The U.S. has a homelessness problem — and it might be more closely related to affluence than to poverty.
That’s one of the surprising conclusions from a new study by real estate company Home Bay that uncovered a strong correlation between homelessness and elevated home values.
Experts at Home Bay analyzed data from Zillow and the Department of Housing and Urban Development and found that, among the 50 largest U.S. metro areas, cities with greater-than-average home values also had rates of homelessness 2.5x higher than metro areas with lower-than-average home values.
The poster child for this pattern is San Jose, California, which has both the highest average home values in the nation ($1.39 million) and the highest rate of homelessness. This link proved durable both statewide and nationwide.
According to the Home Bay study, California’s six biggest cities have homeless rates that are 2.3x higher than the national average, and home values that are almost 3x the national average.
A Confounding Problem
There were nearly 600,000 homeless Americans in 2022 — roughly equivalent to the entire population of Wyoming. And while the U.S. is one of the most affluent countries in the world, some countries with much less money seem to have done a much better job at handling homelessness. For example, Portugal, which has a GDP equal to about 1% of U.S. GDP, has a homeless rate that’s half the U.S. homeless rate.
One possibility is that countries like Portugal are simply doing a better job at identifying and targeting the root causes of homelessness. The Home Bay study found a few U.S. cities that defied the pattern of high homelessness and high home values. Boston, for example, has the sixth-highest average home values, but the 27th-highest rate of homelessness.
There are also outliers in the opposite direction — cities where home values are low enough that the American dream of homeownership is still very much within reach for the average American, but which also have surprisingly high rates of homelessness. One example is Hartford, Connecticut, which has the 32nd-highest home values in the U.S. but the 11th-highest rate of homelessness.
However, in the vast majority of the metro areas studied, home values and the rate of homelessness were tightly linked.
Which Cities Are Struggling the Most?
After San Jose, the city with the second-highest average home value is San Francisco, where homes are worth an average of $1.11 million. San Francisco also has the second-highest rate of homelessness in the U.S.
Next on the list is Los Angeles, which has the third-highest home values and the third-highest rate of homelessness. Sacramento has the fourth-highest rate of homelessness and the eighth-highest home values, while Seattle comes in at fifth in both measures.
Rising home values also put pressure on landlords to raise rents in order to meet their mortgage obligations and other escalating expenses. That explains why higher rents, like high home values, are associated with higher-than-average rates of homelessness.
Looking at the 12 metros with the highest rates of homelessness, average rents there come in at $2,274 a month. In cities with lower-than-average rates of homelessness, rents are nearly $700 less, averaging only $1,596.
The four cities with the highest average rents are San Jose, San Francisco, New York, and Los Angeles. These cities rank first, second, sixth, and third in rates of homelessness, respectively.
Looking at Root Causes
It may seem intuitive — from a strictly economic viewpoint — that the cities with the least affordable housing would have the most people who can’t afford a place to live. But the conventional wisdom is that homelessness is a consequence of poverty, not affluence. If that conventional wisdom is false, it could explain why some U.S. policies aimed at curbing homelessness have failed.
“Currently, nearly all our government programs that seek to address homelessness focus on maintaining shelters and providing a limited number of housing vouchers,” said Dan Kerr, director of the Public History Program at American University. “The shelters seek to keep the public display of homelessness from getting out of hand, while the vouchers are ultimately a form of subsidy for landlords.”
In this view, certain government policies aimed at homelessness aren’t so much about solving homelessness as hiding it from the public. Meanwhile, there’s been very little effort put toward the actual cause of homelessness — e.g., high home values and the resulting lack of affordable housing.
“The government moved away from public housing in the 1970s,” Kerr said. “And since then has not addressed any real ways to keep market-based housing affordable.”
Why Poverty Isn’t Synonymous With Homelessness
The complexity of this problem is revealed by an analysis of poverty rates and their relation to homelessness. Although it may seem intuitive that cities with less poverty would also have less homelessness, the opposite is actually true. The Home Bay study found that cities with low poverty rates tend to have higher rates of homelessness than cities with high poverty rates.
Specifically, metros in which less than 10% of city residents live in poverty actually have rates of homelessness that are 2x higher than metros where more than 10% of residents are in poverty. In other words, the two strongest predictors of homelessness are inflated home values and high average incomes.
Clearly, some portion of the population is being left behind when home values and incomes rise.
“Since 1979, the bottom 20% of income earners have seen an actual decrease in family income,” Kerr said. “Stagnating and decreasing incomes, coupled with greater costs to secure housing, leave more and more people vulnerable to homelessness.”
Essentially, when home values and wages have boomed, the benefits have accrued to the top four-fifths of the population, while the bottom quintile has seen their purchasing power dwindle — to the point that more of them become homeless. The real solution to homelessness, then, would be to increase that bottom quintile’s wages. Kerr said that the people facing the issue on a day-to-day basis mostly agree with this diagnosis.
“When asked what they think needs to be done, the large majority of people experiencing homelessness argue that we need to address the issue of low wages,” Kerr said. “Strong worker-led organizing campaigns that seek to improve working conditions and wages would have a significant impact on reducing our homeless crisis.”