The Impact of the Opportunity Zone Program on the Residential Real Estate Market

54 Pages Posted: 9 Mar 2021

See all articles by Ron Bekkerman

Ron Bekkerman

Cherre Inc

Maxime C. Cohen

Desautels Faculty of Management, McGill University

John Maiden

Cherre Inc

Dmitry Mitrofanov

Boston College, Carroll School of Management

Date Written: February 5, 2021

Abstract

The U.S. Tax Cuts and Jobs Act of 2017 introduced opportunity zones (OZs). This program provides tax benefits for real estate investments in designated census tracts, with the goal of fostering economic development in distressed neighborhoods. We examine the impact of OZs on residential real estate by exploiting two datasets: a proprietary real estate dataset and census-tract demographics data between 2010 and 2019. Our real estate dataset comprises 36.1 million residential transactions spanning all 50 U.S. states. We first investigate the OZ selection process by examining which census-tract characteristics were taken into account. As expected, we find that tracts with higher poverty and unemployment rates and lower income levels were more likely to be selected. However, we find evidence that tracts with a higher average real estate price were also more likely to be selected. We then analyze the impact of the OZ program by comparing key real estate metrics (price and transaction volume) before and after the program launch. We find that the OZ program increased real estate prices by 4.03-6.13%, but we do not observe a significant effect on the transaction volume. Finally, we examine the moderating effects of census tract characteristics on the impact of the OZ program. Interestingly, we show that the price increase is driven by the higher end of the OZ market. Our findings thus question the overall societal and economic benefits of the program.

Keywords: Opportunity zones, real estate, public policy, natural experiment

Suggested Citation

Bekkerman, Ron and Cohen, Maxime C. and Maiden, John and Mitrofanov, Dmitry, The Impact of the Opportunity Zone Program on the Residential Real Estate Market (February 5, 2021). Available at SSRN: https://ssrn.com/abstract=3780241 or http://dx.doi.org/10.2139/ssrn.3780241

Ron Bekkerman

Cherre Inc

575 8th Ave
New York, NY 10018
United States

HOME PAGE: http://cherre.com/

Maxime C. Cohen (Contact Author)

Desautels Faculty of Management, McGill University ( email )

1001 Sherbrooke St. W
Montreal, Quebec H3A 1G5
Canada

John Maiden

Cherre Inc ( email )

575 8th Ave
New York, NY 10018
United States

HOME PAGE: http://cherre.com

Dmitry Mitrofanov

Boston College, Carroll School of Management

257 Beacon Street
Chestnut Hill, MA 02467
United States

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