The staircase that leads up to Pedro Acevedo's apartment smells of urine and marihuana. The building is located in the Longwood neighborhood of the South Bronx. Almost half of the population here lives below the federal poverty line. The front door of the building is unlocked.

Acevedo, 41, lives in a one-bedroom apartment with his wife and his 9- and 7-years old daughters. The girls share a bunk bed in the bedroom; he and his wife sleep on folding beds in the living room. Technically, this apartment is not Acevedo's apartment. It is a homeless shelter, paid for by the City of New York; one of approximately 3,000 so-called cluster shelters the city provides to homeless families. Now, a controversy has broken out over them. The dispute involves three parties: The homeless of the city and their advocates, who complain about bad conditions; for-profit operators, who make millions renting out the apartments; and the city of New York, which seems overwhelmed with dealing with its homeless population and pays exorbitant rates for the cluster shelters.

"The worst maintained, the most poorly monitored"

On March 12, 2015, the City of New York's Department of Investigation (DOI), released a #link:http://www.nyc.gov/html/doi/downloads/pdf/2015/mar15/pr08dhs_31215.pdf:report# based on a yearlong investigation, which described "serious deficiencies" in homeless shelters. The report concluded that cluster shelters are "the worst maintained, the most poorly monitored, and provide the least adequate social services to families," amongst all shelters in New York. Pedro Acevedo says he and his families have had problems with bed bugs; in the girls' bedroom, a leaking radiator made the floor sodden.

Standing inside his apartment, it is hard to imagine that places like this have become cash cows for their landlords. According to the DOI report, the city pays two to three times the market rate to rent cluster shelters: "The average monthly rate for an apartment in a cluster program is approximately $2,451 (2,281 euros), while the market rate for non-DHS buildings in the same neighborhoods range from $528 a month to $1,200 a month." Even in a city with exorbitant rents, no tenant in a low-income neighborhood, where almost all cluster shelters are located, would pay these amounts.

Exploding rents, growing number of the homeless

The origin of those cluster sites can be traced back to the early 2000s, to a program called "scatter-site housing." Around the turn of the millennium, the New York City Department of Homeless Services (DHS) was faced with the problem that the number of homeless families kept on growing. Even though the DHS contracted new conventional shelters, it couldn't keep up with demand. To find alternative spaces, they got in touch with private landlords.

Most landlords were paid per-months rates that far exceeded market-rate prices, according to a study by the Institute for Children, Poverty and Homelessness (ICPH,) the research branch of the homeless outreach organization Homes for the Homeless. The high prices were an incentive for the landlords to agree to the deal. According to the ICPH study, the program began small, with only 50 units in August 2000, and then virtually exploded. Around two years later, 21 percent of all homeless families lived in more than 2,000 apartments all over the city.

From the beginning, there were reports about insecure conditions inside the buildings, about the lack of social services and about former tenants, who were being pushed out of their apartments to make space for the more profitable scatter-sites. In 2007, the Bloomberg administration eventually ended the program. The "cluster shelters" took its place. Now, the providers had to offer social services to residents, similar to other shelters of the city. However, according to the DOS report, these services have often been insufficient and poorly performed, if at all.

A lucrative business model

In January of 2015, more than 60,000 homeless New Yorkers were sleeping in shelters. According to the DOI investigation, there are 16 cluster programs in New York City. Only nine of them have actual contracts with the city. According to the DOI report, "there are no written agreements for non-contracted sites; rather, the shelter operators simply submit monthly invoices to DHS for payment." And these invoices are hefty. A 2013 #link:http://nymag.com/news/features/podolsky-homeless-shelters-2013-12/:investigation of New York Magazine# described how - based on "opaque dealmaking and informal handshake agreements" of politically powerful landlords - homeless shelters became a lucrative multi-billion business in the city.

Pedro Acevedo and his family did not know any of this when they first got to the apartment in October of 2013. They had left New York and moved to North Carolina trying to build a new life. The attempt failed. The family struggled, and they headed back to New York City. With their two little girls, they spent two weeks sleeping in a UHaul, Acevedo recalls. Then, a city program for homeless families found them the apartment. They were happy to have a roof over their heads.

The living conditions, however, are far from ideal. Acevedo speaks about being without electricity for a day, or without water for hours. When things inside the apartment break, he says, they get fixed only superficially, if at all. "Eventually, they're going to have to close the building down, but they are just squeezing the building, getting all the money they can," Acevedo says.

The death of a 4-year old

In late April of 2014, a horrible incident catapulted the issue of cluster housing into the headlines: After presumably coming into touch with rat poison, a 4-year-old boy, who lived in a Bronx cluster shelter, died. Policy makers took notice. In May last year, Gilbert Taylor, the Commissioner of the Department of Homeless Services, introduced a 4-point-plan to reduce homelessness that cut subsidies to landlords. Since then, according to the #link:http://www.nydailynews.com/new-york/nyc-homelss-population-tops-59k-record-higharticle-1.2099150:New York Daily News,# Taylor has cut subsidies to cluster landlords from an average of $3,013 to $2,522.

Since the publication of the most recent DOI report, calls to end cluster housing have become even louder. In its report, the DOI recommended that within the next three years the city should set up contracts with all shelters - arguing that this would make it easier to control them. At the same time, the city should close noncompliant, substandard shelters. At a press conference, Mark G. Peters, the Commissioner of DOI, said that they "will break the bluntly Dickensian cycle that we have seen in our shelter system for the last decade."

The Department of Homeless Services did not reply to a DW inquiry. After the DOI report was released, Mr Taylor told the New York Times that the "agency had closed two shelters in the Bronx that were cited in the report, and had made other changes as well, including placing more families in shelters instead of cluster sites," adding that the department had negotiated lower rents at some of the existing cluster shelters.

Activist organizations like the Coalition for the Homeless and the Legal Aid Society want the city to turn all cluster sites, once they made sure that they are up to standard, into permanent housing. "If you just gave them a lease and a rent subsidy you could reduce homelessness by 3,000 families," said Patrick Markee of the Coalition for the Homeless in an interview with the website DNAInfo, adding, "nobody thinks it's going to happen overnight, but it could happen."

Getting out of the shelter

Pedro Acevedo speaks a lot about "the system," and mentions people who take advantage of shelters. "As long as you manipulate the system, you can stay there forever," he says.

"The problem isn't people manipulating the system - it's a system that does absolutely nothing to help people exit homelessness, or stabilize communities," says a spokesperson for the activist organization Picture the Homeless in New York."

After living in the cluster shelter for around a year and a half, Acevedo says he himself is determined to get out of there as soon as possible, adding that he is grateful for the help he received, but that he does not want to depend on public assistance. He has heard of place like Nevada, where he would be able to afford a three-bedroom apartment or even a house for his family. "If the system can't help us to find a decent place for my family, I am going to do it on my own."