Land of opportunity : early indicators of the opportunity zone program's impact on real estate transaction prices

Abstract

In December 2017, the U.S. Congress passed into law the Tax Cuts and Jobs Act, including provisions for the Opportunity Zone (OZ) program, which would offer significant tax benefits for investments in designated low-income census tracts. I specify a repeat sales price index using a Bayesian random walk model in order to compare the transaction prices of properties located in designated and eligible OZ census tracts and determine the premium associated with OZ designation. I find a significant positive impact on price levels associated with OZ designation ranging from 20% to 22%. I then analyze the performance of properties in designated and eligible tracts relative to properties in census tracts that narrowly missed the eligibility requirements, as a robustness check and to determine any expectation effect from OZ program eligibility. I find that the estimated impact of OZ designation remains relatively consistent, and that the estimated expectation impact of eligibility was insignificant in the best fit models. To interpret different magnitudes of price effects, I offer a framework of likely market causes and the impact on various stakeholders.