This is the fourth piece in an ongoing series in which we explain how local housing costs cause homelessness, why solutions to homelessness should be funded from a land value tax, and the merits of redistributing land values through a universal basic income.
Part 1: “In a good economy, homelessness goes up”: The Paradox of Progress and Poverty
Part 2: Basic Income for the Homeless: Findings from Three Experiments
Part 3: Universal Land Dividend: Why LVT and UBI are even better together
Part 4: Citywide Land Dividend: Can a LVT-funded UBI help solve homelessness? 👈 (you are here)
Introduction
Many cities are struggling with an escalating crisis of homelessness and are desperately seeking policy solutions to help their unsheltered population get housed and remain there. The first article in this series explained that thriving cities see their progress embed into exorbitant local land rents, driving disadvantaged individuals out onto the street. Thus, we concluded that solutions to homelessness should be funded by a tax on land values.
In a second article, we summarized the results from pilot programs which are experimenting with giving cash directly to homeless individuals in Colorado, California and British Columbia. Results so far suggest that providing unconditional cash transfers to homeless individuals are effective at helping them to find secure housing and rebuild happy and productive lives.
A third article expanded on the symbiotic relationship between a universal basic income (UBI) funded from a land value tax (LVT), which we refer to as the Universal Land Dividend (ULD). We explained that the ULD provides an inclusive, efficient, and progressive way to guarantee that all citizens enjoy a basic standard of living, and to create an economy where the bounty of social progress is shared by all people.
In this article, we draw these threads together by considering whether ULD at the city level can help to fight homelessness. Specifically, this approach refers to an annual land value tax applied to all property in a given metropolitan area, with the revenues used to pay a universal basic income to all residents of that city, hereafter called Citywide Land Dividend (CLD). Back-of-the-envelope estimates suggested that a CLD for the Denver metro area could pay an annual UBI of $3,300 to every Denverite.
While there does exist evidence that receiving cash helps homeless individuals find housing, there is scant research into the effects of CLD policies on structural levels of homelessness, i.e., on the overall prevalence of homelessness in each city. This article therefore proceeds to consider theoretical pathways through which a CLD could plausibly reduce levels of homelessness, and aims to stimulate further research into these mechanisms.
Two Schools of Thought
Before considering the pathways by which the CLD could help reduce homelessness, it is useful to highlight two key schools of thought among those which recognize that structural levels of homelessness are fundamentally caused by a lack of access to housing (rather than blaming individual factors like addiction, mental illness, eviction, etc.). These groups can be broadly described as those who wish to grow the housing pie and those who wish to redistribute the existing housing pie.
Grow the Housing Pie
One prominent perspective is that homelessness is primarily caused by a shortage of housing in places where it is needed, and therefore that the key solution is to ‘grow the pie’ by building more housing in high-demand cities.
This is the main message of the book Homelessness is a Housing Problem, which demonstrates that places with more abundant housing (as measured by the rental vacancy rate) tend to have lower rents and less homelessness, and recommends policy solutions that will expand the housing stock. Housing is explained as being similar to the game of musical chairs: just as a shortage of chairs leads to some players being left chairless, cities with a shortage of housing will see some people pushed into homelessness. Through this view, the only way to meaningfully tackle homelessness is to build, build, build.
From the perspective of ‘grow the pie,’ UBI may not reduce overall levels of homelessness, because people who are currently unhoused may simply outbid people who are currently housed, pushing them out onto the street. Rather, the effect of CLD on homelessness will depend entirely on whether it acts to spur the construction of more housing.
Redistribute the Housing Pie
However, the views above are not ubiquitous among researchers and housing justice advocates. Others argue that homelessness is primarily caused by an unequal distribution of the existing housing stock, often pointing out that “there are more vacant homes than homeless people.” Rather than increasing the supply of housing, this group tends to recommend taxing vacant homes to encourage them to be made available to rent.
More sophisticated versions of this analysis challenge the musical chairs analogy, arguing that unlike chairs, homes often have spare bedrooms and therefore are “underutilized.” For example, a recent paper by researchers at the London School of Economics shows that the UK has more excess housing than it does individuals living in deprived housing, and therefore that redistributing the existing housing stock would solve the housing crisis.
From the perspective of ‘redistribute the housing pie,’ the key role of a CLD in ending homelessness would be to redistribute resources from the owners of valuable land to help poorer households compete for access to housing.
How can a Citywide Land Dividend help solve homelessness? Three Mechanisms
Both of the above analyses contain useful insights into ways to reduce the prevalence of homelessness: by increasing the availability of housing (the Housing Supply Effect), by fitting more people into the existing housing stock (the Utilization Effect), and by increasing the resources available to low-income households (the Minimum Income Effect). We now explore three theoretical pathways through which a CLD can plausibly be expected to help reduce homelessness.
Housing Supply Effect
CLD effectively transfers resources from those who own valuable land to those who rent or who own very little land. Because the latter group tends to spend more of their income on housing, this transfer is likely to increase demand for housing, spurring developers to build more housing overall, and specifically more of the housing preferred by low-income households such as multifamily housing.
In technical economic terms, a CLD produces a negative income effect for households which currently own highly valuable land, who have a low marginal propensity to consume housing (MPCH). This is offset by a positive income effect for individuals with a high MPCH, specifically tenants and property owners. In concert, these effects should serve to increase the supply of housing, thereby reducing rents and mitigating homelessness as explained in Homelessness is a Housing Problem and by the Pew Charitable Trust.
Utilization Effect
With a CLD in place, property owners will continue to receive LVT bills each year, making it more expensive to own land over time, especially in high-value locations. Property owners could defray this cost by renting out spare bedrooms to boarders, resulting in better utilization of the existing stock of housing. Likewise, annual LVT costs could be reduced by downsizing from a single family home to an apartment, which may likely be an attractive option for empty-nest retirees. As we have explained in the past, because taxable land values are based on the market’s pricing of the highest and best use of a piece of land, LVT effectively functions as an ideal tax on the underutilization of land. Better utilization of the existing stock of housing will help to make space available for use by people who are currently homeless.
The CLD helps protect against homelessness because rising housing costs will automatically flow into higher UBI payments. Prepared by Author.
Minimum Income Effect
CLD guarantees that every single resident of a metro area enjoys a minimum level of income, thereby helping poor households to afford at least a basic standard of housing. Because this UBI payment is automatically tethered to local land rents via the LVT, the size of this income support will bear a close relationship to local housing costs. Residents of cities where housing is more expensive will therefore have more resources with which to see themselves housed. LVT is an ideal tax with which to conduct such redistribution, because it does not discourage housing construction and therefore does not raise rents.
Many cities feature zoning codes which require developers to build houses which are larger than some socially-acceptable minimum standard, for example through minimum lot sizes, minimum dwelling sizes, bans on Single Room Occupancy (SRO) units, etc. While such policies are well-intentioned, one of their outcomes is that every individual who cannot afford to purchase this minimum amount of housing must necessarily be pushed into homelessness. By setting a UBI above this minimum housing cost, a CLD guarantees that every single person has resources sufficient at least to see themselves housed.
Conclusion
There is a longstanding debate about whether the optimal approach to solving homelessness should focus on expanding housing supply or redistributing access to the existing housing stock. A Citywide Land Dividend holds potential to progress both goals simultaneously.
LVT produces income effects which encourage better utilization of the existing housing stock; for example, by downsizing or renting out spare rooms. Redistributing the funds through a UBI will increase the spending power of poor households, encouraging increased construction of housing that suits their needs. Likewise, by guaranteeing a basic level of income for our most vulnerable citizens, Citywide Land Dividend can help ensure that these individuals can at least afford the minimum legal level of housing.
Ultimately, the true merits of a Citywide Land Dividend for mitigating homelessness will depend on how the above effects measure up against other approaches (such as directly providing permanent housing, subsidizing housing construction, or targeted cash transfers). However, universal basic income funded by a land value tax poses a fruitful opportunity for future research and policy experimentation.
