California’s $3.75 Billion Homeless Hustle: How Project Homekey Became a Fraud Factory on the Taxpayer’s Dime

The buildings were supposed to house California’s most vulnerable. Instead, they lined the pockets of developers who never intended to house anyone at all.

The Promise vs. The Reality

When Governor Gavin Newsom launched Project Homekey in 2020, the pitch was bold and emotionally compelling: purchase motels, hotels, and vacant properties across California and rapidly convert them into housing for the homeless. No lengthy construction timelines. No bureaucratic red tape. Just fast, smart government action solving one of America’s most visible crises.

Six years and $3.75 billion in taxpayer funds later, the program has produced something far less inspiring — a sprawling fraud investigation, federal criminal charges, vacant buildings sitting in disrepair, and a cost-per-unit that would make a Manhattan real estate developer blush.

This is not a story about a well-meaning program that stumbled. It is a story about a government that moved fast, threw staggering sums of money at a problem, and when warned that something was deeply wrong, looked the other way. Acting U.S. Attorney Bill Essayli said it plainly: the fraud cases already charged are “only the tip of the iceberg.”

Californians deserve to understand what that iceberg looks like.

The Beverly Hills Fraudster and the Thousand Oaks Ghost Town

Start with Cody Holmes, 31, the former CFO of developer Shangri-La Industries. Federal prosecutors allege Holmes fabricated $160 million in fake bank statements to secure a $26 million Homekey grant for a housing site in Thousand Oaks. The site never opened. Not a single unhoused person was housed. What the money did fund, according to prosecutors, was Holmes’s personal American Express bills at luxury retailers — billed from a Beverly Hills mansion costing $46,000 a month.

Holmes was arrested, pleaded not guilty, and is awaiting trial. But his case is merely one chapter in a longer Shangri-La story. In total, that single developer was awarded $117 million in Homekey grants across seven projects. Only two were ever completed — producing 174 housing units at a jaw-dropping cost of $672,000 per unit. The California Department of Housing and Community Development filed a civil fraud action against Shangri-La in January 2024. The question that demands an answer: who approved $117 million in grants without noticing five projects were going nowhere?

The $16 Million Flip Nobody Was Supposed to Know About

The second federal case may be even more brazen. Real estate developer Steven Taylor, 44, of Brentwood, faces nine felony counts of bank fraud and money laundering. The allegation: Taylor used falsified loan records to purchase a 76-unit senior living facility in the Cheviot Hills neighborhood of Los Angeles — 3340 Shelby Drive — for $11.2 million. Months later, with no improvements made, he sold it to the nonprofit Weingart Center Association for $27.3 million. That’s a $16.1 million markup on a property he never touched.

The Weingart Center used California Homekey grant funds to make the purchase. A contract clause reportedly ensured Taylor’s involvement would be deliberately concealed from the state’s application process. The Weingart Center’s own grant application did not disclose the pending flip. Taylor is currently free on a $3.6 million bond.

The Weingart Center placed its CEO, Kevin Murray, on leave after it emerged that a July 2025 audit failed to disclose over $50 million in federally funded Homekey grants. The building — purchased with public money years ago — is not expected to open until next year, despite a grant agreement requiring full occupancy by February 2025.

70% Vacant: The Numbers Behind the Narrative

These criminal cases do not exist in a vacuum. Investigative reporters at Westside Current spent two years physically visiting all 38 Los Angeles County Homekey sites. In September 2024, they published a damning conclusion: over 70% of LA County’s Project Homekey rooms were vacant after the county spent $550 million.

Officials called the reporting “inaccurate” and “highly misleading.” Westside Current stood by every word. The state’s own HCD deputy director essentially confirmed the vacancies in writing, acknowledging that “a majority of conversions across the state are fully vacated before construction commences” — and that the state was “aware when projects are vacant.” The state knew. And kept funding the program anyway.

Meanwhile, the nonprofit Urban Alchemy was awarded $2.3 million for 88 designated tent spaces in a parking lot. City inspectors found only 44 bare wooden platforms on site. Half the promised capacity. One hundred percent of the funding collected.

A Government That Won’t Hold Itself Accountable

The conservative case against Project Homekey is not simply that fraud occurred. Fraud can occur in any large program. The deeper indictment is of a government philosophy that believes the solution to every problem is more money, spent faster, with less accountability — and treats any call for oversight as an obstacle to compassion.

Governor Newsom vetoed legislation that would have required annual independent evaluations of California’s homeless programs. He did this while publicly championing Homekey as a national model. He did this while his administration was already fielding civil fraud complaints against Shangri-La. He did this while reporters were documenting vacant building after vacant building across Los Angeles.

California has spent an estimated $24 billion on homelessness-related programs since 2019, per a 2024 state audit. The homeless population has not meaningfully declined — California still houses roughly 28% of the nation’s entire homeless population while representing just 12% of the U.S. population. When a program costs this much and delivers this little, it is not a compassionate failure. It is a systemic one. And Newsom’s answer is Homekey+, a new expansion backed by a $6.4 billion Behavioral Health Bond.

The Conservative Principle at Stake

Limited government is not a talking point. It is a safeguard. When agencies hand out hundreds of millions under emergency conditions — without competitive bidding, minimal vetting, and sparse audits — they don’t just risk inefficiency. They create an open invitation to fraud. Project Homekey was born as a COVID-era emergency measure built on the premise that speed mattered more than safeguards. That premise has now cost taxpayers dearly.

Fiscal accountability is not heartless. It is the only responsible path. Every dollar siphoned into a Beverly Hills mansion is a dollar that never reached a shelter bed, a mental health counselor, or a recovery program. Real compassion demands hard questions before the check clears — not after federal indictments arrive.

Personal responsibility must extend upward — to the officials who approved these grants, ignored two years of warnings from the press and public, and vetoed accountability legislation. The men arrested will face justice in court. Whether the officials who enabled them will face any accountability at all remains an open question.

What Comes Next

The federal investigation is ongoing. Essayli’s task force has signaled more charges are coming. Fourteen neighborhood councils in Los Angeles have formally demanded federal and state investigations. Representative Young Kim has called on Newsom to account for $1.3 billion in Medicaid-related discrepancies. The scrutiny is widening, and rightly so.

For California taxpayers, the lesson is as old as government itself: without transparency, accountability, and genuine oversight, even the most well-branded program can become a vehicle for the very exploitation it claimed to solve.

Call to Action

The fraud in Project Homekey didn’t happen in the dark — it happened in plain sight, while officials dismissed the warnings. Don’t let that story go untold.

Share this article with your community, your city council members, and your state representatives. Demand that your elected officials support independent audits of every Homekey property in California. Stay informed — because if history is any guide, this scandal is not over. It is just getting started.

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Sources: U.S. Department of Justice (USAO-CDCA), Westside Current, RealClearInvestigations, California Department of Housing and Community Development, California State Auditor (2024), CalMatters, LAist, Los Angeles Times.