Where Is the Opportunity in Opportunity Zones? Early Indicators of the Opportunity Zone Program’s Impact on Commercial Property Prices

Abstract

In December 2017, the U.S. Congress passed into law the Opportunity Zone (OZ) pro- gram. As an opportunity zone, designated low-income census tracts provide consider- able tax breaks to local property investors, intending to attract investments and conse- quentially spur economic growth. The success of the OZ program is therefore dependent on investors’ responses, increasing investments or forgoing the opportunity. We analyse commercial property market reactions, comparing price and liquidity in a difference-in- differences framework around the implementation of the OZ program. We identify two effects on property markets: tax breaks for investors and expected land value appreciation due to economic growth. Under an efficient market framework both effects should increase property market values. Our results show that the benefits of tax breaks are priced in effi- ciently. In line with the theoretical benefits, qualified properties increase by 10% – 20% in price, while vacant land prices increase up to 37%. However, we find no signs of expected land value appreciation as nearby properties, unqualified for tax benefits, do not change in value. Overall, our results suggest that investors are aware of the OZ program and poten- tial tax benefits but reserved or anticipating limited future economic growth of OZ census tracts.