Costs of homelessness

In recent years, a number of research studies have provided evidence on the costs of homelessness.  Most studies indicate that homelessness is more expensive to society than the costs of solving the problem and there is an economic case for spending money to tackle homelessness. Homeless people use a variety of public services in an inefficient and costly way. Preventing a homeless episode or ensuring speedy transition into stable permanent housing can result in significant cost savings, as well as dramatic improvement to the lives of homeless people.

Research has tried to identify the financial and social costs of homelessness to individuals and society generally, and the economic cost of providing services to help homeless people. Some studies have tried to assess the costs and benefits of investment in services designed to tackle homelessness.

Studies have used different measurement approaches and are of varying quality and robustness. Estimates of the cost to government of homelessness vary widely according to assumptions made about the needs of the particular homeless people concerned (e.g. whether they are street homeless or ready to move into work, whether they are single or have children) and about the cost of the support services required (e.g. around alcohol, drug, mental health or physical health problems).

WHAT'S IT WORTH?

In partnership with Pro Bono Economics, and building on our Critical Mass research, we have published What’s It Worth? – a guide to financial savings analysis and how it can be used by homelessness services in a robust way.

What are the financial costs of people being homeless?

As well as the often severe social, psychological and physical toll that homelessness has on people, a range of financial costs include:

  • failed tenancies 
  • health and substance misuse problems and increased contact with A&E departments 
  • involvement with the police and criminal justice system (homeless people are often at more risk of coming into contact with the criminal justice system and being victims of crime)
  • prolonged unemployment and costs of welfare benefits and economic inactivity.

What does spending on tackling homelessness cover?

Expenditure in response to homelessness is located across a range of government budgets. It can include, for example, the costs of:

  • providing hostel and other temporary accommodation, with varying degrees of support
  • support to help people live independently and maintain tenancies in their own homes
  • physical and mental health care services and substance misuse services.

Paying for homelessness – national estimates for total spending

A National Audit Office report in 2005 estimated that the nation spends around £1 billion a year to prevent and deal with homelessness. This includes central and local government spending on administration, accommodation and support to homeless people, but excludes indirect costs to government (e.g. arising from health or benefits).

A 2009 CLG report on the financial benefits of the Supporting People (SP) programme looked at the cost effectiveness of spending on accommodation-related support services for a range of client groups (including homeless people). This estimated that the net financial benefits from the SP programme is £3.41 billion per annum against an overall investment of £1.61 billion. The associated report shows net benefits by cost category, including accommodation, health and social services, crime costs, etc.

The estimated total annual cost of supporting single homeless people in nearly 13,000 units of temporary accommodation was around £107 million. Providing SP services gave an estimated financial benefit of £97 million annually.

The estimated total annual cost of supporting single homeless people in around 26,000 units of permanent accommodation was around £130 million. Providing SP services gave an estimated financial benefit of £31 million annually.

In 2008, Crisis published reports on the costs of providing private rented accommodation schemes for homeless people.

What are the costs for homeless people?

Whilst cost effectiveness studies are seen as the most straight forward type of economic measurement of cost of homelessness, cost estimation methodology is less advanced in the homelessness sector than comparable areas such as health. Studies assess the direct costs to budgets of government and non-government agencies that can be attributed to the additional services provided to homeless people. They are largely carried out by analysing agency accounts. The majority of studies into costs of homelessness fall into this category.

There are a number of reports which calculate the cost to the state of homeless individuals:

  • Research in 2008 by the New Economics Foundation indicated an annual cost to the state of £26,000 for each homeless person. This figure included the cost of benefits, hostel accommodation, and care of children.
  • The MEAM Manifesto published in 2009 contains sample costs of support for a man who has been sleeping rough in London. The total for one year since he had moved off the streets was £24,350 (broken down into hospital costs £150; drug treatment £3,000; medication £400; day centre services £1,800; and accommodation and support £19,000).
  • An earlier report in 2003 by the New Policy Institute estimated an annual cost of £24,500 for a single homeless person. This included the cost of a failed tenancy, temporary accommodation, outreach and advice services, health and criminal justice services, and resettlement.

Cost Benefit Analysis

Cost benefit analyses place values on a range of indirect, often difficult to quantify effects and intangible costs and benefits, as well as making assumptions about longer run interactions in the broader economy. Cost benefit studies are therefore more data dependent and open to challenge, and their possible implications for policy more easily rejected than cost effectiveness studies. Methods for estimating benefits have been developed in areas such as health and transport, but are less well developed in the context of homelessness.

Research using cost benefit analysis includes:

  • The Centre for Economic and Social Inclusion’s report in 2010 on the cost-benefit evaluation of OSW’s Transitional Spaces Project (which supported single homeless people into sustainable employment and their own home in the private rented sector)  found that over the four years of the project, the saving to government per participant was £2,840, after project costs. This equated to the project saving the government over £1.5 million in total.
  • St Mungo's published in 2010 two case study examples of cost savings to local authorities of providing Supporting People-funded accommodation and support services.
  • A 2008 report by the Cambridge Centre for Housing and Planning Research concluded that the Emmaus Community saved the state annually just over £31,000 for each homeless person moving into work from one of its residential schemes.
  • Another report published by OSW in 2008 calculated the annual costs of supporting someone who was unemployed and living in a second stage hostel at just over £29,000. If the individual had been in employment, this would have saved around £27,000 of these costs each year.
  • A cost benefit analysis of Tyneside Cyrenians’ Self Build Project  showed the economic cost benefit achieved by training and then employing formerly homeless, long term unemployed clients on re-building a hostel for homeless people. In the five years prior to this intervention, the participants cost the public purse a total of £513,779. The annual average cost to the public purse (through a reduction in criminal activity, medical interventions and dependency upon benefits) had been reduced by 89% as a result of training, supporting and employing these individuals.

Social Return on Investment Studies

Social Return on Investment (SROI) uses cost-benefit analysis and social auditing to capture social value by translating social objectives into financial and non-financial measures. SROI measures the value of the benefits relative to the costs of achieving those benefits with a ratio between net present value of benefits to the net present value of investment. For example, a ratio of 3:1 indicates that an investment of £1 delivers £3 in social value.

  • In 2009, Oxford Economics quantified the benefits of Crisis Skylight based on SROI evaluation and calculated that £1 invested in Crisis’ services for homeless people saves society an average of £3.92.
  • Fab Pad is a project run by Impact Arts that supports young homeless people to sustain new tenancies. The SROI evaluation carried out on Fab Pad revealed that for every £1 invested by the government in support, £8.38 of social return was derived in reduced health care costs, reduced welfare benefits expenditure and reduced costs of repeat homelessness.

Homelessness prevention

Evidence from other countries

  • Published in Australia in 2003, a review of research focused on evidence of the costs of homelessness in various different countries.
  • Research in 2008 in Australia found that the potential annual whole-of-government savings were at least twice as large as the annual cost of delivering effective homelessness programmes.
  • Research carried out by the University of California in the USA put the cost of homelessness at the equivalent of around £80,000 a year for each homeless person. This figure was accounted for by the use of expensive, ad-hoc crisis interventions, including emergency health visits, rather than strategically planned measures.
  • A 2007 report from the State of Maine in the USA found that housing people who are homeless cuts in half the average cost of services they use.
  • A 2008 research paper looks at patterns of services and the costs of homelessness in the USA.

Evidence about other client groups

The recent increased focus on the costs of homelessness is part of a wider concern across sectors providing services to support people in need. Examples of research published on costs of public services include:

What's it worth?

A guide to financial savings analysis and how it can be used by homelessness services in a robust way. Published in partnership with Pro Bono Economics.