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Economic Inequality and Homelessness

By Arthur MacEwan | September/October 2022

Good-quality, safe, and affordable housing is fundamental to personal well-being and security. But for millions of U.S. families and individuals, paying today’s high housing costs means sacrificing on food, health care, savings, and other essential expenses.
—Joint Center for Housing Studies of Harvard University, The State of the Nation’s Housing 2018

Why? Why do millions of people experience housing problems? And in particular, why are hundreds of thousands of people in the United States homeless? At the beginning of 2022, there were 569,334 people on the streets or in shelters, according to the official “point-in-time” count (see sidebar, “Counting the Homeless”).

Homeless people are often portrayed as suffering from mental illness or some form of addiction. Indeed, estimates suggest that 20% to 25% of the homeless are mentally ill and as many as 50% are dependent on alcohol or other drugs. Also, some 40% of the homeless are African Americans. These numbers, however, while telling us who is homeless, do not tell us why they are homeless. (Moreover, with substance dependence, homelessness may be a cause rather than the effect; while mental illness has complex causes, homelessness may bring out the illness.)

Counting the Homeless

“Point-in-time” (PIT) counts are the basis for formal, government estimates of the number of homeless people in the country. PIT counts are unduplicated one-night estimates of both sheltered and unsheltered homeless populations. The one-night counts are conducted by Continuum of Care (CoC) organizations nationwide and occur during the last week in January of each year. A CoC organization is a regional or local planning body that coordinates funding for housing and services for homeless families and individuals.

Critics of the PIT count tend to see it as providing an underestimate of the homeless. Advocates and service providers argue that scheduling the event in the winter creates an undercount. “The count is during the winter early in the morning, when it’s harder to actually find folks because they’re seeking some sort of refuge. They want to stay out of sight in general for their own safety,” Kelley Cutler, the human rights organizer at the Coalition on Homelessness, told a Bloomberg reporter. Margaretta Lin, the executive director of the Dellums Institute for Social Justice, told the same reporter:

We know there’s an epidemic, right? You would have to be blind to not understand the nature of the epidemic. But HUD [the Department of Housing and Urban Development] defines homelessness as people who are literally homeless. People who are in a motel for that night or couch surfing for that night, under the HUD definitions, they are not considered homeless. In any case, with small teams of counters riding and walking the streets in the wee, dark hours of the morning, any number of homeless people “on the streets” are bound to be missed.

Sources: The U.S. Department of Housing and Urban Development, “The 2020 Annual Homeless Assessment Report (AHAR) to Congress,” January 2021 (; National Alliance to End Homelessness, “What is a Continuum of Care?,” January 14, 2021 (; Alastair Boone, “Is There a Better Way to Count the Homeless?,” Bloomberg, March 4, 2019 (

Foundations of Homelessness

Surely, a good part of the why lies in economic problems—such as poverty, high housing costs, and inadequate public social-support systems. This agglomeration of problems is, in turn, a manifestation of the high degree of economic inequality in the United States. Inequality works directly and through the political process to cause homelessness.

As the economy grows and overall income rises, the demand for housing grows as people want more living space. The rising demand tends to push up the price of housing. The supply of housing tends to respond slowly and perhaps not fully to the rising price (the supply is relatively “price inelastic”). The result is a rising house-cost burden across the board. If income grows evenly across all segments of the population, the rising prices of housing (purchases and rents) is no more of a problem for people with low incomes than it was previously.

However, when the income growth is unequally distributed, with a larger share of the growth going to the top and a lesser share, perhaps none, going to those at the bottom, the burden of housing costs is proportionally larger for those at the bottom. Furthermore, those at the top, with their increasingly large share of the income increase, drive up the price of housing beyond what it would be if the income rise were equally divided.

There is, moreover, a widely perceived shortage in the overall supply of housing. Often, this alleged shortage is attributed to “excessive regulations,” parts of which are regulations that prevent public, or simply low- cost, housing in wealthy suburbs. (Unfortunately, while some of these regulations are elitist or racist or both, the efforts to eliminate them feed into the conservative anti-regulation ideology.) The “shortage,” however, is not so much an overall shortage but a shortage of low-cost housing. In the early 1980s, 40% of new homes were “entry-level” homes (i.e., homes of less than 1,400 square feet); by 2020, the figure had dropped to less than 10%. This phenomenon suggests that home builders were increasingly finding it unprofitable to build homes for people with low incomes—that is, the large share of the population whose incomes have been relatively stagnant as income inequality has risen.

And one more sign of the problem with declaring a housing “shortage”: The National Association of Home Builders reports that in 2020, roughly 7.1 million homes, 5.1% of the U.S. housing stock, were second homes. Yet, according to the Federal Home Loan Mortgage Corporation, the “housing supply deficit” in 2020 was 3.8 million units, 2.7% of the number of households.

Behind the housing “shortage,” then, is the high degree of economic inequality. New construction tends to increasingly take the form of homes destined for the rich, and the new construction of other levels of housing, especially affordable housing, is limited. People whose incomes are high but who are not among the rich, and who in an earlier period might have occupied homes in expensive neighborhoods, are forced to look for homes in the next level down. And this process of shifting locations continues on down the scale. The visible impact is gentrification.

At the bottom of this process, some people simply get pushed out of the housing market entirely. They become homeless. This push-out pressure, however, doesn’t affect all low-income people in the same way. Those who have other difficulties—e.g., experiencing mental illness, addiction, health problems, or racial discrimination—are less able to cope. So, they appear disproportionately among the homeless.

To sum up this direct effect of rising inequality: The rising incomes of the rich drive up the cost of housing while the incomes of the poor are relatively stagnant.

In addition to these direct economic impacts of inequality on homelessness, the political process has worked in the same direction. One of the consequences of the political power of the wealthy, enhanced as their share of income rises, is the intensification of the opposition to tax increases and government spending on social programs. This direction of government policy rose sharply during the Reagan administration and has been maintained since, in both Republican and Democratic administrations (for example, in the attack on social welfare programs under President Bill Clinton).

The impact on support for the housing safety net has been substantial. For example, according to the Joint Center for Housing Studies (quoted above), since the late 1980s, the

number of very low-income families has soared by six million, to more than 19 million. At the same time, federally subsidized rental housing has increased by only 950,000 units while the low-cost stock (with rents under $800 in real terms) has shrunk by some 2.5 million units.

Although poverty and homelessness have increased in recent decades, government spending has shifted to other priorities. According to a 2017 study by the Department of Housing and Urban Development, 75% of low-income, at-risk renters were not receiving federal assistance.

Empirical Evidence

Empirical support for the inequality-homelessness connection is provided in a recent study published in the January 2021 issue of The Annals of the American Academy of Political and Social Science. The article is titled “A Rising Tide Drowns Unstable Boats: How Inequality Creates Homelessness.” The authors of the study focus on the fact that homelessness varies substantially among communities across the country. They use a sample of 239 communities with populations above 65,000. Taking account of other factors (e.g., the average level of income in the communities and the existence of social-support programs), they examine the inequality-homelessness relationship over a 12-year period (2007 to 2018).

Their results are quite clear (statistically significant) in demonstrating the correlation between income inequality and homelessness (measured as a share of the population). The authors conclude that income inequality is an “important driver of increases in homelessness.” In particular, their results suggest that for a city of 740,000 (the average size of communities in their study), an increase of local income inequality that is the same as the average for the whole United States between 2007 and 2018 “translates into roughly 200 additional people who are homeless in that community on a given night.”

The statistical correlation between inequality and homelessness does not “prove” that greater inequality causes more homelessness. The authors of the study, however, undertake additional statistical analyses that support the argument that inequality is a cause of homelessness. Moreover, the authors provide a strong and reasonable explanation supporting causation (drawn on in the discussion above).

Other Factors

Nonetheless, there are other factors that also cause homelessness. For example, in examining the inequality-homelessness connection, the authors of “A Rising Tide Drowns Unstable Boats” take account of the extent to which a community provides permanent housing for people who have been homeless; this permanent housing is measured in terms of permanent supportive housing (PSH) units. Not surprisingly, more PSH units in a community yield less homelessness at any of the degrees of income inequality.

Also, the deinstitutionalization of the mentally ill (moving people out of large psychiatric hospitals and subsequently closing many such facilities) in the second half of the last century was not accompanied by sufficient funding and creation of smaller, local facilities and support programs for people with psychiatric difficulties. Many of these people became homeless. It is, then, not mental illness or deinstitutionalization that causes homelessness, but the lack of this support that puts people on the streets or in shelters. Of course, this lack of support for the social safety net, as has been suggested above, is in part a consequence of rising inequality. (For a review of the history of deinstitutionalization and its aftermath, see John Summers, “The Group Home Racket,” D&S, November/December 2021.)

The creation of more PSH units and more extensive support for the mentally ill could reduce homelessness. In the context of a high degree of economic inequality, however, the impact of such programs may be minimal; and the high degree of economic inequality is likely to limit the creation of such programs.

The economic pressures that have grown in the United States in recent decades have generated the burdens on low-income people that make some of them homeless. Many low- income people are able to cope, even under these pressures. Those less likely to be able to cope are people with the conditions of psychiatric difficulties, suffering addictions, or facing racial discrimination. They are the ones who disproportionately become homeless. These conditions determine which people are more likely to be homeless. But it is economic pressures, with income inequality at their center, that cause homelessness.

is professor emeritus at UMass Boston and a Dollars & Sense Associate.

Worst Case Housing Needs: 2017 Report to Congress, Department of Housing and Urban Development, August 2017 (; Thomas H. Byrne, Benjamin F. Henwood, and Anthony W. Orlando, “A Rising Tide Drowns Unstable Boats: How Inequality Creates Homelessness,” The Annals of the American Academy of Political and Social Sciences, April 2, 2021, (; The Addiction Center, “The Connection Between Homelessness and Addiction” (; National Coalition for the Homeless, “Mental Illness and Homelessness,” July 2009 (; National Alliance to End Homelessness, “Racial Inequalities in Homelessness, by the Numbers,” June 1, 2020 (; Will Fischer and Barvara Sard, “Chart Book: Federal Housing Spending Is Poorly Matched to Need,” Center on Budget and Policy Priorities, March 8, 2017 (; Federal Home Loan Mortgage Corporation, “Housing Supply: A Growing Deficit,” May 7, 2021 (; Na Zhao “Eye on Housing: The Nation’s Stock of Second Homes,” National Association of Home Builders, May 13, 2022 (

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