Washington DC’s Transitional Housing Plan: An Analysis of Externalities and Sources of Neighborhood Opposition

In 2016, DC Mayor Muriel Bowser’s administration unveiled a plan to close the DC General homeless shelter and replace it with eight smaller sites throughout the city. Almost immediately, some residents located near the proposed shelter sites expressed disapproval, citing concerns over safety and decreasing property values. We can interpret such reservations as perceived negative externalities of shelters. This paper first takes those claims at face value and finds mixed evidence of whether the proposed DC shelters would produce negative externalities for neighborhoods. The paper then explores other economic rationale for neighborhood opposition to the plan—risk-averse behavior on the part of homeowners. The paper concludes with a proposal for home equity insurance that could potentially balance homeowners’ risk aversion and vested interests in neighborhood outcomes.