Why Converting Hotels Into Homeless Housing Doesn’t Usually Work

Subsidized housing is leftists’ number-one solution to homelessness. But despite historic outlays in California and elsewhere, governments’ attempts to house their way out of the growing crisis have thus far floundered.

Hotel conversions have emerged as an alternative way to pursue the leftist homelessness agenda. To avoid the expensive and lengthy process of building new housing, many states and local communities are now looking to purchase hotels and convert them into permanent housing for the homeless.

Conversion proponents are eyeing billions in unused federal stimulus funds as a means to realize these dreams. Funds from the March 2021 American Rescue Plan Act (ARPA) and from the March 2020 Coronavirus Aid, Relief, and Economic Security (CARES) Act have already financed conversions.

Converting hotels into housing for the homeless, in limited circumstances, can be a sensible idea. However, further scrutiny reveals that conversions are not as cost-effective as advertised; the turnover time is not as expeditious; and they, in and of themselves, do not offer a wholesale solution to homelessness.

State-level initiatives focused wholly or partly on hotel conversions include the $100 million Housing Our Neighbors with Dignity Act (HONDA) Act in New York State, the $3.6 billion Project Homekey initiative in California, and the $65 million Project Turnkey in Oregon. Smaller-scale projects are being pursued in Texas, Minnesota, Vermont, and in many communities elsewhere. In Los Angeles, advocates are already at work gathering signatures for “United to House L.A. Citizens,” a proposed ballot initiative that would tax real estate sales to fund more permanent housing, including hotel purchases.

High Costs and Delays

The New York program, launched in August 2021, has drawn only one applicant as of early February. In a recent Politico article, a zoning lawyer explained that there are “very few hotels that could comply with the requirements of today’s zoning and building code without substantial, expansive reconstruction, partial removal or demolition.” Costs are proving higher and delays longer than expected, undermining much of the rationale behind conversions.

Conversions still seem relatively attractive when compared to the state of affairs in Los Angeles. An audit of one high-profile housing for the homeless program, the $1.2 billion HHH initiative authorized by voters in 2016, found that units will cost as much as $700,000 and most won’t open until after 2022, “a schedule plainly out of step with the City’s urgent need to bring tens of thousands of people off the streets and into housing,” according to Controller Ron Galperin. Faced with such extreme costs, advocates are understandably intrigued by news of some recent hotel conversion deals made at a $100,000 per unit price point. 

Hotels are innately designed to provide temporary residency, so retrofitting them for permanent housing has more than doubled the initial price in some cases. There are also the ongoing maintenance costs associated with housing a population largely troubled by diseases including mental illness and substance abuse. Covid-19 hotel isolation programs resulted in major property damage bills in North Carolina, deaths that went unnoticed for days in Mission Valley and Vallejo, California, and increased public disorder in New York’s Hell’s Kitchen.

Over and above the purchase costs are the often-unspoken costs of the continuing rental subsidies for these units. While such subsidies are attributable to all permanent housing projects, they are rarely, if ever, are articulated in project budgets. According to a 2020 CalMatters article, these ongoing subsidies could run $10,000 annually for the life of the resident.

Mental Illness and Substance Abuse Left Unaddressed

Most notably exiled from the conversion discussion are the concepts of accountability and treatment to ensure residents’ safety and the safety of the surrounding community. A 2019 study by the UCLA Policy Lab found that 78 percent of unsheltered adults struggle with mental illness and 75 percent of adults struggle with substance abuse disorders. One of us, Michele, spent 13 years running one of Northern California’s largest shelter programs for homeless women and children, where approximately the same percentages, although sheltered, struggled with substance abuse disorder and mental illness.

Absent of accountability and treatment services, hotel conversions simply warehouse residents. Look no further than Chicago’s Cabrini-Green for a glimpse into the likely result of this approach.

While Cabrini-Green, at its peak, housed 15,000 residents, the absence of accountability and treatment created a hostile, crime-ridden environment for both the residents and the surrounding community. It ultimately resulted in the demolition of the complex, whose replacement cost taxpayers $2 billion. This was an especially troubling development given that a public housing tenant is, on average, less troubled than someone who has spent years living on the street.

Here’s What Does Tend to Work

As elected officials and their communities grapple with the hotel conversion question, two distinct models are worthy of their consideration. The Central Arizona Shelter Services (CASS) model undertook a “housing plus services” approach in its temporary hotel conversion program, Project Haven.

By providing case management and security within the temporary housing units, CASS is both time- and cost-effective. The project has been touted as a huge success by elected officials and the surrounding neighbors. Indeed, their community recently approved CASS’s purchase of a hotel to convert it to a shelter for homeless seniors that will employ a similar approach.

Another model to consider is the conversion into transitional housing — temporary housing with wraparound services — that some communities in Oregon are pursuing. The stock of transitional housing has declined by more than half over the past decade due to the federal government’s homelessness policy — Housing First — that focuses exclusively on permanently subsidized housing.

In the homelessness debate, the fascination with housing, including the technical details of how to finance and build as much as possible, has displaced interest in solutions to the problems of untreated mental illness, addiction, and chronic health conditions. Without a focus on treating these diseases, hotel conversions are a distraction posing as an innovation.

Stephen Eide is a senior fellow at the Manhattan Institute and a contributing editor of City Journal. Michele Steeb is the author of “Answers Behind the RED DOOR: Battling the Homeless Epidemic.” For 13 years, she served as executive director of Saint John’s Program for Real Change, a Sacramento-based program supporting homeless women and children. She is a senior fellow with the Texas Public Policy Foundation, overseeing its initiative to transform homelessness policy.

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