How are we treating issues of homelessness in the US? Who are the people affected, and what is being done to help them?
The US Department of Housing and Urban Development estimates that there are 580,000 homeless people in the country. They aren’t just addicts, veterans, and the mentally ill; they reflect a diverse subset of US residents in all states and territories. White males represent the largest group numerically, but additional homelessness risk factors are influenced by gender, race, and ethnicity.
Some people without homes are just down on their luck. Not counted in the total are those who are temporarily couch surfing or doubling up with family or friends. About 25% of people without housing work, and between 40% and 60% cycle in and out of work. The current state of high inflation is a factor in nudging seniors out of their homes at an alarming rate, as costs of living outstrip their fixed incomes.
An excellent primer on the state of homelessness in 2021 can be found on the web site of the National Alliance to End Homelessness.
The Covid-19 pandemic may have increased housing instability—both foreclosures and evictions—because of rising unemployment and shutdowns. The eviction moratorium delivered a safety net for renters but has expired under pressure from landlords, especially the mom-and-pop owners. The US Census Bureau’s Household Pulse Surveys show that more than 50% of renters lost income between March 2020 and March 2021.
The shortage of construction workers, building materials, and homes for sale put upward pressure on home prices. So many changes are attributed to the pandemic, but it hasn’t yet been determined whether they are temporary or permanent.
The Solution Framework
The solutions outlined in this article are multifaceted, with government at all levels on one side and the collaboration of individuals, investors, builders, developers, and nonprofit organizations on others.
Government programs target the issue with service models based on permanent or temporary assistance, for sheltered and unsheltered populations. Since 1980, the dominant forms have been voucher programs and public housing. These programs are limited by funding with households on waitlists for years before receiving subsidies.
HUD awards grants to communities that administer housing and services, such as the Emergency Solutions Grant program and the Continuum of Care program. According to HUD, a CoC is “a community plan to organize and deliver housing and services to meet the specific needs of people who are homeless as they move to stable housing and maximize self-sufficiency.”
Enacted on March 11, 2021, the American Rescue Plan Act provided $5 billion in new funding to reduce homelessness, $21.5 billion for the emergency rental assistance fund, and another $5 billion in emergency housing vouchers. Additional funds were earmarked for housing counseling, emergency assistance for rural housing, and a whopping $350 billion for state and local government priorities.
Trends in Homelessness
Thanks to greater attention and targeted resources from government programs and nonprofit organizations, homelessness of veterans and families with children, totaling 6% and 30% of the population respectively, has diminished by 39% and by 27% respectively since 2007.
Others—primarily individual adults—are being left behind. The success rate at finding shelter for the homeless population overall is only 61%. Since 2016, the subgroup of chronically homeless people has surged by 43% and the unsheltered by 30%.
The Missing Piece
The states and CoCs with the highest rate of homelessness focus on two main causes: poverty and the low income of people experiencing economic hardships, and high cost of housing relative to earning power. Like most intervention programs, most tax policies are centered on the low-income aspect where household income is compared to poverty thresholds.
The missing piece is the challenge to expand the supply of lower-cost housing for both high-wage earners and low-wage earners. San Francisco, for example, has the highest housing wage in the country but has the fourth-highest rate of homelessness. Low-income people in that area find it even more difficult to find housing they can afford. Both experience cost burden, which means they spend more than 30% of their incomes on housing. Severe cost burden is more than 50%.
Rural areas and tribal communities also struggle with affordability. The absence of construction workers, greater distances to obtain construction supplies, and lack of financing for construction projects add building costs.
Another factor that exacerbated housing affordability was the mismatch of the type of dwellings built versus the type needed. Data from December 2020 shows a 27.8% increase in single-family homes from the prior year but a 40% drop in multifamily housing.
Tax Strategies
There are several existing tax strategies to help low-income taxpayers:
- The earned income tax credit aids low-income workers by reducing tax owed, often increasing their refunds.
- The work opportunity credit is for employers who hire targeted group employees who face employment barriers.
- The mortgage interest credit helps low-income individuals afford homes by allowing a credit for part of their interest expense.
- The low-income housing credit is used by owners of qualified residential rental buildings in low-income housing projects. The new markets credit is for equity investments made in qualified community development entities. A CDE’s mission is to serve or provide investment capital for low-income communities or persons.
- The opportunity zone incentive is an economic development tool that supports job creation for low-income communities, spurs economic growth, and generates investment in distressed areas. This tax incentive is different from the general business credits in that qualified investors in opportunity zones defer tax on eligible gains rather than receive tax credits.
These tax incentives, however, fail to reduce the cost of housing to benefit high-wage earners that are cost-burdened as much as the low-wage earners.
The issuance of municipal bonds is one of the most popular existing tax strategies to fund affordable housing in high-cost states and municipalities. These bonds exempt interest from federal tax. If issued by the taxpayer’s state, the interest may also be exempt from state tax as well.
Other solutions that increase housing supply and affordability include:
- Creating a new tax credit that could be modeled on existing general business credits such as the research activities credit and the qualified small business payroll tax credit for increasing research activities, which targets the inspiration of using new methods, cost-efficient materials, and streamlined regulations to reduce housing costs.
- Repurposing shipping containers into homes, costing as little as $1,500 with an average of $10,000 to $35,000. They offer great flexibility in location and cost, especially if located on low-cost farmland or inner-city vacant lots. The tallest project in North America just opened in Phoenix, connecting 64 repurposed containers. The project provides its residents with the added benefits of lower electricity bills, water detention system, electric charging stations, and convenient access to public transportation.
- Creating new tax credits to reduce housing cost by increasing residential density and land use efficiency. Small shelters or group homes would not negatively impact neighborhoods. Large underutilized existing homes can be partitioned into multiple housing units. One credit could be for homeowners who create accessory dwelling units, additional housing units within an existing principal home. Another credit could be for developers who build duplexes, triplexes, fourplexes, courtyard apartments, bungalow courts, and townhouses. Conversion of commercial property to residential or mixed-use is another way to increase housing supply—Podshare is an example of warehouse conversion into pod housing across the most expensive neighborhoods in Los Angeles.
- Modifying the existing credits to apply the cost burden approach rather than the stricter low-income definition to increase eligibility for more taxpayers.
- Renewing the first-time homebuyer credit for housing purchases.
- Increasing the applicable percentages of the residential energy tax credits, and increasing the amounts of the energy efficient home credit.
- Allowing deductions for employer housing assistance benefits, similar to education assistance, adoption assistance, group life insurance, disability, and medical benefits.
- Creating a tax benefit for employers who build homes and apartments for their workers with an option to buy at a reduced price, like employee stock options.
As all levels of government, the business community and investors join forces to increase housing supply, more attention needs to be given to tax policies. States can increase allocations to cities that approve nontraditional housing; cities can increase tax abatements for low-cost projects. The business community and investors can follow suit by committing private funds to support the mission. As for implementation, CoCs are best suited to track and manage the homeless community in their areas.
It is difficult to divorce the public policy from the tax policy. The underlying premise is that all people deserve the right to be housed humanely. Congress needs to reach consensus on this bipartisan issue of creating a broader and stronger housing safety net using tax incentives.
This article does not necessarily reflect the opinion of The Bureau of National Affairs, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
Author Information
Roberta S. Davis graduates this month from University of Illinois at Urbana-Champaign with an iMSA degree. She received an MBA and a bachelor’s degree in psychology from Arizona State University. Davis plans to work in public accounting after passing the CPA exam.
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