Permanent Supportive Housing as a Solution to Homelessness:

As of 2022, California had the highest rate of homelessness in the country, with over 171,500 people experiencing homelessness on a given night. To respond to this humanitarian crisis, the state has expanded funding for the development of permanent supportive housing (PSH)—deeply affordable housing units that are targeted to people at risk of or experiencing homelessness, and that include the provision of mental health and other supportive services. The state now prioritizes PSH development in its mainstream affordable housing programs, such as the Low-Income Housing Tax Credit (LIHTC) and Multifamily Housing Programs (MHP).

In addition, state investments in programs such as No Place Like Home (NPLH) and the Veterans Housing and Homelessness Prevention Program (VHHP), as well as local bond measures such as Los Angeles’s Measure HHH, have all increased the ability of developers to add PSH units to their projects. Between 2014 and 2022, California added over 26,500 units of PSH, a 60 percent increase in the total number of units in just 8 years.

Expanding the supply of PSH is a critical step toward addressing California’s homelessness crisis. Evaluations of PSH have found that the model helps to promote housing stability and reduces the costs associated with hospital and institutional care. The PSH model, which provides people with housing first, and then offers supportive services—including for mental health and substance use issues, as well as to support their personal development and financial well-being—has seen remarkable success in ending chronic homelessness, even among people facing significant barriers to housing security.

However, research has also shown that how PSH is managed influences the success of the model; the “supportive” component of PSH is critical to keeping people stably housed. In Los Angeles, research found that Black residents were more likely to return to homelessness after moving into PSH, due in part to insufficient case management and lack of culturally competent services. Recent news stories have also highlighted how the lack of sufficient financial resources for long-term operating expenses and supportive services at PSH properties threatens their financial viability and can lead to unhealthy living conditions and poor resident outcomes.

Sustained investments in the day-to-day costs of operating PSH properties and providing high-quality supportive services are critical to the long-term success of the PSH model. Yet funding for long-term operations is often limited. Even as the state has prioritized the development of PSH units, affordable housing providers are confronting the rising costs of operating these properties. Pressures to reduce the costs of affordable housing and increase supply are coming up against the need for more funding for operations and supportive services to meet the increasing complexity of the needs of populations experiencing homelessness, as well as to recruit and retain qualified staff.

The lack of sufficient funding to effectively operate PSH and provide residents with the level of supportive services they need has implications for California’s efforts to address homelessness and may work to undermine the state’s goal to expand the supply of PSH over the long-term.

In this report, we present research findings from a study that sought to quantify the costs of operating PSH—including both the costs of managing the property and providing supportive services—and examine what the implications of insufficient funding are for properties, staff, and residents. Despite the importance of funding and sustaining PSH over time, there is remarkably little research that looks at the costs of operating high-quality PSH. Working with a collaborative of seven affordable housing developers in the Bay Area—hereafter referred to as the PSH Cost Study Working group—we analyzed data on operating and supportive services expenses to understand what influences the costs for 26 properties that include PSH units.

We then explored how resident outcomes, including participation in resident services, on-time rent payments, and move-outs, were associated with costs. We also conducted interviews and focus groups with 53 staff at the various organizations and properties and held focus groups with 76 residents at different buildings to understand their experiences with property management and resident services provision, and the ways in which the availability and structuring of resources impacts their day-to-day lives. This report focuses specifically on the role of operating subsidies in managing PSH properties: future reports coming from this research study will explore other factors that influence the success of PSH.