A Cost Effective Approach to Homelessness in California

Note: I wrote the following study about homelessness a few months ago. It was rejected by a couple of think tanks for being too controversial. Thankfully, Medium provides the opportunity to share ideas with readers free of an institutional filter. So, if this issue interests you, I hope you will consider the insights and suggestions I present below.

According to the most recent federal statistics, California has 115,738 homeless people of which 73,699 lack even temporary shelter. Earlier this year, State Senate leadership proposed a $2 billion affordable housing bond and a series of other measures to combat homelessness — arguing that the problem has grown beyond the ability of cities and counties to address the problem. The new state expenditures will add to the considerable commitments made by Los Angeles, San Francisco and other California local governments to address this problem.

Given the scope of the problem and the size of current and proposed expenditures, taxpayers have an interest in ensuring that the response to homelessness is cost effective. The goal of this study is to inform the policy discussion. After presenting a history of the issue and discussing public policy interests, we will consider current and proposed expenditures and offer suggestions for a more efficient approach.

We conclude that a state homelessness program could be beneficial, if:

(1) It facilitates the construction of affordable housing in parts of the state with relatively low real estate prices and lower costs of living,

(2) It at least partially offsets local government spending on services for the homeless, and

(3) It takes into account the interests of all users of public spaces, and not just those of the homeless.

A Short History

In the middle of the twentieth century, it was unusual to see people sleeping outside in major American cities. Individuals with mental health and substance abuse issues were committed to state psychiatric hospitals or lived in Single Room Occupancy (SRO) hotels. Cities often had laws against vagrancy or loitering, and frequently enforced them.

Between the late 1950s and late 1970s three policy changes substantially altered this landscape. State psychiatric hospitals were closed, SRO housing was destroyed and court decisions limited enforcement of vagrancy laws. None of these changes were intended to promote homelessness, but that was their unintended consequence.

State psychiatric hospitals came to be seen as both expensive and cruel, while involuntary confinement of mentally ill individuals came to be regarded as a violation of individual rights. The federal government encouraged the closure of state psychiatric facilities through its implementation of Medicaid in 1965. The new federal program subsidized mental health treatment in small, community-based facilities while explicitly forbidding funds to large state mental hospitals. Given this financial incentive and the availability of the first antipsychotic medication, Thorazine, several years earlier, state policymakers concluded that they could release mental patients into the community and expect them to self-medicate. The trend toward deinstitutionalization was supported by a 1975 Supreme Court decision. In the case of O’Connor v. Donaldson, the high court found:

“A finding of ‘mental illness’ alone cannot justify a State’s locking a person up against his will and keeping him indefinitely in simple custodial confinement… In short, a state cannot constitutionally confine … a nondangerous individual who is capable of surviving safely in freedom by himself or with the help of willing and responsible family members or friends.”

Individuals released into the community and unable to stay with their families could find inexpensive housing in SROs. By 1970, however, SROs had become synonymous with neighborhood blight and inadequate safety. The number of SROs declined sharply in cities across California and the United States during the 1970s and 1980s. Although some SROs were converted to more lucrative condominiums, most were simply demolished. In San Francisco, the Central City SRO Cooperative reports that:

S.R.O. neighborhoods were targeted for elimination because their populations did not fit into the long-term plans of the economic-political elite. Justin Herman, Executive Director of San Francisco Redevelopment Agency from 1960–1971 expressed the attitude existent in these circles when he said infamously, in reference to the downtown S.R.O. neighborhoods of the South of Market, “This land is too valuable to permit poor people to park on it.”

Finally, living on the street has become a more feasible option because police harassment has become less common. For example, a Jacksonville, Florida law classified ”rogues and vagabonds, or dissolute persons who go about begging; … persons wandering or strolling around from place to place without any lawful purpose or object, habitual loafers [and] disorderly persons” as vagrants subject to arrest and confinement. In the case of Papachristou v. City of Jacksonville, the Supreme Court invalidated the city’s vagrancy ordinance, finding that it “fails to give a person of ordinary intelligence fair notice that his contemplated conduct is forbidden by the statute, it encourages arbitrary and erratic arrests and convictions, it makes criminal activities that, by modern standards, are normally innocent, and it places almost unfettered discretion in the hands of the police”.

Since the 1980s, homeless people have been a common sight in American cities — especially in California.

The Current Situation

Every year the Department of Housing and Urban Development (HUD) requires communities to conduct counts of people living in emergency shelter or transitional housing on a single night. In odd numbered years, HUD also requires communities to count people living in a place unfit for human habitation. These counts are compiled by HUD and provided on its web site.

Table 1 presents an extract of HUD’s point in time data for 2015. The table shows the communities with the highest unsheltered homeless counts (the original HUD data set includes “Balance of State” data; these have been excluded from this presentation). California has the top four and six of the top ten unsheltered homeless concentrations.

Although California has a large homeless population, the number has not changed appreciably in recent years. Since 2010, the number of unsheltered homeless in California has varied from a high of 74,437 in 2011 to a low of 71,437 in 2014. The 2015 level of 73,699 is little changed from the 2010 count of 72,581.

Policy Objectives

Homeless policies have two sets of potential beneficiaries: the homeless themselves and other users of public spaces. While most of the policy discussion focuses on the first group, the diverse interests of the second group receive less attention. Since the non-homeless are more numerous and probably have a greater tendency to vote, elected officials should be interested in their perspective, so let us consider it.

The sight of homeless people in California cities inspires a variety of reactions including compassion, revulsion and indifference. Since indifference does not normally drive a policy response, I will set that aside.

The interests of those responding compassionately to the homeless and those of the homeless themselves may seem to be well aligned. We might assume that both the homeless and those concerned about their welfare would both want to see more supportive housing and more services for those lacking shelter (and suffering related problems such as mental illness or drug addiction).

However, these two groups can find themselves in conflict. Many homeless individuals express a desire to be left alone, while many compassionate third parties want to offer additional services or intervene in the lives of homeless people in a variety of ways. For example, a compassionate response might combine housing with social worker visits, detoxification and job training. Some homeless individuals express a preference for housing without these compassionate, but potentially intrusive add-ons.

The revulsion response has received less attention. A threshold question is whether such a response is even legitimate. If revulsion toward homeless people is akin to racism, it should not be addressed by public policy. We no longer have nor would we want policies that protect whites from having to see African Americans. So let us consider the sources of revulsion and ask whether they merit a response.

Residents and visitors to areas that have homeless people may find their presence to be an affront. Homelessness is often connected with unpleasant sights and smells. It is also associated with panhandling — although not all homeless panhandle and not all panhandlers are homeless.

Some find the homeless objectionable because their presence and behavior conflict with core attitudes. Just as some Americans have an immediately negative reaction to seeing a woman wearing a burqa because it represents a rejection of gender equality, some see homeless encampments as a symbol of the individual irresponsibility of their occupants. In France it is now illegal to wear a burqa in public, while in many US cities (including San Francisco) there are laws against sitting or lying on sidewalks. In the United States, a burqa ban would likely fail on First Amendment grounds since wearing a burqa can be seen as an exercise of religion. But it is less clear that the constitution protects various behaviors associated with homelessness.

Sit-lie laws may be justified on grounds other than public disgust with homelessness. For example, merchants may be concerned that homeless people occupying space in front of their storefronts may deter customers from entering.

Other behaviors associated with homelessness may also legitimately merit legal sanction. For example, many homeless people store their belongings in shopping carts that have been removed from supermarket parking lots. Using a supermarket’s property in this way constitutes a theft and is a violation of Section 22435 of the California Business and Professions Code.

Unhygienic behaviors associated with the homeless can result in public health issues: passersby a homeless camp may come into contact with used syringes or other waste that carries communicable diseases. Littering is also illegal in California.

Finally, people may react negatively to the homeless because they are often unkempt and unclean. This attitude is reflected in codes of conduct for public facilities such as libraries, post offices and transit vehicles. Many of these facilities require patrons to leave if their “bodily hygiene is so offensive as to constitute a nuisance to others”.

To conclude, the mere existence of homelessness may not cause an offense that warrants a public policy response. However, certain behaviors connected to homelessness — such as poor hygiene, use of stolen shopping carts or blocking passage — legitimately warrant action. Thus, the public policy response to homelessness should not only take into account the interests of the homeless themselves, but also those of other residents who want to live and work in clean, orderly communities.

Local Government Spending on Homelessness

Each year, California local governments spend over $2 billion to provide a variety of services to the homeless. Table 2 shows cost estimates for several cities and counties found at various places on the internet. These figures are not comparable because they apply to different fiscal years and reflect different estimation approaches. In some cases, the estimate only includes the costs of departments specifically created to provide homeless services. Other local governments, such as the City and County of San Francisco, included law enforcement and health care resources devoted to homeless individuals. Several California cities and counties with large homeless population do not identify expenditures identified with homelessness, so the total shown in Table 2 is a substantial underestimate.

Some homeless individuals impose extremely high costs upon the communities in which they reside. In San Francisco, the mayor’s budget office found that, on average, 278 homeless individuals cost the public medical system $87,480 each. In Los Angeles County, the top 5% of homeless clients used an average of $51,227 each of county services. (Both of these figures are annual).

These high costs are associated with frequent emergency room visits. The Center for Health Journalism identified one homeless man in Sonoma County who racked up nearly $1 million in medical costs over a period of three years.

Research suggests that moving homeless individuals into supportive housing — even if they are still using drugs and alcohol — can reduce emergency room visits and other service needs.

Local governments can frequently offset their supportive housing costs by obtaining federal grants. In 2015, the federal Department of Housing and Urban Development awarded California local governments $275 million to provide homeless services — about 17% of the amount HUD awarded nationwide.

Building Affordable Housing in Low Cost Areas

Given that the rise of homelessness was associated with the decline in psychiatric hospitals and SROs, it is reasonable to conclude that the construction of a new affordable housing units is essential to reducing homelessness.

Unfortunately, building affordable housing in expensive areas like San Francisco or Santa Clara County is not cost effective. Due to high real estate prices, acquiring land and buildings is very expensive. High local salaries add to the cost of building or refurbishing facilities and then staffing affordable housing complexes once they are ready for habitation.

There are more subtle costs as well. Affordable housing projects are either not subject to property tax (when owned by a local government) or assessed at lower levels than market rate housing or commercial building in an equivalent space. Thus cities, counties, school districts and special districts receive less tax revenue from parcels dedicated to affordable housing. This effect is especially pronounced in areas with high real estate prices. Further, proposed “wet houses” (in which homeless inebriates will be permitted to continue drinking or using narcotics) could suppress property values of adjacent parcels, further limiting local government revenues.

It is thus more cost effective to create affordable housing in low cost areas of the state. Property acquisition costs, construction and social service worker salaries, and forgone property tax revenues will all be substantially lower in these areas. Counties in the Central Valley and High Desert, now struggling with high rates of unemployment, may welcome these affordable housing projects because of their job creation potential.

The state can assist with the relocation of homeless to inland areas in two ways. First, it can use proceeds from an affordable housing bond to build homeless facilities inland. Second, it can create a mechanism by which coastal counties transfer homeless individuals and social services funding to inland counties. For example, if San Francisco were to transfer 2000 unsheltered homeless individuals to affordable housing units in Kern County, it should also pay Kern County to provide services to these individuals. Since San Francisco will save more than Kern will spend, it should be possible to create a transfer mechanism which is fiscally beneficial to both counties.

The new affordable housing should be built in unincorporated areas of the receiving counties. This will prevent costs from being shifted onto cities within these counties, and will reduce the number of homeless individuals camping on city streets in the inland counties or migrating back to coastal cities.

One objection to relocating homeless people this way is that they are being forced out of their communities. But a large number of homeless have relocated into the cities on whose streets they sleep. The most recent San Francisco homeless count found that 29% of the individuals surveyed became homeless before travelling to San Francisco. Further this is a self-reported number; some respondents may be lying since the “socially correct” response is to claim to be a member of the community. Finally, if an individual has no home, no job and no family or friends willing to provide him with shelter, it is not terribly meaningful to say that he is part of the community.

While affordable housing units for homeless individuals built inland may be larger and more comfortable than coastal city units, we cannot assume that many homeless individuals will be anxious to move there. One way to encourage the homeless to choose these remote housing alternatives is to offer them a cash incentive. Further, prison inmates who have finished their sentences but who may be unprepared to fully reintegrate could be released to these communities. Finally, courts can offer homeless individuals the option to relocate in lieu of sentencing when they are convicted of such as shopping cart theft and narcotics possession.

If new housing facilities are built in remote areas, protections will be needed to prevent the types of abuses suffered by patients in the old psychiatric hospitals. New affordable housing developments should consist of multiple building operated by multiple not-for-profit organizations. Residents should have the opportunity to choose a building and have the option to move from one building to another. Building operators should be compensated by the county or state based on the number of residents housed. Free movement between residences and capitation payments should create incentives for operators to provide residents with attractive facilities in which they wish to remain. Funders may also offer operators a “graduation” payment whenever a resident reaches a set of measurable thresholds (e.g., freedom from substance dependency and skill attainment) suggesting his ability to leave the community without quickly becoming homeless again. These graduation payments provide an incentive for providers to prepare residents to leave the complex, freeing up space for new occupants.

In addition to allowing free movement between facilities, the state could also inspect the affordable housing units — sanctioning operators that provide improper living conditions, and, in the extreme, revoking their license to operate. I should emphasize that this proposal calls for not-for-profit affordable housing operators. These organizations should be motivated to provide a quality living experience rather than cost minimization, but state inspections provide a further check.

Protection of the rights of the homeless must be balanced against the interests of the larger community. Specifically, steps should be taken to deter homeless individuals from leaving remote affordable communities and return to the streets of San Francisco, Los Angeles or other California cities.