More than 770,000 people in the US experienced homelessness in January of 2024. The causes for this epidemic have a history dating to the 1960s. It’s not just “bad choices,” laziness, or the availability of fentanyl. It’s the result of injurious government policies, along with economic forces that have driven rents out of range for those with modest incomes.
It started with the Community Mental Health Act of 1963, which aimed to replace
outdated state mental hospitals with underfunded community-based treatment centers. This resulted in discharge of 558,000 mentally ill persons, the equivalent to roughly 1.5 million today. In 2023 state psychiatric hospitals had only 36,500 patients, primarily persons with serious mental illness. Estimates vary, but recent data indicate that 20-67% of homeless individuals have a mental health disorder.
Whatever the rationale for the 1963 legislation, the result has been transfer of the mentally ill from institutions to the streets, with states unrealistically expected to fund a replacement. Reversing this trend is hampered by the Institutions for Mental Diseases (IMD) exclusion, a Medicaid policy prohibiting federal funding for services to individuals aged 21-64 in facilities with over 16 beds primarily treating mental diseases, including substance-use disorders.
The IMD exclusion was enacted in 1965 to ensure that states, not the federal government, retained primary responsibility for funding inpatient psychiatric services. Bills to repeal the IMD failed in the three recent Congressional sessions. Politically, alternatives to repeal expanded state access entail a huge federal cost increase.
Additionally, in response to 1960’s civil unrest, rising crime and “law and order” political
rhetoric, in the form of mandatory three-strikes laws and harsher drug sentences, proliferated. As a result, the prison population increased 400% from 1970 to 2000. Because the US criminal justice system focuses on retribution and deterrence rather than rehabilitation, approximately 50% of those released are homeless within six months. For example, a 2025 San Francisco study of 1,390 previously housed adults found 25% had
homelessness records within six months after release from jail.
Governmental housing policies added to the problem. Before Reagan took office in 1980, 2.2% of the US federal budget was allocated to housing, primarily through the HUD, and that percentage fell to 0.8% in FY 2024. President Trump’s 2026 budget seeks a 44% reduction in HUD’s nondefense discretionary funding, including $27 billion less for rental assistance via block grants to states. Adjusted for inflation, HUD spending rose modestly (4.8% growth since 1980) — far slower than overall federal spending (193.7% increase).
The maldistribution of wealth has enhanced homelessness. Since 1980 the share of the top 1% pre-tax income has doubled from about 10% in 1980 to 20-22% by 2022. Meanwhile, the share of the bottom 50% fell from 20% to 12%. Why are we surprised that we have so many unhoused?
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