Local Economic Development Policies and Market Effects: Policy Impacts in the land of OZ

Abstract

The central objective of many place-based economic development policies is to incentivize private sector investment in areas that would otherwise be overlooked or underserved by market forces due to perceived risks, lack of infrastructure, or insufficient expected returns. One such policy in the United States, opportunity zones (OZs), provides tax incentives, in the form of deferred/eliminated capital gains taxes, to deliberately redirect real estate investments into targeted geographic areas. This analysis explores the effects of OZs on property values by using a nuanced approach that recognizes the operative word “place,” or proximity, along with time. This is essential to represent the diversity across OZ designated census tracts, and to compare property performance within designated OZs when compared to the entire market. Relying on a series of hierarchical linear equations, corrected for selection bias, the results indicate there are significant positive price effects in OZ tracts, for office, industrial and multifamily real estate, when compared against the larger market.