Opportunity Zones (OZ) were implemented by the federal government and some state and local governments in 2017 to attract new investments to distressed communities in urban and rural areas in the United States. The program offers tax incentives to private businesses for investing in OZ designated neighborhoods. Because the program is still in its infancy, its long-term impacts are still largely unknown. In an article recently published in Cityscape: A Journal of Policy Development and Research, Haydar Kurban, Charlotte Otabor, Bethel Cole-Smith and Gauri Gautam use US Postal Office vacancy data and administrative tax and income data from the Washington DC government to investigate whether gentrifying census tracts receive more favorable treatment during the OZ designation process, and whether, among the OZ designated census tracts, the gentrifying tracts attracted more private investments.
Using census tract data from the American Community Survey (ACS), US Postal Service (USPS) business and residential vacancy data for the country’s 100 most populous urban areas, and administrative tax and income data from DC government, the research team found:
- Although eligibility criteria for OZ designation was broadly set by the federal government, and state governors and local politicians were given the authority to select a smaller group of census tracts among a larger eligible pool, gentrification itself did play a role in the selection process.
- Among the OZ designated census tracts, the gentrifying tracts attracted more investments for commercial and residential development.
- Higher gentrification rates were correlated with lower vacancy rates and the impact of gentrification on business vacancies was even stronger. These results imply that gentrified neighborhoods receive a larger share of OZ investments.
- The administrative tax and income data from the DC government showed a clear pattern between gentrification and out migration of residents with lower incomes.
- Approximately 68 percent of the OZ-designated census tracts in DC were either gentrifying or adjacent to two or more gentrifying tracts.
Implications for Policy and Practice
The OZ policy was designed to attract new private investments to distressed census tracts. These findings show that gentrifying census tracts tend to have a stronger potential for economic growth and thus could be expected to deliver better economic returns relative to comparable non-gentrifying tracts. Among the OZ designed census tracts in central cities, the gentrifying ones appear to receive a larger share of subsidized private investments and displace lower income residents, which was not among the goals of this policy. More research is needed to determine the full impacts of OZ policies on gentrification, but cities could mitigate this effect by steering OZ investments to non-gentrifying lower income neighborhoods through local OZ incentives.
Opportunity Zones (OZ) were implemented by the federal government and some state and local governments in 2017 to attract new investments to distressed communities in urban and rural areas in the United States. The program offers tax incentives to private businesses for investing in OZ designated neighborhoods.