Los Angeles Does Not Have A Homeless Problem

ADAM MILLER, CHAIRMAN, 1P.ORG

Los Angeles does not have a homeless problem. LA has many different, distinct homeless problems.

To address LA homelessness, you must first appreciate the scale of the issues. Most people have heard that homelessness has gotten worse in LA, growing from 39,000 homeless people in 2013 to roughly 55,000 people in 2017, to over 66,000 people in 2019. Now that is bad. But the numbers are actually much worse, because those are point in time numbers, the approximate number of people identified as homeless during the annual Greater Los Angeles homeless count. If you look at the number of people who were homeless at any point during 2019, the number skyrockets to over 140,000 people.

Now I have heard many people in LA say, “Well San Francisco is worse.” Wrong. LA has 7.5 times as many homeless people as San Francisco, 12 times as many as Chicago, and 17 times as many as Houston. The only one even close is New York City with roughly 58,000 homeless people, but whereas almost every homeless person in NYC has a roof over their head at night, over 75% of homeless people in LA are unsheltered.

So how do we solve this challenge? Given the scale of our humanitarian crisis, LA cannot really look to successes in other cities. Many well-intentioned programs that work in other places are too modest to make a difference here.

Rather, LA has to unwind the ball of string that has become our homelessness situation and attack the three main issues we face.

1. LA must stem the inflow of people falling into homelessness.

No amount of supportive housing will solve the homeless problem if we don’t slow the inflow of people falling into homelessness.

There are at least two misconceptions related to the people falling into homelessness. The first is the perception that all homeless people are unemployable addicts with severe mental health issues. Not true. While the data suggests that up to 25% of LA’s homeless population suffers from mental illness, and up to another 15% struggles with substance use disorders, at least 60%, or over 40,000 homeless Angelenos do not. Rather, they likely were victims of systematic racism which condemned them to low wage jobs and insecure housing, they fell prey to unscrupulous landlords that raised rents by 30% or more (the California legislature just passed a law to cap rental increases at about 7% per year to end this practice), they lost their jobs and couldn’t cover rent, or they had to choose between rent and hospital bills.

In fact, 75% of people enrolled in homeless services in LA have a work history in California and nearly 40% were working just two years before becoming homeless. The reality is, because of the high cost of housing in LA, hundreds of thousands of Angelinos are just a paycheck away from not being able to cover their mortgage or rent payment.

In many of these cases, just a small loan or grant, often no more than $1,000, would cover the gap and keep the person or family housed. Permanently. According to a detailed study by the California Policy Lab, people who sought financial assistance and didn’t receive it were four times more likely to fall into homelessness than those who received one-time cash assistance.

The second misconception is that every mentally impaired homeless person started that way. I don’t know about you, but when I would have to pull all-nighters at my job, I would be delirious the next day. How would you be after three days sleeping on the street? How about three weeks? Ask yourself, how many of the 25% who are mentally ill developed mental illness from being homeless? And how employable do you think somebody is after weeks living on the street. LA Family Housing execs have described the transformation they often witness 48 hours after one of their clients gets housed, with their own shower and own room. “It is like a different person snuck into the room,” they say. Which, of course, makes sense.

Let’s put all that in perspective: a loan of around $1,000 could prevent someone from falling into homelessness. That means $1,000 could potentially prevent someone becoming homeless, becoming mentally unstable, becoming unemployable, requiring social services and needing a $550,000+ supportive housing unit to recover. They say, “an ounce of prevention is worth a pound of a cure.” In this case, it’s more like a ton.

So, what’s the solution? We need to supplement cash assistance programs with a micro-loan program modeled off the decades-long success of micro-finance programs in the developing world. Specifically, leveraging data-driven screening tools like those developed by the California Policy Lab to effectively target the population most vulnerable to falling into homelessness, the establishment of a Homelessness Prevention Fund could meaningfully stem the tide of people falling into homelessness, which would dramatically reduce the strain on the system. With a three-year average term loan, even with annual interest rates of less than 1% and a conservatively estimated 30% default rate (compared to the under 5% default rate typically seen by Grameen Bank and others in the micro-finance world), the initial capital in the fund could be recycled 3 or more times over 20 years, keeping tens of thousands of people out of homelessness during that period.

2. LA must simplify and modernize the current processes for housing people experiencing homelessness.

Regardless of how well prevention works, there are already tens of thousands of people experiencing homelessness in LA that need housing and services. While there are many talented people working to eradicate homelessness, both in public institutions like LAHSA and in nonprofits like LA Family Housing, PATH, St. Josephs and the United Way, layers of regulation and bureaucracy have made the system incredibly complex and extremely difficult to navigate, much less transform.

I have dealt with complex business issues, public sector procurement rules and cutting-edge technology before, but the myriad of funding sources, legal rules, organizational requirements and jurisdictional competition have made LA’s homelessness ecosystem one of the most complex systems around.

A consequence of this complexity is the difficulty in getting homeless people housed, even when applicable units are vacant and funding is available. Unfortunately, when a person in need is matched with an appropriate housing unit, it takes up to six months to get the person into the unit. That means our tax dollars are used to hold the unit while the matched recipient is sleeping on the street for six months. In addition, because there are so many manual processes, much of the matching is subjective and much of the data, on units and people in need, is unreliable.

The solution to this problem is the same as the solution to many of the previously burdensome processes in our lives – technology. The creation of a modern, enterprise-class, mobile-ready software solution would increase data accuracy, optimize the matching of housing units and people in need, dramatically reduce the time to place someone in available housing, enable the application of machine learning and data visualization to improve the allocation of public resources, and would likely increase the effective supply of available housing units through streamlined processes for property owners. 1P.org is working with LAHSA and others to develop such a solution.

3. LA must dramatically increase the volume of affordable housing units.

Fundamentally homelessness is a housing problem. Given the massive number of people who have been working and become homeless, there is clearly a lack of sufficient affordable housing. These people are actively employed or employable, but they cannot keep pace with the always- rising price of housing in LA county.

Most of the investment in housing development for the homeless that you read about today, including the focus of recent bond measures, is around what’s know as permanent supportive housing, essentially apartment buildings (often with modern units and amenities) that are staffed with social service workers and mental health professionals serving high acuity, otherwise chronically homeless individuals with severe mental or physical disability and/or drug addiction. While there have been major issues around the cost and speed of developing permanent supportive housing, there is complete consensus that it needs to be part of the solution to help people who otherwise cannot help themselves. But this only addresses a minority of the homeless population. To help the majority, not to mention the population at risk of becoming homeless, we need more affordable housing.

So, what exactly is “affordable housing”? Well the magic number is about $900 per month in rent. Basically, any unit that costs less than $1,000 per month in rent in LA qualifies as affordable.

If you are a real estate developer or investor, and you want a minimum of a “5-cap” rate on your investment (not a bad deal in these volatile financial markets with historically low interest rates), you can spend approximately $150,000 to build a unit that generates $900 per month in rent. Guess what: current HHH money is being used to build units for over $550,000. Now these units are technically for permanent supportive housing, not affordable housing, but ideally, we would be doing both at once. I don’t know about you, but $550,000 is much more expensive than any unit I could have bought, even with an adjustable-rate mortgage, until later in life. And yes, $550,000 is a lot more than the $150,000 that makes economic sense.

So here’s the rub: the only way developers can afford (meaning it makes economic sense for them) to build a $550,000 unit that will rent out for less than $1,000 per month, is if the cost of building is subsidized by the government. And any building done with limited public dollars is so tied up with red tape – another major issue in this giant ball of string – that the cost of building is often 30% more expensive than if you did it with private capital.

Does that mean the affordable housing problem can’t be solved? No, it just means that the current approach does not make financial sense. You need a combination of cutting-edge technology, relaxed zoning laws and impact capital, not to mention social entrepreneurs like the team at SoLa Impact, to make it work.

To be specific, there now is an opportunity to leverage recent California legislation allowing for the development of adjacent dwelling units (ADUs) and junior ADUs on lots zoned for single family residential housing. This could theoretically allow for four tiny homes on a single lot. Secondly, advances in 3D printing technology and pre-fab construction methods allow for the development of these small, standalone, permanent housing units – each equipped with a bathroom, kitchenette and air conditioning – at low cost. Thirdly, utilization of public land and REIT-based financing techniques allows for the development to occur at scale, further lowering unit costs. The result would be the development of thousands of privately financed, affordable housing units throughout Los Angeles that look good and could blend in with any neighborhood.

Of course, permanent supportive housing will continue to be needed for the highest acuity segments of our homeless population, who require ongoing social services in addition to housing. There are many good organizations already working in this area, but they can still benefit from better inter-agency coordination, lower construction costs and less red tape.

In addition, we should be providing more shared housing options. Shared housing is not only more affordable, but it would be more appropriate for certain segments of the homeless population, including homeless transition-aged youth who have recently exited the foster care system (think college dorms) and our increasing population of homeless seniors (think retirement homes). Current policies deter investment in shared housing, which should be encouraged.

Solving these challenges will be hard, but it is not impossible. While there may always be some people that find themselves temporarily on the streets due to mental illness, addiction, or financial stresses, we can no longer simply avert our eyes to the humanitarian crisis in our backyard. By applying the creativity, innovation and compassion that’s at the heart of LA, we can get people housed, at scale, without increasing government spending and finally end this tragedy.