How do the proposed Opportunity Zones line up with gentrifying areas?
Opportunity Zones are low-income areas that were designated by states to be places where investors can invest their capital gains for 10 years and get a tax break. Only 25 percent of a state’s low-income Census tracts can be designated, and Illinois submitted its map to the U.S. Treasury before last month’s deadline. A majority of the tracts are in Chicago.
Adam Looney at the Brookings Institution wrote an opinion article about some of the possible effects, while trying to find evidence of their future outcomes based on the OZ’s similarity to Empowerment Zones and New Market Tax Credits.
Looney wrote that there is a risk that it accelerates displacement in already gentrifying areas, so I took a look at the map of Opportunity Zones and compared them to a recent “displacement pressure” map created by the Institute of Housing Studies at DePaul University.
I selected this passage because it summarizes Looney’s article:
In an optimistic scenario, the tax benefits might encourage purchasing and rehabilitating residential property or expanding local businesses. But the value of the tax subsidy is ultimately dependent on rising property values, rising rents, and higher business profitability. That means a state’s Opportunity Zones could also serve as a subsidy for displacing local residents in favor of higher-income professionals and the businesses that cater to them — a subsidy for gentrification. Indeed, the highest returns to investors, and thus the largest tax subsidies will flow to those investing in the fastest gentrifying areas. Most major metropolitan areas are already grappling with the right balance between promoting development and helping existing residents. Opportunity Zones favor one side of that balance. With few guardrails that might promote so-called “smart gentrification” — policies to retain local residents and preserve or expand low- and middle-income housing — it is uncertain whether poor residents will benefit or be kicked out.
There is very little overlap — just one Census tract — between the proposed OZs and IHS’s gentrification map of high-cost areas, which might mean that the OZ map in Chicago was well-designed.
When you take a closer look at this area you’ll notice very few people actually live here — it’s mostly industrial and warehouse users, including at least three breweries. Only 20 of the 490 properties are residential, although there is a significantly-sized affordable housing development south of Lake Street. Outside of that, the rest of residents live in condos in a single building.
The population is low, at 1,638 people, with a density of 8,448 people per square mile. The median household income is $21,250. (Census Reporter) Given that the residents of the affordable housing development pay rents tied to their income, their rents will only go up if their incomes go up.
(For comparison, a typical neighborhood density is my own Census tract which has 24,710 people per square mile. I wrote about on Streetsblog Chicago because IHS’s map rated it “red”, which means it has “significantly” rising prices.)
Measuring gentrification is often a nebulous activity. IHS doesn’t use the word to describe their map, calling theirs a study of “displacement pressure”, or areas where, because of quickly rising housing prices, are at risk of pushing out certain groups of people who are most sensitive to price.
There is a fair amount of overlap, though, between the proposed OZs and the moderate-cost areas on IHS’s map of gentrifying areas (see above). However, I don’t think there would be any way to avoid selecting Opportunity Zones that didn’t avoid potentially-gentrifying areas.
