Breaking News from NYC: Economics Works

by Nicole Gelinas

Last month, New York mayor Mike Bloomberg took to the airwaves to marvel at . . . basic economics.

As the Times reports, the mayor was startled at the result of a four-year-old experiment in housing policy. Said Bloomberg on the radio in April: 

You never know what motivates people. Our theory is that some people have been coming into the homeless system . . . in order to qualify for a program that helps you move out of the homeless system.

In fact, you always know what motivates people — supply and demand.

In this case, the city has supplied big rent subsidies — running close to $1,000 monthly for two years — to “homeless” people so that they could stop being homeless. It follows that more people have duly declared themselves homeless to avail themselves of these subsidies. 

And now that New York, thanks to budget cuts, is warning that it will soon eliminate the program, fewer people think a trip through the shelter system will be worth their while. As the newspaper reports, “the number of applicants to enter shelters dropped by 17 percent, evidence, the city said, that the program might have enticed some people to leave their homes for the promise of the subsidy.”

Read the Times report carefully, and find common flaws with “innovative” anti-poverty programs. 

Programs designed to encourage personal responsibility can do the opposite. A big selling point of this program, called “Advantage,” was that it would encourage homeless people to get jobs and gain financial independence.

Problem is, though, that Advantage, judging from the Times profile of two recipients, attracts young, able-bodied, able-minded people who face no extraordinary obstacles to finding jobs and apartments on their own. They just choose, sensibly, to take “Advantage” (ha) of the city’s offer of a reward for doing something they would have done anyway. 

As Advantage beneficiary Amanda Cotto, a 24-year-old single mother, says forthrightly, “The majority of people who go into shelters can get an apartment on their own . . . but they want it for free.” 

Money that goes toward resourceful people is money that can’t go toward people who are truly in need thanks to age or disability. 

When you subsidize something, you push prices up for everyone. The city’s involvement in the housing market distorts that market, making housing less affordable for the people who don’t have special subsidies.

The other of the article’s two interviewees, another 24-year-old mother named Kasha Phillips-Lewis, says that the Advantage program has given her a $962 voucher each month to put toward the rent.

Potential landlords know that Ms. Phillips-Lewis and tens of thousands of people like her have this free rent money (thanks to other government programs, too, including Section 8). Rent prices go up accordingly.

Take all of that government money out of the system, and rents would fall, lessening the “need” for the subsidy in the first place.

(This theory works, too, for the broader housing market, which the federal government insists on propping up through Fannie Mae and the like, but that’s another story.)

— Nicole Gelinas is a contributing editor to the Manhattan Institute’s City Journal. 

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