Impact Investing in Affordable Housing

Impact investing—that is investing in assets that can generate an attractive return as well as positive social or environmental impact—can take many forms, but social impact investing in real estate focused on affordable housing is one of the most intriguing applications. This approach shows great promise in easing the epidemic of homelessness and the housing affordability crisis, while providing investors with opportunities to potentially earn attractive returns. In this article, we’ll explain the concept of affordable housing, explore the growing need for it and describe several ways to make investments in affordable housing programs.

Housing ranks as one of America’s most pressing challenges. According to the National Alliance to End Homelessness, more than 580,000 people experienced homelessness in 2020.  In addition, many people are one job loss or health crisis away from losing their homes. The Harvard Joint Center for Housing Studies estimates that more than 20 million renters pay an unsustainable 30% or more of their income for housing, while more than 10 million dedicate more than half of their income to rent.


Creating affordable housing can help those people, but it can also have a broad positive impact on whole neighborhoods, communities and the nation as a whole. A 2021 study by UCLA’s Elior Cohen found that providing homeless people with targeted housing assistance reduced emergency room visits by 80%, cut jail days by 95% and reduced the probability of committing a crime by 80%. People who participated in housing programs were 24% more likely to be employed than those who did not.  

Affordable Housing Explained

What is affordable housing? The federal Department of Housing and Urban Development (HUD) defines housing as affordable if it costs 30% or less of a resident’s income. Because wages vary from state to state and city to city, what’s affordable in one area may be unaffordable in another.   


In many areas, the supply of affordable housing has failed to keep up with demand, often because of restrictive zoning and market incentives that favor luxury and upper income development. Impact investing in affordable housing can help maintain, improve and add to the stock of affordable housing.


In addition, investing in affordable housing is good business. Demand is high, so properties tend not to stay vacant for long.  Subsidies, like Section 8 housing credits, provide a steady stream of income directly from the Federal Government, further reducing risk.

Investing in Affordable Housing

As a result, social impact real estate investments in affordable housing can potentially offer attractive yields and appreciation for investors. A 2019 study from the Global Impact Investing Network, tracked investment returns on 113 affordable housing impact investments and found that on average, debt investments earned 6% a year and private equity investments earned 9%, in addition to providing measurable positive social impact in the communities they served.

There are a number of different ways to make investments in affordable housing programs, including through public  REITS (real estate investment trusts) and private funds. NAREIT recently published a helpful list of public REITS investing in affordable and workforce housing. On the private side, investment managers such as Enterprise, Kimpact and Jonathan Rose offer affordable-housing funds designed for high net-worth investors. These can be structured as debt or equity offerings. Social impact real estate offers many of the same types of benefits as traditional real estate, including the potential for consistent income, appreciation in value and diversification versus other asset classes.

How Policy Affects Impact Investing in Affordable Housing

Governmental policy plays an important role in determining the future of impact investing in affordable housing. The guidelines for such investments are heavily influenced by rules and laws that can directly impact the feasibility and profitability of impact investing in this sector. For instance, these guidelines can include zoning laws and building codes that decide where and how affordable housing can be built. Moreover, tax policies are instrumental in encouraging or discouraging such investments. 

For example, tax incentives, like the Low-Income Housing Tax Credit (LIHTC) in the United States, encourage private investment in affordable housing. Public funding and subsidies can also contribute to making these impact investments more attractive by providing direct spending or financial support. 

If a government prioritizes issues like reducing homelessness, it may draft favorable policies and invest more in affordable housing projects. Governmental policy can also influence interest rates, which can impact the cost of borrowing for developers and investors, either spurring or discouraging impact investing in the sector. Additionally, governments can stimulate investments through public-private partnerships, where resources and risks are shared to make larger-scale affordable housing projects more viable. 

The general stability and predictability of government policy can significantly impact these investments. If a government’s policies are unstable or unpredictable, it can make investors wary of opportunities to get involved with impact investing in affordable housing. 

The Low-Income Housing Tax Credit (LIHTC)

The low-income housing tax credit (LIHTC) program is an indirect subsidy provided by the federal government that’s used to fund the building and preservation of affordable housing projects. This legislation was, in part, adopted to encourage private investors to get involved with impact investing within the sector. 

Investors are offered a dollar-for-dollar decrease in federal tax obligations for impact investing in affordable rental housing with the LIHTC program. Investors typically receive tax credits paid out over a decade-long period. Private investor contributions help subsidize the building of affordable housing projects, which in turn, allow for rent prices to be offered to lower-income tenants at below-market prices. 

Opportunity Zones

Opportunity Zones, established by the 2017 Tax Cuts and Jobs Act, offer a unique pathway for private investors interested in impact investing in affordable housing. These Zones are specific communities, identified by the state and certified by the Treasury Department, that qualify for investment incentives with the aim of spurring economic development in economically distressed areas.

A critical aspect of Opportunity Zones is the creation of Qualified Opportunity Funds. These are investment vehicles that need to invest at least 90% of their assets in Qualified Opportunity Zone property. Private investors who have realized capital gains can invest those gains into these Funds within 180 days of the sale or exchange of the appreciated property.

The Opportunity Zone program provides a significant tax advantage for investors. It allows them to defer, and potentially reduce, taxes on their recognized capital gains, provided they invest and retain their stake in the Qualified Opportunity Fund within the prescribed time frame. Furthermore, if the investment in the fund is held for at least 10 years, the investor can benefit from an exemption from tax on the appreciation of the Opportunity Zone investment.

This tax incentive structure can significantly affect private investors’ decisions when considering impact investing in affordable housing. Firstly, the opportunity to defer and potentially reduce tax on capital gains can make investments in affordable housing within these zones more financially attractive. Secondly, as these zones are located in economically distressed communities, investments can generate considerable social impact, aligning with the principles of impact investing.

Challenges of Impact Investing in Affordable Housing

Impact investing in affordable housing is not without its share of challenges. Several obstacles can stand in the way of a successful strategy. Below are a list of difficulties that can arise when trying to make a difference in this sector:

High Capital Requirements: Affordable housing projects can be capital-intensive. Projects can come with high upfront costs and long payback periods. This obstacle might deter some investors, especially those who are not willing or able to lock their capital for longer periods of time.

Property Location and Condition: The location of the property can greatly affect its value, demand, and the cost of its maintenance. Properties that are poorly located or dilapidated can require significant investments to improve, which can affect the overall profitability of the investment.

Tenants and Management: Ensuring stable tenancy and competent property management is key in retaining a  revenue stream. High vacancy rates, problematic tenants, and poor management can significantly impact the financial performance of an investment.

Revenue and Expense: Revenue generated from affordable housing is usually capped due in order to maintain affordability. However, expenses such as maintenance, repairs, property management, and taxes can be high. Balancing capped revenue and critical expenses can pose a significant challenge.

Regulation and Tax Treatment: Affordable housing is often subject to specific regulations related to rent control, tenant rights, building codes, and more. Furthermore, tax treatment can greatly affect the profitability of affordable housing investments. Navigating the current legislation surrounding this sector as well as future changes can be difficult.

Handling Challenges of Impact Investing in Affordable Housing

Addressing the difficulties of impact investing in affordable housing may be challenging, but it’s far from impossible. With the right strategy in place, investors can meet these obstacles head-on as they work to make a difference. Below are some useful strategies to implement when impact investing in this sector:

Pool Resources: Diversify your portfolio to include a range of investment sizes and types. This can help manage risks and maintain cash flow. Additionally, pooling resources with other investors can help cover the higher capital requirement.

Property Due Diligence: Conduct thorough due diligence before investing in affordable housing. Understand factors like the location and condition of the housing you’re investing in. Understand that investing to improve a property and its surrounding area can boost the property’s value and its attractiveness to potential tenants.

Ensure There Are Processes: Make sure strong tenant selection processes are in place to help stabilize tenancy for your properties. Also, ensure there are competent property management professionals or firms with experience in affordable housing involved with your investment. 

Understand Current Policy: Understand the tax implications of policies like the LIHTC program and opportunity zones. Know that revenue can be capped for affordable housing projects, and that notable returns on impact investing in this area may come over a much longer time horizon. 

Stay Informed: Seek advice from legal professionals and experts in affordable housing regulations and tax treatment. Work with local authorities to understand and navigate the relevant regulations and tax structures. Speak with a financial advisor to regularly receive much-needed insight into how to continuously approach this space. 

Start Impact Investing in Affordable Housing

At Colorado Capital Management, we believe strongly in the power of impact investing to transform lives and communities while offering a compelling value proposition for investors. We have seen the significant, tangible effects that affordable housing investments can have, not just for those in need of secure, stable homes, but for entire neighborhoods, cities, and even the broader economy.

The complexities of impact investing in affordable housing can be challenging. You’ll need a thoughtful, informed approach to navigate the regulatory environment, understand the economics of affordable housing, and effectively manage the associated risks. But you don;t have to create a strategy all on your own. 

We’re committed to helping our clients stay on top of the intricacies of affordable housing impact investments. Our team of experts is well-versed in the unique characteristics, challenges, and opportunities this sector presents. We remain updated on evolving government policies and the latest developments in the affordable housing space.

Don’t hesitate to reach out to us and start making a difference for the people who need it most! Let’s work together to create a more sustainable future while simultaneously driving value for your portfolio. Contact us today, by clicking the button below.

Editors Note: This article was originally published in December of 2021. It has been updated to offer a more -in-depth overview of Impact Investing in Affordable Housing.

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Steve Ellis has spent his career making an impact, so it’s not surprising that Colorado Capital Management’s founder and president launched the firm’s entry into impact investing.

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Jason Black, Financial Advisor (CFP)

Jason Black, CFP ®

With a drive to live purposefully and passionately, Jason focuses on helping clients to live in abundance.

Jason is a partner and senior advisor at Colorado Capital Management.  He brings more than 15 years of varied experience working in the financial services industry. He joined CCM after a long search to find the perfect firm that aligned well with his values and mission. Jason is passionate about helping individuals and families live abundant and intentional lives. He is proud to be part of a Certified B Corporation, doing meaningful financial and investment planning for clients, while also focusing on socially responsible business practices and making a positive impact. As a Chartered SRI CounselorSM, Jason has a strong background and keen interest in sustainable investing and enjoys helping clients understand the merits of this approach. Jason is also a Certified Financial Planner™ and has a bachelor’s degree in business administration from the University of Colorado. 

Before joining CCM, Jason worked with Jackson National as a consultant for financial advisors. He helped create meaningful connections with families, creative asset allocation strategies, and tax-advantaged retirement-income solutions. During his tenure there he worked with over four thousand financial advisors across the country, was recognized multiple times as consultant of the year, and also managed a team of twenty-five individuals. 

Jason is happily married to his wife, Bridget, of thirteen years, who he met while in college at CU. Together they have a son and daughter, and a Frenchie named Coco Disco. They live in the Whisper Creek neighborhood of Arvada. When Jason is not at work, he and his  family can often be found making turns in Summit County, wakesurfing in Glendo, WY, cooking, dancing and traveling.

Erica Loughrey, Associate Financial Advisor

Erica Loughrey

Erica is passionate about providing purposeful advice to help clients enjoy a meaningful life.

Erica is an advisor at CCM. She joined the firm in 2021, fulfilling her desire to work for a values-based company with a deep commitment to making an impact. She moved from her hometown of Anchorage, Alaska and quickly fell in love with the sunny and beautiful state of Colorado. She brought with her prior experience as a para-planner and is delighted to be engaged in a profession that empowers individuals to flourish financially. She believes strongly in exceptional client service and creating lifelong generational relationships.

In 2022, she accomplished two of her major career goals, finishing her master’s degree in financial planning (MSFP) and earning her Certified Financial Planner™ designation.

Erica enjoys spending time outdoors and traveling to exotic locales. In her free time, you can find her out skiing, hiking, scuba diving, practicing yoga or jetting off to new places to explore. She has a never-ending list of travel plans, having already visited over 20 countries, and feels lucky to have so many wonderful opportunities and adventures.

Lee Strongwater, Senior Financial Advisor

Lee Strongwater, WMS

An entrepreneur and world traveler, Colorado Capital Management vice president and co-owner Lee Strongwater brings a global perspective to investments and life planning.

For more than 15 years, Lee has passionately assisted clients with their financial planning and portfolio management needs. He especially enjoys helping them live more meaningful lives and invest in ways that are aligned with their values. Lee holds a bachelor’s degree in political science from the University of Colorado and a master’s degree in international affairs from Columbia University. He also holds the Wealth Management Specialist (WMS) certification.

Before joining Colorado Capital Management, Lee was a managing partner at Strongwater-Schott, a fee-only investment management and financial planning firm in Denver. Prior to that, he was an entrepreneur who helped start and manage several small firms, including a children’s product company that went public in 2007.

Lee is an active volunteer for several organizations. He is a past President and current member of the Board of Directors for the Boulder Jewish Community Center, an organization that is highly respected on both a local and national level. Lee is also on the Investment Committee of Girl Rising-Global Education, a venture philanthropy fund that invests in social entrepreneurs with culturally-relevant ideas. The fund’s investments promote gender equality and improve educational outcomes for girls and boys living in poverty in Kenya and India.

Lee is married and has two daughters. He enjoys hiking, skiing, traveling—mostly to Mediterranean countries—and trying out new recipes from his journeys. When he’s not on the go you can find him engrossed in a book.

Steve Ellis, Senior Financial Advisor

Steven Ellis, CFA

Steve Ellis has spent his career making an impact, so it’s not surprising that Colorado Capital Management’s founder and president launched the firm’s entry into impact investing.

He brings over 30 years of experience as a financial advisor to high net worth clients. His early work included teaching college courses in accounting and finance, consulting for a major accounting firm, and researching and acquiring investments as the chief due diligence officer of a leading national financial planning firm. Since 1989, he has advised individual and institutional investors on the management of their wealth. Steve is a Chartered Financial Analyst (CFA), holds a business degree from the University of Colorado, magna cum laude, and a master’s degree from Cornell University.

Steve launched the firm’s entry into impact investing in 2012 and is committed to helping build the field. Steve is a passionate speaker on the topic. He has taught about impact investing at various conferences and classes around the country, including as a past faculty member at Middlebury Institute of International Studies. He is listed in the Who’s Who in Impact Investing.

Steve is married, with two daughters, enjoys hiking, biking, skiing, tennis and bridge, and is actively involved in the community. He has served on numerous boards and committees for a wide array of nonprofit organizations, including the Boulder JCC, Rose Community Foundation, Jewish Family Service, and Friendship Bridge. His passion for impact and community service helped lead Colorado Capital Management to become a Certified B Corporation and to build a strong culture of volunteerism and philanthropy.