America's Homelessness System Is Changing Course
HUD has rewritten the rules for the nation's flagship homelessness grants, pushing more federal money and scoring weight toward transitional housing, treatment, supportive services and competition. Local systems have already had to adapt, even though the courts are still deciding how much of the shift can stand.
For more than a decade, the federal government's homelessness strategy put a premium on moving people into permanent housing quickly and without requiring sobriety, treatment participation or other demonstrations of "housing readiness" first. That framework, commonly called Housing First, did not mean that services were supposed to disappear. In permanent supportive housing, the model paired a stable home with voluntary services that could include mental-health care, substance-use treatment, health care, benefits assistance and case management.
In 2026, the Department of Housing and Urban Development moved sharply in another direction. Its new Continuum of Care funding rules emphasize transitional housing, structured service participation, treatment and recovery, employment income, public-safety partnerships and greater competition among existing grantees. HUD calls the approach a needed correction to a system that, in the department's view, spent more while homelessness remained at crisis levels.
The shift is consequential because the Continuum of Care program is not a small pilot. It is the federal government's central competitive grant mechanism for local homelessness systems, and it helps finance permanent supportive housing, rapid rehousing, street outreach, coordinated entry, data systems, youth projects and other services. A change in its scoring rules can change what local governments and nonprofits build, renew or stop funding.
As of October 2, the immediate funding deadline has passed for most communities, but the dispute is far from finished. The new rules are operating under an appellate-court stay while a broader legal challenge continues. HUD is separately taking public comment on research it says supports additional incentives for treatment-oriented and transitional approaches. And the administration's proposed fiscal 2027 budget would go further by eliminating the Continuum of Care program altogether and replacing it with a larger formula-based Emergency Solutions Grants structure. Congress has not enacted that proposal.
The September 30 deadline passed under rules that are still being litigated
The FY 2026 competition is moving forward for now, not because the legal fight is over, but because an appeals court allowed HUD to proceed while the appeal continues.
HUD originally issued the FY 2026 Continuum of Care Notice of Funding Opportunity on June 1. In August, U.S. District Judge Mary S. McElroy in Rhode Island set the notice aside after concluding that HUD had not followed a statutory notice-and-comment process before using a $1.3 billion set-aside to favor transitional housing and supportive-services-only projects.
That ruling temporarily stopped the competition. On September 16, however, a three-judge panel of the U.S. Court of Appeals for the First Circuit stayed the district court's order. The panel said HUD had made a strong showing that it was likely to succeed on its argument that the disputed set-aside was not the kind of "bonus or other incentive" that required the notice-and-comment procedure the district court had identified. The court also pointed to the risk of funding gaps because HUD faces a December 1 deadline for making the awards.
HUD then reopened the competition on September 18 and set a new nationwide deadline of September 30 at 8 p.m. Eastern. The agency said the funding notice was otherwise unchanged, apart from a technical correction and a waiver allowing certain nonprofits to administer rental assistance. Los Angeles-area applications are on a different timetable: HUD's competition page lists an October 14 deadline for CA-600 while separate litigation and administrative disputes involving the Los Angeles Homeless Services Authority continue.
The practical result is unusual. Local Continuums of Care had to finalize multibillion-dollar priority lists under a policy framework that a district court had invalidated, an appeals court had temporarily revived, and challengers were still contesting on additional grounds. The September 30 submission date therefore closed one stage of the process without closing the legal questions around it.
The funding rules now expose far more existing projects to competition
The FY 2026 notice does not simply add treatment services. It changes how much renewal funding is relatively protected and where new money is steered.
The 2026 competition makes approximately $4.04 billion available. One of its most important structural changes is the reduction of Tier 1 from about 90% of a community's Annual Renewal Demand in prior competitions to 60%. Annual Renewal Demand is essentially the amount required to renew a community's eligible existing Continuum of Care grants for another year. Projects in Tier 1 still must meet threshold requirements, but reducing the tier means a much larger share of existing projects sits in the more competitive part of the national contest.
HUD also created a $1.3 billion priority for new transitional-housing and supportive-services-only projects. Those categories can pay for temporary housing, street outreach, employment services, treatment connections, case management and other supports. The agency also reserved at least $430 million for permanent-housing projects serving families with children, according to local guidance based on the federal notice.
Importantly, the final FY 2026 competition does not impose a simple nationwide rule that only 30% of renewal money may support permanent housing. Some earlier iterations of the administration's homelessness funding approach drew attention for much tighter permanent-housing limits, but guidance issued by local Continuums reviewing the June 2026 notice makes clear that the operative FY 2026 rules instead create renewal risk through the 60% Tier 1 threshold, the national competition for Tier 2 and the large set-aside for new transitional and service-only projects.
What stays eligible
Permanent supportive housing, rapid rehousing, transitional housing, supportive-services-only projects, homelessness data systems, coordinated entry, planning and youth programs remain eligible categories in the FY 2026 competition.
What changes the incentives
More renewal dollars are exposed to competition, new projects are steered toward transitional housing and services, and scoring places more emphasis on treatment, self-sufficiency, unsheltered homelessness, public safety and measurable exits.
Two models, one recurring policy argument
Housing First was never supposed to mean housing without services
A large share of the current argument turns on a definition that is often flattened in political debate.
In a Housing First program, a person does not have to prove sobriety, complete treatment, hold a job or progress through a series of temporary placements before becoming eligible for permanent housing. The idea is that a stable home can make it easier to manage a psychiatric condition, recover from substance use, attend medical appointments, reconnect with family, apply for benefits or find work.
Permanent supportive housing is one of the most important versions of that model. It combines a rental subsidy or dedicated unit with services for people who have disabilities and histories of homelessness. The "permanent" part means there is no preset two-year limit on the housing. The "supportive" part matters just as much: providers can offer intensive case management, mental-health care, substance-use services, health care, transportation help and benefits navigation.
Supporters of Housing First argue that making housing conditional on treatment can create a circular barrier: people who are least stable may be the least able to satisfy program rules while living outside. The administration's critique is different. HUD argues that the federal system overemphasized subsidized permanent housing and underemphasized recovery, employment and accountability, leaving too many people in long-term dependency while unsheltered homelessness remained high.
Stability first
- No sobriety or treatment requirement as a condition of initial housing.
- Services are offered and can be intensive, but participation is generally voluntary.
- The housing itself is not time-limited as long as the resident remains eligible and follows the lease.
Structured progression
- Temporary housing is paired with services intended to address health, addiction, employment or other barriers.
- Programs can use participation agreements and recovery-oriented expectations.
- The intended destination is a move into permanent housing or another independent setting.
HUD points to a national crisis, but the numbers do not settle the causal argument
The latest federal count shows homelessness remained historically high in 2025 even after a year-over-year decline.
HUD's 2025 Annual Homelessness Assessment Report counted 745,652 people experiencing homelessness on a single night in January 2025, including 266,320 people in unsheltered locations. The total was down roughly 3% from the record 771,480 people counted in January 2024, but still 27% higher than in 2013, the baseline HUD now uses when criticizing the long Housing First era. Unsheltered homelessness was 36% higher than in 2013, while chronic homelessness was 81% higher, HUD reported.
The administration argues that those trends show the need to change course, particularly because the supply of federally supported homelessness beds and Continuum of Care spending increased substantially over the same long period. That is a factual description of the administration's case, but it does not by itself prove that Housing First caused the rise in homelessness. National homelessness levels are also shaped by housing costs, rental vacancy rates, incomes, evictions, migration, natural disasters, local shelter capacity and the availability of behavioral-health care.
The annual Point-in-Time count has another limitation: it is a snapshot taken on one night, not a count of everyone who experiences homelessness over the course of a year. It is valuable because the methodology is repeated nationally and allows comparisons over time, but it can miss people in unstable doubled-up situations and can be affected by local counting conditions. That is why the strongest policy claims require more than simply comparing one year's homelessness total with a federal spending line.
There is also a notable counterexample inside the same federal record. Veteran homelessness declined for many years while permanent supportive housing and Housing First principles were central to the federal veteran strategy. That does not prove the model transfers perfectly to every population, but it illustrates why aggregate national trends do not automatically identify one program design as the cause.
The research is strongest on housing stability—and more mixed on health, substance use and cost
Both sides often make broader claims than the evidence base can comfortably support.
A major National Academies review of permanent supportive housing found that the model reliably improves housing stability for many people experiencing chronic homelessness. Randomized studies cited by the panel showed people assigned to supportive housing spent substantially more time housed than people receiving usual services. A Chicago trial also found fewer hospital days and emergency-room visits for the housing-plus-case-management group.
But the same National Academies review was cautious about broader outcomes. It found no substantial evidence at the time that permanent supportive housing, by itself, produced large improvements in general health or reduced health-care costs across the population studied. Randomized trials also did not consistently show reductions in substance use or psychiatric symptoms. That distinction is important: a program can be effective at keeping people housed without automatically curing addiction, serious mental illness or poverty.
That evidence cuts against two simplistic narratives. It does not support the claim that Housing First is merely "housing only" with no service component. Nor does it support the idea that providing permanent housing alone resolves every health and behavioral problem. The research instead suggests that housing stability and high-quality services solve different parts of the problem and may need to be evaluated separately.
There is likewise no reason to treat transitional housing or recovery-oriented services as inherently ineffective. Some people actively seek sober housing, residential treatment or a structured environment. Families fleeing violence, young adults leaving institutions and people in early recovery can have needs that differ from those of chronically homeless adults with long-term disabilities. The policy question is whether federal incentives should elevate those approaches broadly and whether participation requirements improve outcomes without excluding people who cannot meet them.
Housing retention
Housing First and permanent supportive housing have comparatively strong evidence for increasing time stably housed among high-need populations.
Health and substance use
Results are less consistent. Stable housing can create a platform for care, but treatment quality and engagement still matter.
System-wide effects
National homelessness trends depend on housing supply, rents, prevention, shelters, benefits, health systems and local implementation—not one program model alone.
Communities are already rewriting portfolios to fit the new competition
For local providers, a federal philosophical shift becomes concrete when an existing project moves from a safer renewal tier into a national contest.
Westchester County, New York, offers a clear example. Its Continuum of Care reported that nine permanent-supportive-housing renewal projects were partially reallocated so the remaining renewal requests could fit within the 60% Tier 1 threshold. The local board said 33.8% of funding tied to those nine projects was reallocated into new projects, while the three lowest-ranked permanent-housing projects were rejected from the local priority list. The community also advanced new transitional-housing and supportive-services-only proposals.
That does not mean every affected resident will immediately lose housing. A local ranking decision is only one step in a complicated funding process, and providers can use other federal, state, local or philanthropic resources. But it shows how the structure of the competition can alter local decisions before HUD announces national awards. A project that was once treated as a routine renewal may now be asked to shrink, transition, compete or find a replacement funding stream.
The Associated Press reported similar adjustments in other communities, including providers in Louisville, Kentucky, converting or redesigning programs to align with transitional-housing priorities. At the same time, Louisville's city government continues to support a local permanent-supportive-housing initiative called Home for Good, which aims to provide housing with services to at least 250 people experiencing chronic homelessness by 2027. The coexistence of those efforts illustrates the real landscape: federal incentives may change quickly, while local systems often operate several models at once.
The short restart window added to the pressure. After the First Circuit's September 16 ruling, HUD reopened the competition on September 18 and kept the new deadline at September 30. Communities that had paused or reworked local competitions during the litigation had less than two weeks to complete consolidated applications, rankings and certifications. The awards are expected by December 1.
The legal fight is narrower than the political debate—but it could still determine billions in awards
The appeals court did not issue a final ruling that every part of the FY 2026 funding notice is lawful.
The August district-court ruling focused on procedure. Judge McElroy concluded that federal law required HUD to go through notice and comment before treating certain transitional-housing and supportive-service activities as proven interventions eligible for the $1.3 billion set-aside. Because HUD had not done so before issuing the competition, she set aside the entire 2026 notice.
The First Circuit's September 16 stay changed the immediate result but did not end the case. The panel said HUD was likely to succeed on the specific argument that the set-aside did not fall within the statutory "bonus or other incentives" provision the district court relied on. It also concluded that delaying the competition could create funding gaps because of the December 1 award deadline. A stay is an interim order; the broader appeal and other legal theories remain to be resolved.
The National Alliance to End Homelessness and other plaintiffs have said they are pressing additional arguments against the 2026 notice, including claims that were not reached by the district court after it ruled on the notice-and-comment issue. HUD, meanwhile, maintains that the competition is lawful and that the revised priorities are within the department's authority.
What the September 16 order actually did
It allowed HUD to proceed temporarily. The district court's order vacating the FY 2026 notice is stayed while the appeal continues.
It did not decide every challenge to the notice. The panel focused on the statutory notice-and-comment question and the risk of missed funding deadlines.
It matters immediately. Without the stay, HUD said it could not complete the competition in time to avoid gaps in grant funding.
HUD has also opened a second path to defend future treatment-oriented incentives
A September Federal Register notice asks the public to comment on the research behind several activities HUD wants to treat as proven effective.
On September 11, while the court fight was still unfolding, HUD published a 15-page notice in the Federal Register addressing the very procedure at the center of the dispute. The department said it was seeking public comment on research supporting additional incentives for transitional housing with supportive services, treatment and recovery services, individualized service-participation agreements, sober or drug-free housing, and partnerships with first responders and law enforcement.
HUD explicitly said it was not conceding that the district court was correct to require notice and comment for the 2026 set-aside. Instead, the agency described the notice as an additional way to establish a record for future Continuum of Care funding opportunities. Comments are due October 13, 2026.
That process matters because it separates two questions that are often blended together: whether HUD has the legal authority to change grant priorities, and whether the evidence it relies on is strong enough to justify calling an activity "proven effective." Public comments can challenge research methods, identify studies HUD omitted, support particular interventions or argue for narrower definitions. HUD can then revise or adopt its proposed determinations.
The next budget fight could be larger than the 2026 grant competition
The administration's fiscal 2027 budget proposes eliminating Continuum of Care as a separate program, but Congress controls whether that restructuring becomes law.
The White House's fiscal 2027 budget requests $4.024 billion for an expanded Emergency Solutions Grants program and does not request funding for Continuum of Care, new permanent-supportive-housing construction, the Youth Homelessness Demonstration Program or the National Homeless Data Analysis Project. The proposal would consolidate much of federal homelessness assistance into a formula program directed to states and local governments for emergency, short- and medium-term help and supportive services.
That is a proposed budget, not enacted policy. Congress can reject, modify or replace the request when it writes annual appropriations. Still, the proposal shows that the 2026 competition is not an isolated one-year adjustment. The administration is seeking a more fundamental redesign of how federal homelessness money flows and what kinds of interventions receive priority.
Supporters of the administration's direction say formula grants and treatment-oriented rules can reduce administrative complexity, expand local flexibility and focus resources on visible street homelessness, addiction and mental-health needs. Critics say eliminating Continuum of Care would weaken a nationwide infrastructure for permanent housing, coordinated entry, data systems and specialized programs, and could make long-term housing less predictable for people with severe disabilities.
Because the funding streams are intertwined, the final 2027 appropriations law will matter as much as any court opinion. A legal victory over one grant notice would not, by itself, force Congress to continue the same program structure. Conversely, a congressional decision to preserve Continuum of Care could limit how far the executive branch can move solely through annual grant criteria.
For residents, the risk is less about labels than about continuity
The policy debate becomes personal when a grant supports the rent on an apartment someone already calls home.
Advocacy groups challenging the 2026 rules have warned that exposing more permanent-housing renewals to competition could destabilize tens of thousands of people. California's attorney general, citing an estimate from the National Alliance to End Homelessness, said the funding changes could put at least 97,000 residents of Continuum of Care-funded permanent housing at risk. That figure is an advocacy estimate, not a HUD forecast, and it should not be read as a prediction that 97,000 people will be evicted.
Federal grant losses do not translate mechanically into immediate displacement. Some projects have multiyear terms, some residents have tenant protections, and local agencies may substitute other vouchers, state money, county funds, health-system dollars or philanthropy. Providers can also transition projects into different eligible categories. But every replacement funding source has its own eligibility rules and limits, and the process can consume staff time that would otherwise go to services.
For people who have lived outside for years, continuity itself can be therapeutic. A stable address makes it easier to keep medication refrigerated, receive mail, sleep without moving from place to place, maintain benefits and stay connected to clinicians. At the same time, housing without accessible treatment can leave serious behavioral-health needs untreated. That is why many local systems resist the idea that they must choose between a lease and care.
The deeper argument is therefore about federal leverage. HUD controls billions of dollars that local systems rely on. When it changes what earns points, which projects receive relative protection and what outcomes are rewarded, it can change the national homelessness field even without passing a new statute. Courts and Congress, in turn, determine the limits of that leverage.
Five signals will show how far the policy shift actually goes
The next two months will reveal more than the rhetoric around either Housing First or Treatment First.
A federal grant competition has become a referendum on what homelessness policy should optimize first.
HUD is moving toward a system that rewards treatment, structured services, transitional housing, employment and competition more explicitly. Housing First providers point to evidence that permanent housing is especially effective at keeping high-need people housed and warn that abrupt funding changes can create new instability. The courts are still defining HUD's procedural authority, Congress will decide whether the program survives in its current form after 2026, and local systems are already making choices with real consequences. The most useful measure of the new approach will not be which label wins the argument, but whether fewer people remain outside, more people stay safely housed, and those who need treatment can actually receive it.
Quick answers
Is Housing First ending nationwide right now?
No. HUD has changed the incentives and competition structure for its FY 2026 Continuum of Care grants, and the administration is pursuing a broader policy shift. But permanent supportive housing remains an eligible category, many state and local systems continue to use Housing First, and the final shape of federal policy depends on litigation, grant awards and congressional appropriations.
Does Housing First prohibit treatment?
No. Housing First removes treatment or sobriety as a precondition for obtaining housing. Supportive housing can still provide intensive mental-health, substance-use and other services. The dispute is mainly over whether participation should be voluntary or required and whether housing should come before or after treatment milestones.
Did the First Circuit rule that HUD's entire 2026 policy is lawful?
No. On September 16, the court granted a stay that lets HUD proceed while the appeal is pending. The panel said HUD was likely to succeed on a narrow statutory issue involving the $1.3 billion set-aside and found a risk of funding gaps without a stay. Other legal arguments remain contested.
Will Continuum of Care disappear in 2027?
Not unless Congress agrees to a new funding structure. The President's fiscal 2027 budget proposes replacing Continuum of Care with an expanded Emergency Solutions Grants program, but a presidential budget is a request to Congress, not an appropriation.
Sources and further reading
- U.S. Department of Housing and Urban Development, FY 2026 Continuum of Care Program Competition, including the September 18 reopening and revised deadline.
- HUD, HUD Overhauls Federal Homelessness Assistance, June 1, 2026.
- HUD, 2025 Annual Homelessness Assessment Report release, May 29, 2026.
- U.S. Court of Appeals for the First Circuit, National Alliance to End Homelessness v. HUD, stay order, September 16, 2026.
- U.S. District Court for the District of Rhode Island, August 7, 2026 memorandum and order.
- Federal Register, Notice of Research Justifying Additional Incentives for Certain Activities To Reduce Homelessness, September 11, 2026.
- National Academies of Sciences, Engineering, and Medicine, Permanent Supportive Housing: Evaluating the Evidence for Improving Health Outcomes Among People Experiencing Chronic Homelessness.
- The White House, Budget of the U.S. Government, FY 2027, HUD appendix.
- Associated Press, reporting on the national shift from Housing First, October 1, 2026.
- Westchester Continuum of Care Partnership for the Homeless, FY 2026 local ranking and reallocation update.
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