Homeless System Response:
Long-Term Financing of Permanent Supportive Housing
Projects
The recent influx of Emergency Solutions Grants (ESG) program funding in jurisdictions across the country as a result
of the Coronavirus Aid, Relief, and Economic Security (CARES) Act provides communities with funds to prevent people
at risk of homelessness from experiencing homelessness and to rehouse those experiencing homelessness. However,
to serve individuals and families with higher-acuity needs, many communities are looking to invest in permanent
supportive housing (PSH) to accommodate this population long-term. This document serves as a primer on PSH and
details both established and innovative strategies and sources for financing PSH.
Permanent Supportive Housing Models
PSH combines affordable housing with voluntary supportive services that help those exiting homelessness and other
institutions obtain and maintain housing as well as improve health and connect with the community. Supportive
housing is targeted to individuals and families with high-acuity needs, including people who have experienced chronic
homelessness, have co-occurring disorders, or have a history of incarceration; transitional age youth; and families
engaged with child welfare. Like rapid rehousing (RRH), PSH should provide services to help households maintain
housing; they may be more intensive than those provided in RRH projects, but PSH is not time-limited.
Supportive housing falls into three main models: single-site, scattered-site, and integrated housing. In single-site
supportive housing, buildings have a majority of units dedicated to supportive housing tenants. Services are delivered
in the supportive housing building, often with offices on the ground floor. In scattered-site supportive housing, units
are usually rented from private market-rate landlords that are paid with money from a source of rental support
funding, such as housing vouchers. Supportive services help the tenant stay housed and can be provided in the
household’s unit or off-site in the community. A third supportive housing model is the mixed-income/mixed-tenancy
model that joins both supportive and affordable housing units in a single property. Services are often delivered in the
integrated housing building, as well as sometimes off-site at the service provider’s offices.
Centering Those With Lived Expertise in Leadership and the Planning Process
Lived expertise is an invaluable resource when planning a supportive housing program. In order to be successful,
programs benefit from incorporating the full participation of individuals whom the project will serve to inform design,
amenities, community connections, service needs, and delivery. Strategies for incorporating tenant voice include but
are not limited to: having people with lived expertise as part of the project planning team, holding focus groups with
people from the population you are trying to serve, implementing regular tenant surveys into your project plan, hiring
people with lived expertise, and including people with lived expertise on your board. These strategies are crucial to
the planning process because they help amplify the voices of those most impacted by housing instability and
homelessness.
Leading with Building Racial Equity into Your Supportive Housing Program
Black, and Indigenous, and People of Color (BIPOC) are overrepresented in the populations of the systems that
supportive housing serves, such as the homeless, justice, and child welfare systems. Supportive housing programs
must rigorously incorporate a racial equity approach from the beginning of the planning process to address long-
standing barriers to equitable access to housing and services. This includes having racially diverse partners in the
planning process to include decision-making on funding, partnering with culturally specific organizations, building
racial equity into the hiring process, creating policies leading with a racial equity lens, and tracking program outcomes
by race and ethnicity.
Supportive Housing Financing
Depending upon the type of supportive housing being operated, supportive housing financing will require three types
of budgets and funding resources: capital, operating, and services funding. Funding is usually provided through a
combination of federal, state, and local funding. Financing breaks down by model in the following ways:
● Single-site requires capital, operating, and services funding.
● Integrated requires capital, operating, and services funding
● Scattered-site typically only requires operating and services funding, as it leverages existing housing stock
and units.
Sources of Funding for Supportive Housing
Government. Federal, state, and local government agencies allocate funding and establish eligibility for affordable
and supportive housing from entitlement and block grants as well as competitive bids or responses to an application
or request for proposal (RFP). The type of expenditure (capital, operating, service) will dictate the appropriate agency
source and whether the funding takes the form of a grant, a loan, or a forgivable loan.
Private Corporations and Financial Institutions. Private corporations—including financial institutions and health
systems—may provide grants or loans for capital investment. Repayment terms vary by PSH project and funding
source. Hospitals in particular have provided capital investment as well as services funding for supportive housing.
Philanthropy. Philanthropy from foundations, community associations, and private corporations provides a wide
range of grants for services, capital, and operating expenses. Philanthropy can also provide valuable “seed” funding to
launch a new development or program idea.
Sources of Capital, Operations, and Services Funding
Each of the three categories of PSH funding is supported through various resources. The following section breaks
down funding sources in each of the different PSH funding categories.
Capital Funds
Capital funds are required to acquire, build, or rehabilitate units that will be dedicated to supportive housing. In
addition to “bricks and mortar,” capital costs can cover building and land acquisition, architectural fees, financing fees,
and project management costs. It is most common in the single-site and integrated supportive housing models,
although there are also examples of scattered-site programs that utilize capital funds to acquire and rehabilitate new
housing units. Below are sources of funding traditionally used by communities to cover capital costs.
Funding Source
Things to Know
Low-Income Housing
Tax Credit (LIHTC)
The LIHTC is a federal tax credit allocated to states to incentivize investment
in affordable housing from private investors. LIHTC properties often have units
set aside for supportive housing and extremely low-income households. The
LIHTC is the largest program for creating new affordable housing units.
National Housing Trust
Fund
The National Housing Trust Fund provides funds for the creation, preservation,
and operation of affordable housing for low- and extremely low-income
households. While the National Housing Trust Fund is a federal program, funds
are allocated to the states to support local affordable housing priorities.
Home Investments
Partnerships Program
(HOME)/Community
Development Block
Grant (CDBG)
Many states and local communities allocate a portion of their federal
entitlement grants to provide flexible loans or grants for the capital costs to
develop affordable and supportive housing. Supplemental allocations of CDBG
funding under the CARES Act can be invested to create PSH units.
Pay for Success/Social
Impact Bond
With pay for success or social impact bonds, private funders invest in a project
that is then rigorously evaluated to assess targeted outcomes. If the project is
a success, the government pays back the investor. There are several examples
of this program being used to create more supportive housing.
Section 811 Supportive
Housing for Persons
with Disabilities
Through this program, HUD provides capital funds and rental assistance to
create and operate supportive housing units. In recent years the Section 811
program is primarily allocated for rental assistance.
Federal Home Loan
The Affordable Housing Program (AHP) Competitive Application Program
through the Federal Home Loan Bank allows organizations to apply for
Funding Source
Things to Know
Bank
financing for the construction, rehabilitation, or purchase of low-income rental
housing, including supportive housing. Awards from the Federal Home Loan
Bank are made in partnership with local financial institutions.
Hospital and Health
System Investment
Ongoing program studies document that housing is healthcare. Based on
research demonstrating that providing housing improves health outcomes,
some hospitals and other health system partners (including managed care)
have begun investing in supportive housing providing both capital and service
funding. The New Jersey Housing and Mortgage Finance Agency is partnering
with local hospitals to invest in supportive housing capital development. In
Orlando, Florida, the hospital system partnered with the local government,
health center, and housing providers to place the most vulnerable in stable
housing with services.
New Market Tax Credit
(NMTC)
The New Market Tax Credit incentivizes investment for capital development in
low-income communities. NMTC is a competitive federal tax credit program
with priority awards to projects that can demonstrate a positive impact on the
communities being invested in. NMTC investments can be used to provide
capital for new mixed-use developments that include supportive housing.
Operating Funds
Rental income is the primary source of funding to cover operating costs incurred such as property management,
staffing, utilities, maintenance, insurance, and taxes. In supportive housing, tenant income is generally insufficient to
pay rents to cover operating expenses without rent subsidies to fully cover these costs. In addition to rental
assistance, some properties are able to establish reserves to cover operating deficits at the property. Many sources of
operating subsidies require tenants to pay some portion of what income they do have toward their rent, usually set at
30 percent.
Funding Source
Things to Know
Federal Rental Assistance
Vouchers
Rental assistance vouchers, funded through HUD and managed by
CoCs, provide the majority of operations funding for supportive
housing developments. Housing vouchers, generally administered by
local housing authorities, provide rental subsidies to property owners
for units occupied by income-eligible tenants. There are general
Housing Choice Vouchers, and also voucher programs that apply to
specific populations targeted in supportive housing, including HUD-
VASH for veterans, Family Unification Program (FUP) for families
involved in the child welfare system, Mainstream vouchers for
vulnerable populations including people experiencing chronic
homelessness and disabling conditions, and HOPWA for individuals
with HIV/AIDS.
State Housing Vouchers
Some states, including New York (Empire State Supportive Housing
Initiative [ESSHI]) and California have state-funded vouchers for
supportive housing units. These are often funded by local state
appropriations or bonds.
Flexible Housing Pools
(FHPs)
FHPs are funded by contributions from private funders as well as
state and local governments. The pools provide flexible funding to be
used for rental subsidies, landlord mitigation risk funding, and some
services. Examples of FHP can be found in both Chicago and Los
Angeles.
Funding Source
Things to Know
Capitalized Operating
Reserves
A capitalized operating reserve is an upfront investment into a
development during the construction’s financial closing, which is held
in a reserve account for later use to pay for operating shortfalls.
Capitalized operating reserves are generally deployed when other
rent subsidies are not available. Both the State of California and the
City of Chicago operate capitalized operating reserve programs for
PSH.
Services Funding
Service costs include both direct services like mental health counseling and case management, as well as costs
associated with tenancy supports and life and jobs skills training.
Things to Know
Medicaid can be a sustainable source of service funding for supportive
housing programs. Funding for Medicaid is shared through both federal
and state resources and is mostly dedicated to primary, behavioral,
and mental health services. While Medicaid will cover services for more
tenants in states that chose to expand Medicaid, non-expansion states
can also consider billing supportive housing services to Medicaid. Some
states have created a Medicaid supportive housing services benefit
through State Plan Amendments and Waivers. There are several
administrative models for supportive housing agencies to consider to
bill Medicaid for services.
CoCs provide funding for some services in PSH for individuals moving
out of homelessness, though most PSH programs are leveraged with
other service’s resources.
Many sub-departments within the HHS including the Substance Abuse
and Mental Health Services Administration (SAMHSA) fund the
Cooperative Agreement to Benefit Homeless Individuals (CABHI)
providing funding for mental health and substance use; Health
Resources and Service Administration (HRSA) funds community health
centers to serve vulnerable populations including those facing
homelessness; and the Administration for Children and Families (ACF)
administers grants for supportive housing services. These grants are
administered at the state, local, and project levels.
The Bureau of Justice Assistance, which is part of the DoJ, has issued
several Notices of Funding Availability (NOFA) related to the Second
Chance Act that have included opportunities for funding supportive
housing for individuals exiting the criminal justice system. View an
example of one of these NOFAs.
Many states and large cities have programs that provide funding for
supportive housing services. These are funded through special tax
initiatives, ballot measures, and other ways.
Special Considerations for Supportive Housing Financing
Braided Funding
Successfully funding services in supportive housing can be a challenge as there is not a single “go-to” source for
services funding. Most supportive housing programs rely on services funding from multiple sources to create
sustainable supportive housing programs. This is frequently referred to as “braided” or “blended” funding. It is
important when working in a braided funding model to track the operating procedures and other requirements that
the various funders set.
Coordination
Supportive housing requires multiple partners—including developers, service providers, and property managers—to
work together to create and operate programs. This makes coordination between funders essential to a supportive
housing project’s success. Supportive housing partners benefit from working together as early in the process as
possible; defining shared goals; and creating action plans, coordination procedures, and accountability through data
collection all documented in a Memorandum of Understanding.
Engaging Stakeholders
When building supportive housing in a community, it is important to combat potential community opposition by
engaging community stakeholders during the development process. The Not In My Backyard (NIMBY) sentiment is a
common reaction to supportive and affordable housing. Successful supportive and affordable housing projects
communicate with the surrounding neighborhood through both informal conversations and open forums. The team
developing the supportive housing project must be prepared to combat common misperceptions about supportive and
affordable housing, including that it can bring down property values and increase crime. People with lived expertise
can also be important and effective advocates for building supportive housing in a community.
This resource is prepared by technical assistance providers and intended only to provide guidance. The contents of this document, except when
based on statutory or regulatory authority or law, do not have the force and effect of law and are not meant to bind the public in any way. This
document is intended only to provide clarity to the public regarding existing requirements under the law or agency policies.