Whatever Happened to Opportunity Zones?

If you think back to the early days of the Trump Administration, the biggest buzz around economic development concerned Opportunity Zones, which, according to White House projections, were promised to have catalytic impacts such as the creation of 500,000 new jobs and the lifting of one million people out of poverty.  Today, we don’t hear much about opportunity zones anymore, but it’s time to start looking closely at the program and its impacts.  The Economic Innovation Group, one of the early advocates for opportunity zones, has recently reported that the program has had sizable impacts in a few key areas.  According to their reporting, these zones have attracted more than 25,000 investors and more than $50 billion in new investment, which has reached around 4,000 community tracts around the US. 

Meanwhile, Urban Institute researchers have also taken a first look at Opportunity Zones, and their early assessments are less positive.  Here are a few highlights from their report:

  • While many tracts have received investments, 78% of investment dollars went to only 5% of designated zones.
  • Ninety-five percent of all investments are in urban zones.
  • Very few direct business investments have been made, with nearly all funds focused on real estate development.  Two-thirds of investee businesses operate in the real estate, construction or lodging industries.
  • Early evidence finds little, mixed or no effect of Opportunity Zones in terms of job creation, new business creation, or other outside investments in target communities.

For me, the headline data point from the Urban Institute report is the following:  the overall projected cost of existing Opportunity Zone incentives is estimated to reach $8.2 billion (for FY2020 to FY2024 investments), making this program one of our biggest current community development programs.  This is a large program and should thus hopefully generate large-scale impacts. By way of comparison, the New Markets Tax Credit program has deployed around $63 billion between FY2003 and FY2022, and the US Economic Development Administration has invested an annual average of $361 million between FY2010 and FY2019.  

It’s too soon to make final determinations on whether Opportunity Zones work and for whom.  Yet early results raise some questions, and some analyses suggest that these zones bring great benefits to real estate investors, with fewer benefits for the distressed communities that they were intended to help.  This conclusion may be premature, but initial findings suggest that we should continue to closely track these programs to ensure strong and equitable impacts.