A Typology of Opportunity Zones Based on Potential Housing Investments and Community Outcomes

Abstract

The Opportunity Zones tax incentive is a decentralized, large-scale, flexible, federal place-based initiative intended to bring investment to historically underinvested communities across the United States. Although the eligibility of Opportunity Zones was based on certain criteria, every state developed its own process for recommending eligible census tracts for designation. This fact, along with the diversity in the characteristics of eligible census tracts, led to broad variation across designated Opportunity Zones. This variation means that evaluating the Opportunity Zones incentive will require different approaches for different types of communities. Using a combined principal components analysis and cluster analysis approach, the authors developed a typology of Opportunity Zones based on designated tracts' characteristics around socioeconomics and housing markets. Five types of Opportunity Zones were identified and described as, in order from most to least represented, (1) rural, small-town, and tribal communities (36 percent of OZs); (2) underinvested majority-Black communities (26 percent); (3) suburban majority-Hispanic families (19 percent); (4) growing job hubs (13 percent); and (5) metropolitan immigrant communities (6 percent). Potential investment outcomes and community outcomes for each type, and considerations for evaluating each type of Opportunity Zone, are discussed. This typology may be useful for Opportunity Zone stakeholders interested in housing investments and researchers conducting future evaluations of the incentive.

Keywords: Opportunity Zones, Housing Typology