Researchers find mixed results from Opportunity Zones

In an event organized by the Hutchins Center on fiscal and Monetary Policy at Brookings, academics from some of the nation’s leading universities sought to answer questions centered around Opportunity Zones (OZs), including what is the goal of OZs, are they helping, and how would we know? The 2017 Tax Cuts and Jobs Act created more than 8,700 Opportunity Zones (OZs) across the United States. The program was intended to spur economic development in distressed communities and offered favorable capital gains tax treatment to investments in such locations. The program has already stimulated a flurry of academic research even though final regulations for designating OZs were not published until late 2019. these questions.

On the whole, the conference produced mixed results. Researchers reported it is unclear whether OZ designations were influenced by political favoritism, whether there are apparent positive labor market effects, the role of gentrification, and what the effects on property values are. Add to this the program's recency and the ongoing economic impact of COVID-19, and the picture remains unclear. As new data becomes available and the program ages, researchers will be in a position to conclude with more certainty whether OZs have yielded the at times unclear goals it set out to achieve. In examining the political effects of OZs and the OZ designation process, early research by Eldar & Garber and Frank et al. found that while lax designation requirements in identifying OZs may be tainted by political favoritism, the evidence does not suggest that OZ outcomes are based on political affiliation. Each group of researchers noted that it is still early to draw definite conclusions regarding political affiliation and favoritism. Yet, so far, there do not appear to be any material effects on OZ investment. Counter to these findings, Arefeva et al. found that political affiliation did affect OZ designation.

The evidence surrounding labor market effects from OZ designation were inconclusive as well. Papers by Freedman et al. and Atkins et al. found little evidence supporting the hypothesis that OZs have a higher number of job postings and a lack of overall positive OZ effects. The researchers also noted that the current data and future data used to answer further research questions will be heavily tainted by COVID-19. Other research by Arefeva et al. found the labor market effects of OZs were the greatest in the construction sector. The researchers also found that areas designated as OZs in Census tracts located in metropolitan areas experienced increased employment and establishment growth by 3.0 - 4.6 percentage points relative to similar, eligible tracts that were not chosen to receive benefits..

In a qualitative evaluation of how OZs have attracted capital and economic development in highly distressed West Baltimore neighborhoods, Newman & Snidal conducted 76 interviews with community officials, program managers, developers, businesses, and fund managers. They found that participants feel that OZs are stimulating new investment conversations and encouraging local economic development capacity. However, the researchers also found that participants believe OZ designation lacks community oversight and engagement and is not stimulating new investment in West Baltimore neighborhoods. The researchers used their qualitative data to produce a series of policy recommendations including a call for a rigorous program reporting tool and the removal of non-distressed census tracts from OZ eligibility.

Research regarding the property price effects of OZs authored by Corinth & Feldman measured commercial investment and quality changes in OZ census tracts’ restaurants. They found no evidence that the tax incentives granted to OZ investors increased commercial investment in OZ census tracts. There was also no significant improvement in restaurant quality. Building on this, Sage et al. found that OZ designation did not impact property prices generally but resulted in a 10 to 20 percent price increase for properties with high redevelopment or renovation requirements and vacant land. However, Sage et al. did not consider the impact of gentrification on property value.

To close out the conference, presentations by Alm et al. and Chen et al. further questioned the effects of OZs. Contrary to Sage et al., Alm et al. found that OZ designation is related to an increase in non-vacant real estate value, but the picture is mixed when it comes to commercial and vacant properties. Chen et al. found that while housing prices may have gone up in OZs, the overall price increase appears to be less than 1 percent. In high-poverty areas, the researchers found there is little evidence to suggest that OZs spur investment.

The precise effects of OZs remain to be seen. In the future, researchers predict that they will conduct more detailed analyses and draw definite conclusions. The full conference recording and slideshows of the presentations can be found here.