When we talk about the future of community development financial institutions (CDFIs), we are really talking about the future of who gets to participate in our economy.

CDFIs are often described as niche lenders or mission-driven intermediaries. In reality, they are foundational financial connective tissue between capital and historically overlooked communities. In a moment defined by widening inequality, a stubborn housing shortage and rising capital costs, the strength of that foundation is essential. And nowhere is the importance of CDFIs more visible than in housing development, where access to capital, economic mobility and neighborhood stability converge.

A housing shortage in an era of inequality

The United States is short more than 7 million affordable and available rental homes for extremely low-income renters. For every 100 extremely low-income households, there are just 35 homes they can afford. At the same time, nearly half of renter households, 22.7 million families, are cost-burdened, spending more than 30% of their income on rent and utilities, according to Harvard’s Joint Center for Housing Studies — a record high.

This shortage is unfolding amid historic wealth concentration. The top 10% of U.S. households now control roughly two-thirds of the nation’s wealth, while the bottom 50% control just 2.5%. That imbalance shapes who can buy, who can rent, who can build and who can access capital. So it makes sense that the conversation around development or preservation of affordable housing is most often framed as a social good, because it is. But it is also economic infrastructure.

When an affordable housing development moves forward, it creates construction jobs, generates local contracting opportunities, stabilizes neighborhoods and supports nearby small businesses. It strengthens the tax base and anchors workforce participation by allowing families to live near jobs and transit. Research has proven time and again that safe, clean, decent affordable housing in a thriving community is one of the most powerful platforms upon which to build social and economic mobility.

In short, it functions as an economic engine. However, that engine is under strain, from higher borrowing costs and volatile construction prices to uncertainty around the community finance backbone many cities rely on. Meanwhile, the sector responsible for feeding that engine is chronically undercapitalized. If we want stronger housing outcomes, we have to look more closely at the people expected to produce them — particularly the community-based developers working closest to neighborhoods, with the least room for error and the fewest financial tools to absorb risk.

The misunderstood role of a community-based developer

We talk about housing supply, subsidy levels and construction costs, but not enough about the developers themselves, especially the community-based developers expected to turn neighborhood goals into real projects. In public discourse, “developer” is often shorthand for displacement. But that narrative does not reflect the reality for most community-based affordable housing developers.

These are small and mid-sized enterprises, frequently minority- or locally- owned, that spend years assembling land, securing entitlements, and stacking public and private subsidies before closing a deal. They carry predevelopment costs long before revenue materializes. In many cases, they wait years to be paid while covering legal fees, design work, and environmental assessments. That is not an edge case in affordable housing. It is common.

When these developers succeed, they do more than produce units. They create jobs, contract with local firms, stabilize commercial corridors and build balance sheets that support future projects. In doing so, they generate local wealth. When they fail — often because financing collapses, timelines drag on, or predevelopment capital dries up — neighborhoods lose capacity and local knowledge that is difficult to rebuild.

We should ask whether our financing structures are part of the problem. Are community-based developers meant to remain permanent “social entrepreneurs”? Or are we unintentionally preventing them from becoming sustainable businesses? When developers have access to patient capital and the ability to retain earnings, organizations stabilize, teams strengthen and projects improve. That shift begins with how we finance the work.

Capital shapes outcomes

Affordable housing deals are among the most complex transactions in real estate. They rely on layered capital stacks — tax credits, soft loans, grants, subordinate debt and permanent financing — each with its own requirements and timelines. Construction costs fluctuate. Interest rates move. Public approvals stall. Rigid capital structures rarely align with that reality. All of this takes time, and when markets tighten, community-based developers often lack the liquidity to carry a deal on for months or years until market rebound.

This challenge is unfolding alongside broader financial shifts. The number of community banks and credit unions has declined sharply since 1980, reducing access to relationship-based local lending. Nearly half of small businesses report having less than one month of cash reserves, making them highly vulnerable to financial shocks. Community-based developers operate within this fragile system, yet they often deliver projects that larger firms overlook — small-scale infill, culturally responsive design and mixed-use corridors that preserve neighborhood character. Their proximity to place allows them to build housing that is responsive to local communities and keep them intact. While policymakers tend to look for silver bullet solutions offered by large housing developers, those developers typically are trying to fit their product to the market (regardless of whether or not it actually fits). Community-based developers must be agile to market conditions and deliver the housing product that the market really needs.

When the system works, someone absorbs that risk. Increasingly, that someone has been CDFIs.

Community-based developers and CDFIs are symbiotic. CDFIs provide flexible, tailored loans and underwrite based on community knowledge. They step in during predevelopment, when risk is highest and traditional lenders hesitate. They partner with local governments to issue public debt for affordable housing, leverage public credit to reduce borrowing costs and translate policy goals into executable financing. In essence, the exact kind of capital provider designed to serve community-based developers.

If CDFIs are weakened through funding instability, higher borrowing costs or policy volatility, the ripple effects will be immediate. Predevelopment loans will become harder to access, flexible capital will contract and smaller developers will stall. Fewer projects will close, and the development landscape will continue consolidating around larger, better-capitalized players, often at the expense of locally rooted firms.

This is a moment when philanthropy and impact investors have a distinct role to play, not by replacing markets, but by strengthening the infrastructure that allows them to function more equitably and locally.

That means:

• Providing patient, flexible capital aligned with real development timelines;
• Offering guarantees or credit enhancements that lower the cost of capital for CDFIs;
• Investing in developer balance sheets, not just individual projects and
• Recognizing community-based developers as enterprises capable of generating both financial and social returns when equipped with appropriate tools.

We have models that demonstrate this approach works. When a developer’s enterprise is stable, additional project financing follows. Flexible capital at the front end unlocks larger pools of capital downstream.

If housing is foundational to economic mobility, then we must invest in the people and institutions that make housing possible. That means treating community-based developers as viable businesses, protecting CDFIs as essential financial infrastructure, and aligning our capital with our commitments to equity and opportunity.