The Link Between Opportunity Zones and Home Prices

Three years ago, the Tax Cuts and Jobs Act of 2017 created a provision, known as qualified opportunity zones, to rejuvenate economically distressed communities across the US and its territories.

With roughly half of qualified opportunity funds focused on real estate projects and development, a significant group has chased real estate. On the commercial property side (including apartments, office, industrial, and retail), transactions carried a 14% to 20% price premium by capitalizing on tax benefits, according to Real Estate eJournal.

While it is harder to quantify the impact of OZ’s on single-family home prices, CoreLogic says they produced an extra 2.2% per year in neighborhood home price appreciation. Researchers at CoreLogic and San Diego State University relied upon extensive public records database on property transactions across the entire US to cull this data. They studied public-record property transactions across all opportunity zones encompassing a six-year period from 2015 through 2020.

Before low income areas became opportunity zones, their home price appreciation trailed their counterparts that were eligible but not selected by approximately 1.8% in 2015 and 1.0% in 2016. However, after receiving the OZ designation, these areas outperformed the control group and led in additional home price appreciation by 1.4% in 2018, 2.4% in 2019, and 3.0% in 2020, according to CoreLogic.

To put things another way, CoreLogic says home prices in opportunity zones outpaced their counterparts by 1.4% in one year after the passage of the 2017 Tax Cuts and Jobs Act. By the end of 2019, at two years, OZ areas outpaced the control group by 3.8%. At the end of the pandemic year that saw home prices jump dramatically, OZs outpaced the control group by 6.8% in three years at the end of 2020.

“The modest ‘discounts’ before the opportunity zones provision, and moderate ‘premiums’ after the provision suggest that the policy has had an economically meaningful impact on opportunity zones’ single-family house prices,” according to CoreLogic.

Separately, ATTOM Data Solutions has also found that median single-family home and condominium prices increased from the first quarter of 2020 to the first quarter of 2021 in 75% of Opportunity Zones.

In addition, median home prices increased in 54% of the zones from Q4 2020 to Q1 2021. By comparison, median prices rose annually in 78% of census tracts outside of Opportunity Zones and quarterly in 55 percent of them.

In the report, ATTOM analyzed 4,579 zones around the US with sufficient sales data to analyze, which means they had at least five home sales in the first quarter of 2021.

Despite these increases, prices in Opportunity Zones continued to trail the national average in Q1 2021. Forty-three percent of zones with enough data still had median prices of less than $150,000, down 50% Q1 2020.