A case that could significantly change how US cities respond to the growing homelessness crisis has reached the supreme court as record numbers of people in America find themselves without a permanent place to live.

The justices on Monday considered a challenge to rulings from a California-based appeals court that found punishing people for sleeping outside when shelter space is lacking amounts to unconstitutional cruel and unusual punishment.

Related: ‘Criminal for existing’: US’s unhoused still fear sweeps as supreme court to take on shelter case

The case stems from a 2019 camping ban enacted by city officials in Grants Pass, Oregon, a small mountain town where rents are rising and there is just one overnight shelter for adults. Debra Blake, who had lost her job a decade earlier and was unhoused, was cited for illegal camping. After being convicted and fined, she soon joined other unhoused residents in suing the city over the ordinance.

The San Francisco-based ninth US circuit court of appeals ruled that Grants Pass could not enforce local ordinances that prohibit homeless people “from using a blanket, pillow, or cardboard box for protection from the elements” – a decision that applies across the nine western states of Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon and Washington. Grants Pass appealed to the supreme court, arguing the ruling left it few good options.

The appeals court ruling built on its 2018 decision, known as Martin v Boise, that first barred camping bans when shelter space is lacking and which the city is also challenging. It also applies to the nine western states in the court’s jurisdiction. The supreme court declined to take up a different challenge to the ruling in 2019, before the solidification of its current 6-3 conservative majority.

Theane Evangelis, a lawyer representing Grants Pass, said the ruling “really has made it impossible for cities to address growing encampments, and they’re unsafe, unhealthy and problematic for everyone, especially those who are experiencing homelessness”.

Dozens of briefs have been filed in the case, which has broad implications on how communities nationwide will address homelessness, including whether they can fine or jail people for camping in public.

In March, six members of the US House of Representatives – including Cliff Bentz, whose Oregon district includes Grants Pass, and five congressmen representing California – filed briefs in support of the petition, saying the ruling makes it “practically impossible” for municipalities to combat crime that can occur near encampments.

A coalition of 24 Republican attorneys general led by Montana and Idaho similarly backed the Grants Pass petition.

“The Ninth Circuit cannot solve homelessness, and it should not try. It is States and localities that have the local knowledge needed to address the problem, and it is States and localities that ultimately bear the costs of homelessness and of homeless policy,” they wrote.

Homelessness advocates say that if the decision is overturned, it would make it easier for cities to turn to arrests and fines as a way to handle their homelessness problems rather than helping people to get shelter and permanent housing.

“In Grants Pass and across America, homelessness has grown because more and more hardworking people struggle to pay rent, not because we lack ways to punish people sleeping outside,” said Jesse Rabinowitz, campaign and communications director for the National Homeless Law Center. Local laws prohibiting sleeping in public spaces have increased at least 50% since 2006, he said.

Dozens of demonstrators had gathered outside the court on Monday morning with silver thermal blankets and signs with slogans such as “housing not handcuffs”. Other rallies were planned in various cities across the country.

The case comes after reports that the US last year saw a dramatic 12% increase in homelessness, which reached its highest level ever recorded, according to a federal report, as soaring rents and a decline in coronavirus pandemic assistance combined to put housing out of reach for more Americans. About 653,000 people were homeless in the January 2023 count, the most since the country began using the yearly point-in-time survey in 2007.

More than half the people experiencing homelessness in the country were in four states: California and Washington, which are both under the ninth circuit’s jurisdiction, along with New York and Florida. About 28% of the nation’s homeless are estimated to be in California alone, according to the federal report from the Department of Housing and Urban Development.

Officials in Los Angeles and San Francisco say they do not want to punish those who have no option but to sleep outside, but they also need the power to keep growing encampments in check.

“I never want to criminalize homelessness, but I want to be able to encourage people to accept services and shelter,” said Thien Ho, the district attorney in Sacramento, California, where homelessness has risen sharply in recent years.

Gavin Newsom, California’s governor, has urged the high court to keep some legal protections in place while reining in “overreach” by lower courts. The 2018 decision allows for cities to regulate and “sweep” encampments but does not allow total bans in communities where there are not enough beds in shelters.

Public encampments are not good places for people to live, said Ed Johnson, who represents people living outside in Grants Pass as director of litigation at the Oregon Law Center. But enforcement of camping bans often makes homelessness worse by requiring people to spend money on fines rather than housing or creating an arrest record that makes it harder to get an apartment. Public officials should focus instead on addressing shortages of affordable housing so people have places to live, he said.

“It’s frustrating when people who have all the power throw up their hands and say, ‘there’s nothing we can do,’” he sad. “People have to go somewhere.”

The supreme court is expected to rule by the end of June.

The Associated Press contributed to this report