California’s homelessness ‘solution’ is a $1 billion deal for 1,200 tiny homes that might not even come with a bathroom

The idea for the homes extend far beyond just a place to rest your head, though. Under the governor’s plan, the homes are meant to create a tiny-home community–with kitchens, dining and living rooms, common areas, and cabins for counseling—to help people experiencing homelessness find stability. 

Yet a year after the governor’s announcement, the tiny homes have not housed a single resident, and only about 150 of them have even been purchased by the state and cities so far. Changing parameters from the state, along with other bureaucratic delays, are to blame for the standstill. 

The plan, a $1 billion initiative, is meant to cover the costs of contracting, delivering and installing tiny homes from six state-approved vendors, and bring needed aid for the state’s homelessness crisis, as California has the highest percentage of homeless people living without shelter in the country, according to a 2023 federal report. 

According to the state, the California National Guard was set to help prepare and deliver the homes “free of charge and ready for occupancy,” but that changed last winter, when the state announced it would offload the responsibility to buy and place homes to the jurisdiction of each city and county. Now, some regions are left without enough money to afford all the homes they were promised, and others are getting caught up in lengthy board votes on where to place them—all while the homeless remain unhoused. 

What will the $1 billion pay for?

The governor’s plan covers funding for 500 homes in Los Angeles, 350 homes in Sacramento, 200 homes in San José and 150 homes for San Diego County. But instead of buying and delivering the units ready-made, the state decided to send many of the cities cash to let them order and install the tiny homes on their own. The decision means some cities, like San José, are now responsible for providing more funding to the tiny home initiative than initially planned. 

According to a memo reviewed by the city’s council in February, the governor’s office sent San José a fixed payment of $13.3 million so the city can construct tiny homes by itself, which San José Mayor Matt Mahan told Fortune is about half the cost of buying and building its promised 200 tiny homes, which would cost $22.7 million. 

“The big moment for us was in March of this year,” he said, when the state provided him with a grant agreement that spelled out how the state would subsidize the units. “We turned that grant agreement and a project delivery plan around within the same month.”

San José, he said, has already opened 500 tiny homes, mainly funded through local dollars, in different areas of the city—and in addition to the 200 units under the state initiative, plans to open 500 more over the next 18 months. “San José has moved forward so quickly and stood up so many of these [units] because we have demonstrated that they work,” he said, “and have been able to secure community and city council support for devoting public land to tiny home communities.” 

Mahan noted the units themselves are not the biggest cost nor the most important factor to consider in terms of improving homelessness on a state-wide level. “We need the state and county levels of government to support ongoing supportive services people need, such as mental health care, drug treatment, job training and other social services that states and counties are well suited to provide.” 

The vendors have been approved, but orders are at a standstill 

Last October, the state signed contracts with six companies approved to build tiny homes for the initiative, asking many of these companies to specially design units that would make up tiny home communities, including cabins for sleeping and other shared facilities, like kitchens, dining rooms, and classrooms.

One of the state-approved tiny home vendors, AMEG, has the ability to offer such long-term social support to residents. AMEG specially designed 18 different units meant to accommodate all the different facilities the state requested, including bathrooms, kitchens and laundry rooms. But the group, along with several other of the state-approved vendors, still say they’ve received no orders. 

Long delays and strict approval criteria of the models “is the nature of the beast when it comes to these kinds of government things,” according to David Gonzales, AMEG’s chief operating officer. “We’ve changed whatever the state needed us to change in our models, and we’re sitting at the ready,” he told Fortune, adding, “the anticipation is we’re going to see something soon.” 

Other vendors, including one called Pallet, also told Fortune that no orders of tiny homes in connection with the initiative have been placed. Amy King, Pallet’s CEO, told Fortune the company can deliver tiny-home units, which typically cost around $19,000, or $55,000 with a bathroom, within 8 weeks of receiving an order. The company also keeps a “safety stock of product on hand for emergency use,” so cities and states can “call on us at any time to get shelters deployed and people housed.” 

Kam Valgardson, the general manager of one of those tiny-home vendors, Irontown Modular, told CalMatters the group is “absolutely shocked” that they haven’t received orders for their modular homes. Securing the state contracts, he told the publication, required his company to design new products in order to meet the state’s strict requirements on things like vapor-resistant light fixtures and emergency exit lighting, which took months and cost tens of thousands of dollars.

Which cities have built tiny-home communities so far? 

As it turns out, securing a location to build tiny-home encampments is one of the biggest challenges many cities and counties face, as there is often considerable pushback from residents and companies concerned about maintaining the safety and quality of their neighborhood. 

“Identifying the site is one of the biggest barriers,” San José Mayor Mahan told Fortune, “as is finding a place that has suitable land where you can secure a long term lease to use for years to come.”  

Of the four areas set to build tiny-home communities—namely Los Angeles, San Diego, San José and Sacramento—the most progress has been made in Sacramento, for which the state bought about 155 housing units from Boss, a Montebello-based tiny-home company. 

Sacramento, which was allotted 300 homes, initially planned to place tiny homes at Cal Expo, the location of the state’s annual fair and where Newsom first announced his homelessness initiative last year, but those plans fell apart. Now, Sacramento is deploying 175 tiny homes on the city’s Stockton Boulevard, which is a “partially built, long-vacant retail center,” according to Julie Hall, a communications specialist for the City of Sacramento, who told Fortune “the first shipment of tiny homes arrived on site this week.” The city plans to establish the remaining 175 homes on Watt Avenue. 

San José has already leased a site, Cerone bus yard, which will house all 200 of the state-funded units by July 2025. 

In Los Angeles, city officials have yet to finalize locations to build out their 500 promised tiny homes. Monica Hassan, the deputy director of the state’s department of general services, told Fortune the state has “provided their initially requested funding of $980,000 for one of their sites,” which will include 33 beds and will break ground by the end of this month.

San Diego County had originally planned to establish its tiny-home community at a site on the county’s Jamacha Road, but due to “numerous concerns from Spring Valley residents and the impact it will have in their community,” decided to rescind the approval of the site, according to a letter the county sent to the governor’s office on June 5. A spokesperson for the governor’s office told Fortune “it is disappointing that San Diego County chose to abandon its efforts to provide tiny homes,” and the “state plans to recoup the funding provided to them and weigh options for redeploying it to other jurisdictions.” The situation “underscores the challenges faced at the local level regarding site selection,” the state’s spokesperson said, and will be discussed at the next board of supervisors meeting on June 25.

To be sure, roadblocks such as resident complaints can considerably delay or even halt plans to build tiny-home communities completely. Still, some cities, like San José, could serve as a model for how to successfully establish them while also reducing neighborhood crime rates. 

In the neighborhoods San José has built communities in, Mayor Mahan told Fortune, “we see fewer 911 and 311 calls, a reduction is calls for service for crime and blight. And it actually makes a lot of sense because we’re getting folks who are living in very insecure and unstable environments with no rules, no security or sanitation and we’re moving them into a managed site with all those things.” 

The tiny-home communities are meant for people “to stop having to worry about the most basic things, like where their next meal is coming from or where to use the bathroom so they can start to focus on their future.” At San José’s tiny home sites, Mahan said, “we have seen that of the 1,500 people who have come through one of these 500 units, 70% of those people remain housed up to three years later, indoors and off the streets.”