OBJECTIVE: Research on homelessness among persons with severe mental illness tends to focus on aspects of demand, such as risk factors or structural and economic forces. The authors address the complementary role of supply factors, arguing that "solutions" to residential instability-typically, a series of institutional placements alternating with shelter stays-effectively perpetuate homelessness among some persons with severe mental illness. METHODS: Thirty-six consecutive applicants for shelter in Westchester County, New York, in the first half of 1995 who were judged to be severely mentally ill by intake workers were interviewed using a modified life chart format. Detailed narrative histories were constructed and reviewed with the subjects. RESULTS: Twenty of the 36 subjects had spent a mean of 59 percent of the last five years in institutions and shelters. Analysis of the residential histories of the 36 subjects revealed that shelters functioned in four distinctive ways in their lives: as part of a more extended institutional circuit, as a temporary source of transitional housing, as a surrogate for exhausted support from kin, and as a haphazard resource in essentially nomadic lives. The first pattern dominated in this group. CONCLUSIONS: Shelters and other custodial institutions have acquired hybrid functions that effectively substitute for more stable and appropriate housing for some persons with severe mental illness.