Gov. Gavin Newsom warned recently that cities and counties could lose state funds targeted at addressing homelessness if they don’t show real progress in getting people off the streets.

In San Diego, local officials say they’re finally starting to see that progress.

The Regional Task Force on Homelessness reported a roughly 7% drop in homelessness countywide in last year’s point-in-time count, from about 10,605 people in 2024 to about 9,905 in 2025.

In the city of San Diego, homelessness — sheltered and unsheltered — dropped by 14%.

In his recent State of the City address, Mayor Todd Gloria pointed to the reduction as proof that the city’s approach to homelessness is working.

That progress puts the San Diego region in a relatively strong position as the state tightens the rules around Homeless Housing, Assistance and Prevention funding, known as HHAP — one of the largest sources of state money for homelessness programs — and as other funding sources shrivel.

Temporary fix grows important

HHAP was launched in 2019 as a one-time infusion of state cash to help cities and counties respond to the growing homelessness crisis. Over several years, it became one of California’s key homelessness programs, delivering roughly $1 billion a year statewide for shelters, outreach, rental assistance and interim housing.

That changed last year, when lawmakers approved no new HHAP funding amid a budget shortfall. Newsom proposed restoring the program in the upcoming budget, but at about half its previous size — $500 million — and attaching stricter accountability requirements.

To qualify for future funding, cities and counties must show they are doing a number of things the governor has pushed: adopting strong encampment policies, maintaining a state-approved plan to build new housing, earning a “pro-housing” designation from regulators, putting up local matching dollars and showing measurable progress at reducing homelessness.

San Diego officials say the region checks those boxes.

Both the city and county have encampment ordinances that align with Newsom’s “model” policy and have stepped up enforcement in recent years. Each also has a state-approved housing element, and San Diego was among the first cities in California to earn a pro-housing designation, which the state gives to jurisdictions that streamline approvals and adopt policies aimed at increasing housing production. The county followed soon after.

City leaders say they have used HHAP dollars to provide more shelter beds, rent subsidies and outreach teams to get people off the street and into stable housing. The county has used the money to provide housing subsidies for at-risk populations, such as foster youth and seniors, and develop plans for emergency housing programs.

Frustration in Sacramento

Walt Bishop, director of government affairs for the city of San Diego, said the region has been preparing for the accountability shift.

“There was frustration from the governor’s office and the Legislature that (they’re) putting a lot of state investment in this and not seeing visual results on homelessness,” he said.

Bishop said the city believes it can meet those expectations.

“You give us this money, we will be accountable,” he said. “You set the markers, and we’ll meet them.”

But housing officials and advocates warn that without new, ongoing funding — especially long-term funding — the region could struggle to sustain the improvements it’s made.

Funding sources that helped fuel recent gains, including federal housing vouchers tied to affordable housing projects, are tapped out, even as the need for deeply affordable housing continues to grow.

Ryan Clumpner, a San Diego Housing Commission board member, said recent progress has relied in part on state funding that’s temporary or, like HHAP, inconsistent.

“We are running out of options at a rapid pace, and every intervention that people are familiar with — almost all of those are coming to an end in the next one to three years,” he said. “And there’s really no plan for what we’ll do after that.”

Buying hotels, building shelters

San Diego Housing Commission CEO Lisa Jones said federal programs, such as housing vouchers, along with state funding, including HHAP and Homekey, have been “foundational” to San Diego’s homelessness response, helping boost the number of shelter beds, develop permanent supportive housing and stabilize people at risk of losing their homes.

Homekey, a state initiative launched during the pandemic, helped cities buy hotels, motels and other properties and convert them into housing for people experiencing homelessness.

San Diego used Homekey funds to create more than 600 housing units. The program is now winding down, and state officials have not indicated it will continue at the same scale.

“The reduction or elimination of these funding sources would hinder further progress,” Jones said, adding that the commission is now placing greater emphasis on homelessness prevention and housing stabilization to keep people from falling into the system in the first place.

Federal housing vouchers, which have played a key role in San Diego’s response to homelessness, are also under increasing strain.

Stephen Russell, executive director of the San Diego Housing Federation, said vouchers have effectively been frozen at the federal level for years.

“Meanwhile, rents have gone through the roof,” he said.

Vouchers generally require tenants to pay about 30% of their income toward rent, with the voucher covering the rest, up to certain limits. As rents rise, that gap grows.

“The Housing Commission was essentially subsidizing the gap,” he said.

That money is now gone.

Voucher squeeze

Earlier this year, the Housing Commission decided to require some voucher holders to pay a larger share of their income toward rent, rather than cutting people off from assistance altogether.

“The choice was, do we take vouchers away from 1,600 families… or do we ask everybody who’s capable to pay some more? And so they’ve gone with that second choice,” he said. “It was unacceptable to them as policymakers to put people out on the streets.”

The voucher squeeze also affects what kinds of housing developers are able to build.

Affordable housing projects typically rely on a complicated mix of tax credits, public subsidies and private financing. For households earning less than 30% of area median income — including many people exiting homelessness — rent alone does not cover the cost of operating housing.

When someone has almost no income, the math just doesn’t work without a subsidy, Russell said.

“If they can only pay $300 a month, but it costs you $700 or $1,000 a month to pay the mortgage on that unit, that’s where the voucher comes in,” he said.

Those subsidies, known as project-based vouchers, are especially important for permanent supportive housing, which pairs housing with services for people with serious health or behavioral health needs.

Without vouchers, Russell said, developers are unlikely to bring forward new projects serving the lowest-income residents.

Gains at riskCity and county officials say that HHAP funding has played a major role in preventing homelessness from getting worse, even if that impact isn’t always obvious.

In a recent presentation on Newsom’s budget, Monica Saucedo, a senior fellow at the California Budget and Policy Center, said declines in homelessness show that targeted spending has worked.

“Over the last several years, the state has invested over $1 billion on average annually through (HHAP), and the results speak for themselves,” she said.

But Saucedo warned that scaling back the program could undo those gains.

“Even though HHAP was designed as temporary funding, these dollars have become core to California’s homelessness response systems statewide,” she said. “Losing or pulling back this funding now poses a real risk to the progress we’ve made.”

Russell put it more bluntly: “Turn off the tap and see how many people come flooding back out on the streets.”

At the same time, forces driving homelessness — high rents, limited housing supply and economic instability — continue to operate at a much larger scale.

“The system producing homelessness is still running full speed,” Russell said. “We’re just trying to keep up.”

There are some potential sources of relief. Recent federal legislation expanded low-income housing tax credits, which could help finance more affordable housing, Russell said. State lawmakers are also debating a large housing bond that could go before voters later this year.

Locally, proposals to create dedicated revenue streams — such as taxing second homes or short-term rentals — could provide more predictable funding, though those ideas remain controversial.

A spokesperson for Mayor Todd Gloria acknowledged the risk posed by shrinking state and federal support, but said the city is preparing to adjust.

“The mayor has warned that a reduction in state and federal support can erode the progress we’ve made,” David Rolland said. “But he is quick to point out that, as we always do, we will aim to maximize limited resources.”