The Impact of the Opportunity Zone Program on Residential Real Estate

59 Pages Posted: 9 Mar 2021 Last revised: 16 Sep 2022

See all articles by Ron Bekkerman

Ron Bekkerman

Cherre Inc

Maxime C. Cohen

Desautels Faculty of Management, McGill University

Xiaoyan Liu

Santa Clara University, Leavey School of Business; Cornell University - Samuel Curtis Johnson Graduate School of Management

John Maiden

Cherre Inc

Dmitry Mitrofanov

Boston College, Carroll School of Management

Date Written: February 5, 2021

Abstract

Opportunity zones (OZs) are designated census tracts in which real estate investments can gain tax benefits. Introduced by the U.S. Tax Cuts and Jobs Act of 2017, the goal of the OZ program is to foster economic development in distressed neighborhoods. In this paper, we investigate and optimize the OZ selection process, and examine the impact of OZs by exploiting two datasets: a proprietary real estate dataset that includes 36.1 million residential transactions spanning all 50 U.S. states, and census-tract demographics data between 2010 and 2019. We show that census tracts with higher poverty and unemployment rates were more likely to be selected; counter intuitively, tracts with a higher average real estate price were also more likely to be selected. We then apply difference-in-differences, synthetic control, and matching techniques to rigorously assess the impact of the OZ program on two key real estate metrics, price and transaction volume. We find that the OZ program increased real estate prices by 4.03%-6.13% but do not observe a significant effect on the transaction volume. We also find that investors primarily targeted the high end real estate market, namely exhibiting a cherry-picking behavior. To better fulfill its intended societal and economic goals, we propose an optimization framework with fairness considerations for OZ assignment decisions. We show that the OZs assigned from fairness-aware optimization can better serve distressed communities and mitigate investors' cherry-picking behavior. Our paper underscores the importance of incorporating fairness in OZ designation to achieve a desirable real estate market reaction. Our large-scale empirical analysis provides a comprehensive assessment of the current government OZ assignment, and our fairness-aware optimization framework provides concrete recommendations for policy makers.

Keywords: Opportunity zones, real estate, public policy, natural experiment, fairness-aware optimization

Suggested Citation

Bekkerman, Ron and Cohen, Maxime C. and Liu, Xiaoyan and Maiden, John and Mitrofanov, Dmitry, The Impact of the Opportunity Zone Program on Residential Real Estate (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

Xiaoyan Liu

Santa Clara University, Leavey School of Business ( email )

500 El Camino Real
Santa Clara, CA California 95053
United States

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States

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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