My Pacific Research Institute colleague Kerry Jackson and I have written extensively about the inherent flaws of Project Homekey. As a refresher, Project Homekey is Gov. Gavin Newsom’s main program for addressing the state’s homelessness problem. It attempts to leverage the current hotel and motel infrastructure to move people from the streets to housing.
The program is predicated on the “Housing First” approach, which asserts that a permanent and stable home is the best platform to help people overcome the challenges that caused their homelessness, including the problems of mental illness and addiction. A significant share of the estimated $24 billion that the state has spent addressing homelessness over the past several years has gone to this program.
Project Homekey is inherently flawed because it is expensive and ineffective for people who remain homeless due to problems of addiction and mental health challenges – the majority of the homeless population. The program also suffers from the same ineffective financial management plaguing California’s homeless programs.
As documented in an April 2024 report from the state auditor, the “lack of coordination among the State’s homelessness programs” has “hampered the effectiveness of the state’s efforts to end homelessness.” Further, the state is not ensuring “that it collects accurate, complete, and comparable financial and outcome information from homelessness programs. Until Cal ICH [California Interagency Council on Homelessness] takes these critical steps, the state will lack up‑to‑date information that it can use to make data‑driven policy decisions on how to effectively reduce homelessness.”
In a June 7 article, the Los Angeles Times reports on non-profit organizations who “were awarded more than $114 million in Homekey funds to convert seven motels in San Bernardino, Ventura and Monterey counties into studio apartments for formerly homeless tenants.” Instead of housing hundreds of people, “most sit empty and unfinished.” The projects also face foreclosure and accusations of financial impropriety. In response, Attorney General Rob Bonta has filed a civil lawsuit.
Given the state of the financial oversight of the state’s homeless programs, such failures should not be surprising. The state and local governments have rushed to spend billions of dollars to demonstrate to voters that they are addressing the crisis. Doing so without proper financial controls is a management failure of epic proportions. In fact, after recklessly spending so much money, in such a short time, without proper controls, the state should be thankful that at least some of the projects have worked out.
This financial scandal, as well as any other potential financial improprieties we may discover in the future, should serve as a wakeup call to the state. First, California must finally heed the calls of the state auditor and impose proper financial controls on the state’s homeless spending. As part of this process, the state should seriously consider how to consolidate the more than 30 homeless programs that the auditor identified. Trying to manage so many programs inevitably creates the risk that the efforts of different programs will be duplicative or could even work at cross purposes.
Second, the state should recognize that the “Housing First” approach is particularly vulnerable to the problems of financial abuses in addition to being a costly and ineffective strategy for addressing the homeless crisis. Rather than effectively entering the housing development industry through Project Homekey, policy leaders should employ a two-part strategy that leverages nonprofits that use more affordable temporary housing and institutional services to immediately help those who are currently homeless, and repeals the regulations and government-imposed costs that are limiting housing supplies while driving up the costs of building new housing.
Failures and scandal in Project Homekey stand as a stark reminder that the state’s current approach to helping the homeless, while well intentioned, is incapable of resolving California’s ever-worsening problem. As the old saying goes, admitting that the problem exists is the first step toward recovery – or in this case, in resolving the crisis that has been allowed to fester for far too long.
Wayne Winegarden is a senior fellow for business and economics for the Pacific Research Institute.
