A federal appeals court has handed the Trump administration a major victory in its effort to reshape federal homelessness policy, ruling that the Department of Housing and Urban Development may proceed with a controversial overhaul of the $4 billion Continuum of Care program while legal challenges continue.
A three judge panel of the Boston based 1st U.S. Circuit Court of Appeals stayed a Rhode Island district judge’s order that had blocked HUD from redirecting more than $1.3 billion away from permanent housing assistance toward transitional housing and supportive services. The decision allows the agency to move forward with funding awards ahead of a December 1 deadline, although advocacy groups warn that the changes could put tens of thousands of formerly homeless Americans at risk of losing stable housing.
Homelessness Program Faces Major Policy Shift
The Continuum of Care program, created in 1987, has long operated under a “housing first” model that prioritizes permanent housing without preconditions such as sobriety or employment. The program also supports services including childcare, job training and mental health counseling.
Under HUD Secretary Scott Turner, the agency has sought to move away from that approach, arguing that it has not adequately addressed underlying causes of homelessness such as addiction and mental illness. In June, HUD issued a new fiscal year 2026 funding notice that reserved roughly 30% of the program’s $4.04 billion budget for new transitional housing and supportive service only projects.
That represents a major departure from the traditional structure, under which about 90% of funding has gone toward permanent housing. The administration has described the new approach as “recovery first,” placing greater emphasis on outcomes such as self sufficiency and participation in treatment rather than housing placement alone.
The legal dispute has been intense. U.S. District Judge Mary McElroy in Providence twice blocked the administration’s changes, most recently in August, finding that HUD’s funding overhaul likely violated the Administrative Procedure Act by bypassing required notice and comment procedures.
Twenty two mostly Democratic led states, the District of Columbia and homelessness advocacy groups, including the National Alliance to End Homelessness, challenged the plan. They argued that reducing permanent housing grants would unlawfully cut resources for vulnerable populations.
McElroy wrote that HUD’s decision to reserve such a large portion of grant funding improperly encouraged communities to move away from permanent housing in favor of the administration’s preferred model.
Appeals Court Allows HUD Funding Changes
The appeals panel disagreed, finding that HUD was likely to succeed in establishing that its funding set aside was not subject to the notice and comment requirements cited by the lower court. The panel also concluded that HUD would face “irreparable injury” without a stay because the agency has until December 1 to distribute awards to Continuum of Care applicants.
The panel included two Democratic appointed judges, Lara Montecalvo and Seth Aframe, alongside Trump appointee Joshua Dunlap. HUD Secretary Turner welcomed the decision, describing it as a victory for taxpayers and a move toward what he called more lasting results for vulnerable Americans.
The plaintiffs expressed disappointment and argued that the decision could allow HUD to significantly reduce support for permanent housing. They warned that the policy shift could increase homelessness among people who rely on existing housing assistance.
The ruling is the latest development in a broader administration effort to reverse housing first policies. President Trump signed an executive order in July 2025 directing federal agencies to move away from such programs and emphasize transitional housing and short term interventions.
HUD has also moved to freeze funding for local agencies it has accused of mismanagement, including the Los Angeles Homeless Services Authority. The department has further emphasized opening the grant process to faith based providers that were previously excluded under Biden era rules.
With the 1st Circuit’s stay now in effect, HUD can proceed with its fiscal year 2026 awards under the new criteria while the underlying legal challenge continues. The plaintiffs are considering additional legal options, leaving the future of the federal homelessness program uncertain as the courts weigh the administration’s authority to reshape its funding priorities.
The dispute also reflects a broader policy debate over homelessness. The administration argues that treatment, recovery and self sufficiency should receive greater emphasis, while housing first advocates maintain that stable housing provides the foundation needed for people to address other challenges.
