Homelessness Prevention & Behavioral Economics

The field of behavioral economics offers a unique perspective into the phenomenon of homelessness – one that focuses on individual behavior and unites economic, social, and psychological factors in a way that previous models have not. This approach advocates a conception of homelessness as the result of a series of conscious choices, and recommends a focus on these choices as opportunities for intervention. It examines how and why individuals are forced to make choices that may result in homelessness and explores how upstream interventions in housing instability, and curated and critically timed choice sets can preserve housing and prevent the tipping point into homelessness, especially for high risk populations such as young adults with children.

Historically, homelessness prevention has focused on identifying the cause of homelessness, and attacking that cause. This has led to effective interventions, but not universally applicable. A theorist who believes homelessness is a purely economic problem might try to raise income for at-risk people through job training, benefits counseling, and direct financial assistance. Similarly, a researcher who feels that homelessness is a mental health issues, not an economic one, would focus on counseling and treatment. Either approach varies in efficacy, depending on the applicability of the intervention. In either circumstance, the individual or family must be in acute crisis for a number of months to allow time for the intervention, which is expensive and psychologically damaging.

Instead of focusing on a “root cause” model, let’s look closely at the mechanism by which people become homeless, and attempt a better approach for more tactical interventions. Rather than think of the reasons for homelessness, what if we study the moment when people within a certain cohort “choose” to be homeless and find commonalities among an array of individuals? It is then possible to leverage social psychology and behavioral economics to engineer choice sets and environments in which people are nudged toward decisions that will not result in homelessness.

This concept of “choice” in homelessness is often overlooked. We tend to think of homelessness as the inevitable result of broad social trends. Sometimes, this is the case. Large-scale economic depression does correlate strongly with increases in homelessness. But analysis at this level can only tell us so much. Homelessness at the micro-scale is the result of hundreds of choices, often between options that are equally unappealing. As economic challenges grow, so does the difficulty of the decision-making, and the consequences of each choice. For some families, it could mean choosing to purchase school supplies instead of paying rent. It could mean paying only half the rent in another month so holiday gifts can be purchased. These decisions are fraught with emotion, and can yield life-altering results. As economic conditions tighten, these seemingly small decision points and cash-flow constrictions move out of the realm of merely stressful, and quickly evolve into housing crises.

Many homeless or marginally housed (living doubled up with others) people could not afford housing based on 100% of their income, so the resulting homelessness is based on the lack of economic and social resources (O’Flaherty, 2006). For people living with extremely low incomes, choices related to housing may be between utilizing a high proportion of their income on poor quality housing, or increasing expenditures on other fixed costs while sacrificing housing altogether (Quigley, Raphael & Smolensky, 2001). As severely impoverished people face a scarcity of resources, opportunity costs, defined as, “those costs associated with foregoing the next most attractive course of action” (Friedman and Hetcher, 1988, p. 202), and homelessness may be the most attractive option. Alternative models of explanation have emerged, taking into consideration the paradox of choices homeless and at-risk people must make when presented with challenging economic and social realities (Lovell & Cohn, 1998).  

Assuming that individuals are generally rational actors, it is nearly impossible to imagine a person choosing to become homeless. A rational actor would never subject herself, or family, to such a string of negative externalities if another option existed. As a result, much of the literature surrounding homelessness has focused on one of two things: the societal and structural forces that act upon individuals and force them into homelessness (the “root cause” theorists) or the individual psychological factors that would cause a person to be homeless.

But there is a third conception, one that treats homelessness as the result of a series of choices made by humans acting in what they believe to be their best interests. Often these choices are made under severe duress, with incomplete information, or without advance knowledge of potential consequences, but they are choices nonetheless. If we view homelessness through this lens, we can start to construct a conceptual framework for a different type of intervention – one based on influencing housing-unstable individuals at critical moments when they are making choices that result in homelessness. Using this framework, we can place control back into the hands of those individuals and employ relatively inexpensive intervention techniques to guide people away from homelessness.

People are generally risk-averse and conservative, and frequently act to prevent the loss of something that is highly valued such as a home. It follows that well-grounded and well-run homeless prevention activities should successfully prevent people from reaching a position where they must make the choice between literal homelessness and some other unstable or untenable housing situation. The positive outcomes from HELP USA’s past 13 years as a HomeBase homeless prevention provider clearly illustrate the impact and success of homeless prevention services. HELP USA’s HomeBase programs enrolled over 10,000 families in fiscal years 2014-2016. Messeri, O’Flaherty & Goodman’s (2011) research on HomeBase finds that for every 100 families enrolled, shelter entry falls 10 to 20%. HomeBase programs yield significant cost savings to the City of New York. It costs approximately $38,000 per year to house a family in a NYC shelter, and the average length of stay is 13 months, which equates to an average cost of $41,666 for each family in shelter. HELP’s homeless prevention programs have prevented thousands of families from homelessness. Net cost savings for the prevention of literal homelessness ranges from the very conservative $3.6 million to a liberal estimate of $31 million.

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