If You Build It, They Will Come (Sort Of): Absorption Paces at Homeless and Homeless Veteran Supportive Housing Units Lags Behind LIHTC Developments Despite Overwhelming Demand

Published by Christian Zavinski and Kelly Gorman on Tuesday, March 7, 2023

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It is no secret that there is a homelessness crisis nationwide; especially in larger urban areas such as Los Angeles, which has garnered significant media attention nationwide.

There have been many solutions implemented to help solve the crisis, including local, state and federal funding of temporary and permanent supportive housing for those experiencing homelessness, low-income housing tax credit (LIHTC) allocations and project-based vouchers (PBVs). Specific PBVs are also designed to benefit especially vulnerable segments of the population, including U.S. Department of Housing and Urban Development (HUD)-Veteran Affairs Supportive Housing (VASH) vouchers for homeless veterans.

HUD released its 2022 annual Homeless Assessment Report Dec. 19, 2022. The report found that 582,462 people were experiencing homelessness on a single night in January 2022. This represents a 0.3% increase from 2020 data. It is noted within the report that COVID-19 prevented a Point-in-Time count from being completed in many communities across the country in 2021. The following exhibit shows the estimates of people experiencing homelessness by state.

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As shown above, more than half of all people experiencing homelessness in the country were in four states: California (30% or 171,521 people); New York (13% or 74,178 people); Florida (5% or 25,959 people); and Washington (4% or 25,211).

The following chart shows the total Point-in-Time estimates of veterans experiencing homelessness by sheltered status between 2009 and 2022. The total number of homeless veterans in 2022 was 33,129 or 5.7% of the total nationwide homeless population.

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As shown above, between 2020 and 2022, the number of veterans experiencing homelessness decreased by 11% (4,123 fewer people). The decrease occurred in both sheltered and unsheltered locations. HUD began collecting data on veterans experiencing homelessness in 2009. Overall, veteran homelessness decreased by 55% between 2009 and 2022 (40,238 fewer veterans). This decrease occurred across sheltered and unsheltered locations, both of which also decreased by 55% (23,844 fewer sheltered veterans and 16,394 fewer unsheltered veterans).

The following map illustrates the number of adults experiencing homelessness who are veterans by state.

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Between 2020 and 2022, the number of sheltered veterans nationwide decreased by 11% (4,123 fewer people). California accounted for 32% of all veterans experiencing homelessness in the United States (10,395 veterans) and more than half of all unsheltered veterans (55% or 7,392 veterans).

According to a 2019 Los Angeles Times article, an analysis by The Times examined more than 4,000 questionnaires taken as part of the 2019 Point-in-Time count and found that 76% of homeless individuals reported being, or were observed to be, affected by mental illness, substance abuse, poor health or a physical disability. This was in contrast to the 29% reported by the Los Angeles Homeless Services Authority (LAHSA). The Times, however, found that about 67% had either a mental illness or a substance abuse disorder. Individually, substance abuse affects 46% of those who are homeless and mental illness, including post-traumatic stress disorder (more often suffered by homeless veterans), affects 51% of those living on the streets, according to the analysis. The Times analysis aligns with a national study released by the California Policy Lab at UCLA in 2019, which found even higher rates in most categories. It also found that a mental health “concern” affected 78% of the unsheltered population and a substance abuse “concern,” 75%. Providers of housing for this population that we have spoken with agree that the issues are prevalent within this population. However, they could not provide estimates for HIPPA reasons. According to the National Alliance on Mental Illness, 21% of U.S. adults experienced mental illness in 2020.  This represents one in five adults.

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Given the overwhelming data showing an increase in homelessness nationwide, specifically in California and the Los Angeles area, it would appear that there is demand for affordable housing which benefits from subsidized units for homeless and homeless veterans. We have found that despite this demand, absorption data collected and analyzed shows slower rates at HUD-VASH and PBV properties compared to typical LIHTC properties.

Novogradac has completed numerous studies measuring the typical market rate and LIHTC property absorption data, as well as a recent absorption analysis of developments with set asides for VASH and PBV units for persons experiencing homelessness in Los Angeles County. Research for Los Angeles Area properties shows that LIHTC properties have a significantly higher absorption rate than VASH and PBV units for those experiencing homelessness. The average number of VASH units absorbed per month is five and the average number of PBV units absorbed per month is between 10 and 15. Novogradac shows that the average number of LIHTC units absorbed in recently constructed developments since 2020 in California, is 28 per month. This indicates that it takes five times as long to lease-up VASH units and nearly three times as long to lease-up PBV-Homeless units than it does a typical LIHTC unit with no subsidized units, despite the evidence of continued and overwhelming demand.

We believe the slower absorption paces in HUD-VASH and PBV developments are the result of multiple factors. The primary mechanism for homeless veterans to obtain housing is through the HUD-VASH program. There are eligibility requirements veterans must meet through the U.S. Department of Veterans Affairs, HUD and public housing authorities (PHAs). Eligibility is determined by a Veterans Affairs Medical Center (VAMC), Designated Service Provider (DSP) or the PHA. Eligibility requirements for the VASH program include being chronically homeless as defined by HUD, income eligibility through the PHA and case management services provided or arranged by the VAMC or DSP. The general homeless population faces similar complexities, typically with approval through coordinated entry system and the local PHA.

In addition to the complexities of navigating the various systems designed to determine eligibility requirements, staff shortages faced by federal, state and local government organizations, and the associated physical and mental stressors of being homeless play a major role in the leasing pace of PBV and HUD-VASH units. As previously stated in this report, at a minimum 25% of the homeless population suffers from severe mental illness while 26% suffers from substance abuse according to the 2022 Greater Los Angeles Homeless Count. Although these statistics are from the greater Los Angeles area, we believe it is reasonable to assume that the homeless and homeless veteran population nationwide suffer from substance abuse and sever mental illnesses at similar rates.

Developers and on-site property managers were able to provide absorption data mentioned earlier, as well as insights into their leasing strategies during our interviews from various market studies.

While preleasing is helpful, one property manager indicated that to ensure rapid absorption, they conducted prescreening at the VA campus for the available units at their property. The representative stated that when construction was completed, they started moving tenants in and all 16 veterans moved in over the course of two months. Another property manager stated that they solely rely on the on-site social worker who helps with referrals. The contact stated the social worker and the VA handle everything from start to finish and let management know once a person is approved and has a move-in date. The manager stated that having an on-site social worker is beneficial in that it keeps turnover lower and creates a generally better atmosphere for residents. In terms of the general homeless population, property representatives stated they use fliers and brochures in their neighborhoods as well. One property representative stated they go out and find potential residents themselves, specifically at homeless encampments throughout the city.

In conclusion, our analysis has shown that there continues to be a significant void in the market for affordable housing for homeless and households at risk of homeless, including homeless veterans. The mental and physical health and addiction issues they suffer from result in significant challenges for qualification and eventual placement in housing. This in turn, causes slower absorption paces compared to other types of affordable housing that do not have these restrictions and subsidies. Developers should consider the measures discussed above to facilitate a more rapid lease up of these units. 

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