Cost-Effectiveness of Housing Solutions

Introduction

Discussions about addressing homelessness often focus on moral and humanitarian arguments—and rightfully so. However, there is also a compelling economic case for housing-focused solutions. Contrary to common assumptions, evidence consistently shows that providing stable housing and appropriate support services is often less expensive than managing homelessness through emergency systems and institutional care.

This article examines the economic evidence behind housing solutions for homelessness, exploring the costs of homelessness to public systems, the comparative cost-effectiveness of various interventions, and the broader economic benefits of stable housing. Understanding this economic dimension can help communities make informed decisions about resource allocation while recognizing that cost savings are just one of many important considerations in addressing homelessness.

The Costs of Unaddressed Homelessness

When people experience homelessness, particularly for extended periods, they often interact with multiple public systems at high cost:

Healthcare Costs

Homelessness significantly increases healthcare utilization and costs:

• People experiencing homelessness are hospitalized at up to five times the rate of housed people
• Average annual healthcare costs for a person experiencing chronic homelessness range from $18,000 to $44,000
• Emergency department visits are 3-4 times more frequent among people experiencing homelessness
• Longer hospital stays due to lack of discharge options cost healthcare systems millions annually

Criminal Justice System Costs

Interactions with law enforcement and incarceration generate substantial costs:

• Arrests and incarceration for quality-of-life offenses and survival activities
• Average cost of $14,000-$45,000 per year to incarcerate someone, depending on location
• Police time spent on homelessness-related calls diverts resources from other public safety needs
• Court costs for processing low-level offenses associated with homelessness

Emergency Shelter and Crisis Services

Temporary responses to homelessness involve significant ongoing expenses:

• Emergency shelter costs average $8,000-$15,000 per person annually
• Crisis outreach and emergency transportation services
• Administrative costs of managing fragmented emergency responses
• Repeated cycles of crisis intervention without resolving underlying housing instability

Business and Community Impacts

Homelessness affects local economies in various ways:

• Lost business revenue in areas with visible homelessness
• Decreased property values and tax revenue
• Costs of sanitation and environmental remediation
• Reduced tourism and economic development in affected areas

Cost-Effectiveness of Housing First

Housing First approaches have been extensively studied for their cost implications:

Reduced System Utilization

Multiple studies show significant reductions in service use after housing placement:

• Healthcare: 50-60% reductions in emergency department visits and inpatient hospitalizations
• Criminal justice: 40-80% reductions in arrests, jail days, and court appearances
• Emergency services: 80-90% reductions in ambulance transports and crisis response
• Shelter use: Near elimination of emergency shelter stays

Net Cost Savings

When comparing total costs before and after housing:

• Denver's Social Impact Bond initiative showed net savings of $15,733 per person annually
• Seattle's 1811 Eastlake project for chronically homeless individuals with alcohol use disorders reduced costs by $2,449 per person per month
• New York City's supportive housing program demonstrated net savings of $16,282 per housing unit per year
• A study of Housing First in five Canadian cities found that every $10 invested in housing and supports for high-need individuals resulted in $21.72 in savings across other sectors

Population-Specific Cost Outcomes

Cost-effectiveness varies by population characteristics:

• High utilizers: Greatest cost savings (often $20,000-$50,000 annually) for individuals with histories of frequent emergency system use
• Chronic homelessness: Substantial savings for those with long-term homelessness and disabling conditions
• Families: More modest but still positive financial outcomes, with greater savings in child welfare and educational systems
• Youth: Long-term economic benefits through improved educational and employment outcomes

"The fiscally responsible thing to do is to invest in permanent solutions to homelessness, not manage it through emergency responses. The data is clear: housing people is not only more humane, it's also more economical in the long run."

Comparative Cost Analysis of Different Interventions

Different approaches to addressing homelessness have varying cost implications:

Permanent Supportive Housing

Housing with ongoing supportive services for people with complex needs:

• Annual cost: $20,000-$35,000 per person (including housing and services)
• Cost offset: $20,000-$50,000 in reduced system utilization for high-need individuals
• Net impact: Cost-neutral to net savings for high utilizers; modest net cost for others
• Long-term benefit: Sustained housing stability (75-85% retention rates) reduces future public costs

Rapid Re-Housing

Short-term rental assistance and case management:

• Average cost: $6,000-$12,000 per household
• Cost offset: $8,000-$15,000 in avoided shelter costs
• Net impact: Generally cost-effective compared to shelter stays of similar duration
• Long-term benefit: 75-85% of households remain housed after assistance ends

Emergency Shelter

Temporary congregate accommodations:

• Annual cost: $8,000-$15,000 per person for basic shelter; $25,000-$45,000 for enhanced shelter with services
• Cost offset: Limited reduction in other system costs without housing placement
• Net impact: Ongoing cost without resolution of homelessness
• Long-term benefit: Limited without connection to permanent housing

Criminalization Approaches

Law enforcement responses to visible homelessness:

• Annual cost: $20,000-$50,000 per person in law enforcement, court, and incarceration costs
• Cost offset: Minimal; often increases healthcare and other costs
• Net impact: High cost with negative outcomes
• Long-term benefit: Often exacerbates homelessness by creating additional barriers

Prevention: The Most Cost-Effective Approach

Preventing homelessness before it occurs offers the greatest economic efficiency:

Eviction Prevention

Keeping people in existing housing:

• Average cost: $2,000-$5,000 per household for rental assistance and legal services
• Cost avoidance: $20,000-$30,000 in shelter, rehousing, and system costs per prevented episode
• Return on investment: $4-$8 saved for every $1 spent on targeted prevention
• Additional benefits: Avoids trauma of homelessness, maintains community connections and employment

Discharge Planning

Preventing homelessness after institutional stays:

• Average cost: $3,000-$8,000 per person for transition planning and initial housing support
• Cost avoidance: $15,000-$25,000 in emergency response and readmission costs
• Systems involved: Hospitals, psychiatric facilities, foster care, correctional facilities
• Success rates: 85-90% housing retention with proper planning and support

Targeted Prevention for High-Risk Groups

Focusing on those most likely to become homeless:

• Youth aging out of foster care: $5,000-$10,000 per youth for transition support saves $50,000-$100,000 in future costs
• Domestic violence survivors: $3,000-$8,000 for flexible financial assistance prevents shelter stays and trauma-related costs
• Veterans: Early intervention through SSVF (Supportive Services for Veteran Families) shows 90% success rate at 1/3 the cost of addressing homelessness after it occurs

Beyond Direct Cost Savings: Broader Economic Benefits

The economic case for housing solutions extends beyond immediate cost offsets:

Workforce Participation and Tax Revenue

Housing stability enables employment and economic contribution:

• Increased employment rates among formerly homeless individuals (30-50% improvement in some studies)
• Higher earned income and tax contributions
• Reduced reliance on public benefits
• Greater workforce availability in communities with affordable housing

Educational Outcomes and Future Earnings

Housing stability for families and youth affects long-term economic prospects:

• Improved school attendance and graduation rates
• Better academic performance and reduced special education costs
• Higher lifetime earnings potential
• Reduced intergenerational poverty

Community Economic Development

Addressing homelessness benefits local economies:

• Increased property values and tax base
• Improved business activity in formerly affected areas
• Job creation in housing development and services
• Enhanced tourism and community investment

Healthcare System Efficiency

Housing improves overall healthcare functioning:

• Reduced emergency department crowding
• Better management of chronic conditions
• Improved public health outcomes
• More appropriate use of specialized medical resources

Methodological Considerations in Cost Studies

Understanding the economic evidence requires awareness of research limitations:

Variations in Study Design

Different methodologies affect findings:

• Pre-post studies: Compare costs before and after intervention for the same individuals
• Comparison group studies: Compare housed individuals to similar unhoused people
• Randomized controlled trials: Most rigorous but less common due to ethical considerations
• Cost modeling: Projects costs and savings based on assumptions and existing data

Data Limitations

Common challenges in cost research:

• Incomplete data on service utilization across systems
• Difficulty tracking individuals over time
• Variation in how costs are calculated and reported
• Limited information on private sector and indirect costs

Population Considerations

Cost outcomes vary significantly by population:

• Greatest cost savings demonstrated for chronically homeless individuals with high service utilization
• More modest direct cost offsets for families and those with lower service needs
• Different cost implications in urban versus rural settings
• Variation based on local housing markets and service costs

Implementing Cost-Effective Approaches

Translating economic evidence into effective policy requires several considerations:

Targeting for Maximum Impact

Prioritizing resources for cost-effectiveness:

• Identifying high utilizers of emergency systems through data analysis
• Coordinated entry systems that match people to appropriate interventions
• Blending targeting with equity considerations to avoid excluding vulnerable groups
• Balancing immediate cost savings with long-term prevention benefits

Cross-System Collaboration and Funding

Aligning resources across sectors:

• Healthcare investments in housing as a social determinant of health
• Criminal justice partnerships to divert people to housing rather than incarceration
• Braided funding streams that combine housing and service dollars
• Data sharing agreements to track outcomes across systems

Innovative Financing Mechanisms

New approaches to funding housing solutions:

• Pay for Success/Social Impact Bonds: Private investment repaid based on achieved outcomes
• Medicaid waivers: Using healthcare funding for housing-related services
• Hospital community benefit investments: Directing non-profit hospital resources toward housing
• Social investment funds: Pooled resources from multiple sectors based on shared savings

Scale and System Transformation

Moving beyond pilot programs:

• Scaling successful interventions to reach all who need them
• System-wide adoption of housing-focused approaches
• Policy changes that redirect resources from less effective interventions
• Long-term investment in affordable housing development

Case Studies: Economic Success Stories

Several communities have demonstrated the economic benefits of housing-focused approaches:

Denver Social Impact Bond Initiative

A performance-based investment in supportive housing:

• Approach: Housing and intensive case management for 250 chronically homeless high utilizers
• Results: 83% housing retention, 40% reduction in arrests, 40% reduction in emergency department visits
• Economic impact: Net savings of $15,733 per person annually, successful repayment to investors
• Systemic change: Led to expanded city investment in supportive housing

Los Angeles County Housing for Health

Healthcare system investment in housing:

• Approach: County health department funding for permanent supportive housing
• Results: 96% housing retention, 70% reduction in emergency department visits, 77% reduction in inpatient days
• Economic impact: 60% reduction in total county service costs
• Systemic change: Expanded to serve thousands through Medicaid waiver funding

Massachusetts Home & Healthy for Good

State-funded Housing First program:

• Approach: Low-threshold supportive housing for chronically homeless individuals
• Results: 86% housing retention, significant reductions in emergency service use
• Economic impact: Annual savings of $9,339 per person in health care, shelter, and criminal justice costs
• Systemic change: Became a permanent state budget line item based on demonstrated cost-effectiveness

Finland's National Housing First Policy

Comprehensive country-wide approach:

• Approach: Conversion of shelters to permanent housing and national Housing First policy
• Results: 40% reduction in long-term homelessness, only European country with consistently decreasing homelessness
• Economic impact: €15,000 saved annually per person housed in supportive housing
• Systemic change: Complete transformation of national homelessness policy and funding

Addressing Common Economic Concerns

Several economic objections to housing investments can be addressed with evidence:

Concern: "We Can't Afford Housing Solutions"

Addressing budget constraints:

• Reality: Communities are already paying high costs for unaddressed homelessness
• Evidence: Redirecting existing emergency response spending often covers much of housing costs
• Approach: Phased implementation starting with highest-cost individuals
• Perspective: Housing is an investment that reduces future costs, not just an expense

Concern: "Housing Will Attract More Homeless People"

Addressing migration concerns:

• Reality: Research consistently shows most people experience homelessness in their home communities
• Evidence: Studies of Housing First programs show 75-80% of participants were already long-term residents
• Economic impact: Regional approaches prevent cost-shifting between neighboring communities

Concern: "The Private Market Should Solve Housing Problems"

Addressing market-based arguments:

• Reality: Market failures in housing are well-documented, particularly for extremely low-income households
• Evidence: The gap between housing costs and incomes requires intervention to prevent homelessness
• Economic perspective: Housing stability creates positive externalities that benefit the broader economy

Concern: "We Need to Address Root Causes First"

Balancing immediate needs with systemic change:

• Reality: Housing is itself a root cause of homelessness
• Evidence: Housing stability provides the foundation for addressing other issues
• Economic approach: Simultaneous investment in housing solutions and structural reforms

Conclusion

The economic evidence is clear: housing-focused solutions to homelessness are not only more humane but often more cost-effective than managing homelessness through emergency systems. By providing stable housing with appropriate supports, communities can reduce public system costs while improving outcomes for people experiencing homelessness.

This economic case complements the moral imperative to address homelessness. While cost savings should not be the only consideration in policy decisions—some populations deserve housing solutions regardless of immediate cost implications—the financial benefits of housing approaches help make the case for sustained investment in effective solutions.

As communities grapple with homelessness, understanding the economic dimensions can help build broader support for housing investments. By redirecting resources from costly emergency responses to proven housing solutions, we can create more effective systems that better serve both people experiencing homelessness and the broader community. The evidence shows that ending homelessness is not only the right thing to do—it's also the fiscally responsible approach.

References & Further Reading

1. Culhane, Dennis P., Stephen Metraux, and Trevor Hadley. "Public Service Reductions Associated with Placement of Homeless Persons with Severe Mental Illness in Supportive Housing." Housing Policy Debate, vol. 13, no. 1, 2002, pp. 107-163. https://doi.org/10.1080/10511482.2002.9521437
2. Larimer, Mary E., et al. "Health Care and Public Service Use and Costs Before and After Provision of Housing for Chronically Homeless Persons with Severe Alcohol Problems." JAMA, vol. 301, no. 13, 2009, pp. 1349-1357. https://doi.org/10.1001/jama.2009.414
3. Flaming, Daniel, Halil Toros, and Patrick Burns. "Home Not Found: The Cost of Homelessness in Silicon Valley." Economic Roundtable, 2015. https://economicrt.org/publication/home-not-found/
4. Ly, Angela, and Eric Latimer. "Housing First Impact on Costs and Associated Cost Offsets: A Review of the Literature." Canadian Journal of Psychiatry, vol. 60, no. 11, 2015, pp. 475-487. https://doi.org/10.1177/070674371506001103
5. National Alliance to End Homelessness. "Ending Chronic Homelessness Saves Taxpayers Money." National Alliance to End Homelessness, 2017. https://endhomelessness.org/resource/ending-chronic-homelessness-saves-taxpayers-money/
6. Goering, Paula, et al. "National At Home/Chez Soi Final Report." Mental Health Commission of Canada, 2014. https://www.mentalhealthcommission.ca/English/at-home
7. Corporation for Supportive Housing. "Costs of Homelessness." CSH, 2023. https://www.csh.org/
8. Denver Social Impact Bond Initiative. "Denver SIB: Housing to Health Initiative Results." Denver Department of Housing Stability, 2020. https://www.denvergov.org/Government/Agencies-Departments-Offices/Agencies-Departments-Offices-Directory/Department-of-Housing-Stability
9. Y-Foundation. "A Home of Your Own: Housing First and Ending Homelessness in Finland." Y-Foundation, 2017. https://ysaatio.fi/en/
10. Los Angeles County Department of Health Services. "Housing for Health: The Story of Ending Homelessness in Los Angeles County." LA County DHS, 2023. https://dhs.lacounty.gov/housing-for-health/