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The Guru Is In:The Wrong Way to Address Homelessness

5 min read

Of the brutal realities of American urban homelessness, there can be no doubt: the problem is out of control, the cities are its front lines, and they are desperate for any action. When political desperation makes the formerly unthinkable possible, even appealing, the simplest and quickest choices are seized first and damn the policy nonsense or downstream consequences. For an elected municipal official, nothing can be simpler and quicker than…snatching at someone else’s money to throw at the problem via new taxes.

This year has already seen the mayor of Boston earnestly seeking a two percent transfer tax on all real estate, the City of New York boosting its already high mortgage recordation tax (an excise tax for the privilege of recording a mortgage) to 1.925 percent, and the City of Los Angeles implementing a Homelessness and Housing Solutions Tax (HHST) that socks property sellers for four percent of any real property sale or transfer over $5 million and 5.5 percent on anything at $10 million and above.

These laser-shot transfer taxes continue a long-term corrosive trend of reinstating real estate transfer taxes at the state level (34 states have them in one form or another) that conveniently deflects attention from the real problems and whitewashes the politicians who point fingers only at safe targets, those advocates who decline to see the ecosystem of which they are a part and voters who think they are righteous by voting a tax not on themselves but on others. They see, or wish to believe, that homelessness is purely a problem of cost, for which the only solution ingredient is other people’s money.

Though well-intentioned, this is a bad policy. In the intermediate term, it will do little to staunch the inflow of more urban homelessness to cities they perceive as sanctuaries. In the long term, pushing more money to the wrong point in the supply-side housing value chain will further obstruct making real progress on homelessness. To see why, take the Los Angeles proponents’ own argumentation, the text of Measure-ULA itself:

SECTION 1: The People of the City of Los Angeles hereby find:

Rising rents, widespread tenant evictions and a lack of affordable housing have made Los Angeles the city with the worst housing and homelessness crisis in the country.

All three of the cited points are symptoms; none are causes. Rising rents come from effective demand greater than supply; evictions come from inability to pay; and a lack of affordable housing comes from refusal to clear away development barriers. 

Nowhere do the proponents’ 1,800 words mention that California is a homeless magnet, with more than half the nation’s total, nor that the state has spent $17.5 billion over the last four years alone, an interval when homelessness in the City of Los Angeles rose by one-third. Nor that “two-thirds of people on the streets right now are experiencing mental health symptoms,” according to Jason Elliott, California’s senior advisor on homelessness. Nor is there mention of California’s half a century of affordability neck tourniquet, dysfunctional and exclusionary zoning where 74 percent of the city is restricted to single-family residential. Nor prevailing wage union rules which, according to the Cambridge Housing Authority, boosted their development costs by roughly 19 percent. Nor the California Environmental Quality Act (CEQA), which gives any dumb BANANA standing to stop, slow or increase the cost of anything. 

Nope, greedy landlords and unscrupulous managers, they and only they, are to blame for homelessness – so let’s surtax property owners when they sell. 

This is logical codswallop, rhetorical bilge.

As rents continue to rise across the city, the incentive is strong to push out tenants in rent-stabilized apartments and harassment is a primary driver of informal evictions.

Never mind that five of five economists will confirm that rent stabilization never works—in fact, it strongly correlates with reductions in new housing production—claiming that it has driven recent rises in homelessness is hard to credit given that Los Angeles has had it since 1978.

Increasing the Real Property Transfer Tax on the highest-priced properties in the City will generate an ongoing [emphasis added] revenue source –

That’s a bit rich, in view of the proponents’ website claim of a “one-time tax” that will permanently tax every sale going forward. Economically it’s no different from that nasty stamp duty, which was the flashpoint for a Revolutionary War.

– that will [emphasis added] raise an estimated $900 million a year to reduce homelessness, make housing more affordable and protect low-income seniors from losing their homes.

Likely it will raise much less revenue than that because people will defer selling their homes exactly as Proposition 13 did, find ways to transfer them to relatives or adjust their pricing.

It is the intention [emphasis added] of the voters in adopting this initiative to ensure that tax proceeds from the Homelessness and Housing Solutions Tax be used to fund the purposes set forth in the House LA Program.

Yet money is fungible, and a resolution of this kind cannot bind future councils, so the surtax’s incremental flows will be laundered into the city’s general coffers. It won’t staunch the creation of new mental-health homeless, nor their inflow from other locations. It won’t reduce development barriers, cut development costs imposed by previous administrations and laws, or create pressure for zoning reform. Instead, it offers soothing fiction to those who endorse it, while imposing a toll tax on those who leave, increasing their motivation to depart. No wonder it’s being enacted or proposed from city to high-cost high-barrier city.

Rising homelessness is a tragic symptom of a terrible problem created by dysfunctional pharmaceutical and healthcare ecosystems that have exported their side effects to cities, housing and mentally impaired people. Surtaxing property is the wrong way to address it. When you have gushing water, the solution isn’t more buckets, it’s fixing the leaks.

David A. Smith is founder and CEO of the Affordable Housing Institute, a Boston-based global nonprofit consultancy that works around the world (60 countries so far) accelerating affordable housing impact via program design, entity development and financial product innovations. Write him at dsmith@affordablehousinginstitute.org.