Opportunity Zones (OZs) are a government strategy introduced in 2017 to attract increased investment in low-investment census tracts. But are low- to middle-income neighborhoods being elevated and integrated, or are OZs contributing to the darker side of gentrification: rising taxes and neighborhood displacement? Are Opportunity Zones achieving their purpose? New research suggests that they are not.

An analysis of gentrification in OZs in 100 of the most populous U.S. cities, Analyzing Administrative Data from Major Affordable Housing Programs in DC, shows that gentrifying neighborhoods receive a larger share of subsidized private investment, even though these neighborhoods tend to be in transition. At the same time, the low-income residents that OZs were developed to support are moving out as gentrification drives up the price of everything. This outcome is directly contrary to the goals of the policy.  

The study was conducted from 2010 to 2016 by researchers Haydar Kurban, Charlotte Otabor, Bethel Cole-Smith, and Gauri Gautam at Howard University. Researchers analyzed the selection of OZ census tracts in 100 core-based statistical areas (CBSAs). 

One case study helps illuminate the consequences -- positive or negative -- of OZs.

Is the Washington, D.C., Opportunity Zone Program Having Unintended Results?

Researchers used U.S. Postal Office business and residential vacancy data and administrative tax and income data from the Washington, D.C., government to examine where new investments were made in OZs.

According to Dr. Kurban, “...although it appears that gentrified census tracts were not favored to receive OZ designation, the negative relationships between gentrification and business and residential vacancy rates are stronger in OZ-designated tracts.” 

Researchers found that while gentrified neighborhoods weren't necessarily chosen as OZs, the connection between gentrification and empty business and residential spaces is more noticeable in areas designated as OZs. They also found that OZ neighborhoods with more people moving in and fewer empty business spaces tended to receive increased OZ funding or other outside investments. These are typically the areas where wealthier people are moving in as lower-income residents are moving out.

Flaws in the System?

Due to the OZ program’s broad and flexible design, nationwide more than one-half (about 57 percent) of all census tracts nationwide meet the eligibility criteria for OZ designation. 

Additionally, the OZ program allows for a great deal of discretion in site selection and puts responsibility for final decision-making in the hands of governors and local politicians. The evidence suggests that favoritism towards investors and toward areas where the governor received a high share of the votes influenced the selection of OZ-designated tracts. Results suggest that favoritism could be a factor in about 68 percent of site selections.

Big investors, so far the only players with enough capital to meet the requirements of the Opportunity Zone policy, have been happy with their financial returns; but residents and community advocates have been skeptical from the beginning. 

Preliminary Results: Gentrifying Neighborhoods Attract the Majority of OZ Benefits

Data strongly suggest that when wealthier residents move into neighborhoods as lower-income residents relocate elsewhere – which has become the definition of gentrification – this phenomenon in and of itself attracts increased investment. This is what appears to be happening in OZ census tracts. Preliminary data shows:

  • Higher gentrification rates were correlated with lower vacancy rates, which imply that gentrified neighborhoods are  attracting  relatively more new business investments and  they are well positioned to receive a larger share of OZ investments.
  • The administrative tax and income data from the DC government showed a clear connection between gentrification and more residents with lower incomes leaving the area.
  • Approximately 68 percent of the OZ-designated census tracts in DC were either gentrifying or adjacent to two or more gentrifying tracts.

Conclusions

The results of this research show alarming trends and unintended consequences of OZs. GIven that the program is still in its infancy, more research is needed to determine the full impacts of OZ policies on gentrification.

Meanwhile, cities can step in to mitigate harm by steering OZ investments to non-gentrifying, lower-income neighborhoods using tactics like local Opportunity Zone incentives.

Read more about this research in an article published in 2022 by the U.S. Department of Housing and Urban Development Office of Policy Development and Research in Cityscape: A Journal of Policy Development and Research.

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