Opportunity Zones Don’t Boost Economic Activity, Research Says

The opportunity zone tax break so far appears to be having little to no impact on economic activity in distressed communities, academic researchers said Wednesday at a one-day online conference convened by the Brookings Institution, a nonpartisan Washington, D.C., think tank.

They cautioned, however, that gauging the tax break’s impact has become tougher now that the COVID-19 pandemic has slammed the world economy and spurred local, state and federal leaders to implement a wave of new policies to keep businesses and families afloat.

“The evidence is early, but the problem is, the evidence for the next few years is going to be very difficult to learn anything from,” said David Neumark, co-director of the Center for Population, Inequality and Policy at the University of California, Irvine.

He added: “To quote Jack Nicholson, this may be as good as it gets.”

The federal opportunity zone tax break, part of the broad tax cut former President Donald Trump signed in 2017, rewards people for investing in businesses and property in over 8,000 struggling census tracts selected by states. Governors worked with cities and counties to identify low-income areas ripe for investment.

The White House Council of Economic Advisers in 2020 estimated that the zones have attracted $75 billion in capital and created half a million jobs. But the federal government isn’t closely tracking where the money goes or whether investments create jobs or housing for local people.

Most of the money appears to be flowing to real estate projects, and some critics say zone designations will most likely lead to gentrification. Although Trump touted the zones as a successful strategy for helping Black communities, critics say it’s unlikely the zones have helped Black entrepreneurs.

The U.S. Treasury didn’t finalize rules for the tax break until December 2019, mere weeks before the COVID-19 pandemic hit.

The studies presented Wednesday compared economic activity in opportunity zones with census tracts that were eligible but not selected for the tax break.

The results were mixed. Wages increased slightly in zones, but the gains were not statistically significant, according to a study co-authored by Robert Seamans, an associate professor at the New York University Stern School of Business. During the COVID-19 crisis, there’s been an uptick in both job vacancies and wages in zones, his study found.

Zone designation led to job growth in urban but not rural zones, according to a study led by Alina Arefeva, an assistant professor of real estate at the University of Wisconsin-Madison School of Business. Her study didn’t look at activity in 2020.

The study Neumark co-authored, which also didn’t use 2020 data, found that zone designations slightly boosted both employment and poverty, but neither finding was statistically significant. And the increases were in line with long-term economic trends.

“The caveat is, these [findings] appear to be driven, I think to a large extent, by prior trends,” he said.

Four studies that explored whether the zone designations increased property values found little impact on prices.

Zone designations do appear to have increased prices for older properties and vacant land between 2017 and 2019, according to a study co-authored by Alex van de Minne, assistant professor at the University of Connecticut’s business school. That makes sense, because to get the tax break real estate investors need to improve a property.

Overall, research hasn’t shown that opportunity zones significantly affect economic activity. “I think we have a fair amount of evidence that these things have fairly muted impacts, at least given what we’ve seen so far,” said Edward Glaeser, an economics professor at Harvard University. He said he wouldn’t be surprised if the program were to disappear during the Biden administration.