“We're here to help families stabilize and get back on their feet, and we take that goal to heart the entire process.”
Something ties together the streets of Los Angeles beyond just the picturesque palm trees; it’s the cities of tents. Along many roads in Southern California are temporary villages erected by those struggling with homelessness. In 2019 alone, across Los Angeles County about 83,000 people became newly homeless. Among those struggling with homelessness, the mild climate of LA means that many are entirely unhoused, which makes it even more difficult to support them.
LA’s homelessness crisis is part of a larger housing crisis across the entire state of California, where affordable housing is so hard to find. Because of high costs of housing, many LA residents are just one missed paycheck away from being unable to cover their rent. Those experiencing homelessness in California are distinct in that they often do have a strong work history. However, rents are so high that even a small financial hit to household finances can be disastrous. There is little buffer between a lost paycheck or unexpected bill and falling into homelessness.
Almost 60% of people actually cite economic reasons as the origin of their struggle with homelessness. Especially in the precarious housing market of LA, many families are only one small financial crisis away from finding themselves on the street, living in dread of the unexpected--even something as slight as a car repair or a small medical bill. The Covid-19 pandemic only amplified this challenge. The LA Chamber of Commerce predicts that the newly homeless population could increase to as many as 120,000 per year as a result.
The vast majority of funding to fight homelessness goes towards getting housing for people who are already homeless. This leaves only about 5% of homeless funds left for prevention, and even those measures are typically only targeted at the chronically homeless with a history of housing instability. As important as it is to find housing for those experiencing homelessness, the cycle will never end unless we find a way to stop people from falling into homelessness in the first place. Otherwise, providers are left fighting a growing and never-ending battle.
The 1P Foundation, a California-based 501c3, saw this struggle in their home community. They spent 12 months researching and talking to experts on the homelessness crisis in LA, and developed the STEP Fund as a result. The STEP Fund is a micro-loan program providing no-interest loans of up to $2,500 to economically vulnerable Los Angeles residents who are at imminent risk of homelessness. They aim to prevent people from ever falling into homelessness in the first place by providing a non-punitive, no-interest loan option to cover rent and other housing-related expenses.
Unexpected financial challenges are the root of many cases of homelessness, and prior research conducted by LEO indicates that emergency financial assistance (EFA) is one promising way to prevent homelesness. The availability of financial assistance can make the difference between an unexpected bill as a slight bump in the road and it completely derailing someone’s life. EFA has the potential to be especially effective in areas with high housing costs where a small emergency loan means keeping a family housed.
In 2020, a study specifically in LA County showed that people who do receive short-term financial assistance have a much lower chance of returning to homelessness than those who do not. 1P’s STEP Fund micro-loan program aims to stop the stream of people falling into homelessness by supplementing existing cash assistance programs. Their quick turn-around and ease of access can help clients bridge the financial gap when facing sudden and unexpected challenges.
The funds can only be used for housing-related expenses, and recipients repay the loans over the course of three years, making the funds available again to help a new family. Since the micro-loans are non-punitive, however, 1P does not take legal action against those who are unable to make payments. Rather, 1P has flexible repayment terms, and connects clients with a full-time engagement manager who provides guidance and support in navigating a client’s individual financial circumstances.
These non-punitive, no-interest and easy-to-access micro-loans provide a more sustainable assistance option than the current system, and they may be a valuable tool in addressing the current homelessness crisis in LA.
Do non-punitive and no-interest micro-loans improve housing and financial stability for those at risk of homelessness?
- Clients who receive micro-loans from the STEP Fund will have increased financial stability, employment, and earnings.
- Those with increased financial stability will have more housing stability and lower rates of homelessness.
Research Study Design
LEO’s study of the 1P Foundation’s STEP Fund is a randomized controlled trial (RCT). Members of the LA community can apply for a STEP Fund micro-loan through the online application on 1P’s website. Applicants are screened for eligibility, and those who are eligible have a follow-up interview with 1P staff to learn more about the program.
Because 1P doesn’t have enough funds to give a loan to every eligible applicant, those who are still interested after the interview point are entered into a random lottery to determine who will receive a loan. Those randomly selected for the treatment group receive a no-interest micro-loan of up to $2,500. Those randomly selected for the control group do not receive a loan from 1P, but will be informed of other local resources and nonprofits for which they are eligible.
At the conclusion of the study, the LEO research team will compare outcomes between the two groups to determine how receiving a micro-loan impacts outcomes for those most vulnerable to falling into homelessness, such as housing stability and financial stability.