As California becomes more and more ignominious for its policy failures—from high taxes to debt to outmigration—one issue stands out: homelessness. In a state with the nation’s 4th-highest per capita GDP and the world’s 5th-largest economy, how is it possible to have tent encampments lining the streets of global cities like San Francisco and Los Angeles? Why does the problem seem impossible to solve no matter how much is spent?

The Independent Institute answers this in a recent report called “Beyond Homeless: Good Intentions, Bad Outcomes, Transformative Solutions.” Co-authored by six of the Institute’s staff and contributors (including me), we cite misuse of resources based on flawed incentives. Then we propose market-based alternatives that would save taxpayer money and turn around the lives of the homeless. 

The report begins with Adam Summers, Mary Theroux, and Lawrence McQuillan describing the sheer magnitude of the problem. In California, the homeless population has, since 2010, spiked from 123,000 to 151,000. This means the state’s homeless population represents 27% of the national total, and if lumped together would be California’s 39th-largest city. 

Summers and Hovannes Abramyan then discuss factors contributing to California homelessness, which include:

• Lack of affordable housing, which is the result of land and environmental regulations that make building homes (particularly affordable units) illegal. 
• High cost of living resulting from California’s taxes and regulations. This means the high incomes there come with an asterisk, while people who still have low incomes are in even worse positions to afford basic necessities. 
• Deinstitutionalization: the Lanterman-Petris-Short Act of 1967 ended the state’s institutionalization of mentally ill patients against their will. This flooded communities with the mentally-ill homeless. 
• Generous welfare benefits attract the homeless but do not encourage them to change their behavior. 

The report then describes solutions that have been employed, in California and nationwide. Starting in the George W. Bush administration writes Summers, the federal government committed to ending homelessness. This meant shifting funding from so-called transitional housing to Housing First. In the transitional model, entrants must give up drugs and other destructive behavior as conditions to enter temporary housing, where they are trained to be self-supporting and eventually move out. These demands created barriers to entry that left many on the street. 

The Housing First model gives away shelter as a baseline provision while using counseling to fix other problems that cause someone to be homeless. It has become accepted wisdom in the social services industry. 

The essential critique by this Independent Institute report is that Housing First has been a costly failure. While it may house some homeless people, it doesn’t create incentives to help them turn around their lives. So, all too often, they either die in shelters as addicts or return to the streets. 

The report also criticizes the “Harm Reduction” strategy associated with Housing First policies, which include things like safe injection sites and needle exchanges. The premise is that rampant drug use among the homeless is inevitable, and the only worthwhile strategy is to mitigate harm from it.  

“By not adequately treating the underlying issues that led residents to become homeless in the first place,” write Theroux and Jonathan Hofer, “Housing First facilities risk becoming places where the homeless merely come to die more slowly.”

Housing First also harms taxpayer wallets, writes Lawrence McQuillan. He notes that as San Francisco’s homeless population rose by 30% in two years, spending on it skyrocketed even more. Over $1 billion in local, state, and federal funds are now spent annually on homeless services in San Francisco, working out to $108,000/year per homeless person—enough to own a home in much of America. McQuillan writes of a statewide “homeless-industrial-complex”—a large bureaucracy of government and non-profit service agencies to which this money is distributed. While their stated goal is to end homelessness and turn indigent citizens into productive ones, the incentive structure just isn’t there—for the agencies or the homeless people. The continuation of a “homeless crisis” is what causes both parties to continue receiving government aid. 

My place in the report is to describe alternatives in the transitional housing space. Organizations like Step Denver, Haven for Hope in San Antonio, and California-based Solutions for Change have programs that stress structure, accountability, and the development of work skills to help the homeless reenter society. Often boosted through philanthropy, but little to no public funding, they have transformed thousands of lives.

In the conclusion, Theroux and Summers suggest a return to this transitional model. If there is to be government spending to solve homelessness, there should be metrics to determine which programs work—e.g. by tracking the ability of entrants to increase their earned income, educational attainment, and more. 

In support of this, the authors want broad housing deregulation, from loosening zoning to reforming CEQA. These regressive regulations make housing throughout the state expensive—and, self-evidently, the burden has fallen worst on the homeless.