Tag: Affordable Housing

Portland Real Estate Appraisal Brief – Tuesday, December 2, 2025: HUD Rule Changes Prompt Lawsuit by Oregon and Washington

Oregon and Washington are among 20 states suing HUD over rule changes to the Continuum of Care grant program, which could cut millions in Portland housing funds.

Picture of HUD headquarters building.
HUD Headquarters
Via Wikimedia Commons

Federal Housing Funding Rule Faces Regional Legal Challenge

A coalition of approximately 20 states, including Oregon and Washington, has filed a lawsuit against the U.S. Department of Housing and Urban Development (HUD) over recent, sweeping changes to the $3.9 billion federal Continuum of Care (CoC) grant program. This legal action, filed on November 25, 2025, challenges a dramatic overhaul of funding priorities and conditions for the primary federal initiative supporting homelessness assistance.

The CoC program historically allocated nearly 90% of its funding to permanent housing solutions, a strategy known as “Housing First.” The new HUD Notice of Funding Opportunity (NOFO) for Fiscal Year 2026, however, drastically reduces the maximum funding available for permanent supportive housing to 30%, risking the displacement of an estimated 170,000 households nationwide. For the Portland region, this shift is especially critical, as Oregon alone stands to lose approximately $39 million in federal housing support, a figure cited by the Oregon Department of Justice. Washington State, which receives about $120 million annually in CoC grants, sees a substantial portion flow to its counties bordering the Portland metro area, including Clark County.

State attorneys general argue that HUD violated Congressional intent and the Administrative Procedure Act by imposing abrupt and sweeping changes without proper public rulemaking, as detailed in the official press release from the Washington State Attorney General. Beyond the funding cuts, the lawsuit cites new controversial conditions, including requirements for providers to mandate services as a precondition to housing and penalize jurisdictions that do not enforce strict anti-camping bans—policies that conflict with current practices in many Pacific Northwest cities. The national scope of the lawsuit underscores the destabilizing nature of the change.

Appraisal Implications

For certified residential appraisers working in the Portland metro area—encompassing counties like Multnomah, Washington, and Clackamas in Oregon, and Clark in Washington—the outcome of this lawsuit has material, though indirect, implications for property valuations, especially in the affordable and multifamily housing sectors.

Residential Properties

While CoC funds do not typically subsidize owner-occupied single-family homes, the potential displacement of tenants from permanent supportive housing could put additional strain on the already-tight rental market.

  • Supply and Demand Pressure: The loss of federally funded permanent supportive housing units means hundreds, if not thousands, of vulnerable residents in the region could be forced to seek alternative, unsubsidized rental housing. This influx of demand would further reduce the availability of affordable rental stock and could indirectly increase overall market rents for entry-level apartments. Higher rents, in turn, can put upward pressure on the price of smaller, owner-occupied starter homes as the rent-to-own cost dynamic shifts.
  • Neighborhood Stability: Appraisers must remain attuned to shifts in neighborhood stability and market dynamics. A rapid increase in unsheltered homelessness—which local leaders contend is a likely outcome of these funding cuts—can affect neighborhood marketability and, consequently, perceived value in nearby residential areas.
Tents along a city right-of-way. HUD’s homelessness-prevention programs aim to reduce street camping by stabilizing at-risk households

Commercial / Multifamily

The most direct impact is felt within the multifamily and commercial properties designed for social services and affordable housing.

  • Valuation of Supportive Housing Assets: Appraising existing permanent supportive housing (PSH) properties, often structured as low-income housing tax credit (LIHTC) assets or specialized nonprofit facilities, is directly tied to their funding stream. A loss or severe reduction in the reliable federal CoC operating subsidies introduces significant risk to the financial stability of these projects. Appraisers must consider:
    • Net Operating Income (NOI) Volatility: The immediate uncertainty regarding project renewal grants makes the NOI for these specialized assets highly volatile. This increased risk translates to a higher capitalization rate (Cap Rate) being applied by investors, which lowers the overall valuation of the property.
    • Highest and Best Use: A sudden and substantial policy change could force a re-evaluation of a PSH property’s Highest and Best Use if the specialized funding model is deemed permanently unviable. While unlikely to lead to immediate conversion, the risk of a future shift to conventional market-rate housing should be noted, particularly for properties nearing the end of their affordability period.

Market Context

The regional housing market operates with razor-thin margins for affordability. The Portland metro area, which includes Multnomah, Clackamas, and Washington counties, has already approved significant local measures, such as the Metro Supportive Housing Services Measure, to address the crisis. However, these local funds are intended to supplement, not fully replace, federal support. Washington State’s Clark County, which is also part of the Vancouver-Portland metro area, relies heavily on the federal structure to support its local Continuum of Care grants.

The pending lawsuit highlights the deep interdependency between federal policy, local funding initiatives, and the stability of the housing market in the Pacific Northwest. Real estate professionals—including lenders, estate planners, and realtors—must closely monitor the legal proceedings, as the outcome will dictate the long-term viability of a substantial portion of the region’s dedicated affordable and supportive housing supply.

Sources & Further Reading

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Question: Do you think this lawsuit will be resolved soon, or will it drag on for most of the year?

CODA

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