Courts Just Blocked the Biggest Overhaul of Homeless Housing Grants in a Decade. 200,000 People Were on the Line.

Tim Burch has spent his career in human services trying to keep people housed. As co-chair of the Maricopa Regional Continuum of Care and human services director for Tempe, Arizona, he manages a network of grants that provides permanent supportive housing to roughly 1,400 formerly homeless people in the county — individuals he describes as "the most medically fragile — people that have been on the street for a year or longer, have multiple physical or mental ailments."

In November 2025, HUD published a new Notice of Funding Opportunity that would have cut the share of Continuum of Care grants available for permanent supportive housing from approximately 90 percent to a maximum of 30 percent. Burch and his colleagues were given weeks to revise their applications under the new rules. By March 2026, their grants were running out with no replacement funding in sight.

Then a federal judge stepped in.

On March 31, 2026, U.S. District Judge Mary McElroy in Rhode Island ruled that HUD had violated the Administrative Procedure Act by making "major, disruptive changes to grants" without proper procedural process. She called the agency's policy shift a "slapdash imposition of political whims." On April 1, the U.S. Court of Appeals for the First Circuit upheld the ruling, finding that HUD's planned changes would be "immediately destabilizing and disastrous" for communities that depend on the funding.

The rulings preserved the housing-first framework that has defined federal homelessness policy for over a decade. But the fight is far from over — and the implications extend to every organization that receives or administers Continuum of Care grants.

What HUD Tried to Change

The Continuum of Care program is the federal government's largest homelessness assistance funding source, providing grants to local and regional coalitions for housing and services for people experiencing homelessness. Approximately $3.7 billion flows through the program annually, funding everything from emergency shelters to permanent supportive housing — long-term housing paired with wraparound services for people with disabilities, chronic illness, or substance use disorders.

For over a decade, HUD has directed approximately 90 percent of CoC funding toward permanent supportive housing — a policy rooted in the housing-first model, which holds that stable housing is a prerequisite for addressing other challenges in a person's life, not a reward for overcoming them first. Under this approach, recipients do not need to demonstrate sobriety, employment, or treatment compliance before receiving housing.

HUD's November 2025 NOFO upended that framework in three ways.

First, it capped permanent supportive housing spending at 30 percent of total CoC grants — a two-thirds reduction that the National Low Income Housing Coalition estimated would put approximately 170,000 people at risk of losing their housing.

Second, it slashed the year-to-year funding protection from roughly 90 percent to 30 percent. Under the prior system, organizations that performed well could count on renewing most of their grant at similar levels. The new rules would have made nearly 70 percent of existing funding subject to competitive reallocation — creating the possibility that a high-performing program could lose most of its money in a single cycle.

Third, the revised criteria introduced new conditions that de-prioritized services for people with mental health issues or substance use disorders and penalized applicants who acknowledged serving trans and gender-diverse populations. HUD framed these changes as emphasizing "public safety, cooperation with law enforcement, and prohibitions on illegal drug use." Critics saw them as an ideological rejection of harm reduction and an attempt to leverage housing grants for immigration and culture-war objectives.

The timing compounded the problem. The NOFO was published just days before application deadlines, giving communities weeks — not months — to restructure proposals for programs serving some of the most vulnerable people in the country.

What the Courts Ruled

Judge McElroy, notably a Trump appointee, found that HUD failed to provide a "reasoned basis" for its overhaul and violated the APA by making sweeping changes without adequate notice and explanation. The ruling was not about whether housing-first policy is good or bad. It was about whether a federal agency can fundamentally restructure a $3.7 billion program through a last-minute funding announcement rather than through proper rulemaking.

The First Circuit's April 1 decision reinforced that conclusion. A coalition of 21 states and the District of Columbia, led by Minnesota Attorney General Keith Ellison, had sued to block the changes. The appeals court agreed that the restrictions would cause immediate and irreparable harm, with Judge Julie Rikelman noting that HUD's actions had "created chaos" among service providers who depend on the program.

The preliminary injunction remains in effect, preventing HUD from implementing the restrictions while the case proceeds. But the court stopped short of ordering HUD to fund grants under the prior parameters — meaning the money exists but the disbursement pathway remains contested.

Congress Steps In — Partially

Recognizing the funding gap created by the litigation, Congress included a backstop in the Consolidated Appropriations Act, 2026. The legislation directed HUD to renew any CoC projects expiring in the first quarter of 2026 at prior-year levels, with cascading triggers: projects expiring in Q2 must be renewed if new funding is not awarded by April 1; all remaining projects must be renewed if funding is not awarded by July 1.

This provision prevents the worst-case scenario — thousands of people being evicted from permanent supportive housing because their provider's grant expired during litigation. But it is a temporary measure, not a permanent resolution. If HUD prevails in the underlying case, the agency could implement its 30 percent cap in future funding cycles.

What Is Actually at Stake

The Continuum of Care fight is not an abstract policy debate. It determines whether 200,000 people currently in permanent supportive housing remain there.

In Arizona, 1,400 formerly homeless residents in Maricopa County faced potential displacement. In Santa Clara County, California, housing providers scrambled to determine whether their grants would survive. In Phoenix, Valley nonprofit providers whose CoC grants ran out in March were operating without certainty about whether renewals would materialize. In Atlanta, Partners for HOME — one of the largest homelessness service providers in the Southeast — described the November NOFO as creating an existential threat to their operations.

The stakes go beyond the direct housing impact. Permanent supportive housing has extensive evidence behind it. A 2023 systematic review published in The Lancet found that housing-first programs reduced homelessness by 88 percent compared to treatment-as-usual programs. The alternative approach that HUD's revised NOFO favored — transitional housing with work or treatment requirements — has been tried before. Research consistently shows it produces worse outcomes at higher cost.

If the housing-first framework is abandoned for CoC grants, the likely result is not that homeless people receive different services. It is that they receive no services at all, because the organizations that house them will lose their funding and shut down before any replacement model is operational.

What Organizations Should Do Now

If your organization receives or administers Continuum of Care funding, the court ruling buys time — but it does not eliminate risk.

Track the litigation timeline. The preliminary injunction prevents HUD from implementing its revised NOFO, but the underlying case is still active. A final ruling could come later this year. Follow updates from the National Alliance to End Homelessness and your state attorney general's office if your state is part of the coalition.

Do not restructure programs based on the rescinded NOFO. Some organizations began shifting their program models toward transitional housing in anticipation of the new criteria. The court ruling preserves the prior framework for now. Continue operating under your current model unless and until a final ruling requires changes.

Apply for congressional backstop renewals immediately. If your CoC project expired or is expiring in 2026, you are eligible for renewal under the Consolidated Appropriations Act provisions. Contact your HUD regional office and document your renewal request in writing.

Build a diversified funding base. The broader pattern is unmistakable: federal housing and social service grants face sustained political pressure regardless of court outcomes. Organizations that depend entirely on CoC grants should be identifying state, local, and foundation funding sources that can sustain operations during future disruptions.

Engage your congressional delegation. The congressional backstop provisions exist because elected officials heard from local communities about the impact. If your organization serves people in permanent supportive housing, your representatives need to know — in concrete terms — what happens to those people if the funding structure changes.

The Pattern

The HUD Continuum of Care fight fits within a broader landscape of federal agencies attempting to reshape grant programs through administrative action and courts pushing back on procedural grounds. The administration has faced similar legal setbacks on indirect cost rate caps, FEMA resilience grants, and DEI certification requirements. In each case, the courts have focused less on the substance of the policy and more on whether the agency followed proper process in implementing it.

For organizations in the homelessness services space, the message is clear: the immediate crisis has been averted, but the policy direction has not changed. Use the reprieve to strengthen your programs, document your outcomes, and build the kind of diversified funding infrastructure that can survive the next round — because there will be a next round.

If you are looking for alternative housing, social services, or community development grants while CoC funding remains in limbo, Granted tracks opportunities across federal, state, and foundation sources that may help bridge the gap.