Could cash grants solve the homelessness problem?

New Zealand has a serious homeless problem. We could argue about the numbers of homeless people, but it is clear that it is a serious problem when even small-town New Zealand is experiencing rising homeless numbers. And homelessness is a particular problem for Māori. However, there appears to be no easy solution. If there was, we would have done it already.

Over the last decade in Hamilton, the People's Project has adopted the Housing First approach, funded by the Ministry of Housing and Urban development. While this approach has shown some promising results, it doesn't take much walking around downtown Hamilton or Hamilton East to realise that it is far from perfect.

What if we could do better by simply offering a grant to homeless people, that they can use in any way that they wish, including obtaining housing? Would that be an effective way to reduce homelessness? That is essentially the research question addressed in this recent article (open access) by Ryan Dwyer (University of British Columbia) and co-authors, published in the Proceedings of the National Academy of Sciences (see also this non-technical summary on The Conversation). Dwyer et al. use a randomised controlled trial to evaluate the impact of giving homeless people in Vancouver a one-off grant of CDN$7.500. As they explain:

We conducted a preregistered cluster-randomized controlled trial where individuals experiencing homelessness were randomly assigned to receive a one-time unconditional cash transfer of CAD$7,500. This amount equaled the annual income assistance in British Columbia in 2016 and represented 59.6% of the average personal annual income ($12,580) of our participants. The cash transfer was provided in a lump sum to enable maximum purchasing freedom and choice (e.g., rent, durable goods), whereas smaller repeated transfers would not. To avoid benefits cliff, we established an agreement with the BC provincial government that ensured the cash transfer did not impact participants’ existing or future benefits.

Dwyer et al. limited the pool of potential cash recipients to homeless people aged 19 to 65 who had been homeless less than two years, and who did not have serious issues with mental health or substance abuse (including alcohol). The final sample included 115 homeless people, 65 in the control condition (who did not receive the cash), and 50 in the treatment condition (who did receive the cash). They randomised treatment at the homeless shelter level (so all participants from the same shelter were either in the treatment group, or the control group) to limit risks to those who received the cash. More specifically:

There were four conditions in the study: two cash and two noncash. Based on past studies showing that motivational training can help improve cognitive and behavioral outcomes for those living in poverty... we provided workshop and coaching supports in addition to the cash transfer... Workshop consisted of a 1-h session every 3 mo for 1 y, where participants were guided to complete self-affirmation, goal-setting, and plan-making exercises to help participants brainstorm strategies to regain stability in their lives...Coaching consisted of three 45-min phone calls per month for 6 mo with a certified coach trained to help participants learn from their own experiences to increase self-efficacy in developing life skills and strategies to achieve their life goals.

In condition 1, 25 participants (nshelters = 5) were provided with a one-time cash transfer of $7,500, workshop, and coaching. In condition 2, 25 participants (nshelters = 5) were provided with the cash transfer and workshop but no coaching. In condition 3, 19 participants (nshelters = 5) were provided with workshop and coaching, but no cash transfer. In condition 4, 46 participants (nshelters = 6) were not provided with the cash transfer, workshop, or coaching.

The primary outcomes that Dwyer et al. were interested in were subjective wellbeing and cognitive outcomes one month after receiving the cash grant. However, they found that there was:

...no significant interaction effect for any of the preregistered outcomes. Specifically, cash recipients did not differ from noncash participants in terms of cognitive and subjective well-being outcomes from baseline to 1 mo; cash recipients with coaching did not differ from cash recipients without coaching; and noncash participants with workshop and coaching did not differ from noncash participants without any supports.

In other words, there was no effect on what Dwyer et al. expected. However, they then explore some other outcomes, and over a longer time period of up to one year, finding that:

 Over the year, cash recipients spent 99 fewer days homeless (e.g., shelter, streets) and 55 more days in stable housing (e.g., apartment) on average than control participants... For finances, cash recipients retained more savings ($1,160) and increased monthly spending more ($429) on average than control participants... Importantly, spending on temptation goods (i.e., alcohol, drugs, cigarettes) was not different between groups.

Those are potentially important results, although we should discount them somewhat because they were not part of the pre-registered study. However, this part is potentially the most important:

By reducing time in shelters, the cash transfer was cost-effective. The societal cost of a shelter stay in Vancouver is estimated at $93 per night... so fewer nights in shelters generated a societal cost savings of $8,277. After accounting for the cost of the cash transfer, the reduced shelter use led to societal net savings of $777 per person a year. Alternatively, freed-up shelter beds can be reallocated, so the benefits can trickle down by helping others avoid sleeping on the street.

If the benefits of this intervention (in terms of cost savings from shelter stays) is greater than the costs (in terms of the cash payment, plus any administrative costs [which are not included in the calculations in the paragraph quoted above]), then that seems like a win to me. However, before we get too carried away, the authors also report on the outcomes at various time points in between one month and one year after the cash grant, where they find that:

...the overall effects were primarily driven by impacts within the first 3 mo after the cash transfer.

Looking at the number of days spent homeless, the effect is relatively large (-0.95 standard deviations) after one month, and remains high after three months (-0.94 standard deviations), but declines steadily after that, decreasing by two thirds (to -0.3 standard deviations) and becoming statistically insignificant by one year after the cash grant.

So, it is likely that there would need to be additional cash grants each year in order to keep these homeless people out of shelters. And note that these aren't the highest risk homeless people - they have only been homeless less than two years, and aren't suffering from serious mental health or substance abuse problems. On the other hand, perhaps this is the group that government really should be targeting, before they progress to serious mental health or substance abuse problems?

Anyway, a nice aspect of the study is that Dwyer et al. then went on to explore the beliefs and biases of the general population in relation to homelessness, finding that there is:

...a public mistrust of individuals experiencing homelessness in their ability to manage money. This mistrust can be a barrier for establishing cash transfers as a homelessness reduction policy.

However, when the general public is given information demonstrating the research results that homeless people do not spend the cash grant on 'temptation goods' (like alcohol, drugs, or cigarettes), or information about the cost-effectiveness of the cash grant, then people were more likely to support the cash grant policy. That was my experience in reading the research as well - the cost-effectiveness results were the results that most caught my attention. Dwyer et al. concludes that:

These two messages can be used to boost public support for a cash transfer policy to reduce homelessness.

Overall, this seems like a promising approach that is worth trying in other areas, including New Zealand. And importantly, Dwyer et al. have shown that it may be possible to get public buy-in to cash grants as a potential solution to homelessness.