Permanent Housing for Homeless Families Act of 1986

Permanent Housing for Homeless Families Act of 1986 - Amends part A (Aid to Families with Dependent Children) of title IV of the Social Security Act to authorize the Secretary of Health and Human Services to make grants to States for the construction and rehabilitation of permanent housing for rental to AFDC recipients who would otherwise require AFDC emergency assistance in the form of temporary housing.

Requires that such grants be used to provide permanent housing which is: (1) owned by the State, an instrumentality of the State, or a nonprofit organization; (2) available to families who have been unable to find decent nontemporary housing at rents that can be paid with AFDC aid for shelter; and (3) located in jurisdictions experiencing a critical shortage of such housing. Requires that: (1) the costs of providing permanent housing be lower than costs which would be incurred if, instead, the State made AFDC emergency assistance payments providing temporary housing; and (2) the most costly temporary housing be retired from use in the emergency assistance program as permanent housing becomes available for occupancy, unless temporary housing is demonstrably needed.

Sets the State contribution to the cost of constructing or rehabilitating such housing at at least the current State AFDC share increased by ten percent.