effectively as the cities they currently live in.