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Press Release · October 31, 2001

Homelessness In California Linked To Growing Gap Between Rich And Poor, Study Finds

Housing Affordability a Key Factor

SAN FRANCISCO, California, October 31, 2001 – Contrary to widely-held perceptions, California’s two-decade growth in homelessness is driven more by falling incomes and rising housing costs than by the personal disabilities of the homeless population, according to a new study released today by the Public Policy Institute of California (PPIC). As a result, the problem may be more amenable to policy solutions than previously thought. The study finds that modest efforts to make low-end housing more affordable – most notably though an expansion of rent subsidies – could significantly reduce the number of homeless in the state.

In Homelessness in California, authors John Quigley, Steven Raphael, and Eugene Smolensky are the first to identify broad evidence to support the theory that growing income inequality – working through the housing market – is a fundamental cause of the increase in homelessness since the early 1980s. In California, the growing gap between rich and poor has been driven more by deteriorating incomes among the poor than by rising incomes among the wealthy. As those near the lower end of the income distribution move out of better-quality housing and enter the lower-quality market, they bid up prices at the low end. The resulting higher rents suggest that those with the very lowest incomes may be forced onto the streets.

Using essentially all the systematic survey information available (including two national and two California-specific datasets), the authors find that higher rents and lower vacancy rates are associated with greater homelessness. Analyzing the links between income inequality and homelessness, they find that the greater the disparity between rents and incomes (i.e., as rents move higher and incomes move lower), the greater the incidence of homelessness. Simulating the housing markets in California’s four largest metropolitan areas (Los Angeles, San Francisco, San Diego, and Sacramento), they find that when they decrease the average income of households at the bottom of the rental distribution, there is a sizable increase in homelessness.

“Housing affordability is strongly associated with the level of homelessness. In our analysis, it greatly outweighs other causes, including personal disabilities and the deinstitutionalization of the mentally ill,” says Quigley, I. Donald Terner Distinguished Professor, Department of Economics, and Director of the Program on Housing and Urban Policy at the University of California, Berkeley. “This is important because it means that homelessness in California could be reduced by adding to the stock of housing accessible to the poor.”

Indeed, the authors find that general housing subsidy policies – including Section 8-type rental subsidies and subsidies to landlords – have a powerful effect in reducing homelessness. Their simulations show an effective universal housing voucher program reducing homelessness by about one-fourth. The authors note that most of the benefits of the policy responses they identify would go to low-income households who are not homeless. However, given that the homeless population may be difficult to target, the authors suggest that local governments should evaluate the potential to make low-end housing more affordable and thereby, largely as a by-product, reduce homelessness.

PPIC is a private, nonprofit organization dedicated to objective, nonpartisan research on economic, social, and political issues that affect the lives of Californians. The institute was established in 1994 with an endowment from William Hewlett. David Lyon is President and CEO of PPIC.