In March 2020, as Covid-19 was beginning its assault on America, Jason Elliott found himself huddled in a windowless conference room late one night with about 15 other California state officials, advisers and epidemiologists who were using their phone calculators to tally up potential death rates.
The group — which included national guardsmen, emergency responders and academics who’d studied homelessness — had been banished by Gov. Gavin Newsom from an emergency Covid meeting in the state’s situation room and directed to come back when they had a plan to address the catastrophe Covid posed for the state’s massive homeless population.
“The early projection was that we would lose 25,000 homeless lives,” Elliot, a senior counselor in Newsom’s office and his top adviser on homelessness, said in an interview. “It’s enough to make you go numb, to make your stomach turn — ‘Oh my God, we got to get going.’”
Of the 580,000 Americans estimated to be homeless in January 2020, over 226,000 had no shelter at all. That meant they had little access to basic hygiene just as public health officials were directing everyone to wash their hands and wipe down surfaces. In overburdened homeless shelters, meanwhile, people were piled on top of each other with cots placed a couple feet apart, just as officials were urging Americans to socially distance and maintain six feet of separation from others.
In California, home to 28 percent of the nation’s homeless population and 51 percent of the unsheltered population, the outlook was particularly dire. Based on sketchy early case and fatality estimates cobbled together from the data coming out of China in the pandemic’s early days, epidemiologists told California officials to expect the homeless to be a major vector for spread of the virus and to die by the thousands.
As the group met into the pre-dawn hours, they batted around potential solutions. Maybe the state could use big wedding tents to shelter homeless people, someone suggested. No, they decided, amassing a bunch of people in tents would present the same contagion problems as crowded homeless shelters. How about using trailers to provide private spaces? No, they didn’t have the time or the money to procure enough trailers.
It was then that someone — Elliott can’t remember who — suggested hotel rooms.
Prior to the pandemic, homelessness experts including Elliott had considered using vacant hotel rooms to house homeless people in mostly theoretical terms — it was a wish-list idea, one that would require some real money to implement, especially at any kind of scale. Newsom had given hotel conversions the briefest of mentions in his “State of the State” address dedicated to homelessness the previous month, as one of a few potential “innovative approaches” to the homelessness problem, like building tiny homes.
But the more the group discussed the prospect over vending machine chips that night in March, the more sense it made to shelter the state’s homeless in hotels during the pandemic. They knew travel was about to plunge — state officials were already weighing a stay-at-home order — so plenty of hotels would have vacant rooms they’d be eager to lease on the cheap. And while FEMA had previously only reimbursed states for congregate, or group, shelter in the wake of past natural disasters, a former FEMA employee on staff in the room that night thought they had a shot of convincing the agency that non-congregate shelter was necessary in the face of a highly contagious virus.
“The pandemic provided us with a confluence of factors that allowed us to do things that a lot of us daydreamed about for years,” Elliott said. Those factors included the urgency caused by the public health emergency, relief money from the federal government and the timing of the crisis, which Elliott said coincided with rising political will to do something about out-of-control homelessness in the state.
“That was kind of the magic recipe,” he said.
So as travel came to a standstill and hotel occupancy rates plunged, California began moving thousands of homeless people into private hotel rooms in an effort dubbed “Project Roomkey,” which would eventually provide temporary shelter to over 48,000 people in hotel rooms leased by the state.
Within months, the state went all in on the strategy, launching an effort to convert hotel rooms into permanent housing. Between July and December 2020, the rebranded “Project Homekey“ would use $846 million — $700 million of it from federal coronavirus relief funds — to create more than 6,000 housing units, 5,000 of them permanent, in 94 properties throughout the state, mostly hotels. The average cost per unit came in at about $148,000. Normally the state spends years and about $500,000 per unit to develop new affordable housing.
David Grunwald, senior vice president for the Los Angeles region at National Community Renaissance, said he “went nuts” when he saw a request for proposals from the city of Los Angeles to turn hotels into housing for homeless people last summer. Grunwald’s team applied for, and won, contracts to develop housing at two old hotels under the first round of the program, including a 49-unit motel in the El Sereno neighborhood of LA now called Casa Luna.
He’s only grown more optimistic about the hotel conversion model since seeing it in action.
“I’ve been doing housing and homeless work since 1989, and it’s the first strategy I’ve seen that has promise to scale up in a way that makes a difference,” Grunwald said.
“The homelessness crisis is the affordable housing crisis”
When people think of homelessness, they often picture the visibly and chronically homeless — many of whom suffer from mental illness, behavioral disorders and substance abuse issues that keep them from holding down jobs. But chronic cases actually comprise a minority of the population. In California, only 30 percent of the people experiencing homelessness in January 2020 had been homeless for at least 12 months of the previous three years, according to a HUD count, which means about 70 percent were newly homeless — often low-income people who’d fallen on hard times and found themselves without a home for the first time in their lives.
“What you don’t see are that many, many of those folks who are out there are getting out of their tents and going to jobs,” said Margot Kushel, head of the Benioff Homelessness and Housing Initiative in San Francisco. Kushel, a physician who has studied homelessness’ impact on health, was one of the experts in the room when Newsom’s staff came up with the hotel conversion plan.
In part because of the temperate weather, most homeless people in California — about 70 percent, including about 84 percent of chronically homeless people — are unsheltered, sleeping in tents or cars or on sidewalks and park benches. By contrast in New York, just 7 percent of the homeless population is chronically homeless, and just 5 percent is unsheltered.
Both states have seen their homeless populations rise in recent years. One in four homeless people in the United States last year was in either Los Angeles or New York City.
It’s no coincidence that New York and California are also two of the states with the most severe shortages of affordable housing and the biggest obstacles to the construction of new units — from costly permitting processes to lengthy environmental reviews to strict zoning rules, often fiercely supported by property owners in the community. New York, Hawaii and California — all states with pricey real estate — have the highest rates of homelessness per capita.
“Rezoning is a political process, and most people — even if in the abstract they’re incredibly supportive of affordable housing — they don’t want to change the character of their neighborhood,” said Eric Rosenbaum, president and CEO of Project Renewal, a New York homeless services nonprofit.
That kind of “not in my backyard” mindset is prevalent in California, which has seen an explosion in population growth and property values as the tech revolution took hold, but little corresponding growth in wages for low-income laborers and service workers.
“The homelessness crisis is the affordable housing crisis. They are so deeply linked that it is almost impossible to separate them,” Elliott said.
Nan Roman, president and CEO of the National Alliance to End Homelessness, agrees: While a combination of factors has contributed to the rise in homelessness over the last 40 years, the affordability crisis is the primary cause, she said.
“In the ’70s there was an adequate supply of affordable housing for the number of low-income people,” Roman said. “By the late ’70s and early ’80s that equation had changed, and that’s what started homelessness and continues to be the major driver.”
According to the most recent HUD data, there are 7.8 million renter households who do not receive government assistance and live in inadequate conditions or pay more than half of their income on rent, above the economist-recommended 30 percent. The U.S. has a shortage of 6.8 million rental homes affordable for people whose incomes fall at or below the poverty line or 30 percent of their area median income, according to a National Low Income Housing Coalition analysis of Census Bureau data.
The numbers can be explained by a broader shortage of housing supply. New-home construction over the last two decades has fallen short of historical levels by 5.5 million to 6.8 million units, according to a report released over the summer by the National Association of Realtors. Construction has particularly lagged since the housing meltdown that sparked the Great Recession, and many of the workers who left the industry then haven’t returned. Total housing stock grew at an average annual rate of 1.7 percent from 1968 through 2000. That rate fell to 1 percent over the last 20 years, dipping to 0.7 percent over the last decade alone.
Housing is also a sector where trickle-down economics applies, to the detriment of lower-income renters. Home prices soared about 15 percent over the last year as white-collar Americans whose finances weren’t hurt by the pandemic crisis competed for a limited supply of housing, spurred on by historically low mortgage rates. The booming market has in turn priced other people out of buying their first home, so more people are renting: There are 1 million more renter households today than there were at the end of the second quarter of 2020, according to NAR data.
When more people compete for rental units, costs go up. They’re already rising at an alarming pace: In 2020, 22.7 percent of multifamily rental units rented for over $2,000, compared with just 12.3 percent in 2017, according to an NAR analysis of Census data.
In the past, low-wage workers had more affordable options. Single-room occupancy housing — essentially rented rooms with shared bathroom and kitchen facilities — used to be somewhat common in American cities.
Those units “started disappearing in the early ’70s and then the ’80s,” Roman said. “And it was largely gotten rid of by affordable housing advocates, who thought it was substandard and we should do better for people. Which I agree with, but we didn’t do better — we just lost all that housing.”
Between the 1970s and the 1990s, about 1 million SRO units were destroyed in different cities around the country, leaving about 200,000 today, Roman noted.
The general lack of supply, meanwhile, has aggravated the NIMBY problem. It’s not just wealthy people worried that a high-density affordable development would tank their increasing property values: low-income communities often oppose the construction of new developments in their neighborhoods, fearing the new buildings would accelerate gentrification and price them out.
“Measurably better outcomes”
California has been throwing ever-larger sums of money at homelessness for years, only to see the homeless population continue to surge, increasing by 40 percent in just the last five years. What made Homekey different was the way it streamlined regulations in a state notorious for erecting some of the most onerous and costly barriers to the development of affordable housing.
The Homekey project — and others like it — gets around those hurdles by focusing on existing buildings handpicked by the communities themselves.
The statute establishing Homekey included a provision deeming any project developed under the program to be exempt from discretionary permits and in line with applicable local standards and zoning rules. The law also exempted certain Homekey properties from a state environmental review requirement, reasoning that because the program relied on existing buildings there was little risk that the buildings would fail to pass the review.
“Because we had land-use conformance and environmental streamlining in place, our partners knew they could get to an occupied site,” said Geoffrey Ross, deputy director of the division of federal financial assistance at the California Department of Housing and Community Development. Normally, “the risk of a project being killed and the time it takes to get approvals increases the cost.”
The result was a much quicker process that for the most part sidestepped neighborhood pushback.
“It’s been a game changer, being able to say, ‘Hey, we have this underutilized building, we can use it to meet an immediate need, we don’t have to go through all the hurdles’,” said Vivian Wan, chief operating officer at Abode Services, one of the San Francisco Bay Area’s largest homeless services providers.
Crucially, the state also required that applicants for program funding be local public entities, which were in a better position to select potential sites based on community needs.
“The local jurisdiction has to go in with the developer, so it creates all this buy-in from the beginning,” Wan said.
The privacy provided by converted hotels is also a draw for some homeless people who would otherwise resist coming indoors, according to advocates, and getting people housed with supportive services like job training, medical services, healthy meals and on-call social workers reduces the strain on other community services like hospitals and jails.
“The dignity, the stability, the safety that comes with that leads to measurably better outcomes than congregate shelters,” Elliott said.
A resident named Ernie Guereca, for instance, has been able to live at Casa Luna while waiting for a voucher to move into permanent supportive housing. Guereca, a 53-year-old El Sereno native, had experienced homelessness for two years, living in an encampment on the center strip of the street on which Casa Luna is located.
The development is currently operated as interim housing for 49 formerly homeless people like Guereca; it will be redeveloped into permanent housing for up to 100 residents in early 2024, with plans for new construction on an adjacent property.
“Do we want to end homelessness or not?”
The idea of converting hotels and motels to housing isn’t new. But the pandemic – which sent hotel occupancy rates plunging to 37 percent and interest rates to rock-bottom lows – proved an opportunity.
“The price points were really high when we looked at this four or five years ago for previously homeless veterans,” said Douglas Guthrie, president and CEO of the Housing Authority of the City of Los Angeles. “When Covid-19 struck, a lot of these mom-and-pop ownership places had serious financial problems, so the price points came down and became much more reasonable.”
Plenty of hotels were already struggling before the pandemic struck, thanks to the rise of AirBnb. And the American Hotel and Lodging Association doesn’t expect the industry to recover from the pandemic until 2024.
So the hotel conversion trend is taking off. And it’s not just high-cost cities eyeing vacant hotels as a potential solution to housing shortages: A community land trust converted a Baymont Inn and Suites in Essex Junction, Vermont, into housing using federal coronavirus relief funds, and hotels in cities as far flung as Branson, Missouri, and Kissimmee, Florida, have been redeveloped into workforce housing using private funding.
“The economic drivers are there for this trend to continue — the unaffordability of housing, which is pushing up demand for rental housing, and the lack of housing in general,” said Gay Cororaton, senior economist and director of housing and commercial research at NAR, which published a report on the conversion of vacant hotels into multifamily housing earlier this year.
Those factors are also continuing to drive up homelessness, including in California. The annual government count to gauge how many people are homeless on a given night was canceled this year because of the pandemic, so it’s hard to know precisely how the crisis affected homelessness rates.
But encampments have grown in major cities around California and the country, although it’s hard to know how much of that comes down to new visibility in the wake of CDC guidance urging officials not to clear encampments during the pandemic.
Homekey’s boosters readily admit the program was never going to solve the state’s homelessness issue: The program is an “arrow in the quiver of arrows that are necessary to tackle homelessness,” Grunwald said, calling it “one of the most intractable problems of our times.”
Washington was impressed enough with the approach to establish a new $5 billion homelessness program at HUD in the March relief package that includes money for the “purchase and development of non-congregate shelter.”
Ross, who oversaw the Homekey project before he was named to his current post overseeing California’s use of funding under the new HUD program, conceded that the economics of conversions may change in the future — interest rates are already rising, many hotels will return to regular occupancy, the political focus on homelessness may fade — but said “we really can deploy these tools in a wide variety of ways and still have very meaningful outcomes.”
“Just because we’re not in the same level of pandemic and lockdown we were in last year does not mean we can’t still be successful,” Ross added.
Grunwald, who used Homekey to develop Casa Luna, is now managing three Homekey projects, as the program enters a second phase with $5.8 billion in new state and federal funds. Grunwald himself was so excited about the concept that he wanted to apply to acquire every project in the L.A. area, before his boss talked him down.
“Once I saw what it was, I was absolutely convinced it was one of the best programs I’d ever seen,” he said.
In fact, with enough financial support, Grunwald sees a national hotel conversion plan as the key to turning the homelessness problem around. Now that the pandemic has created a path forward that works, Grunwald says the question is now, “Do we want to end homelessness or not?”