Can Impact Investors Help Big Cities Fill Housing Gaps?

As director of Denver’s Department of Housing Stability, Jamie Rife is working to fulfill its mayor’s pledge to end homelessness during his first term. Right now she’s focused on ending veteran homelessness by year-end, attempting to balance the number of who need homes and the supply. The nonprofit Community Solutions has brought a resource to her city, and to several others, that changes the odds of solving this equation.

The CS Large Cities Housing Fund recently ended fundraising after reaching its goal of $135 million. Using funds from impact investors — those wanting to achieve social goals as well as profit — it’s buying rental properties and managing them. The lower profit margins that investors have agreed to keep the rent in an affordable range. Half the units are dedicated to persons exiting homelessness and half to middle-income renters. This has helped increase supply in other communities; San Francisco-based Impact Community Capital began investing in housing in 1998.

An abundance of research in recent years has established that the fundamental cause of homelessness is the scarcity of affordable housing. Denver has federal and state resources, but they aren’t enough to build the 44,000 affordable units it expects to need over the next 10 years. The fund has purchased five properties in the city, 362 units in all. Eighty-seven people who have exited homelessness are already living in these properties.

“Community Solutions has created a third rail track that has started to bring reductions to Denver,” Rife says. “In the past, what’s been challenging is that we had veterans with vouchers or rental support, but we didn’t have the units to put them in.” Rife will have to find permanent housing for about 300 veterans by the end of the year to meet her goal. (Most are already in shelter; only 52 were outdoors last week, she says.)

The buildings owned by the fund won’t accommodate all of the veterans Rife hopes to place in permanent housing by year-end, but they will make a difference. The benefits aren’t limited to the structures themselves.

Scratching the Surface

The fund was designed by Dave Foster, President of BDP Impact Real Estate, an impact investment and development company based in Philadelphia. Over the past 15 years, Community Solutions has helped jurisdictions improve information sharing and cooperation among the public and private entities that provide homeless services and build data systems around by-name counts of their homeless populations. This increases the efficiency of getting the unhoused into permanent housing, but a complete response system has to include housing units.

The Low-Income Housing Tax Credit (LIHTC) program has been the predominant mechanism for increasing the supply of affordable units, says Foster, but it’s become increasingly difficult for local governments and developers to use it to acquire or construct new housing. "It’s like having the DMV, the IRS and your dumb cousin as development partners," architect Luu Mac told Forbes about why the fund is broken. "So many studies, reports and consultants need to be engaged to finalize your LIHTC application." This translates to added costs and added time.

The pool of capital in the Large Cities Housing Fund works in two ways, Foster says. It asks investors to take a below-market return. The second thing is that it relies on the fact that there is a substantial stock of “naturally occurring affordable housing” (NOAH).

“NOAH is the 50- to 250-unit apartment building where rents are on the edge of affordability, likely to get snapped up by private investors who are looking to improve it in ways that put it out of reach from an affordability perspective,” Foster says. The fund can identify and close on such buildings quickly and put them under permanent nonprofit ownership.

The Large Cities Housing Fund, which Foster doesn’t expect to be the last from Community Solutions, will be able to buy roughly $425 million worth of real estate with the $135 million it has raised. It aims to acquire more than 2,500 units and has already purchased nearly half that number since launching in 2022, with properties in Baltimore; Charlotte, N.C.; Jacksonville, Fla.; Nashville, Tenn.; and Phoenix as well as Denver.

“We’re barely scratching the surface,” Foster says. “I don’t know what the estimate is on the availability of NOAH, but I would say that we could raise many, many, many times the amount of money we’ve raised and deploy it effectively.”

Matching Need and Supply

Before she founded Community Solutions, Rosanne Haggerty conceived and led Common Ground, a housing development and management nonprofit that served the homeless and youth transitioning out of foster care. In 2001, she was named a MacArthur Fellow for this work.

The Low-Income Housing Tax Credit is important, Haggerty says, but it can be restrictive. Despite the intense demand for low-income housing, developers can end up with vacancies due to the difficulty of finding renters who fall within its prescribed income range.

“The eligibility requirements don’t match the situation of the people we would all want to see in a home and not living on the streets,” Haggerty says. The most overwhelmed and high-need among them can be the first to be excluded by yearslong waiting lists and filtering processes.

The fund’s financial mechanism isn’t its only innovation. One of Haggerty’s central insights, Foster says, is that just bringing more housing isn’t enough to impact homelessness. It has to be connected with the local housing system.

Those who manage properties owned by the fund work directly with the local network of service and government organizations who work with the homeless, who know the unhoused who need to be placed by name. These landlords understand who they are serving and their circumstances, and are free of hair-trigger tendencies to exclude or evict.

When a unit becomes available, it doesn’t take months to move the person who is next on the list into it. “It makes for the kind of aligned process that makes sense for most people thinking about this problem but has been a little hard to get to, given the tools we’ve had to date,” says Haggerty.

Steal This Idea

Corporate investors, often based far from communities where they snap up low-rent properties, distort local housing markets. In 2024, legislation was put forward in 13 states to rein in “service” and “convenience” charges that have become a feature of consolidated markets, putting previously affordable units even further out of reach.

In addition to impact investors, the fund Foster created has attracted support from organizations that care about community well-being, including Kaiser Permanente, UnitedHealth Group and several foundations. Amazon was also an investor, Haggerty says. Moving multifamily buildings that come on the market into nonprofit ownership can preserve local resources and give stakeholders something to do about housing stress this week, not months or years in the future.

Foster is already imagining how he’ll put together the next Community Solutions fund, but he’s also willing to consult others. “We are giving away this program design,” says Haggerty. “We are begging people to steal this idea.”