Where Is the Opportunity in Opportunity Zones?

41 Pages Posted: 1 Jun 2019 Last revised: 20 Oct 2021

See all articles by Alan Sage

Alan Sage

Massachusetts Institute of Technology (MIT)

Mike Langen

Henley Business School

Alex Van de Minne

University of Connecticut - Department of Finance

Date Written: October 1, 2021

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.

Keywords: Opportunity Zones, Real Estate Markets, Tax Policy, Investments

JEL Classification: R11, R14, R38, R51, R52, R58

Suggested Citation

Sage, Alan and Langen, Mike and Van de Minne, Alex, Where Is the Opportunity in Opportunity Zones? (October 1, 2021). Available at SSRN: https://ssrn.com/abstract=3385502 or http://dx.doi.org/10.2139/ssrn.3385502

Alan Sage

Massachusetts Institute of Technology (MIT) ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

Mike Langen

Henley Business School ( email )

ICMA Centre
University of Reading
Reading, RG6 6DL
United Kingdom

Alex Van de Minne (Contact Author)

University of Connecticut - Department of Finance ( email )

School of Business
2100 Hillside Road
Storrs, CT 06269
United States

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