The Mercer Alliance to End Homelessness and its funder, the Educational Testing Service have produced a report, “Housing the Vulnerable in Mercer County” that defies the laws of economics, makes unfounded assertions and argues for the abandonment of Trenton. However, it does not address homelessness.

Link to the report

Jeffrey Wilkerson, the Plansmart NJ analyst commissioned to produce the report, has asserted that Mercer County will face a shortage of housing that meets affordability targets for its residents. He suggests measures to correct this imbalance, most notably, taking government action to create affordable housing in the county’s suburbs. The point of the report was seemingly to stimulate concern amongst politicians and presumably Mercer Alliance’s funders and the public.

However, Mr. Wilkerson has manipulated the statistics in order to draw the conclusions he and the Mercer Alliance wanted, not the ones the evidence might support. The report makes unsupported conclusions, is overly complex and does not adequately explain or include the pertinent 3^rd party research he references.

This report puts The Mercer Alliance to End Homelessness’ credibility and that of its supporters into question.

In the course of 9 pages, the report:

• defies the laws of economics by concluding that home prices will continue to rise faster than demand grows or that supply can keep up;
• does nothing to analyze any underlying causes for high building costs;
• proposes suburban expansion and recommends against living in Trenton;
• doesn’t actually discuss homelessness in a meaningful way.

One might ask why I’m attacking this piece of work and risking the ire of the powerful Mercer Alliance. It is my hope that the Mercer Alliance, its board and its participating organizations will step back and take a critical look at themselves and how they came to produce such a poor piece of work. Perhaps they’ll retract it.

The report ignores market forces.

The most shocking aspect was the methodology used to calculate unsatisfied demand for housing over the next 10 years. The author used a NJ Dept. of Labor forecast of job growth by income level for Mercer County. He then extrapolates housing price increases from American Community Survey data for 2002 through 2006. From these two sets of data he determines how many people in the county won’t be able to comfortably afford their home.

This was a poor approach.

The author uses a NJ Dept. of Labor projection on job growth by income category and an assumption that the proper burden for housing cost is 30% of income, to calculate demand for units of housing by price range. He then predicts a supply by price range based on census data between 2002 and 2006. He does some subtraction and calls the difference, unmet demand.

Before I point out the bad, I’ll remark on the good. The author observes that 39% of all Mercer county residents spend more than the recommended 30% of income on housing. He is pointing to one of the root causes of the current financial crisis. This doesn’t have much to do with homelessness, but is interesting nonetheless.

However, because the report uses housing price data from 2002 to 2006 to predict future pricing direction, he grossly overstates the problem of unmet demand. By using the years leading up to the height of the real estate bubble as a predictor of future pricing he’s baked in the false assumption that prices won’t fall, just like Wall Street did. Because he uses this poor assumption to generate the central conclusion that there is a discrepancy between demand and affordability, the report is not only useless but grossly misleading.

You could almost forgive him for being as wrong as Freddie Mac or AIG if he had written the report in 2006, but he didn’t. It was published in August 2008 in the midst of the real estate melt-down.

2006 was the peak of the real estate boom. Since then, according to Professor Robert Merton, speaking at a recent Harvard University panel on the financial crisis, prices have dropped 16-18%, not increased, as the author predicted.

In fact, the following housing price index from Standard & Poors and Case Schiller clearly shows the reversal in housing prices since 2006. This data was freely available to the author.

Ignoring the ups and downs of a market is bad, but there’s more.

Two projections were used to make the point that there would be a discrepancy between demand and affordability: prices and job growth. However, the report ignores the simple economic law that demand and price are related. The author made no attempt to link the retarding effect high housing prices would have on job growth. If job growth slows, then prices would come down. This is freshman economics.

To his credit, Wilkerson does call for an exploration of government regulations that increase basic construction costs or otherwise impede development. It’s sad that this useful recommendation gets lost in the mish-mash of poorly used statistics.

Next, the author trashes Trenton.

It’s one thing to publish bad analysis, but it’s quite another for the Mercer Alliance, who numbers among its participating organizations a host of Trenton charities, Trenton politicians and the City of Trenton itself, to suggest that Trenton is not fit to live in. Yet, this report makes that observation when it recommends that Mercer county suburbs are more appropriate locations for middle income home buyers.

I’ll quote from the report…

Sometimes, the only places where workers can afford to live are areas where there is already concentrated poverty. More than any other single factor, concentrated poverty is associated with failing schools, high crime rates and limited resources to provide public services and community amenities. Efforts to revitalize these communities will continue to be extremely difficult as long as most of the region’s economic wealth lies outside these communities’ boundaries.

The only area of concentrated poverty in the county is in Trenton so I guess he’s talking about us. In the body of the report the author goes on to promote the idea that the affordable housing he desires, be located near jobs in the suburbs. He is apparently discounting the possibility of new jobs in Trenton.

In fact, the above paragraph seems to say that Trenton’s problems are permanent and both new residents and companies should simply not consider Trenton.

I beg to differ.

Wilkerson has shown no research at all to support the claim that Trenton’s problems are intractable. In fact, the capitol city contains most of the affordable housing in Mercer County according to COAH and could easily absorb the 24,000 new units of housing the author specifies (Trenton’s population peak was 145,000 and is now only 83,000).

Rather than steer new residents away from Trenton we should find ways to attract them. A new infusion of middle class homeowners and renters would help to stabilize Trenton’s tax base, its job market, its crime rate and its schools. Trenton is naturally affordable and doesn’t need government money to make it more so.

This call to use government power to lure residents away from market priced affordable housing in Trenton and into the suburbs where they will contribute to sprawl, runs counter to the stated goals of most of the organizations associated with the Mercer Alliance. I suggest that the Alliance’s participating organizations and especially the City of Trenton take steps to reign in those who approved this report.

The report makes conclusions about inter-county migration with no analysis.

For instance, Wilkerson suggests that workers and jobs will move to Pennsylvania. This might be true, but the report provides no evidence. Nor does he discuss the possibility that jobs and workers migrate from New York across the Hudson to NJ. Though Wilkerson admits that he ignores it in the report, he discounts all inter-county commuting, even when it’s from West Windsor to office complexes in next door Plainsboro, Middlesex County.

Finally, the report doesn’t actually address homelessness.

The word homeless is used in the body of the report only in the first paragraph of the introduction. No where else.

Instead, the body of the report spends most of its time on the misguided analysis of linkages between demand and price. Interesting but a topic better left to economists.

I suggest three reforms at the Mercer Alliance.

• First, find different reviewers for papers like this. The ETS and other member organizations should be embarrassed at the lack of scholarship.
• Second, be honest about your philosophical assumptions. If you believe that only government can solve problems, say so. At least by being honest about the philosophy, one can make honest arguments.
• Finally, stick to homelessness.