Housing Isn't Cheaper Than Shelter

Lessons from New York's CityFHEPS program

Cities are sometimes referred to as “laboratories of democracy.” They’re better positioned than the federal government to test policy ideas’ merit and appropriateness for scaling. Recently, New York has played guinea pig for the thesis that it’s cheaper for the government to provide housing than shelter.

The results are in; that thesis is false. Any government that follows New York’s example will face the same dilemma as city policymakers now face with the City Fighting Homelessness and Eviction Prevention Supplement (CityFHEPS) rental assistance program. Homelessness is a crisis, the local shelter system is as expensive as ever, and rental assistance costs continue to grow at a galloping rate.

New York policymakers launched CityFHEPS in 2018 as a restructured version of existing local housing voucher programs. As noted in an outstanding study of the program by the Citizens Budget Commission, CityFHEPS’ backers contended that it would save city taxpayers money on shelter.

In CityFHEPS’ inaugural year, New York’s bill for homeless shelter, per year per client, was $45,000 for single adults and over $70,000 for families. Shelter is expensive for several reasons: the New York Department of Homeless Services (DHS) operates its own unionized police force; many shelters provide social and clinical services in addition to the underlying temporary housing benefit; New York’s right to shelter requires immediate placement, which necessitates the use of hotels, whose owners drive a hard bargain with the city.

Housing a family for a year doesn’t cost $70,000. Thus, it was tempting to believe that giving everyone housing instead of shelter is not just a moral imperative but a form of taxpayer relief.

Except that that argument rests on an apples-to-oranges fallacy.

Shelter is temporary. The year CityFHEPS was launched, the average length of stay in a DHS shelter was 414 days for single adults and 446 days for families. Permanent housing is permanent.

The average tenure in a New York City Housing Authority unit is 27 years. For the federal Section 8 rental voucher program, which CityFHEPS is modeled after, the average tenure is 15 years among New York City households. CityFHEPS is formally described as a five-year program, but extensions are available for “good cause.” The extension rate is 90%.

Via Citizens Budget Commission

No real-world experiment is necessary to grasp the difference between temporary and permanent housing programs. It’s definitional. Nonetheless, intelligent people, such as academics and New York Times op-ed contributors, have long persisted with the canard that housing is cheaper than shelter. On that rationale, one 2023 report claimed that giving the migrants housing vouchers instead of shelter would save New York City $3 billion annually.

Perhaps real-world experimental results will be more persuasive.

In FY19, the DHS budget was $2.1 billion; this year, it’s $4.4 billion. In its first year, FY19, CityFHEPS’ cost was $25 million. Last fiscal year (‘25), its cost was $1.3 billion; the cost may exceed $2 billion this year. According to a recent presentation by city comptroller Mark Levine, New York may well be spending $3 billion on rental assistance by FY28.

True, homelessness cost numbers have, to a degree, been thrown off by the migrants, who are expensive to shelter but broadly ineligible for CityFHEPS. The shelter system is, as always, host to a large number of non-native sheltered homeless. There are about 150,000 individuals receiving CityFHEPS benefits. When the program was launched, there were around 75,000 individuals in shelter. Less ~30,000 migrants, that’s around the same number who are in shelters now. It is reasonable to argue that CityFHEPS has helped keep the non-native shelter census from growing. But the program has not come close to driving down the shelter census and costs as proponents suggested it would.

CityFHEPS has not only not provided budget relief, the program contributes heavily to the city’s budget deficit. As noted by the chart above, comptroller Levine characterizes the problem with CityFHEPS as “underbudgeting,” a term also favored by Mayor Mamdani. “Overpromising” might be more apt. Had CityFHEPS never been launched, current pressures to raise taxes would be less acute.

And yet, CityFHEPS’ backers insisted they were doing city taxpayers a favor. That’s false in more than one way, as the Citizens Budget Commission explained. Shelter, especially for families, is funded by a mix of federal, state, and local sources, but CityFHEPS is purely city-funded.

Progressives built New York City’s multibillion-dollar shelter system, including the many regulations that mandate costly quality standards. Progressives who cite onerous shelter costs as a justification for CityFHEPS serve as a perfect example of the late political humorist P.J. O’Rourke’s characterization of “people advocating programs to solve a problem caused by the programs these people advocated.”

The West Coast homelessness version of “housing’s cheaper than shelter” is to argue that giving everyone housing is cheaper than encampment cleanup operations. Progressives advance many similar “it’s a deal” arguments in other policy contexts, too, such as how universal pre-k cuts prison costs, sanctuary city policy avoids wasting public safety resources that could be devoted to hunting down the real bad guys, a higher minimum wage lowers safety net costs by lifting people out of poverty, and single payer healthcare is the investment opportunity of a lifetime.

These arguments aren’t just bad because they’re based on technically flawed analyses. What’s worse, they deny the existence of tradeoffs in policymaking.

Policy wonks shouldn’t cater, demagogically, to the American public’s desire to receive something for nothing. We rely on politicians for that. Any policy idea that seems too good to be true almost certainly is.