Gentrification On Steroids?
- William Fulton
- Feb 26, 2019
- 3 min read
The Opportunity Zone program is probably the most important new federal program to address urban revitalization in decades. It’s a program that holds great potential to help Houston’s underserved neighborhoods – and also holds great risk in accelerating gentrification in neighborhoods in California that are teetering on the edge.
The Opportunity Zone idea is basically an attempt to lure investors who are sitting on unrealized capital gains to invest in underserved, mostly urban neighborhoods. If you invest in these neighborhoods, you can defer capital or reduce gains, and if you wait long enough you don’t have to pay any capital gains at all. The idea is that, because investors are trying to avoid paying taxes on capital gains, there are a lot of investors sitting on the sidelines with capital to invest. Opportunity Zones hold the potential to lure those investors into underserved areas. Already, many investment funds have been created to take advantage of Opportunity Zones.
To qualify, investors must meet certain criteria – still being worked out by the federal government – that include investing in businesses that do most of their business and generate most of their sales in opportunity zones. In California, the state has designated 879 opportunity zones in underserved areas all over the state.
But unlike most other federal revitalization programs, Opportunity Zones come with no government funding sources and no government qualification criteria. Other tax credit programs – such as, for example, Low Income Housing Tax Credits – come with an upper limit on the amount of tax credits, meaning that states must allocate those tax credits to certain investments.
Opportunity zones hold no such restrictions. There’s no limit on the amount of investment – or the amount of capital gains deferred and forgiven. And there’s almost no way for a city to track Opportunity Zone investment. No government agency other than the Internal Revenue Service need be informed that an investment is made.
