By Carter Horner, NLIHC Research Intern
In 2017, Congress passed the “Tax Cuts and Jobs Act,” which established Opportunity Zones (OZs) designed to trigger investment in low-income communities. In September, the Brookings Institution published a report, “Opportunity Zones: Analyzing the Tax Incentive’s Impacts, and How to Enhance Them,” on the effect of OZs on building activity. After finding increases in building activity in a majority of OZs, they recommend a permanent iteration of the program.
Under the OZ program, investors receive tax benefits for investing profits into low-income census tracts designated “Opportunity Zones.” Congress designed the OZ program around flexibility with the idea that investors could secure tax benefits for capital gains on any investment as long as it was in an OZ census tract. OZ census tracks were split into five types: rural, commercial, single-family home, mixed residential, and multi-family home.
For the study, Brookings analyzed building activity over the last seven years in 7,174 OZs across the nation using data from Cotality. The data lists every building constructed between 2017 and 2024 for each census tract, as well as total state-level building reports, Brookings compared OZ construction activity against that of all census tracks with available data. Building activity consisted of all buildings constructed, not just residential.
In a context of declining U.S. construction, the OZ program coincided with an increase in construction activity. Building activity per capita rose 24% between 2017 and 2021. Forty-six percent of OZs saw at least a 15% increase in building activity, with 16% seeing greater than a 100% increase in building activity. Just over 15% also saw building activity where there was none before. Furthermore, while national building activity had declined to its 2017 levels by 2024, rates in OZs remained 28% higher in 2024 than in 2017. OZs also saw an increase in share of the building market in 2019-2024 compared to 2017-2018. North Carolina, Florida, and Texas are notable examples where OZs contributed greatly to the overall state increase in national market share of building activity.
The type of OZ affected the success of the program, with commercial zones and multi-family zones both increasing the gap in building activity between all census tracks and low-income census tracks. The gap shrunk for residential mixed zones and closed completely for rural and single-family zones. For commercial zones and multi-family zones, their tendency to be near metropolitan areas likely contributed to the decline, as the dates of study coincided with the pandemic, which decreased demand for urban construction. The one other characteristic to have a significant positive effect on building activity across tract types was the amount of new housing stock (housing built since 2009). Other characteristics such as job growth, small businesses, and tract size had positive effects for some tract types and not others.
For most OZs, growth did not coincide with displacement, defined as “a loss of total population or population of a plurality racial-ethnic group.” OZs that saw accelerated growth also tended to see less displacement. It is possible, however, that census tracts starting with lower levels of displacement could have had preexisting infrastructure and conditions for accelerated growth in building activity, rather than increased building activity itself being a cause for lower rates of displacement.
While a third of OZs outperformed the U.S. overall in building growth, a third saw a decline in building activity after implementation. The authors suggest a couple of potential reasons for this, such as 35% of OZ dollars going into only the top 20% of OZs by income or tract type affecting the success of the program. Rural tracts, for instance, consistently saw lower building activity, and mixed residential tracts usually saw either dramatic increases or decreases in activity.
The authors conclude that OZs successfully sparked construction growth in tracts with a foundation for investment. While OZs fall short in certain areas, with the right conditions and a targeted approach, OZs can have dramatic positive effects on both building activities. They also recommend future research examining the effect of OZs on economic outcomes other than building activity. The authors recognize that OZs are not a universal solution and should be part of a larger housing strategy, supporting the second and permanent iteration of the program with the knowledge that states can use their findings to directly target census tracts with the most appropriate housing policy.
Read the report: Opportunity Zones: Analyzing the Tax Incentive’s Impacts, and How to Enhance Them