New federal rules could benefit states with tougher approaches as homelessness increases.

This summer in Washington, D.C., a homeless man rests in his tent as federal housing policy undergoes a major transformation. The U.S. Department of Housing and Urban Development (HUD) has introduced rules limiting the use of $3 billion in homelessness funding, allowing only 30% of federal grants to go toward permanent housing.

With more Americans facing homelessness for the first time due to the housing shortage, the federal government is redirecting aid toward mental health programs, substance use treatment, and enforcement against street homelessness. The new policy links federal housing support to work participation and drug treatment, aligning closely with strategies already in place in states like Alabama, Florida, and Wyoming.

For other states and nonprofit organizations, the changes represent an abrupt departure from prior expectations. In California, the federal priorities clash with state law. Under the previous Housing First approach, which focused on quickly placing individuals into safe, stable homes before additional services, most Continuum of Care funding went to permanent supportive housing and rapid rehousing. HUDs new Treatment First approach could significantly shift funding allocations.

The policy has drawn immediate opposition. Twenty states and Washington, D.C., have filed lawsuits, claiming the rules violate federal law. Several cities and counties have joined these legal actions.

While advocates highlight the success of permanent supportive housing, the administration points to rising homelessness and public safety concerns as justification for the change. Critics argue the policy unfairly burdens service providers who are grappling with a housing market that leaves many without affordable options. Martha Are, CEO of the Homeless Services Network of Central Florida, emphasized that the real cause of rising homelessness is the lack of available housing, not the effectiveness of local interventions.

Some states may transition easily under the new rules. According to the National Alliance to End Homelessness, certain programs in Alabama, Arkansas, Florida, Georgia, Tennessee, West Virginia, and Wyoming already allocate less funding to permanent housing, making them more compatible with HUDs revised requirements. States that enforce strict anti-camping laws or expand law enforcement involvementsuch as Florida, Georgia, Missouri, Tennessee, and Texasmay benefit under the new grant criteria.

The Supreme Courts 2024 ruling in City of Grants Pass v. Johnson allowed localities to prohibit outdoor camping even without available shelter space, leading roughly 150 cities in 32 states to adopt or strengthen similar ordinances. HUD reported that homelessness reached a record 771,480 people in 2024, an 18% increase over the previous year.

HUD defended the policy change, stating it emphasizes long-term self-sufficiency and recovery over the number of housing units funded. The agency argued that Housing First policies have failed to reduce homelessness and hopes communities will convert some permanent supportive housing into transitional programs with stronger mental health and addiction services.

The impact will not be uniform. Cities with extensive Housing First programslike Cleveland, Los Angeles, and New York Citymay lose thousands of housing units serving vulnerable populations, including older adults, veterans, and survivors of domestic violence. Supporters of the funding shift argue that Housing First has not lowered overall homelessness rates, citing research that shows long-term retention in permanent supportive housing is low.

Nonprofits warn that the policy could operate like mass evictions, forcing tens of thousands back into shelters, onto waiting lists, or into the streets. In Orlando, Florida, the proposed changes could eliminate over 500 permanent housing subsidies, putting current tenants at risk of eviction without local government support. Central Floridas system, which pairs long-term rental units with voluntary support services, has proven more cost-effective than institutional care, but HUDs abrupt shift threatens to dismantle years of progress.

In Nashville, Tennessee, local officials faced a sudden requirement to rewrite their homelessness funding application within 60 days over the holiday season, jeopardizing a stable funding system and long-term partnerships with landlords. Nashville, along with Boston, San Francisco, and Tucson, has joined a lawsuit challenging HUDs rules, arguing that Congress should oversee any major policy overhaul to allow cities proper preparation and input.

HUDs new regulations mark a significant shift in federal homelessness policy, prioritizing treatment and enforcement over immediate housing placement, with potentially wide-reaching effects on vulnerable populations and local service providers.

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• With homelessness rising, new federal rules could benefit states that take tougher approaches