Pre-planned projects drive two thirds of Opportunity Zone growth
A Federal Reserve study reveals that state governors prioritized census tracts with pre-existing construction planning for Opportunity Zone designation. This selection explains two-thirds of the post-designation construction boost, reducing the estimated causal impact to 12 percent.
Selection over stimulation
Federal Reserve researchers David Glancy, Robert Kurtzman, and Lara Loewenstein analyzed commercial real estate microdata to evaluate the Opportunity Zone program created under the 2017 Tax Cuts and Jobs Act.
Designated census tracts initially showed 0.47 more construction starts than eligible non-designated tracts, suggesting a 75 percent increase.
Controlling for pre-existing projects in the planning phase reduced this difference by nearly two-thirds to 0.15 starts per tract.
State governors systematically selected tracts that already possessed development momentum.
States prioritizing investment potential recorded stronger construction gains, while those focusing solely on distress measures observed smaller activity increases.
Quantifying the policy frontier
The authors calibrated a structural model to separate causal program impacts from selection bias.
Accounting for unobserved development potential, Opportunity Zone designation increased commercial construction starts by 12 percent.
The model highlights a sharp trade-off: designating tracts with an average poverty rate two percentage points higher reduces program-driven construction by 0.01 starts per tract.
Proposed tighter eligibility criteria similarly channel aid to poorer neighborhoods but diminish total construction gains.
Illusion of policy success
The paper exposes how place-based tax incentives reward pre-existing momentum over genuine need.
Discretionary selection allowed governors to pick winning tracts, creating an illusion of policy success.
Future programs must enforce stricter rules to avoid subsidizing projects that would happen anyway.