A federal appeals court on September 16 temporarily blocked a lower-court ruling that would have halted the Department of Housing and Urban Development (HUD) from redirecting billions in homelessness funding away from permanent supportive housing. The First Circuit Court of Appeals decision allows HUD to move forward with a plan to reallocate up to $1.3 billion—nearly a third of its $4 billion annual homelessness budget—toward transitional housing and mandatory treatment programs. Currently, 90% of HUD’s homelessness funding supports permanent supportive housing, which provides stable housing without requiring sobriety or employment as prerequisites.
The proposed shift revives a Treatment First approach last widely implemented during the 1980s under President Ronald Reagan. Those policies required homeless individuals to complete rehabilitation or job training before accessing shelter. Advocates argue this model failed then and would exacerbate homelessness today, given today’s higher rents and weaker safety nets. They contend HUD’s new proposal disregards decades of research demonstrating that permanent housing, combined with optional services, yields superior results.
Cathy Alderman, chief communications officer at the Colorado Coalition for the Homeless, warns that linking funds to treatment requirements would force organizations to evict vulnerable residents. In Denver, her group manages 850 housing units, many for disabled individuals on fixed incomes. If federal rules change, the coalition could lose $1.3 million annually, enough to cover 280 units. Without local or private funding to replace it, residents face eviction.
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Alderman says that CCH might be able to temporarily cover rent and services for their clients if federal funds are delayed for a month or two, but not permanently. “Imagine going to somebody who is living in that situation and saying, ‘Do you have any savings? Do you have family members that you can ask to help cover your rent?’”
Court Allows HUD’s Funding Overhaul
The appeals court’s decision suspends a previous ruling that found HUD violated the Administrative Procedures Act by fast-tracking the policy change. Even if the legal challenge succeeds, HUD could still enforce the new rules for the current funding cycle. Katie Eighan, director of the Alliance to End Homelessness in Suburban Cook County, estimates her organization would need to convert 280 units to transitional housing under the new rules. Without additional funds, she says, “If we couldn’t find other sources of funding, it would mean evictions.”
Housing First has been the federal homelessness strategy since the Bush administration, with bipartisan support. Research shows it reduces homelessness more effectively than Treatment First. A 2007 randomized trial found veterans in permanent supportive housing were 75% less likely to become homeless again than those in temporary programs. The Cicero Institute, a conservative think tank, has long advocated for stricter conditions on housing aid. Its policies align with HUD’s current direction, though the institute’s founder, Joe Lonsdale, co-founded Palantir, which secured a $1 billion+ HUD contract in 2025 for data systems linked to the agency’s funding overhaul.
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Evidence Shows Housing First Works Best
The move away from Housing First overlooks successful programs already in operation. The HUD-Veterans Affairs Supportive Housing (HUD-VASH) program, launched in the 1990s, cut veteran homelessness in half by 2007 using the same approach: housing first, services optional. Advocates argue the federal government has failed to expand this model nationwide. Alderman says, “We should be doing it for everyone.”
Some organizations initially resisted Housing First, including Heartland HOUSED in Springfield, Illinois. Its executive director, Josh Sabo, says the group lost $240,000 in federal funding between 2012 and 2019 after struggling to adapt. Once it expanded permanent supportive housing, however, shelter overcrowding dropped. Sabo says, “The support process now had an end goal.”
Providers Fear Evictions and Budget Gaps
Sue Watlov Phillips, executive director of the Metropolitan Interfaith Council on Affordable Housing, asks if the agency can defund Housing First programs without consequences. Legal challenges may clarify this, but disruptions could already occur this year.
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Opponents also highlight the model’s proven effectiveness. Supportive services, mental health care, substance use treatment, job training, remain optional under Housing First. In Denver, the Colorado Coalition for the Homeless achieves stability rates over 85% in some programs through case management, healthcare, and financial literacy.
Illinois alone needs 300,000 more affordable housing units for the lowest-income households, yet rising rents stretch HUD’s budgets further each year. The lack of investment in affordable housing exacerbates the problem, leaving programs to cover existing costs rather than expanding capacity. Advocates argue the federal government’s failure to scale proven models like HUD-VASH worsens the situation, forcing providers to adapt to flawed policies instead of addressing systemic gaps.
