☆ How to do a meaningful homelessness audit

Politicians are finally starting to wonder: Where does all the money spent on homelessness go? And are demanding an audit of the city’s and county's spending. But don’t expect that audit to unearth certain core truths about incentives and behavior. Market Urbanist's Scott Beyer explores the waste and misguided strategies from the Housing Dept's flawed Housing First strategy, and offers some useful direction as to how to conduct a meaningful audit in this Opp Now exclusive.

San Jose spends millions of dollars a year on homelessness. But the situation keeps getting worse. The number of homeless people in the city increased by 11% since 2019 to 6,739.

The solution, says politicians, is to spend more money. 

Governor Gavin Newsom will spend over $15 billion on homelessness through his Homeless Housing, Assistance, and Prevention (HHAP) program. Local governments have used that money to put homeless people up in hotels and buy buildings to turn them into homeless housing. San Jose has received $35.1 million from this program since 2020, which has been supplemented by various federal and local anti-homelessness funds.

Despite all the money, much of the homeless population lives on the street. Santa Clara County’s homeless census reports that “slightly more than three-quarters (77%) of persons experiencing homelessness in Santa Clara County were unsheltered, living in places not intended for human habitation.”

Why, when homelessness has declined nationwide over the decades, is it still such a problem in California, despite billions spent? Now even politicians are starting to wonder. 

State Senator Dave Cortese, who represents San Jose, has requested the State Auditor to “conduct a review of San Jose’s use of state and federal funds to combat homelessness.” His request came after he saw the appalling conditions at a homeless encampment in Columbus Park, in San Jose. The “third world” scene at the park, he said, contained “a massive rodent infestation, and trash piles, and upside down abandoned vehicles.”

“I think it’s a fair question for us to ask as representatives of constituents... What’s happening with that money?” said Cortese. “It’s nice to declare that you’re putting billions of dollars in the budget, but we don’t see the results.”

Santa Clara County Supervisor Cindy Chavez supports the audit: “it was clear the City of San Jose was not efficiently or effectively spending the state and federal funding we were afforded,” she said in a statement. 

I think the audit is a good idea, particularly because state audits in California are designed to take all-encompassing looks at whether certain policies work.

If I were running this audit for San Jose, the first thing I’d want to judge is the effectiveness of different homeless housing programs and typologies. 

The city is turning to some Project HomeKey funding to convert hotels into interim housing. The estimated per-unit cost of this would be $200,000.

Many homeless advocates say cities should focus on building permanent homes, rather than just interim ones, for the homeless. San Jose has tried that, too.

In 2016, San Jose passed Measure A, a bond to build affordable housing. It didn’t work out as intended. As San Jose Mayor Sam Liccardo recounted, “the first apartment complex funded with that 2016 measure didn’t open its doors in San Jose until 2020.” That came at a cost of more than $750,000 per unit, and more recent estimates peg costs at $850,000 per unit.

Liccardo now advocates that the city find “faster, cheaper, and more nimble solutions while we build permanent housing,” such as prefabricated modular units.

San Jose’s latest approach to homeless housing is “quick-build” apartments: shipping container-like buildings placed on public land. The city is able to build them in months, instead of years, and at a cost of less than $100,000 per unit. A press release from the city stated, “Each of the units contains a private bathroom and small bedroom, with congregate kitchens, community rooms, and offices for counseling and treatment, and provide emergency and transitional housing on the route to more permanent solutions.”

If the state audit does in fact find that modular housing is far cheaper than other options, it should stress this as the primary solution for San Jose over more traditional, expensive options. 

A second issue for the auditor would be to examine root cause of homelessness in San Jose, since that would help identify the best solutions.

Many progressives seem to think homelessness is exclusively a housing issue. They push a “Housing First” approach aruging that homeless people need permanent housing above all, then on-site social services to help them with their underlying issues.

But a study from the Independent Institute notes that 63% of chronically homeless individuals in San Francisco struggle with substance abuse. It's likely similar in San Jose. Handing such individuals permanent housing does not solve their problems; it enables their destructive behavior and makes them perpetually dependent on the government.

Others tap homelessness up to larger macroeconomic factors. Santa Clara County blames the homelessness crisis on “rising economic inequality, federal underinvestment in safety nets, and a lack of affordable housing.”

The city’s press release on homelessness quotes a nonprofit CEO who says, “We will never end homelessness in our community if we don't address the enormous systemic factors that continue pushing vulnerable families onto the streets... Our community must remain committed to scaling the production of more permanent affordable homes.”

This seems closer to the truth: along with substance abusers, California has lots of working homeless who simply can’t find affordable housing. It would be good for the auditor to parse through which San Jose residents are homeless for what reason, since that would help identify the needed programs.

A third use of the audit would be to identify the role regulations have played in driving up homeless housing costs. Mainly it's a zoning regime that artificially limits home supply as to increase land prices. When you read stories about homeless housing units that cost in the upper 6-figures, that is mostly a reflection on land costs. 

The audit could identify parcels throughout San Jose - much of it likely government-owned - that aren’t particularly expensive. Those would be good places to build the next project.

One subject I don’t expect to see audited is the explosion of social problems in California, and the broader U.S., that cause homelessness. While “substance abuse” is one, even that usually speaks to larger problems in one's personal life: broken families, mental illness, crime, and other pathologies.

Stanford economist Thomas Sowell has argued that government aid beginning in the 1960s worsened such problems. I can’t help but think the same about anti-homelessness programs. Whether they provide hotel rooms, permanent supportive housing, or modular units, they're rewarding people for having been homeless in the first place, often without condemning the behavior that made them so.

But that insight won't likely make it into the audit because it’s counterintuitive to California's political class. In their calculation, homeless spending is necessarily what prevents homelessness; they don’t consider that such spending may increase homelessness by creating distorted incentives.

With that said, this audit should be a good foray into explaining San Jose’s high homeless unit prices. Along with the three factors described above, the audit could look into more generic factors such as waste and corruption. It's the least the state could do for taxpayers who have been forced to fund this ongoing policy failure. Hopefully the state’s audit committee takes Cortese up on it.

[This article featured additional reporting from Market Urbanist content staffer Rebecca Lau.]

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