On any given night, more than 771,000 Americans have nowhere to sleep, a crisis fueled by a lack of housing affordability, family traumas, addiction, and mental health issues. Some 40% to 60% of those experiencing homelessness even hold jobs, but their paychecks simply can’t keep pace with housing costs. One solution to this problem, Permanent Supportive Housing, or PSH, is a proven model that provides affordable housing paired with support services, including behavioral healthcare and case management.
PSH prioritizes placing unhoused veterans, victims of domestic violence, seniors and other vulnerable individuals into stable housing. By 2024, it had grown to more than 412,000 beds nationwide, an increase of about 25 percent over the previous decade, according to the Urban Institute. But, despite its proven track record, investors are increasingly scrutinizing PSH assets, which carry a higher failure rate than traditional low-income housing tax credit projects. This lack of confidence is making it more difficult for developers to get deals done.
The industry is responding. The Affordable Housing Investors Council recently released new PSH Underwriting Guidance, which provides equity investors with a framework to evaluate PSH deals. The guidance aims to replace uncertainty with education and unlock more capital for these projects.
As the AHIC guidance makes clear, failure isn’t inevitable with PSH. When designed well, PSH provides stable housing and wraparound services for vulnerable people who often grapple with complex health conditions, substance use disorders and personal crises.
“Permanent Supportive Housing can help a lot of people,” said Laura Surdel, senior managing director of equity production at Boston Financial, the nation’s longest-standing syndicator. “It’s just complex and requires a lot more work than your average LIHTC transaction.”
These three factors are critical to getting PSH right.
1. PSH design matters
PSH design should focus on both aesthetics and operations. Durable materials, such as tile instead of carpet, sturdy fixtures, and open shelving instead of cabinets, can withstand heavy use and frequent turnover, said Bob Pezzini, team leader of Boston Financial’s asset management team. Intentional site planning matters too, including limited entry points and U-shaped layouts that help staff monitor activity.
Staffed front desks, dedicated rooms for case management and counseling, and in some cases, space for on-site medical and behavioral health visits, also are hallmarks of a successful PSH project. “You’re going to need a lot of community and meeting space,” Surdel said.
Trauma-informed design principles are increasingly common, including warm colors, natural light and family-friendly touches to avoid an institutional feel and signal to residents that their home has value and is worth maintaining.
Tawi Kaan Apartments, a 42-unit PSH project in Cortez, Colorado serving the local Native American community, puts these principles into practice. The U-shaped building features a courtyard with a playground, along with an indoor community kitchen, dining room, computer lab and supportive service offices. Boston Financial partnered with BlueLine Development and The Piñon Project, a nonprofit, on the complex. “It’s beautiful,” Surdel said. “It’s a warm and welcoming home.”
2. Service providers are the key to success
Service providers are critical to the success of any PSH project and typically receive substantial funding to staff on-site teams. When fully staffed, clinically informed, and integrated into daily operations, they give residents the support they need to rebuild their lives.
PSH properties often include a lead service provider that coordinates with various nonprofits and agencies, covering everything from basic life skills to on-site mental and physical health care, Surdel said.
Marshall Daniels, vice president and asset manager at Boston Financial, has seen firsthand the difference a great service provider makes. He remembers one particular property led by a professional who knew every tenant. “They had the right people in place,” he said.
Some service providers, however, fall short. Understaffed teams and inadequate clinical support leave vulnerable residents without the help they need to thrive. “This is a complex business,” Surdel said. “You’re dealing with housing, which is complex, and then you’re dealing with human issues, which are even more complex.”
Ensuring the right service providers are on board requires some extra due diligence from investors, according to AHIC’s PSH guidelines. That includes a thorough evaluation of the service provider’s organizational capacity, relevant experience, relationship with the developer or owner, funding sources and stability, and staffing and turnover, and whether it can adapt its scope of services if funding is reduced, AHIC recommends.
Investors should also confirm that the sponsor has established relationships with backup providers and a clear protocol for who has the authority to replace a service provider if it can no longer perform or loses funding, AHIC recommends. A strong network of backups is a sign that the project’s service model is built to last, according to AHIC’s guidelines.
“I’ve seen really positive outcomes when an experienced nonprofit that is in the business of helping people partners with an experienced developer that is in the business of building low-income housing projects,” Surdel said. “That’s a model for success in this product type.”
3. Government needs to be part of the solution
Good design and strong service providers can only take PSH projects so far. Long-term success depends on the strength of the partnerships surrounding them, including the government agencies involved.
Local referral agencies or coordinated entry systems, which identify potential residents, play a key role. Strong systems vet prospective residents, matching them to properties ready to meet their needs. Weaker ones may send residents straight from the street with little preparation, driving up unit damage, security costs and turnover, and putting staff in impossible situations. Safety problems at one property without appropriate vetting or services drove annual security costs from $20,000 to $260,000, Daniels said.
“The property needs to have the services in place to support the tenant on day one,” Surdel said. “If it’s a very high-needs tenant with acute demands and it’s a light-supportive-services property, because that’s what the balance of the tenants at the property require, then it’s not going to be a good fit.”
Regulatory frameworks present their own challenges. Subsidies and long-term regulatory agreements can shape a deal for 15 to 20 years. Without flexibility built in from the start, operators can find themselves locked into arrangements that no longer work, stuck with a failing service provider or unable to update set-asides — units designated for residents with specific needs — even when subsidies or services disappear.
The new AHIC guidelines recommend investors identify every relevant regulatory requirement, assess whether they allow any flexibility or relief if funding or other conditions change, and review market-specific legislative and policy risks that could impact funding stability or details such as eviction processes.
Investors also want to see deep rental subsidies and minimal hard debt. Ideally, Surdel added, that would come through long-term Section 8 contracts or vouchers, so revenue covers operating expenses and supportive services rather than debt service.
“From an investment management perspective, the long-term success of permanent supportive housing does not hinge on any single entity—it depends on the strength of the partnerships behind it,” Surdel said. “Developers, service providers, property managers, and public agencies must work in constant coordination, adapting together as challenges evolve on the ground. When one thing is out of balance, everybody needs to come back to the table. The projects that perform best are those where stakeholders remain aligned, engaged, and committed to collaboration over the life of the community.”