Update – January 5, 2026: On Dec. 19, 2025, AFC was relieved to learn that a Rhode Island federal judge granted a preliminary injunction in the case National Alliance to End Homelessness et al. v. HUD. The injunction temporarily blocks HUD from implementing what the plaintiffs call “unlawful and unreasonable restrictions that seek to shift funding away from proven solutions to homelessness.” Fortunately, this means the proposed changes will not be implemented immediately as HUD had proposed.
However, HUD stated they still intend to move forward with damaging policy changes when they are legally able to do so. Additionally, federal contracts and funding are needed immediately to prevent destabilizing interruptions to housing for formerly homeless people who are now enrolled in HUD-funded programs. AFC will continue work with our local and national partners to urge Congress to direct HUD to immediately issue contracts aligned with current program guidelines and protect evidence-based solutions to homelessness.
As many as 4,000 Chicagoans, 7,500 Illinoisians, and 170,000 people across the country will lose their housing and be at risk of becoming homeless due to a policy change impacting permanent housing funding from the US Department of Housing and Urban Development’s (HUD) Continuum of Care (CoC) program. Starting as soon as January 2026, 279 housing units for people living with HIV in Chicago will lose funding due to the change. This housing is administered by AIDS Foundation Chicago (AFC), Chicago House, and Housing Opportunities for Women. Residents are being notified and the organizations are scrambling to do whatever they can to assist clients to prevent them from returning to homelessness. The organizations will also need to terminate up to 30 jobs as a result of losing this funding.
The rule change is already disrupting the housing sector across the city, state and country, and over 20 state attorneys general, including Illinois’, have filed suit to stop it. Another lawsuit was filed by the National Alliance to End Homelessness and national housing advocacy organizations, and federal advocacy efforts are underway. HUD temporarily withdrew the policy change on December 8 to make modifications before a judicial hearing but has stated they intend to release the application again with the same priorities. Despite the temporary recission, Illinois CoC participants are moving forward with preparations for the policy to take effect, making plans to terminate subsidies for thousands of participants, contacting tenants and landlords, and planning layoffs of staff across the housing sector. Admissions to CoC housing programs across the city of Chicago have been frozen, meaning people experiencing homelessness will be competing for limited space in emergency shelters and sleeping outside during Chicago’s snowiest winter in decades.
“This is really an emergency for Chicago’s affordable housing and public health in our city,” said John Peller, President and CEO of AFC. “The city, state, and national response to the HIV epidemic requires stable housing for people living with HIV. Experiencing homelessness makes people up to 16 times more vulnerable to HIV transmission and other chronic health conditions. This change is going to make our communities sicker and destabilize thousands of people and families.”
The HUD policy change would represent a significant loss of funding for Chicago’s housing sector from the HUD Continuum of Care program. It came at the direction of the Trump administration and was published outside of the routine funding review cycle. It represents a reversal of over a decade of HUD policy, which had previously prioritized what is known as Permanent Supportive Housing. Instead, HUD will now cap funding for Permanent Supportive Housing (PSH) programs at 30% of all funds released. It is estimated that 60% of homeless housing programs in Illinois employ a PSH approach, an evidence-based model for addressing homelessness that seeks to stabilize participants by offering housing first, then providing wraparound services such as case management, behavioral health care, and substance use treatment. Starting in 2026, HUD will instead prioritize funding for time-limited, transitional housing programs that require mandatory mental health and substance use treatment for entry. HUD will also incentivize localities to criminalize homelessness by awarding funds to communities that do so, and Chicago is not expected to receive those discretionary funds as city law does not recognize homelessness as a crime.
“Permanent supportive housing works, period, and we have decades of research backing that up,” said Peter Toepfer, Executive Director of the Center for Housing and Health. “What this change will do is take housing opportunities away from the people who need it most, and force vulnerable people onto the street and into hospitals, nursing homes and jails. Studies show that Permanent Supportive Housing programs cost less than the cost to shelter, hospitalize, and incarcerate people who are homeless. Time limits, incarceration, and substance use treatment prerequisites will be a disaster for solving the homelessness crisis.”
Since the early 1990s, housing programs for people living with HIV have been recognized as essential tools in the work to end the HIV epidemic, starting with bipartisan support of the landmark Ryan White and Housing Opportunities for Persons with AIDS (HOPWA) programs. Having stable housing allows people living with HIV to be healthier by enabling medication adherence, personal safety, and the stability needed to keep in contact with case managers and make regular medical appointments. Through these early HIV housing programs, the idea that housing first could improve health outcomes gained ground before becoming the favored approach by HUD prior to this rule change.
Grants will begin to expire in January 2026 for some housing programs, but the decision to award funds for programs that are able to change to transitional housing models will not be made until May 2026, leaving many organizations with a funding gap that could be difficult or impossible to bridge. In addition, people currently housed in permanent supportive housing who are impacted by this policy change will not qualify to move into the HUD proposed time-limited transitional housing, meaning stably housed Illinoisans with disabilities and chronic health conditions will return to homelessness as a result.
Legal challenges to the rule change and advocacy efforts are expected to continue. Regardless of their outcome, clients of housing programs, employees in the housing sector, and state and local budgets are bracing for impact.
