Ashley Qiang
Urban Institute
UI Associate

Using pay for success to scale permanent supportive housing

People who are chronically homeless—defined as those who have a disability and have been either continuously homeless for at least a year or have had four or more episodes of homelessness in the past three years—tend to have worse health and employment outcomes, and more legal and safety problems. As a result, they utilize a disproportionate number of public services, particularly in the areas of health care and criminal justice, which carry significant cost increases for taxpayers.

One promising approach is permanent supportive housing (PSH). In the PSH model, affordable housing with no time limit is created through rental subsidies or rent-controlled apartments, and supportive services focus on areas such as mental health, substance abuse treatment, and employment. PSH has been shown in multiple quasi-experimental designs and randomized controlled trials (RCTs) to be effective at reducing both chronic homelessness and public service costs. In most places where it has been implemented, the savings generated by reduced use of emergency rooms and other services eclipsed the cost of the program.  

Because of its ability to cover up-front costs for a demonstrably effective program before savings kick in, pay for success (PFS) has emerged as one potential financing strategy for scaling its use to more chronically homeless people. Of the 11 PFS projects that have launched in the United States, three of them—those in Massachusetts, Santa Clara, and Denver—increase the availability of permanent supportive housing, and many other localities are considering using pay for success to scale PSH as well.

Expanding permanent supportive housing through pay for success is also gaining federal support. In late June of 2016, the U.S. Department of Housing and Urban Development (HUD) and the U.S. Department of Justice (DOJ) announced that they were awarding $8.7 million to six demonstration sites across the country to use PFS to expand PSH.

None of the three launched PFS projects expanding permanent supportive housing have finished, so it is not yet possible to conclude whether these programs have been effective. However, Massachusetts recently announced a positive interim target: their PFS project has successfully placed 250 individuals in stable, supportive housing, exceeding their goal by over 50 people.

There are several early lessons we can learn from these projects:

  • Data are critical to identifying and tracking the target population. Data are essential to any PFS project, particularly in evaluation, and these three projects have used data in innovative ways to maximize project efficiency and impact. Massachusetts’ new data tool enables them to track individuals’ use of services, and Denver and Santa Clara have used data to develop targeting criteria to better identify the target population.
  • Service providers play an integral role in advancing the projects. All of the service providers in the current projects have experience with PSH, which has been valuable in project coordination. For example, in Denver, the service providers’ competencies allowed them to be flexible and develop innovative solutions to align resources among providers and governments.
  • For a PFS project to be successful, it is critical for governments to be on board and actively participate. One factor that allowed Third Sector Capital Partners, the transaction coordinator and government advisor in the Santa Clara project, to begin initial feasibility work in the project was the buy-in from local government officials.Once Third Sector received this initial support, the team was able to have more valuable meetings with staff from the county who had a better understanding of the needs of Santa Clara’s vulnerable populations.

As results continue to come out of the three active permanent supportive housing PFS projects, we will be able to learn a great deal more about whether the financing model can cost-effectively bring PSH to more chronically homeless people.  These results will also help local officials to develop a clearer idea of how PSH could work in their community, including its impact on different subpopulations.

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.