In an effort to incentivize investment in economically distressed areas, the Trump administration unrolled the Opportunity Zone program in 2017, an idea championed by lawmakers including Sen. Cory Booker to spur investment in areas that could use it. In the program, investors receive preferential tax treatment for injecting money into projects in certain low-income tracts of land throughout the country.
The financial benefits to investors are obvious; if an investment is held for 10 years, for instance, investors can defer 100% of the capital gains on that investment. Today, more than 6,000 Opportunity Zone funds have invested approximately $29 billion in areas across the country for housing, energy and other projects.
But there was controversy almost as soon as the eligible zones were announced. While many Opportunity Zones are in communities that certainly could use some outside investment, some aren’t—in New Jersey, for instance, Opportunity Zones fall in Camden, Trenton and Elizabeth, but also Red Bank, Long Branch and New Brunswick. Governors were able to nominate up to a quarter of land in their state for the program using Census data.
What hasn’t been determined yet is if developers and investors are simply getting a tax-deferred opportunity to invest in already appealing locales instead of in the areas that “need it most,” and to what extent investment in areas of all economic states benefits the communities there.
The early returns in NJ are mixed. Just over two dozen projects of various sizes have commenced in the 169 designated Opportunity Zones. In Long Branch, Kushner Cos., the development company of the former president’s son-in-law’s family, has multiple projects: oceanfront apartments and luxury hotels charging high rates. Meanwhile, a project in Red Bank, one of the state’s wealthier municipalities, offers 57 luxury one- and two-bedroom apartments.
So lawmakers are attempting now to determine the impact of the Opportunity Zone program. On Nov. 16, the U.S. House Ways and Means Subcommittee on Oversight held a hearing on the program after the Government Accountability Office released a report on the program.
The report found that most investments were put into real estate projects from high-wealth individuals and group funds. The IRS “considers both of these groups to be high risk for tax noncompliance generally. However, IRS has not researched potential compliance risks these groups pose for this tax incentive,” and thus does not yet have enough information to direct compliance efforts and determine the successes and failures of the program.

In the hearing, Rep. Bill Pascrell (D-Paterson), chairman of the subcommittee, expressed skepticism that the program is benefiting communities as much as investors.
“The Opportunity Zone program was also deliberately structured with few, if any, strings attached to obtain capital gains relief. Nor is there a cap on the amount of relief an investor can receive. Traditional metrics of community benefit, such as job and new business creation or the addition of affordable housing units, are not required to qualify for the capital gains relief,” Pascrell said in opening comments at the meeting. “Without requiring such demonstrations, it is difficult to assess whether investments are going into the neediest communities. We cannot determine if the program is effective in producing positive economic change for residents and businesses in need.”
Pascrell added that there is “scant” evidence that the program is benefiting communities like Paterson, and that investments across the country are only funneling to areas “that already were ripe for development and could provide certain returns on investments.”
Outside of NJ, there have been reports of early success. In Erie, Pennsylvania, $40 million of Opportunity Zone-related funds have been pumped into the community to build a grocery store in a recognized food desert, along with housing and a food hall.
Said Republican Congressman Mike Kelly, who represents the area, “We are still incredibly early in the process of implementing this new tax incentive. And we only have partial data from the year prior to IRS implementation of the policy. Much has changed since then. But the limited data that we do have is pointing to success.”
That dichotomy of opinions is the problem with determining the success of the program. Every community that has an Opportunity Zone is different—a Zone, for instance could encompass several economically distressed towns, or just one neighborhood in an otherwise wealthy community.
But what research has been done by outside groups indicates that the bulk of the benefit is going to already growing or otherwise appealing locales, and the investors who choose to back projects there. The Urban Institute think-tank found that investors have avoided affordable housing projects for the most part, instead choosing for luxury and high-end residential and commercial spaces that offer a higher rate of return. (I mean, why wouldn’t they?)
The concern is that this type of tax-deferred investment will hasten gentrification in areas already experiencing it, or otherwise begin the process of displacing lower-income residents from their communities.
Now, with talks ranging from repealing the program to expanding it, the need to collect data, understand it and implement stricter reporting requirements is dire.