King County needs to spend $400 million a year to solve homeless crisis, new report says

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.”

The startling findings come as Seattle engages in a furious public debate over the city’s proposed plan to impose a $75 million annual tax on its largest businesses — including Amazon — to pay for more affordable housing and services for the homeless.

The chamber has vigorously fought the tax, so the McKinsey report results — produced independently of the chamber — may contradict their stance.

Chamber president and CEO Marilyn Strickland said she agrees more affordable housing is needed, but argues the so-called head tax is not the answer. She added that the chamber does not feel like what McKinsey produced was their report.

“We have record revenues, we have record tax collection,” Strickland said. “If building were more of a priority, they (the City Council) should make it one and make it one now.”

But Seattle Councilmember M. Lorena González, after reading details of the report in The Seattle Times, pushed back against the chamber’s assertion that the current spending on homelessness is enough, when this analysis proves that it isn’t, she said.

“It is an untenable position that the chamber is taking to acknowledge there is an affordable housing problem while at the same time offering nothing other than a continuing chorus of no’s,” said González, who received a high-level briefing about the report a few weeks ago but was scheduled to have a meeting with McKinsey on the report details Friday.

From what she knew about the analysis so far, González said the research seemed to validate “what the advocates and the nonprofit housing developers have been telling us for quite some time now.”

McKinsey approached the chamber last fall, and produced the analysis in a matter of months. Among other findings in the report:

• Recent improvements in King County’s homelessness-response system have resulted in more exits to housing, increasing by 35 percent between 2016 and last year. But, while helpful, that alone cannot make up for the region’s affordable housing shortage.

“There’s not a ton of more juice to squeeze on efficiencies in the (homeless) crisis-response system,” said Maggie Stringfellow, a McKinsey associate partner in Seattle.

• There is a 96 percent statistical correlation between the region’s rent increases and the increase in homelessness, a finding that echoes an analysis by Zillow Research, which found those relationships strong in Seattle, Los Angeles, New York and Washington, D.C.

While McKinsey can’t say that higher rents directly cause more people to lose their homes, the two have “risen together in lockstep,” Stringfellow said.

McKinsey found the correlation between opioid deaths and homelessness to be far lower, at 34 percent — an indication that, counter to some assumptions, drug use alone isn’t driving the dramatic rise in homelessness here.

A separate, unrelated report, released Wednesday by the Seattle and King County Public Health Department, found that drug and alcohol overdoses disproportionally impacted people experiencing homelessness.

A growing problem

For Rachael Myers, executive director of the Washington Low Income Housing Alliance, the McKinsey analysis underscored what she’s long known.

“It was really, really clear that we’re not going to solve this problem by finding more efficiencies or making the system work better,” said Myers, who was part of a group that was briefed on the McKinsey report before its release. “We just need a significant increase in the number of homes that are affordable to people who are extremely low income.”

This debate about the right solution to homelessness continues as the Seattle City Council debates the head tax, also called the employee hours tax. As currently envisioned, about $50 million of the annual revenues from the tax, should the council adopt it, would go toward creating more affordable housing.

In a dramatic move last week, Amazon announced it was pausing construction of a new downtown tower until city council voted on the tax. That maneuver, plus anger over what many residents see as excessive city spending and frustration with its management of homelessness, has erupted into a fierce public debate.

On Wednesday, at a City Council committee meeting on the tax proposal, many speakers echoed the theme of the McKinsey report — that more housing is the only answer to the crisis.

In a separate news conference Wednesday, Mayor Jenny Durkan said she was interested in a sunset on the tax.

Strickland, with the chamber, agrees that the public sector alone cannot solve the crisis. But the chamber maintains that the city should spend its existing revenues on housing, rather than increase taxes on big businesses.

As a strategy to add more affordable housing, Strickland said Seattle needs to loosen some of its zoning laws that prohibit more dense housing. Seattle’s strategy to squeeze affordable housing fees from new development — known as the Housing Affordability and Livability Agenda (HALA) — has slowly rolled out amid opposition from some neighborhoods.

Strickland, the former mayor of Tacoma, emphasized that Seattle alone shouldn’t be responsible for solving the regional problem of homelessness.

Stringfellow, the McKinsey associate partner, said a variety of strategies are needed to increase the supply of affordable housing for people who are homeless. They include changes in zoning, master lease agreements or actual construction of more housing.

To estimate the cost to get everyone who is homeless into housing, McKinsey used a Seattle Times analysis showing that $196 million was spent operating the homelessness system in 2017.

The report estimates that between $164 to $214 million more was needed for a range of housing strategies, including leveraging the private market. But most of it was assumed to be spent for new affordable housing, including housing for people who need permanent support services.

The report also suggests improving governance of King County’s homeless services, which currently is fractured and spread across multiple funders, with no central authority.

The report said the structure “may create duplicative proposals” and lacks “agility to quickly implement change.” It noted that All Home, King County’s coordinating agency for homelessness, “has influence but not authority.”

Durkan and King County Executive Dow Constantine signed an agreement last week setting a December deadline for recommendations to consolidate homelessness services.

The McKinsey report also addresses a broader problem with housing affordability, beyond just those who are homeless.

King County currently has roughly 68,600 units affordable for people making up to 50 percent of Area Median Income — $43,200 for a family of three. But the current demand for that affordable housing is almost twice that — 116,200 — including the 21,700 households who are homeless.

And the demand for affordable housing is only expected to grow. The King County Housing Affordability Task Force estimates there will be a need for 244,000 affordable homes by the year 2040.