The ongoing crisis of homelessness in the Bay Area: What’s working, what’s not (2024)

Few, if any, American cities or metro areas are grappling with the large scale of homelessness seen in the San Francisco Bay Area. Locally, the issue is front and center, too: 70 percent of San Francisco residents cite homelessness among the top three problems in the city.1Kevin fa*gan, “Homelessness is S.F.’s top challenge—that’s obvious. But S.F. Chronicle poll reveals unexpected views,” San Francisco Chronicle, September 15, 2022. And while California is on track to become the fourth-largest economy in the world,2“ICYMI: California poised to become world’s 4th biggest economy,” Office of Governor Gavin Newsom, October 24, 2022. it also hosts half of the unsheltered homeless population in the United States,3Manuela Tobias, “California homeless population grew by 22,000 over pandemic,” CalMatters, October 6, 2022; State of homelessness: 2022 edition, National Alliance to End Homelessness, October 2022. with a significant share of the population concentrated in the Bay Area. On any given night, 38,000 individuals in the Bay Area are homeless, an increase of 35 percent since 2019.4Point-in-time (PIT) counts for Bay Area counties in 2022. The primary national source of data on homelessness is the US Department of Housing and Urban Development’s PIT count, which is an unduplicated count of sheltered (annual) and unsheltered (biennial) homeless persons conducted by volunteers on a single night in January.

People who are at risk for or experiencing homelessness each have a unique journey, and each individual is forced to navigate a complex maze of shelters, services, and programs that vary not only in size, scope, and approach but also in effectiveness. As this article details, homelessness in the Bay Area comprises three distinct problems but is largely perceived and treated as one via a complex and fragmented response ecosystem. A breakthrough may come in part from recognizing the distinct problems faced by those who are unstably housed and by considering bold approaches to reenvision our response ecosystem around people, not siloed individual programs.

As part of McKinsey’s Social Responsibility initiative, this article is an effort to bring our analytical capabilities and pro bono consulting to support the communities in which the firm operates. McKinsey examined homelessness in the Bay Area to offer the region’s leaders new perspectives so that together we can develop new approaches and improve existing solutions to what often feels like an intractable problem. Alongside these research efforts, McKinsey is providing pro bono support to several not-for-profit homeless services in the Bay Area that form a critical part of the response ecosystem.5Since 2021, the McKinsey Bay Area office has actively partnered with All Home, St. Anthony Foundation, and Our Trans Home SF, not-for-profit organizations in the Bay Area focused on homelessness. McKinsey has also provided the Organizational Health Index (OHI), a proprietary tool focused on understanding and benchmarking an organization’s health, for free to multiple not-for-profit programs, including homelessness-related organizations in the Bay Area. We seek to approach this space with humility, recognizing the vast challenges leaders face in tackling homelessness. We also feel gratitude to the individuals and institutions that work tirelessly to support the most vulnerable members of our community.

In this article, we consider how homelessness is defined and who is at risk, and examine how funding, changes brought by the COVID-19 pandemic, and other factors have affected homeless individuals and those at risk.

After years of efforts to ease homelessness, it’s clear that no single approach is completely effective. Homelessness in the Bay Area is the result of decades of systemic issues that have compounded and accelerated the crisis. Among them: historical redlining and the racial wealth gap, the patchwork nature of the social safety net, gaps in the mental healthcare system, a growing substance-use crisis, structural economic and workforce barriers, and reductions in affordable housing coupled with high housing costs relative to other geographies.6The 2019-20 budget: Considerations for the governor’s housing plan, California Legislative Analyst’s Office, February 2019. There is no single cause of homelessness. It’s a host of wide-reaching and diverse political, economic, and social factors (Exhibit 1).

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Structural changes have emerged in recent years: the pandemic propelled a shift in how the community cares for the unhoused, in that traditional congregate shelters have been replaced with new, innovative options, such as hotel-based emergency shelters, cabins, and vehicle triage centers7Safe locations for people to stay in their vehicles while accessing services. that provide private spaces which are considered safer for residents.

Resources have never been greater. Funding has accelerated and become more flexible to meet needs: state spending grew to $4.7 billion from $800 million during the past three years.8The 2022-23 budget, February 2022.. The state has also introduced more flexible grants, such as the Homeless Housing, Assistance and Prevention program, that have provided local jurisdictions with greater latitude over their local action plans. Cash infusions from pandemic-related programs include Project Roomkey9Project Roomkey was established in March 2020 as part of California’s response to the COVID-19 pandemic to provide noncongregate shelter options for people experiencing homelessness, protect human life, and minimize strain on healthcare system capacity; “Project Roomkey/Housing and homelessness COVID response,” California Department of Social Services.—albeit expected to expire in the first quarter of 2023—and Project Homekey,10Homekey is a program that provides funding to public entities to build various housing types, including but not limited to hotels, motels, hostels, single-family homes, and multifamily apartments, and to convert commercial properties and other existing buildings to permanent or interim housing; “Homekey,” California Department of Housing and Community Development. which continues into round-three funding in March 2023.

Additionally, the region has generated new solutions or expanded existing ones (including accessory dwelling units [ADUs], modular housing, and interim supportive housing)11Accessory dwelling units (ADUs), also called secondary units, in-law units, or cottages, are units added to existing and new residential buildings. Modular housing refers to a modular home (or prefabricated home) that’s built in a factory to about 80–90 percent completion and then trucked over to the building site where it is assembled. Interim supportive housing includes a range of options, such as short-term transitional housing and nontraditional congregate shelter, and provides the wrap-around support needed to assist residents in moving forward from homelessness and finding a permanent home. that inspire hope and future development in the space—even if they have not yet been scaled to meet demand.

Greater regional collaboration and calls for greater accountability, such as the creation of All Home’s Regional Action Plan,12The Regional Action Plan is a road map created by All Home and its partners, aiming to reduce unsheltered homelessness in the Bay Area by 75 percent by 2024 and putting forward the “1-2-4 framework” that advocates for concurrent investment in interim housing, permanent housing, and homelessness prevention. also signal a stronger organizational and systematic focus and partnership on the problem. Lastly, stakeholders across the board have gained a deeper understanding of the challenges and potential to stem the very human and societal consequences of homelessness.

Understanding the crisis

Our research suggests five key facts that the Bay Area community could consider in its direction to accelerate solutions to the crisis.

1. Homeless experiences vary and require a range of different interventions.

   There is no universal or uniform path that leads to homelessness; each unhoused individual likely has had to contend with myriad hardships and causal factors. While each journey is unique, a robust response system could systematically target the most common factors. In the Bay Area, the public conversation around homelessness can be challenging because commentators often refer to different aspects of the experience or journey and potentially are talking past each other. From our research, there are broadly three distinct types of homeless experiences that have unique needs and potential solution pathways:

   
   
   • At risk of becoming homeless: Homelessness is ultimately a challenge that is faced by people and families—not just those who are currently homeless but also the many individuals and families at risk of becoming homeless. More than one million people in the Bay Area earn below 30 percent of the Area Median Income,13Area Median Income for the nine Bay Area counties (Alameda, Contra Costa, Marin, Napa, San Francisco, San Mateo, Santa Clara, Solano, and Sonoma) ranged from $99,000 to approximately $150,000 annually for a family of four; Megan Kirkeby, “Revised state income limits for 2021,” California Department of Housing and Community Development, December 31, 2021. and many spend more than 75 percent of their income on rent.14Carolina Reid, On the edge of homelessness: The vulnerability of extremely low-income households in the Bay Area, Terner Center for Housing Innovation, University of California, Berkeley, December 2021. These individuals are forced to make hard choices every day to meet and balance their basic needs for food, healthcare, childcare, shelter, and transportation, and are often one unexpected expense or crisis away from becoming unhoused.
   • Nonchronic homelessness: For most people who become homeless in San Francisco, it’s a relatively brief,15For more than 70 percent of people who become homeless, the experience lasts a few weeks or months on average; Andrew Hening, So You Want to Solve Homelessness? Start Here, 2022. and often a one-time, experience that is largely caused by financial factors such as job loss and eviction.16San Francisco homeless count and survey, San Francisco Department of Homelessness and Supportive Housing, August 2022. In some cases, people may resolve their homelessness quickly, without significant support or services. In other cases, accessing interim housing and other supportive services becomes critical to quickly returning to a more stable situation. The research shows that the longer people remain unhoused, the higher the risk of experiencing acute illnesses and substance abuse.17Patrick Burns, Daniel Flaming, and Halil Toros, Early intervention to prevent persistent homelessness, Economic Roundtable, March 19, 2019.
   • Chronic homelessness: 35 percent of the homeless population in San Francisco are estimated to be chronically homeless, about ten percentage points higher than the rate of chronic homelessness nationwide.18San Francisco homeless count and survey, August 2022; “Chronically homeless,” National Alliance to End Homelessness, March 2021. Chronically homeless individuals are the most visible and vulnerable people in the homeless community—they often suffer from disabling health conditions, such as mental illness and addiction, and chronic health issues that create tough barriers to becoming self-sufficient. For people who experience chronic homelessness, one-time interventions or basic services are likely insufficient to help them successfully transition out of homelessness. Instead, they will likely benefit from sustained case management and higher-touch service models designed to meet their needs, such as residential recovery programs.

2. Prevention is critical and does not receive investment commensurate with its effectiveness.

   For every household that is permanently housed through the existing homelessness response system, four new households enter homelessness,19San Francisco homeless count and survey, August 2022. according to the San Francisco Department of Homelessness and Supportive Housing. At this ratio, reducing inflows (either from within the region itself or external to it) into homelessness through preventative solutions for the populations at highest risk of becoming unhoused is critical to sustainably changing the trajectory of the crisis.

3. Early intervention could change the odds.

   The current response system focuses the bulk of its efforts on the chronically homeless population—for example, Santa Clara County found that 5 percent of its residents experiencing homelessness, which largely consists of persistently homeless individuals, accounted for 47 percent of public and medical costs.20Patrick Burns, Daniel Flaming, and Halil Toros, Home not found: The cost of homelessness in Silicon Valley, Economic Roundtable, 2015. In addition, eligibility for permanent supportive housing is reserved for those who have been unhoused for more than a year and have a disability of some kind, also known as being chronically homeless.21According to the US Department of Housing and Urban Development, chronic homelessness is defined as having a disability and having been homeless and living as described for at least 12 months or on at least four separate occasions in the past three years, and that the combined occasions equal at least 12 months. Individuals and families applying for permanent supportive housing (housing with indefinite leasing or rental assistance paired with supportive services) are required to provide documentation of their chronic status; “Definition of chronic homelessness,” US Department of Housing and Urban Development. However, research shows that earlier interventions have an outsize impact on future outcomes. Research shows that youth who were unhoused for more than 24 months are twice as likely to experience homelessness as adults, compared with youth who are unhoused for fewer than 12 months.22Early intervention to prevent persistent homelessness, March 19, 2019. Every additional day unhoused and potentially on the street brings compounding challenges. Investing in solutions that intervene earlier in the path to homelessness reduces inflows into chronic homelessness, which prevents deeper suffering at the individual level and provides a more cost-effective intervention at the systems level.

4. The crisis response ecosystem is fragmented.

   Despite the urgency shown by leaders during the pandemic, today’s system remains fragmented. The nine counties that make up the Bay Area receive funding from more than 40 different sources at the federal, state, and local levels,23Putting the funding pieces together, California Homeless Coordinating and Financing Council, November 2021. with varying amounts and stipulations on usage. They also largely rely on contracting to more than 200 third-party service providers and not-for-profit organizations to provide homeless services across a range of areas. The variety of funding sources and challenges in coordination of service providers leads to a complex response ecosystem in which people experiencing homelessness often find it difficult to navigate and potentially miss out on accessing services that they are eligible for and could benefit from, because connecting with them can be too burdensome and complicated. There are opportunities for leaders to reevaluate capital allocation strategies, roles and responsibilities between public entities and contracted service providers, and outcomes-based accountability and oversight for contracted services.

5. Affordable housing remains key.

   At the most basic level, homelessness is a function of housing availability. While there are many ways to affect the demand side of those who need accommodation, getting people housed will also require addressing the supply. The Bay Area must build 700 new affordable housing units per month to meet the demand for affordable housing among extremely low-income (ELI) households.24The California Department of Housing and Community Development required the Bay Area to plan for and revise local zoning to accommodate 441,176 additional housing units during the 2023–31 period, 15.5 percent of which are required to be affordable for ELI households; Final Regional Housing Needs Allocation (RHNA) Plan: San Francisco Bay Area, 2023-2031, Association of Bay Area Governments, December 2021. Based on a historical rate of meeting only 30 percent of the region’s housing needs for low-income residents,25Progress Toward 2015-2023 Regional Housing Need Allocation (RHNA), by Affordability Level, Silicon Valley Indicators, accessed January 2023. achieving this will likely require significant changes in how housing is planned for and built. Currently, housing development costs and time-to-build in the Bay Area are three to five times the national average.26The cost of building housing series, Terner Center for Housing Innovation, University of California, Berkeley, March 20, 2020; State of the City’s Housing Stock Database, NYU Furman Center, accessed November 2022; Heather Knight, “A new S.F. housing complex for homeless people was faster, cheaper to build. So why isn’t it being replicated?,” San Francisco Chronicle, February 2, 2022. While the recent housing plans put forward by San Francisco and other counties are a step toward increasing production, execution will be critical for making those plans a reality.27A place for all report, San Francisco Department of Homelessness and Supportive Housing, December 30, 2022. The Bay Area must ramp up construction of affordable housing units, with a specific focus on serving households earning less than the Area Median Income, and local communities have a wide range of choices available to add new housing.28“Affordable housing in Los Angeles: Delivering more—and doing it faster,” McKinsey, November 21, 2019.

A different view of the unhoused journey

To gain a better understanding of the homeless experience, our research sought to shift focus from the typical point-in-time snapshots of those experiencing homelessness to one that observed the flow of people entering and exiting homelessness over time. The visual flow below (Exhibit 2) outlines distinct pathways in and out of homelessness, providing insights on key parts of the journey when intervention may have the most impact. The cycle of entering, experiencing, and exiting homelessness is driven by a range of disparate triggers, and occurs on a wide range of timelines, as short as several days and as long as years.

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Despite this heterogeneity, three distinct solution areas emerge—supporting the at-risk, accelerating exits for nonchronic cases, and providing high-touch recovery support for chronic populations—each with clear and pressing intervention priorities (see sidebar “Glossary of terms”).

There are multiple journeys made by those who at any given point may end up becoming homeless. To truly have a wide-reaching impact, the response system could consider not only those without homes but also those on the brink of homelessness—and the pressure points that can move those individuals closer to or further from housing scarcity.

Tackling homelessness will require the community to come together to recognize the distinct journeys and design solutions to match them in a clear way. Parallel investments should be made commensurate to need for all segments, rather than a piecemeal, “either–or” mentality that assumes a trade-off between those at risk and those who are chronically homeless (Exhibit 3).

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1. For the at-risk population: Bolstering housing affordability and income security

Those who are currently housed but are at risk of homelessness would benefit most from preventative measures—keeping them sustainably housed is required for addressing the problem in the long term. Programs that increase the affordable housing stock, enhance income and economic mobility, and strengthen approaches to keeping people housed (for example, emergency rental assistance, tenant support services, and tenant right to counsel) could affect the growth trajectory of the demand side of the homelessness equation.

2. For the nonchronic population: Improving coordination among agencies in the response ecosystem

For those experiencing nonchronic homelessness, improving the efficiency and coordination of existing resources and support mechanisms can accelerate exits from the homelessness cycle. This may involve prioritizing interventions with demonstrated program effectiveness relative to other solutions (for example, interim supportive housing is ten times more effective than street outreach in transitioning individuals to permanent housing29“How interim and permanent housing can work together to end homelessness,” All Home, May 19, 2022.). Likewise, improving case management, coordination, interoperability, and information sharing between organizations and agencies would reduce fragmentation in the response system, resulting in faster outcomes for families in need while saving and redirecting inefficient resources.

3. For the chronic population: Investing in intensive care pathways

The challenges of the chronically homeless extend beyond housing. The human suffering as well as the financial cost is often borne by the public health system and may be addressed holistically as a public health challenge with funding coordinated at a state or regional level. This may involve intensive interventions such as long-term residential recovery programs,30Examples of long-term residential recovery programs include St Anthony Foundation’s residential recovery program at Father Alfred Center (FAC)—a year-long addiction recovery program that provides access to counseling and spiritual services, individual therapy, evidence-based group counseling, peer counseling, technology access, primary medical treatment, job training, psychiatric care, case management services and medically-assisted treatment. FAC guests are also paired up with “companions” who can provide nonclinical and long-term recovery support over a three-plus-year period; and The Fort Lyon Recovery Program in Colorado—a two-year nonclinical, peer-based, recovery-oriented transitional housing program that provides housing, basic needs, and services such as individualized recovery program, case management and peer specialists, integrated primary and behavioral healthcare, preemployment modules, DUI education and therapy classes, assistance with benefits, and recovery resources. integrated care campuses,31For example, Haven for Hope in San Antonio, Texas, is a 22-acre “one-stop” campus that provides shelter while clients work to address the issues that have led to their homelessness. Approximately 180 partner organizations collaborate to provide wide-ranging comprehensive services, from obtaining identification to substance abuse to securing permanent housing. and permanent supportive housing that reach the chronically homeless population, transition them into housing, and address their holistic needs. While these interventions can be costly, the overall costs of meeting the needs of a chronically homeless person typically decrease by 50 percent when they are placed in supportive housing,32“Ending chronic homelessness saves taxpayers money,” National Alliance to End Homelessness, accessed November 2022. not to mention the benefits to the individual themselves.

Progress is possible

Despite concerted efforts and attention, homelessness in the Bay Area remains. However, we ought not surrender to the idea that homelessness is here to stay—we can and must bend the curve.

The Bay Area sees attention to the issue at local, state, and national levels; public and private resources are devoted to solving the issue, and there is a deep reservoir of on-the-ground talent and expertise (see sidebar “How the private sector can help”). To truly shift the tide, we must boldly reimagine our crisis-response ecosystem, which today is marked by insufficient housing inventory, overlapping mandates, minimal coordination, and many holes through which vulnerable individuals fall.

All the pieces need to come together—housing strategies, service-provider coordination, improved data systems, workforce development strategies, and alignment from all leaders, stakeholders, and residents. By treating homelessness as three distinct challenges, instead of one monolithic issue, solutions and resources can be rethought and potentially be much more effective. Homelessness has been a product of many compounding societal, policy, and market forces for decades, but the Bay Area could collectively act on choices that can begin to turn the tide on this historically intractable challenge.