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Federal homelessness policy: A robust political economy approach


In the wake of the financial crisis, the United States government introduced a new large-scale initiative to address homelessness. The policy mandate is marked by both an unprecedented increase in federal funding and a dramatic reallocation of resources toward Housing First, a service model emphasizing immediate housing subsidization. Although this service paradigm has received support from a sizeable literature, our knowledge of its success to date has been limited. This paper sheds light on the unobservable or unmeasured costs of this new centralized approach to ending homelessness. I argue that federal homelessness policy under the Housing First approach 1) generates resource misallocation, 2) exacerbates the Samaritan’s dilemma, and 3) invites rent seeking.

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  1. Housing First began to be adopted slightly earlier during the Bush administration; however, the model was heavily expanded to become the predominant service technology under Opening Doors.

  2. For a critique of this work, specifically the finding that rent control causes homelessness, see Quigley (1990).

  3. The linear model is still employed and practiced across the country; however, federal funding has transitioned away from these programs that have fallen out of fashion with the expert community.

  4. I use the most recent federal definition in the McKinney-Vento Act as amended by the 2009 HEARTH Act.

  5. This reflects the federal government’s reported strategy in Opening Doors. “[T]o end homelessness, we must invest in what works: evidence-based solutions like Housing First, permanent supportive housing, and rapid re-housing” (United States Interagency Council on Homelessness 2015: 65).

  6. Examples of prescient Austrian insights into the role of incentives in different contexts abound. Hayek’s The Road to Serfdom, specifically “Why the Worst Get on Top,” discusses how the incentive structure of political competition rewards those with a comparative advantage in violence, guile, and manipulation (Hayek 1944). For more examples, see Boettke and Leeson (2004b).

  7. Another reason is that the winners of political competition have concentrated interests that need not align with the stated ends of well-intentioned policy. This is discussed in section 4.

  8. The federal government has emphasized improving the measurement of homelessness in the policy initiative of the last decade (United States Interagency Council on Homelessness 2015). Despite this, current homelessness data do not even allow policymakers to reliably observe the problem they are spending over $6 billion dollars a year to address.

  9. Berk et al. (2008) report on the 2007 enumeration in Los Angeles, emphasizing its integrity and validity. They also hint at the complexity and subjectivity involved: “The imputation of counts to unsampled [sic] tracts can benefit from modeling in this context. We do not, however, believe that any specifics of the present choices carry over to other times or places. One can easily find, as we have in a related project, that what is ‘known’ in advance about the location of homeless individuals and the correlates of homelessness is inaccurate. That, in turn, will affect the details of how the imputed counts are constructed” (2008:140). Their period of interest predates the drastic reduction mentioned here. Additionally, it should be noted that HUD retroactively removed the “hidden homeless” counts from all years as of 2015.

  10. This form of misallocation could partly explain the modest relationship that Byrne et al. (2014) find between permanent supportive housing and chronic homelessness.

  11. This assumes that all n people are homeless and would remain so if not for permanent housing assistance. It is unclear that this assumption holds given the incentive structures facing both recipients and providers (see sections three and four).

  12. Even if one were to normatively assert that more common short-term homelessness is preferable to infrequent long-term homelessness, one must weigh the fact that the supply of homelessness is not exogenous to the benefits available—a fact that is typically ignored (see also DCICH 2015).

  13. Petersén and Olsson (2015) call evidence-based social programs like Housing First into question, arguing that they obscure the role of “Phronetic knowledge,” which “comes from a close understanding of practice in specific contexts” that “is difficult to teach fully, because it has a dimension that cannot be expressed verbally” (1584). This is closely akin to the Hayekian notion of tacit knowledge that Wagner asserts is necessary for welfare efforts transcending the “leveling,” tax-and-transfer paradigm (2010). Tacit knowledge is critical to determining the efficacy of homelessness policy in any given context; however, this is ignored by a policy that would push Housing First across heterogeneous communities.

  14. Even the original Pathways model (Tsemberis and Eisenberg 2000) did not yield overwhelmingly superior results to alternative models. For instance, the study does not speak to long-run costs of PSH, which are surely sizable. The superiority of Housing First in terms of addressing mental health and addiction is also entirely unclear.

  15. This confidence is reflected in the government resources available to communities. HUD’s Supportive Housing Opportunities Planner web tool, which is “designed to help communities set a path to end chronic homelessness locally,” assumes a greater than one-for-one impact of permanent supportive housing unit in the long run (United States Interagency Council on Homelessness 2016c: 1).

  16. A notable empirical study on housing prevention is Goodman et al. (2014), who study a New York City prevention program called “HomeBase.” Despite the program’s repute, the authors find no relationship between the program and average shelter spells. Their non-result echoes myriad knowledge problems of prevention: “No one knows how large the population at any moment is that could be diverted from shelter entry by Homebase-style interventions, or how much of that population could be attracted and identified” (2014: 56).

  17. For a critical assessment of this evidence base, see Corinth (2016b).

  18. HUD has been pushing for a greater proportion of permanent supportive housing units to be allocated to the chronic homeless, and this share has increased in recent years. However, a sizable fraction of permanent supportive housing units continue to be allocated to the non-chronic homeless.

  19. All values are in real 2006 dollars.

  20. A considerable literature points to related adverse effects in a host of government programs (see Wagner 2005; Lee and MacKenzie 1987, and Mathers 2012 among others).

  21. Disability in this sense is defined quite loosely—a substance abuse disorder qualifies one as disabled.

  22. In virtually all permanent supportive housing programs, supportive services and counseling are available to all users, who are free to accept or reject these support resources.

  23. In the period studied, the increase in shelter entry is smaller than the first order effect of reducing the homeless population one-for-one via subsidized housing. They therefore reject the hypothesis that increased subsidy benefits were responsible for the increase in family homelessness over this period. However, this is still consistent with a non-zero supply elasticity. Further, economic theory suggests that the supply of homelessness is more elastic in the long-term, making the net long-term effect unclear.

  24. For a critique of right to shelter laws, see Ellickson (1992).

  25. This is the Capitol’s second attempt at a right to shelter law; a similar enactment in 1984 lasted briefly until it was scaled back in 1991. A GAO report indicates that the number of families served skyrocketed during this period, attributing this to the increasing awareness that “homeless families were receiving priority in obtaining housing and rental payment assistance” (Government Accountability Office 1991: 2–3).

  26. Those in permanent supportive housing are not counted as homeless.

  27. Again, this statistic may not truly represent the prevalence of unsheltered homelessness. However, most researchers indicate that point-in-time counts employed tend to overstate the long-term homeless relative to short-term, the latter of whom are typically sheltered (Raphael 2010; Williams 2011).

  28. Again, permanent supportive housing recipients are free to engage with these services on a voluntary basis, but the services must be available.


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I thank Chris Coyne, Kevin Corinth, James Bennett, an anonymous reviewer, and the participants at the F. A. Hayek Program Graduate Student Paper Workshop of the Mercatus Center at George Mason University for thoughtful comments on drafts of this paper. Remaining errors are my own.

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Correspondence to David S. Lucas.

Appendix: McKinney-Vento Act Definition of Homelessness

Definition as amended by the 2009 HEARTH Act.

Appendix: McKinney-Vento Act Definition of Homelessness

For purposes of this Act, the term ‘homeless’, ‘homeless individual’, and ‘homeless person’ means—

  1. (1)

    an individual or family who lacks a fixed, regular, and adequate nighttime residence;

  2. (2)

    an individual or family with a primary nighttime residence that is a public or private place not designed for or ordinarily used as a regular sleeping accommodation for human beings, including a car, park, abandoned building, bus or train station airport, or camping ground;

  3. (3)

    an individual or family living in a supervised publicly or privately operated shelter designated to provide temporary living arrangements (including hotels and motels paid for by Federal, State, or local government programs for low-income individuals or by charitable organizations, congregate shelters, and transitional housing);

  4. (4)

    an individual who resided in a shelter or place not meant for human habitation and who is exiting an institution where he or she temporarily resided;

  5. (5)

    an individual or family who—

    1. (A)

      will imminently lose their housing, including housing they own, rent, or live in without paying rent, are sharing with others, and rooms in hotels or motels not paid for by Federal, State, or local government programs for low-income individuals or by charitable organizations, as evidenced by—

      1. i.

        a court order resulting from an eviction action that notifies the individual or family that they must leave within 14 days;

      2. ii.

        the individual or family having a primary nighttime residence that is a room in a hotel or motel and where they lack the resources necessary to reside there for more than 14 days; or

      3. iii.

        credible evidence indicating that the owner or renter of the housing will not allow the individual or family to stay for more than 14 days, and any oral statement from an individual or family seeking homeless assistance that is found to be credible shall be considered credible evidence for purposes of this clause;

    2. (B)

      has no subsequent residence identified; and

    3. (C)

      lacks the resources or support networks needed to obtain other permanent housing; and

  6. (6)

    unaccompanied youth and homeless families with children and youth defined as homeless under other Federal statutes who—

    1. (A)

      have experienced a long term period without living independently in permanent housing;

    2. (B)

      have experienced persistent instability as measured by frequent moves over such period; and

    3. (C)

      can be expected to continue in such status for an extended period of time because of chronic disabilities, chronic physical health or mental health conditions, substance addiction, histories of domestic violence or childhood abuse, the presence of a child or youth with a disability, or multiple barriers to employment.

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Lucas, D.S. Federal homelessness policy: A robust political economy approach. Rev Austrian Econ 30, 277–303 (2017).

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