Economics lesson from McKinsey regarding the homeless in Seattle

From the Seattle Times:

Seattle and King County could make the homelessness services system run like a fined-tuned machine, but without dramatically increasing the region’s supply of affordable housing options, solving the region’s homelessness crisis is all but impossible.

That is the central finding of a new, independent analysis of King County’s homelessness crisis by the consulting firm McKinsey & Company, which produced the report pro bono for the Seattle Metropolitan Chamber of Commerce.

The report estimates King County is short up to 14,000 units affordable for people experiencing homelessness. Because of the gap, and the rising numbers of people who are homeless, annual spending — public, private or both — needs to double to $410 million if the problem is to be solved, according to the report.

And that’s only if the annual rate of people becoming homeless doesn’t increase.

“This is a supply-side issue,” said Dilip Wagle, a McKinsey senior partner based in Seattle. “We are just running out of affordable housing units.”

So the great minds behind Enron have come up with a system in which they will offer free housing in one of the world’s most desirable places to live. World and U.S. population will continue to boom, yet the $410 million per year in free housing isn’t likely to be oversubscribed:

Some corporations keen to alleviate homelessness in their local communities already fund emergency shelters. These are crucial. But they are not a long-term solution. Affordable housing is.

The McKinsey geniuses don’t answer the question that always strikes me when I’m in Seattle and I see homeless folks camping in the cold rain: Since these unfortunate souls don’t have a job or a house, why don’t most of them move to Santa Monica and camp in a warm dry climate?

(I don’t think the answer is “Washington State provides more generous welfare benefits than California”; CATO Institute’s Work v. Welfare analysis in 2013 found that collecting welfare in California was worth 96.5 percent of the state’s median salary while in Washington State it was worth only 72 percent (see Table 4).)

Seattle does have a new “head tax” on companies such as Amazon that use office buildings within the city limits. This is supposed to be what funds the new construction of apartments for the currently “homeless.” Most of heads being taxed, presumably, commute in from the suburbs because they can’t afford prime urban residential real estate in a walkable neighborhood. This commute will have them spending 1-2 hours every day in some of the nation’s worst traffic. By contrast, people who haven’t worked for years or decades will be living in the desirable central city. Once this situation is fully developed, I would love to see the commuting suburban wage slaves call themselves smarter than the newly-housed urban “homeless”!

18 Comments

  1. SK

    May 20, 2018 @ 4:20 pm

    1

    And then they get surprised when Amazon doesn’t want to pay new tax and cancels new office building.

  2. Mclionhead

    May 20, 2018 @ 4:31 pm

    2

    We have to be productive without being physically in an office in the middle of downtown. Baby boomers did it by moving jobs away from cities. Millenials reversed common sense by putting lifestyle over housing. There are so many technologies pushing back on being in a physical place & so many stores being replaced by online shopping, this commuting business has to end.

  3. anon

    May 20, 2018 @ 6:18 pm

    3

    The key to reducing homelessness, making housing more affordable, opening more entry-level jobs, and raising wages is to increase our population annually with 2-3M low-skilled immigrants and allow foreign speculators to buy our real estate.

    Oh, wait … that would have the exact opposite effect.

  4. philg

    May 20, 2018 @ 11:35 pm

    4

    anon: You seem to have the ear of the Central Planners in Washington, D.C., because these policies do seem to have been implemented!

  5. Karen J

    May 20, 2018 @ 11:39 pm

    5

    Having many friends here who identify as far leftists, I wondered how old school communists in the Soviet Union dealt with these social problems. To my surprise, I found out Marx classified the homeless (along with petty criminals, prostitutes, and “vagabonds”) as the “lumpenproletiariat”, an essentially worthless underclass lacking revolutionary potential. (Bukharin describes these people as characterized by “shiftlessness, lack of discipline, hatred of the old, but impotence to construct anything new, an individualistic declassed ‘personality’ whose actions are based only on foolish caprices.”) And in fact Lenin and the other early Soviet communists had no problem rounding these people up and shipping them off to work camps in Siberia. From Wikipedia:

    “Soviet authorities and scholars instead reserved other terms for their own lumpenproletariat groups, especially “déclassé elements” (деклассированные элементы, deklassirovannye elementy), and viewed them, like Marx, as “social degenerates, isolated from the forces of production and incapable of having a working-class consciousness.” Svetlana Stephenson notes that the Soviet state “for all its ideology of assistance, cooperation and social responsibility, was ready to descent on them with all its might.”

    https://en.wikipedia.org/wiki/Lumpenproletariat#Bolsheviks_and_the_Soviet_Union

    Is Kshama Sawant going to suggest rounding up the homeless in Seattle and shipping them off to camps near Moses Lake? Probably not, but it is interesting to see how radically different the old school communist perspective on these issues is from the ‘leftist” vision in Seattle (where the homeless are to be given free housing, medical care, needle exchange programs, food stamps, etc., endlessly sustained by the productive members of society)

  6. Old Commie Survivor

    May 21, 2018 @ 1:42 am

    6

    Karen:

    Impressive research! I haven’t heard anyone mention Bukharin in a long time. To add to your findings, I’d like to point out a few more things from the Soviet times.

    Article 12 of the Constitution of the USSR: “Work in the USSR is the duty and honor of every citizen, who is capable of working, according to the motto: “he who doesn’t work, doesn’t eat.” (translation mine) – «Труд в СССР является обязанностью и делом чести каждого способного к труду гражданина по принципу: кто не работает, тот не ест».

    Violations of “employment discipline” (tardiness, missing work) were criminal offenses: in the late forties, they were responsible for over a million criminal convinctions a year and later, over 50% of all criminal convictions in the USSR.

    Fun fact: Joseph Brodsky, the winner of the Nobel Prize in literature, was convicted for being unemployed according the Article 209 of the Criminal Code (“Idleness”).

  7. Old Commie Survivor

    May 21, 2018 @ 1:57 am

    7

    This topic is quite interesting, so I found some more details.

    The number of idle Soviets was so high that in the 1980s the government had to resort to building militias who would patrol the streets and clean them up from “various undesirable elements.” “Excuse me, comrade, how come you are not at work?” that was a common question from policemen who could approach anyone in the street during the day.

    Idleness would be punished by confiscation of property and 2 to 5 years in prison followed by forced employment.

    Students were not allowed to skip class. A typical raid would be done in a movie theater this way: the movie would pause, cops and militia would block off the exits and start checking papers.

  8. Mememe

    May 21, 2018 @ 5:17 am

    8

    The Soviet stories are fascinating.

    I spent a night in Seattle thirty years ago. It was cheap, clean, and laid-back.

    Seattle is also the home of the Baby-Got-Back loving Sir Mix-A-Lot. He wrote a commendable anti-taxation song, Take My Stash.

    https://youtu.be/sYb7k3wUgxg

  9. Vince

    May 21, 2018 @ 4:18 pm

    9

    Since these unfortunate souls don’t have a job or a house, why don’t most of them move to Santa Monica and camp in a warm dry climate?

    The answer may have to do with the fact that travel requires money.

    Most of heads being taxed, presumably, commute in from the suburbs because they can’t afford prime urban residential real estate in a walkable neighborhood. This commute will have them spending 1-2 hours every day in some of the nation’s worst traffic. By contrast, people who haven’t worked for years or decades will be living in the desirable central city. Once this situation is fully developed, I would love to see the commuting suburban wage slaves call themselves smarter than the newly-housed urban “homeless”!

    Most people of those who live in the suburbs do so because they prefer the suburbs.

  10. philg

    May 21, 2018 @ 4:49 pm

    10

    Vince: Surely you aren’t so hard-hearted as to deny a homeless person in Seattle a ride to Santa Monica? Will you join with me in chartering a bus (assume that some of these folks might have some trouble producing sufficient documents to get through TSA at an airport) to help the folks who want to travel, but who have been precluded from doing so for want of a Greyhound ticket? Or we can buy them tickets at retail for $69.

    People prefer the suburbs? That’s why a house that is 30 miles from the city center costs $300,000 and the same size/condition house walking distance from the city center costs $3 million? We can apply the same logic to vehicles? I drive a $30,000 Honda minivan because I prefer it to a Ferrari. The Ferrari costs $500,000 because there are so few people who want one and therefore the production rate is low so costs go up?

  11. philg

    May 21, 2018 @ 5:02 pm

    11

    Vince: Also, I hope it wouldn’t be the case that the Gates Foundation would sit in Seattle directing a fire hose of $billions in cash toward Africa while ignoring the plight of local homeless folks who are stuck in Seattle for no reason other than lacking the funds for a one-way bus ticket to Los Angeles.

    Finally, if it is mere lack of funds for a ticket that is keeping most homeless folks in Seattle, the logic of the McKinsey geniuses seems even more questionable. Why would they propose continuing to spend $205 million per year and adding another $205 million per year on building houses so that the “homeless” can become “homeless with a house”? If the homeless do want to move to California and collect welfare there, why wouldn’t the budget be a one-time $690,000 to buy retail bus tickets from Seattle to Washington for all 10,000 people currently officially “homeless” in Seattle? (see https://www.wanderu.com/en-us/bus/us-wa/seattle/us-ca/los-angeles/ for the fare)

  12. the other Donald

    May 21, 2018 @ 6:33 pm

    12

    As they used to say when Boeing had a bust and layoffs: “Will the last person leaving Seattle please turn the lights off!”

  13. Vince

    May 21, 2018 @ 7:14 pm

    13

    You really have no idea whether homeless people in Seattle would prefer to be somewhere else in the first place. It’s unclear what the point is.

    Also, it’s quite likely that house prices vary significantly in Seattle. As with other big cities, it must have some poor neighborhoods with cheaper houses. It’s also helpful that you mentioned Bill Gates. I think that I read somewhere that he lives in a suburb of Seattle. Clearly, he could afford to live in the city if that was his preference. It’s reasonable to assume that his suburban neighbors have also made the same choice.

    Finally, the phrase “homeless with a house” makes no sense. Why the use of the quotation marks? Are you quoting someone?

  14. philg

    May 21, 2018 @ 11:38 pm

    14

    Vince: You don’t like my “homeless with a house” turn of phrase? What would you call a person who was formerly “homeless” but, thanks to the genius of McKinsey and $410 million per year extracted from working people in Seattle, is now housed? I don’t think you can say that the person then becomes just an ordinary person because, if so, why does he or she have the lifetime right to stay for free in a newly constructed centrally located apartment for free?

    Nwo you’re saying that maybe people in Seattle don’t actually want to go to Santa Monica? It is not the $69 bus ticket that is the obstacle. That circles back to my original question then… why don’t they want to go?

    Bill Gates lives in a modest suburban home? I think that is because he started Microsoft out in the distant suburbs and wanted his house to be close to his job. If Microsoft had been better funded initially maybe the company would have been located in the city.

  15. Mememe

    May 22, 2018 @ 12:23 am

    15

    “The homeless” are actually comprised of disparate groups that have little in common beyond their lack of a permanent address. Many are homeless for economic reasons and their homelessness tends to be temporary. Plenty of couch-surfing college students are technically homeless. Being temporarily homeless, particularly with kids in tow, jumps you to the head of the line for subsidized housing.

    The chronically homeless tend to be batshit crazy. They also can be spendthrifts. One homeless guy I know explained to me he needed about $60 a day to meet his needs. It ain’t cheap being destitute. For all of, and maybe because of, their craziness, they can be interesting to talk with.

    Many years back, I wondered aloud in a shopping mall bar how anybody could sink so low. A well-dressed, very fat man, with a very fat girlfriend replied that he had been homeless for a year, just riding the New York City subways. He explained that he hit a rough patch in life, and that he JUST GOT STUCK IN A RUT. Eventually he got his mind together and got out of the rut and got on with his life. Later that evening, after we had ended our amicable conversation and he had already left the bar, I went to pay my tab. The bartender explained the bill was already paid by my friend.

  16. Vince

    May 22, 2018 @ 2:00 pm

    16

    What would you call a person who was formerly “homeless” but, thanks to the genius of McKinsey and $410 million per year extracted from working people in Seattle, is now housed?

    I suppose that there are many words that could be used to describe such people, but they wouldn’t homeless if they have homes. If a person was walking around barefoot and then received a pair of shoes from a charity, he would no longer be shoeless.

    Now you’re saying that maybe people in Seattle don’t actually want to go to Santa Monica? It is not the $69 bus ticket that is the obstacle. That circles back to my original question then… why don’t they want to go?

    Who the heck knows? Some might prefer to homeless and some might not. It doesn’t matter. The idea of an apartment in Seattle would be preferable to living on the street in California.

    Nobody said that Bill Gates

  17. Vince

    May 22, 2018 @ 2:06 pm

    17

    Nobody said that Bill Gates lives in a modest house. Also, it’s not likely that he would have set up Microsoft in the city if he had more money. The 1970s was the bad old days when crime was much higher in nearly all American cities.

    You seem to be deliberately missing the point, once again pretending to be dumber than you actually are. Many suburbanites prefer the suburbs because they want to live in a fully detached house with a nice yard for the kids and the dog and so forth. The suburbs are usually quieter and there is less air pollution, less crime and fewer poor people.

  18. philg

    May 22, 2018 @ 2:09 pm

    18

    ” they want to live in a fully detached house with a nice yard for the kids and the dog”

    This is available in Cambridge! It will cost $3-10 million. Or you can commute for 2 hours/day and buy a physically similar house in a suburb for $400,000. From the prices, I infer that there is more demand for the suburban home.

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