Back in 2017, Congress created a tax-deferral incentive for real estate and business investors with the idea that it would promote economic growth and job creation in low-income neighborhoods. Those designated areas—more than 8,000 dots on a nationwide map—were called Opportunity Zones.
That program ran its course. And we anticipate, on January 1, 2027, an updated and improved version of Opportunity Zones.
Did the first round live up to expectations? Before we decide, let’s remind ourselves of the details.
Those lower-income areas, labeled Opportunity Zones, were selected by governors. Simply put, the investors were told that they could defer taxes on capital gains if they deployed money into those areas. It’s important to point out that some outside market factors affected the program’s success during this time frame: namely, the economic chaos created by Covid-19, and then the wildly inflationary years of the early 2020s.
Available data that could shed light on the issue is limited. So far, Ohio is the only state to release transaction-level details of activity within its borders. Much of the analysis comes from public policy organization Economic Innovation Group (EIG), which conceptualized Opportunity Zones in a 2015 white paper. The concept was then introduced to Congress in 2016 via the Investing in Opportunity Act.
In Ohio, investments were highly concentrated. Two thirds of eligible tracts received no Opportunity Zone funding from 2020 to 2024, according to Brett Theodos, a researcher at the Urban Institute. Most of the capital flowed to market-rate housing in urban areas where growth was already underway.
Supporters argue that the program needs more time to demonstrate its full effects. Catherine Lyons, senior director of policy and coalitions at EIG, points to housing data suggesting that 416,000 new units were created in Opportunity Zone areas. She calls the initiative a success so far.
Lyons says EIG is helping to shape the next phase of the program, with an emphasis on stronger reporting requirements in the future and a more consistent deferral timeline to create steadier capital flows. She also notes that future adjustments are intended to correct a structural imbalance in the current rules, which have made it harder for operating businesses—not just real estate projects—to qualify for Opportunity Zone investment.
Meanwhile, Theodos has clear advice for state officials. “The single most important determinant for the success of this round of OZs is which neighborhoods are selected,” he says. When governors designate the next round, he argues, they should take a “Goldilocks” approach—focusing on census tracts that need investment but are not already fast-appreciating markets, and that still have market conditions strong enough to plausibly attract capital with the added incentive. “The most distressed neighborhoods,” he adds, “are unfortunately unlikely to draw any OZ dollars.”
One thing that will definitely change in the next round of Opportunity Zones is the data collection. “Treasury will be required to produce an annual report to Congress with the findings,” Lyons says. “Additionally, in five [years] and ten years, Treasury will publish a report on the long-term socioeconomic outcomes of OZ communities compared to other, similar, non-OZ census tracts. These reports will shed light on the long-term impacts of the policy on designated communities and their residents.”
Theodos welcomes the added transparency and expanded data collection but says that those changes still falls short. “While Treasury will be collecting address-level investment information, they are only required to publicly report annually on investments at the census tract level,” he notes.
He argues that, as in Ohio, transaction-level reporting of Opportunity Zone investment amounts at the address level should be made publicly available nationwide. Doing so, he says, would give local leaders a clearer understanding of how Opportunity Zone investments are shaping their communities—and allow them to plan more effectively for the future.
The membership of the Urban Land Institute obviously has enormous, albeit often anecdotal, insight into how opportunity zones performed on the ground. We want to hear from you.
- Did you see Opportunity Zone investment in your market?
- Did development occur in economically distressed Opportunity Zone areas?
- Were long-term jobs created?
Let us know by emailing [email protected]. Remember, the next round of Opportunity Zone legislation is scheduled to be in place by January 1, 2027.
