A federal judge has halted the Trump administration’s plan to divert billions of dollars in homelessness spending away from permanent housing, a decision that California officials and homeless advocates welcomed as a win for preventing thousands of formerly unhoused people from being forced back to the street.
The judge’s order temporarily prevents the administration from redirecting the grant money toward temporary housing and outreach efforts. Federal housing officials have sought to prioritize the funds for homelessness programs that impose work requirements, mandate addiction or mental health treatment, and help police close encampments.
The order, issued last week by District Court Judge Mary S. McElroy, came in response to two lawsuits challenging the funding changes: one from a coalition of 20 mainly Democratic states, including California, and another from nonprofits and 11 local governments, including Santa Clara County.
While the cases are ongoing, the preliminary injunction directs the U.S. Department of Housing & Urban Development to process local governments’ homelessness grant applications using previous guidelines that favor permanent supportive housing.
“The proposed HUD funding restrictions would have worsened the homelessness crisis, and that’s simply unacceptable,” California Attorney General Rob Bonta said in a statement.
HUD did not immediately respond to a request for comment on the injunction. But in a statement earlier this year, Secretary Scott Turner said the agency’s “philosophy for addressing the homelessness crisis will now define success not by dollars spent or housing units filled, but by how many people achieve long-term self-sufficiency and recovery.”
The proposed policy shift has sent homeless service nonprofits across the Bay Area scrambling to understand the potential impact on their programs. Providers worry that if the changes are made official, it could force them to close homeless housing sites and end rental aid efforts, leaving the region’s most vulnerable residents without a crucial lifeline in one of the country’s least affordable rental markets.
Under the administration’s plan to overhaul the $3.9 billion Continuum of Care program, the federal government’s primary source for homelessness funding, cities and counties would be allowed to use only 30% of program grants for permanent housing.
In California, 87% of Continuum dollars currently go toward long-term housing services. Officials estimate the proposed shift could result in a loss of $250 million to $300 million in permanent housing funding statewide this year.
However, just before a hearing in the cases earlier this month, HUD abruptly withdrew a notice to local governments to apply for the grant funding. In a court filing, HUD officials said the move was “to assess the issues raised by Plaintiffs in their suits and to fashion a revised” funding notice, according to Politico.
State and local officials argue in the lawsuits that the funding changes threatened the stability of the grant program required by law, and could force hundreds of thousands of children, adults and families to become homeless.
It remains uncertain how the administration might seek to update the funding changes. But HUD officials have made it clear they believe shifting funding away from permanent housing and voluntary services is necessary to reverse what they describe as decades of failed polices that have led to rising homeless populations and an explosion in dangerous encampments.
They contend that federal homelessness funding has gone to support unsafe housing sites where people frequently use drugs without getting the help they need — a claim homelessness services providers maintain is exaggerated.
In California, homelessness has surged 62% over the past decade to an estimated 187,000 people, though some large counties, including Contra Costa, reported encouraging declines in 2025. The Bay Area’s estimated homeless population reached 38,891 last year, a 46% spike since 2015, as housing costs have also soared over the past decade.
The National Alliance to End Homelessness, a plaintiff in one of the cases, said that despite the administration’s professed willingness to consider homeless advocates’ concerns, the nonprofit expected federal housing officials to “double down” on the funding policy shift.
“We will continue to pursue this case,” the group said in a statement, “and remain dedicated to protecting proven solutions to homelessness and the hundreds of thousands of people who rely on this housing support.”