New York City officials are preparing to distribute nearly 8,000 new federal housing vouchers to homeless residents, but advocates warn that thousands of income-eligible people could be locked out because of their supposed mental health needs.

The agencies overseeing the newly released rental subsidies have informed providers that adults approved for supportive housing—permanent apartments with on-site services, typically reserved for people with mental health diagnoses—will be precluded from applying for the vouchers. Attorneys and advocates for homeless New Yorkers say that policy cuts off a path to housing for thousands of shelter residents and functions as a proxy for mental health disability discrimination.

“They’re being excluded solely because they sought a benefit linked to disability status,” said Sandra Gresl, a senior staff attorney with Mobilization for Justice’s Mental Health Law Project.

In addition, being approved for supportive housing doesn’t mean an applicant will actually land a supportive housing unit, since demand for the apartments greatly outweighs supply. The city is home to more than 32,000 supportive units, but only one in five applicants approved for them are successful in scoring one, according to the Coalition for the Homeless.

In May, the U.S. Department of Housing and Urban Development (HUD) issued 7,788 emergency housing vouchers (EHVs) to two city agencies, NYCHA and the Department of Housing Preservation and Development (HPD), to distribute to New Yorkers experiencing homelessness, people at risk of becoming homeless and individuals and families fleeing domestic violence or trafficking. The much-needed rental vouchers were included in the most recent federal stimulus package and will cover rents for low-income tenants in privately-owned apartments.

Mayor Bill de Blasio’s office says the city plans to allocate most of the vouchers to people who are currently homeless starting in August. There were 45,289 New Yorkers, including 8,306 families with children, living in Department of Homeless Services (DHS) shelters as of July 25, according to the city’s most recent daily census report.

A memorandum of understanding among the city agencies overseeing the program indicates that 75 percent of the vouchers (5,810) will go to people experiencing homelessness, including 600 subsidies for young adults.

The vouchers will be “a major tool in building a recovery for all of us,” said de Blasio Spokesperson Mitch Schwartz in a statement.

“We’re proud of our efforts to make that resource available for New Yorkers who are homeless and at risk of homelessness, including many who weren’t previously eligible for Section 8 vouchers,” Schwartz added.