Impact Investing In Real Estate: Aligning Financial Returns With Social Good

Across my two decades in the real estate industry, I have been involved in many different types of projects, including impact investing projects, and have seen firsthand why they matter—and what it takes for them to succeed.

In my view, it’s important for real estate investors to balance financial returns with social and environmental ones through impact investing. I believe that impact investing, especially through the avenues of affordable housing and environmental sustainability, is one of the most vital initiatives any real estate investor can pursue.

Avenues For Impact Investing In Real Estate

While impact investing is a continuously evolving niche, there are two main categories that most impact investing in real estate falls within. Both categories offer solutions to large-scale issues that are affecting the real estate industry and the greater global community at large.

First, there’s affordable housing, which covers a wide variety of projects focused on creating solutions to the lack of housing for a large portion of the population. Real estate developers and investors can leverage certain options offered by the government, such as Opportunity Zones and Low-Income Housing Tax Credit (LIHTC), to build affordable housing in the communities that need it most.

Second is environmental sustainability, which involves leveraging building materials and practices that are better for our planet. By making choices such as using recycled building materials and pursuing green building projects, real estate investors can lessen negative environmental impact.

Why Impact Investing Is Important

Impact investing focuses on solutions to some of the most pressing societal problems. While these projects on their own will not solve the problems completely, they are an important piece of the puzzle.

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Take affordable housing, there’s a disparity in housing affordability in the face of a national housing shortage. Findings released by Zillow in 2024 revealed that “from 2021 to 2022, the U.S. housing shortage grew to 4.5 million homes, up from 4.3 million.” The housing that’s being built isn’t necessarily affordable, either. Consider this: According to a 2022 Deloitte article that cited data from the NAHB/Wells Fargo Cost of Housing Index (CHI), merely “42% of new and existing homes sold at the end of July 2022 were affordable to families earning the US median income—the lowest point in nearly seven years.” Moreover, as the Urban Institute noted, there’s a link between housing affordability and wealth accumulation. Referencing data from the Survey of Consumer Finances, the organization stated that “in 2022, the median wealth gap between homeowners and renters reached almost $390,000.” If more real estate investors don’t get involved with building affordable housing projects, housing and wealth disparities will continue to widen.

Then there are environmental concerns. A 2024 McKinsey article explained that “the real estate industry accounts for approximately 40 percent of global combustion-related emissions, 28 percentage points of which come from building operations.” I believe that a key part of building for the future in real estate should involve building in an environmentally conscious manner. Real estate investors, in my view, have a responsibility to not only improve the communities they serve but also improve our planet. By taking steps such as using more sustainable building materials and energy-efficient lighting, real estate investors can play their part in protecting our planet. Moreover, by building in an environmentally sustainable manner, real estate investors can save more. According to SmartMarket’s 2021 “World Green Building Trends” report, “green buildings are helping to drive the operating cost savings sought, and provide more value to the asset owners.” Green building projects have financial benefits; their “average operating cost savings within the first 12 months exceed 10% and the five-year cost savings exceed 16%.”

How Real Estate Investors Can Get Started With Impact Investing

Real estate investors who want to get started with impact investing should take several steps to do so successfully.

First, as is the best practice for all types of investing, real estate investors should understand the market they want to get involved with. For instance, if they want to embark on a green building project, they should look into whether or not other green building projects have been conducted in a given area, what the demand is for such a project in that area and so forth.

Next, they should identify the right partnerships. Local governments and nonprofits are two key types of partners that can help real estate investors by providing them with crucial insights, access and resources. Additionally, real estate investors should consider different government initiatives (such as Opportunity Zones) that might be a good fit for them.

Once their impact investing projects are underway, real estate investors should closely monitor developments to make sure they and their teams are in compliance with all federal and local regulations, that all safety protocols are being followed and that all milestones are being reached.

Finally, after an impact investing project is complete, real estate investors should measure results over time. In impact investing, the bottom line is not the only factor that should be evaluated as a success metric. Other factors, such as social and environmental impact, should be prioritized. Metrics will vary depending on the specific project, but real estate investors should get clear on how they’re measuring success across the board and implement a process to get that data. If they want to pursue similar projects in the future, that data will be important to share with stakeholders. Moreover, real estate investors should stay up to date with regulatory and program changes so they can react proactively rather than reactively.

Ultimately, by taking an organized and intentional approach to impact investing, real estate investors can put themselves in the best position possible to help their communities thrive.