The recent Supreme Court ruling in Johnson v. Grants Pass marks a troubling shift in how the U.S. addresses homelessness—by criminalizing unhoused individuals for sleeping in public spaces, rather than addressing the systemic issues at play, such as the lack of available shelters. As cities grapple with the ruling, the need for innovative and sustainable housing solutions has never been more urgent.

The Supreme Court’s decision fails to account for the root causes of homelessness. In fact, criminalization has proven to be an ineffective approach that often prolongs homelessness. Fines and arrest records make it even more difficult for people to secure and maintain stable housing and work. The decision is already having significant impacts, as seen in California, where the Governor has directed state agencies to remove homeless encampments from state land.

The ruling diverts much-needed attention from sustainable solutions and could have devastating consequences for people experiencing homelessness across the United States. Rather than responding to the housing crisis with punitive measures, there is an urgent need to provide comprehensive support services and advance affordable housing solutions.

Earlier this year, Dalberg worked with the Wakeland Housing and Development Corporation and Merritt Community Capital Corporation to explore innovative financing and social impact investing models aimed at scaling the development of affordable and supportive housing in California. This work focused on the state’s severe shortage of affordable housing—currently 1.4M affordable rental homes short—and the inadequacies of the existing financing system, including the overburdened Low-Income Housing Tax Credit (LIHTC) program.

Through this work, Dalberg identified five innovative financing models that not only address California’s severe housing shortage but also offer a scalable alternative to criminalizing homelessness:

• Debt-focused funds provide lower-cost construction and permanent debt to affordable housing developers, targeting non-LIHTC projects. These funds attract commercial capital through bond markets and private placements, making them suitable for (often for-profit) developers with access to non-LIHTC equity financing.
• Equity-focused funds provide affordable equity financing to develop affordable housing on a shortened timeline, reducing the need for developers to supply large equity pools. These funds enable nonprofit developers to access equity financing; however, they face challenges in delivering returns and sustainability, especially in models focused on construction.
• Bridge/catalytic funds provide flexible, lower-cost capital at specific stages of development, such as predevelopment, where securing capital is most challenging, and the risk of project failure is highest.
• Funds focused on construction/service innovation provide evidence on new methods, such as shared housing or permanent supportive services, that commercial capital is cautious about investing in. These funds attract smaller capital to establish a proof-of-concept, with the goal of scaling through commercial investment later.
• Social impact bonds secure upfront capital from impact investors, with the return of principal and interest contingent on actual outcomes relevant to housing. These bonds typically fund support services and programmatic operations, aiming to innovate new service delivery models or bridge funding gaps to demonstrate proof-of-concept, rather than scaling broadly.

As part of this work, we studied the Community Solutions Large Cities Housing Fund, which secured $135 million and closed in July. This social impact private equity fund aims to acquire over 2,500 housing units, with half designated for individuals exiting homelessness and half for workforce affordable housing. The private capital model enables faster, more cost-effective development of affordable housing, transforming cities’ approaches to reducing homelessness and providing a viable alternative to punitive measures.

As the U.S. contends with the implications of the Johnson v. Grants Pass ruling, the need for sustainable, innovative housing solutions becomes increasingly clear. By embracing new financing models and prioritizing affordable housing development, we can shift the narrative from criminalization to creating stable, supportive environments, fostering lasting change for communities experiencing homelessness across the nation.

To learn more about Dalberg’s work in community solutions, contact: