Gentrifying Opportunity Zones Are More Likely than Non-Gentrifying Opportunity Zones to Receive Investments

A new paper published in Cityscape, “Gentrification and Opportunity Zones: A Study of 100 Most Populous Cities with D.C. as a Case Study,” examines the prevalence of gentrification within Opportunity Zone (OZ) census tracts and the ways gentrification impacts investments in these areas. Designed to spur economic development, Opportunity Zones comprise low-income census tracts where investors can receive tax breaks (see Advocates’ Guide Ch. 8). The authors of the paper find that gentrifying OZ-designated tracts are more likely to receive investment than non-gentrifying OZ-designated tracts. In the District of Columbia, growing gentrification within OZ-designated tracts over time has led to increased in-migration of higher-income residents and increased displacement of lower-income residents.

The researchers calculate gentrification scores for each of the 100 core-based statistical areas (CBSAs) examined by dividing the annual change in the number of individuals of age 25 or higher with a bachelor’s degree by the total population of age 25 or over. Across all 100 cities, the mean gentrification score was 1.83. On average, OZ-designated tracts had lower gentrification scores (1.49) compared to tracts that were eligible to be OZs but not designated as such (1.91). The researchers also ranked neighborhoods in three categories: those with a zero or negative gentrification score, those with a positive score below the national average, and those with a score above the national average. Twenty-six percent of OZ-designated tracts were classified as having scores above the national average – slightly less than the share of eligible but non-designated tracts in this category (29%).

The paper also examines residential and business vacancy data from the U.S. Postal Service (USPS) to predict which OZ-designated tracts are most likely to experience increased investments. The researchers hypothesize that gentrifying tracts are more likely to experience investment and will therefore have lower vacancy rates. The report finds that gentrifying OZ-designated tracts are significantly more likely to have lower vacancy rates compared to non-gentrifying OZ-designated tracts.

The authors use D.C. as a case study to explore how gentrification in OZ-designated tracts might predict future investment and affect migration and displacement. D.C. had a higher gentrification score (1.95) compared to the national average. Twenty-seven percent of OZ-designated tracts were categorized as gentrifying compared to 46% of eligible but non-designated tracts. Between 2011 and 2015, an increasing share of OZ-designated census tracts in D.C. experienced growth in the number college-educated graduates moving to these tracts. At the same time, an increasing number of residents below the 25th percentile of the income distribution moved out of these tracts. The researchers also examined the number of construction permits issued in each census tract as a proxy measure for new investment. They found that gentrifying OZ-designated tracts were associated with a higher number of construction permits.

Though Opportunity Zones are meant to spur economic investment in lower-income neighborhoods, the paper reveals that the program may not be benefitting existing residents in gentrifying neighborhoods, as out-migration of low-income residents increases when gentrification intensifies. The paper notes that future research will analyze actual investments within Opportunity Zones and investigate how these investments impact gentrification.

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