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New Cityscape Reflects on the Impact and Potential of Opportunity Zones

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April 27, 2022  

New Cityscape Reflects on the Impact and Potential of Opportunity Zones

The newest edition of Cityscape: A Journal of Policy Development and Research evaluates the impact and potential of Opportunity Zones (OZs). This issue was guest edited by Daniel Marcin. The Tax Cuts and Jobs Act of 2017 created OZs, a federal place-based tax initiative. Investors can defer taxes on capital gains by reinvesting those gains into a business or property in designated low-income census tracts, with the possibility of paying zero federal income tax on any additional capital gains realized from the new investment.

Blake Christian and Hank Berkowitz suggest that the long-term investment requirement of the OZ program makes it stand out from other place-based incentive programs that have generally failed to live up to expectations. The authors dispute the notion that the OZ program only benefits real estate investors, and identify examples where OZ investments have funded clean energy projects, biotechnology and medical infrastructure projects, active businesses, solar energy projects, and successful public-private partnerships.

Michael Snidal and Sandra Newman present a qualitative evaluation of how OZs have attracted capital and economic development to highly distressed neighborhoods in West Baltimore. Based on 76 stakeholder interviews, the authors find that OZs are stimulating new investment conversations and building local economic development capacity. The authors determine, however, that OZs fail at oversight and community engagement, do not spur new development, and are a missed opportunity to incentivize actors and institutions critical to revitalizing distressed neighborhoods.

James Matonte, Robert Parker, and Benjamin Y. Clark examined the rollout of OZs in Oregon and what policymakers can learn from implementation. The authors surveyed individuals in the public and private sectors in areas with OZs and shadowed developers to assess engagement with OZs. The study determined that Oregon's state and local government lacks a coordinated approach to implement OZs, which leaves private actors and the nonprofit sector to play a substantial role in project development.

Janet Li, Richard Duckworth, and Erich Yost developed a typology of OZs based on designated tracts' socioeconomic and housing market characteristics. The researchers identified five types of OZs and ordered them based on representation: 1) rural, small-town, and tribal communities (36% of OZs); 2) underinvested majority African-American communities (26%); 3) suburban majority-Hispanic families (19%); 4) growing job hubs (13%); and 5) metropolitan immigrant communities (6%). The authors discuss the potential investment outcomes and community outcomes for each type of OZ and considerations for evaluation.

Jamaal Green and Wei Shi developed a typology of OZ tracts using model-based clustering and publicly available data from the U.S. Census Bureau and Urban Institute to offer planners and policymakers alternative ways of organizing a highly variable set of tracts. The researchers used Portland, Oregon, as an example city and find that less distressed clusters make up the majority of designated OZ tracts in the city and are concentrated downtown compared to the more deprived eastern part of the city.

Yanling G. Mayer and Edward F. Pierzak discuss how the OZ program's structure may have inadvertently created an environment ripe for surging property prices. Recognizing the policy's potential in driving increased investor interest in single-family home rentals, the authors explore the impact of the program on existing single-family house prices and find that it has led to excess home price appreciation totaling 6.8 percent from 2018 to 2020.

Haydar Kurban, Charlotte Otabor, Bethel Cole-Smith, and Gauri Shankar Gautam explore the role of gentrification in the selection of OZ census tracts, as well as the potential impact of OZs on gentrification in the 100 most populous urban areas in the U.S. and Washington, D.C. The authors analyze the role of gentrification in the selection of OZ census tracts in 100 core-based statistical areas and find that the statistical relationships between gentrification and business and residential vacancy rates are stronger in OZ-designated tracts. Using Washington, D.C. as a case study, the authors determine that gentrification has been spreading to more areas within OZ-eligible neighborhoods.

Michelle Madeley, Alexis Rourk Reyes, and Rachel Bernstein discuss the U.S. Environmental Protection Agency's (EPA) pilot initiative to support OZs with technical assistance, collaboration, and expanded capabilities in analysis and geospatial planning. The initiative facilitated coordination across the EPA and developed a community of practice with community development, sustainability, and brownfield revitalization staff in the EPA's 10 regions. The premise of this initiative was that without meaningful community engagement, traditional investment could result in unintended adverse consequences, such as displacement of people, businesses, and cultures.

Sara Harvey examines how federally designated OZs can be used to achieve equity-focused clean energy outcomes in the Washington, DC-Maryland-Virginia region. Drawing on existing climate plans and using clean energy infrastructure in Washington, DC, as a case study, the author argues that OZs can and should serve as a vehicle to achieve the region's climate goals. This article recommends policy changes to resolve barriers to entry and encourage community-invested solar projects that reduce utility costs, create jobs, and provide value to investors.

Joseph Fraker discusses the expansion of census tract boundaries during the 2020 decennial cycle to make areas eligible for place-based OZ incentives. The report focuses on Baltimore County, Maryland, where the local government redrew census tract boundaries to expand an OZ. To better understand this issue, the author conducted interviews with economic development officials and people familiar with the Census Bureau's process for revising statistical boundaries.

Refereed Papers

This issue of Cityscape includes one refereed paper.

Annette M. Kim and Andrew Eisenlohr study the potential for community land trusts (CLTs) to spur affordable housing development in expensive urban centers and enable low-income households to remain in their communities and maintain access to jobs, services, and cultural amenities. This case study focuses on the synthesis of skills and strategies it took for a CLT and an affordable housing developer in Los Angeles to collaborate and transform the 48 units of Section 8-funded Rolland Curtis Gardens apartments with expiring affordability covenants into 140 units of sustainable affordable housing.


Articles in Cityscape's regularly appearing departments include:

Data Shop: Renters at the Tipping Point of Homeownership: Estimating the Impact of Telework by Treh Manhertz and Alexandra Lee; Exploring Unsheltered Homelessness, Migration, and Shelter Access in Kentucky by Andrew Sullivan and Kotomi Yokokura.

Foreign Exchange: Connecting Housing, Health, and Social Supports for People Leaving Treatment: Housing Policy Lessons from Australia by Cameron Duff, Nicholas Hill, Hazel Blunden, Kylie Valentine, and Sean Randall.

Graphic Detail: Mapping Equity and Exclusion in Neighborhood Associations in Bloomington, Indiana by Deborah L. Myerson and Mark Stosberg.

Industrial Revolution: How Can Construction Process Simulation Modeling Aid the Integration of Lean Principles in the Factory-Built Housing Industry? by Ankur Podder, Shanti Pless, Isabelina Nahmens, Ondrej Labik, and Alison Donovan.

Policy Briefs: An Overview of Flood Risk to the Housing Finance Ecosystem by Michael Craig.

SpAM: A Method for Defining Downtown Business District Boundaries in Pre-Automobile Towns and Cities by Andrew J. Van Leuven.

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