Urban Institute
Research Associate I
Urban Institute
Codirector, Metropolitan Housing and Communities Policy Center

Can investors open the door to end family homelessness?

August 17, 2017 - 2:36pm

Each year approximately 150,000 families with 330,000 children turn to homeless shelters during a housing crisis. That's a shameful number of children without a place to sleep at night. But as we detail in a new report, data show that this problem is solvable. Rapid re-housing, rental assistance, and permanent supportive housing can help end homelessness for families. The solutions could even generate fiscal savings and extensive non-fiscal benefits. Yet the federal budget for rental assistance is chronically low, and the White House’s proposed HUD budget  would only make it worse.

An effective solution needs to not just improve outcomes. It needs to overcome major roadblocks that impede federal solutions, such as the following:

  1. Elected officials have shown little political will to increase funding for non-defense programs, especially safety net programs like rental assistance.
  2. When programs yield a fiscal return on investment, artificial budget divisions may prevent agencies from allocating funds toward a winning investment if the return would accrue across agencies or fiscal years
  3. Government assumes all of the risk associated with social program innovations, so it may seem safer to continue the status quo.

If the federal government won’t make the investment in funding solutions, maybe investors will. The structure of pay for success (PFS) offers an opportunity to move past these roadblocks, fund effective and promising solutions, and potentially lead to federal policy change.

Can investors remove the roadblocks?

In a PFS project, investors pay the upfront costs of a family homelessness intervention in exchange for an outcome payment if the program achieves pre-established goals. This results-drive payment system can improve political will by assuring elected officials that the public sector will not pay unless an independent evaluator determines that the program met it goals. Engaging investors also expands the coalition of stakeholders who know the evidence about effective housing policies, which can help generate political will for more action. After repeated demonstrations of success, elected officials may also be more amenable to direct funding for proven programs—thereby eliminating the unique expenses associated with implementing PFS projects.

Pay for success can open the door to investments that would otherwise appear as a cost on one budget while yielding savings to a different agency or in a different fiscal year. A PFS project that funds rental assistance, rapid re-housing, or supportive housing with the goal of reducing shelter use might help a housing agency align payments and savings in the same fiscal year. Or, if the payment is based on achieving a non-housing goal, such as reducing child welfare involvement or domestic violence, the PFS project could originate in a health, justice, education, or child welfare agency budget.

Finally, the PFS model also allows governments that are uncertain about programmatic innovation to shift risks to an investor. While rental assistance, supportive housing, and rapid re-housing are all evidence-based alternatives to emergency shelter use, a significant expansion of any program may have unexpected results, therefore posing some level of risk. Governments that have a low risk tolerance can seek investors willing to put up the initial funds and assume the risk of program failure—or reap a financial reward if the program works as planned.

State and local governments are well positioned to explore the use of PFS to end family homelessness. Cuyahoga County, Ohio is already doing so. A PFS project there has attracted investors to pay for housing and services for homeless families in the child welfare system. The county will pay a return if the program reduces foster care placement days. Other PFS projects addressing a range of challenges have also originated at the state and local level

Ultimately, ending homelessness among families will require scaling from individual cities and states to a level that requires federal government as a significant partner. But in the face of looming cuts to housing programs, communities like Cuyahoga County can keep pressing forward. With repeated evidence of impact, demonstrated cost savings, and the engagement of private investors as housing partners, PFS projects could open the door to ending family homelessness.

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As an organization, the Urban Institute does not take positions on issues. Scholars are independent and empowered to share their evidence-based views and recommendations shaped by research. Photo via Shutterstock.