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There are lots of Cat-1 homeless, but there're two salient facts about them:
Most manage to become housed in a matter of months within existing systems (governmental, social, and familial), unlike the others.
Putting them in these communities would harm them a great deal, especially if they have kids. Those communities would be incinerators of human capital and well-being.
So you're left with categories 2-4. Some of those might graduate to category 1, but then it's the same issue: they'll get pulled back down into the swamp.
But without the cat-1s, you're essentially building a dystopian concentration camp for the insane, not a cute folksy healing village. Which I think would still be for everyone's benefit, but it's better to acknowledge this upfront instead instead of having an overly optimistic view of what it'd look like.
Not if it's designed to let the Cat-1s live a facsimile of normal life but with the support system they lack on the outside. AIUI, the primary problem Cat-1s experience is a loop of helplessness: without a home, they can't find work; without work they can't find a home. You need a city-like environment in which they can operate freely with support long enough to get back on their feet and/or develop work skills if they lack them. They would not be incarcerated like or with the more dysfunctional levels. They would live amongst the professionals who operate the carcereal parts of the system.
Cat-1s aren't usually that badly off, mentally speaking. It's mostly folks who used to have jobs (and some still do), and could still hold down a job if they could find something appropriate. They can work, they can pay bills, they can pay rent, they can maintain a home, but they're low on social and economic capital and finally slipped through a crack. The current system works decently well for them, but it could always be made better, especially by increasing the availability of cheaper (crappier) housing.
Your categories use "psychotic", but there's a large range of potential mental problems that can cause (or result from) homelessness (or excessive drug use). And sometimes someone who looks like Cat-1 is actually suffering from some untreated mental problem that finally got too nasty for their coping mechanisms to deal with, causing them to lose their job and get kicked out of their home. Those are the ones that need special support like you suggest, but they're not really what you refer to as Cat-1, or are only superficially Cat-1.
Where I think a lot of other solutions fail is that they are only aimed at 1 type of homeless person and there is no coordination with the services that address the other types of homeless people. In my model, there is coordination so that misidentifications of type can be transferred to the appropriate wing within the all-encompassing system.
It also, importantly, removes all of the homeless individuals from mainstream society until they are fit to rejoin it. For the Cat-1s, it would be voluntary, but presumably if they are genuinely Cat-1 this is exactly the absent support that they are looking for.
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Don’t these things already exists? These are basically just renamed prisons, but low-security and nice.
I don’t disagree with the idea. It’s just an intelligent person recreating prisons (I’ve had similar thoughts). Also sort of like Californias fire rescue prisoners. Take the ones who can be saved and focus them on doing something. You probably need to remove the criminals or the hole thing turns into our shitty prisons and pull the addicts down.
Prisons with stronger incentives for good behavior basically.
Think of it like one of those towns around a prison, but the prison itself has stronger drug treatment and mental health wings that are all part of the same system with the goal of rehabbing from one category to another.
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