March 19, 2019
The Opportunity Zone program tucked within the Tax Cuts and Jobs Acts of 2017 focuses on pouring billions of capital gains into lower-income and economically disadvantaged areas. There have been some questions, however, as to whether some of those government-designated zones are already undergoing the process of gentrification.
RCLCO Real Estate Advisors’ Eric Willett (Vice President) and Brett Dunlavey (Analyst) opted to put numbers to the issue by identifying census tracts with the most gentrification in recent years. The researchers did this by examining changes in real estate investment, household income levels and associated demographic characteristics, from which it built a Gentrification Index. That index, in turn, was applied to every Opportunity Zone in the 25 largest metropolitan areas.
Here are some of the findings, issued in a report.
- Rust belt cities have the highest number of gentrified Opportunity Zones. The report noted that 49 of the top 100 most gentrified Opportunity Zones were in Rust Belt metros, which included Baltimore, Chicago, Detroit, Philadelphia and St. Louis. Furthermore, “of the eight metros with the highest average gentrification scores, five are rust belt cities,” the researchers wrote, adding that the findings show the regions’ “comparatively overlooked neighborhood change and growing inequality.”
- Opportunity Zones in new tech areas are experiencing high rates of gentrification. The RCLCO analysts noted that, due to “high salaries, a disproportionately white workforce and increasingly urban campuses,” O-Zones in metros such as San Francisco and Denver are experiencing higher rates of gentrification.
- Many of the least-gentrified O-Zones are in Sun Belt cities. The RCLCO report pointed out that 55 of the 100 least-gentrified zones are in the Sun Belt cities, with different gentrification rates reflecting land use in these regions. One reason is because Sun Belt cities are, for the most part, suburban. Additionally, “the comparatively low barriers to entry and lower land prices in these metros create less pressure on local populations and fewer incentives for densification and reinvestment in contested neighborhoods,” the report said.
- Gentrification is more common in urban neighborhoods. Relocation of young, college-educated households into CBDs and urban cores has been a driver of gentrification. Of the top 100 most gentrified Opportunity Zones, Willett and Dunlavey said that 75 of those are within urban areas.
Overall, the RCLCO analysts found that the majority of the census tracts identified as Opportunity Zone-eligible, in that they are economically challenged. However, many of the tracts are located in more affluent communities. “We found 70 qualified Opportunity Zones in high-end neighborhoods . . . in which two out of three residents had a bachelor’s degree or higher, and the current median income is $94,000,” the report said.
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Tags: Opportunity Zones