The U.S. government’s Opportunity Zone program is not only being renewed but made permanent. By special arrangement with the Brookings Institution, we present here an introduction to new research led by Brookings Metro Fellow Tracy Hadden Loh in partnership with AmericaFWD that was published in September and analyzes the tax incentive’s impacts and how to enhance them. — Ed.
In 2017, Congress launched one of the nation’s largest-ever experiments in using the federal tax code to attract private investment into economically distressed communities: Opportunity Zones (OZs). The tax incentive offered tax benefits to investors who directed eligible capital gains into designated low-income census tracts. The underlying proposition was straightforward but consequential: Patient private capital, encouraged by a federal incentive, could help generate economic activity in communities that conventional markets and public investment had failed to reach, or help accelerate community-led efforts to advance local development goals.
OZs emerged from a long, bipartisan history of place-based economic policy. Across several presidential administrations, federal policymakers have used place-based tools such as Enterprise Communities, Empowerment Zones, the New Markets Tax Credit, Promise Zones, and — more recently — the Justice40 initiative to concentrate resources, reduce barriers to investment and improve economic conditions in communities facing persistent challenges. These programs vary substantially in their design and implementation, yet each reflects a recurring recognition that equitable and sustainable economic growth is neither guaranteed nor evenly distributed, and that the long-term economic performance of the United States depends, in part, on whether more communities can connect their residents and business to investments, jobs, infrastructure and a better quality of life.
The scale and flexibility of OZs distinguished the tax incentive program from many of its predecessors. Governors designated thousands of eligible census tracts and investors were given considerable discretion over where and how to deploy capital within them. Supporters argued that this flexibility could move resources more quickly and support projects that otherwise struggled to secure financing. Critics warned that limited reporting requirements and target rules as well as the absence of explicit community-benefit standards could direct subsidies toward projects that would have proceeded without the incentive or toward neighborhoods already positioned for growth. These competing claims have shaped the public debate over OZs since the first investments were made.
This report brings new evidence to that debate. It offers retrospective, tract-level analysis of 7,174 of the 7,826 designated OZ tracts across all 50 states and Washington, D.C., from 2018 through 2025. We use a novel dataset of building activity (albeit one that does not distinguish buildings by cost or size) to examine how the tax incentive has shaped construction activity and neighborhood change (namely, displacement). We also assess how these outcomes vary across communities with different predominant land uses. The central question is not whether OZs uniformly succeed or fail, but to understand where they have generated stronger economic and community outcomes, where they have not, and what local factors help determine success.
We know investment alone is not synonymous with shared prosperity. In some places, OZ capital has expanded housing supply, supported business formation, created jobs and leveraged underutilized community assets — while in others, it flowed toward projects with limited community benefits or into neighborhoods already on a growth path. A rigorous assessment of OZs must therefore look beyond total investment to understand tract-level changes. This report applies that framework to “OZ 1.0” (the 2017 iteration of the program from the Tax Cuts and Jobs Act, which is distinct from the permanent “OZ 2.0” version that will have new round of designations in 2026), identifying the conditions under which investment translated into inclusive growth in order to inform more effective place-based strategies going forward.
Our key findings include:
- The OZ period aligns with a period of increased building in the United States. Builds per year rose 9% in 2019-2024 relative to 2017-2018.
- Building market share shifted into OZs during the designation period (2019-2024). OZs represent 9.9% of all census tracts, and in 2017-2018, their share of building activity was only 5.8%. After designation, the share of all U.S. new building construction in OZs increased 13.8% (from 5.8% in 2017-2018 to 6.6% in 2019-2024). Yet even with the generous incentive, OZs remain below market share parity, consistent with their economic circumstances.
- The existing land use of a tract matters, as do macroeconomic conditions. We classify OZs into five types by dominant land use. Of the five tract types, three — rural, mixed-residential and single family — saw big increases in building activity after designation. Two — commercial and multi-family — saw notable declines. When OZs were evaluated by building share to population share ratios by land use, multi-family investment in the District of Columbia led the nation, while Colorado saw much more development in commercial zones, and Arizona saw a lot of single-family activity.
- Almost half of OZs saw accelerated growth: Forty-six percent of designated OZs saw increases in building activity of at least 15%. However, tract type plays a big role in those increases. In three out of five tract types, the median OZ saw almost no building activity.
- We found no association between growth and displacement in most OZ tract types and states. However, only 26% of OZ tracts saw growth without displacement. This speaks to the macroeconomic and demographic conditions facing these tracts, which have greater influence than the tax incentive.
- Tract characteristics beyond land use also matter. Our exploratory statistical analysis suggests some tract characteristics that may be more conducive to positive outcomes. Our analysis identified only one characteristic that had a statistically significant (at 95% confidence) positive relationship with building activity across all five tract types: newer housing stock, as measured by the share of housing inventory built after 2009. In other words, tracts with more relatively recent housing construction activity also had more building activity during the OZ period. Looking specifically at the rural model, we found that rural tracts with lower poverty, that were closer to activity centers in metropolitan areas, and that were more racially diverse had more builds. These three variables alone could compose, and perhaps already have composed, an Opportunity Fund investment thesis.
A study conducted by group of authors that included employees of the U.S. Treasury Department with access to the confidential tax records of Opportunity Funds found that half of OZ capital was invested exclusively in housing, and 75% included a residential component … The primary benefit of the OZ designation appears to be new housing. Designated OZs saw on average 47.5 additional new housing units per tract between 2019 and 2025, with the effect accelerating over time.
Taken together, our findings reveal interdependent — and at times, seemingly contradictory — patterns of state-level variation in OZ outcomes. These differences suggest that the federal tax incentive’s effects were shaped not only by the flow of OZ capital, but also by local market conditions and complementary state and local policies. Overall, however, the results are consistent with much of the existing literature: OZs can be a powerful financing tool for accelerating capital deployment into less economically dynamic communities, particularly for real estate development.
The experience of OZ 1.0 also makes clear that capital is a means, not an outcome. As states approach OZ 2.0, they should work closely with local governments, residents, and businesses to define success before selecting tracts. That definition should identify both the policy objectives the incentive is intended to advance — such as housing production, clean energy deployment, rural redevelopment or entrepreneurship — and the place-based outcomes communities seek, including local ownership, community wealth creation, affordability and stronger economic mobility. States should then develop an explicit theory of change that explains what the capital is intended to accomplish and identifies the complementary policies, public investments, incentives, capacity-building strategies and regulatory reforms required to achieve those results.
Brookings Metro Fellow
Tracy Hadden Loh
This planning will be especially important in tracts where single-family housing is the predominant land use and the tax incentive alone may be insufficient to support meaningful development or broader community benefits.