LOCUS Ranks U.S. Opportunity Zones on 'Smart Growth Potential' - Sustainability: Sustainable Development

LOCUS Ranks U.S. Opportunity Zones on 'Smart Growth Potential'

Smart Growth America | Posted: Wednesday, December 19, 2018 9:25 am

As a new federal tax incentive promises to generate trillions of dollars in private investment into pre-designated low-income communities, smart-growth advocates have issued a report that ranks these Opportunity Zones to determine which are positioned to bring positive social, environmental and economic returns to distressed people and neighborhoods.

LOCUS, a program of Smart Growth America, and the Center for Real Estate and Urban Analysis at George Washington University this month released the National Opportunity Zones Ranking Report.

In a Dec. 13 blog post, LOCUS director and co-author of the study, Christopher Coes, called the research "...a tale of two zones. The majority of Americans living in Opportunity Zones are in communities that force them to pay higher housing and transportation costs while being subjected to higher negative social and health impacts and a lower quality of life. The magnitude and scale of this tragedy is a reality check on the thought that the Opportunity Zone tax incentive will be a silver bullet. But if done right, this tax incentive could address decades of poor land use, institutional inequities, and development decisions to improve the quality of life for many Americans.

"Step one is knowing which places could bring the best triple-bottom-line returns," Coes wrote.

Coes co-authored the study report with Tracy Hadden Loh, senior data scientist at the Center for Real Estate and Urban Analysis. The following is an excerpt from the report's executive summary.

The Tax Cuts and Jobs Act of 2017 included a new powerful economic development tax incentive — Opportunity Zones — designed to encourage long-term private capital investment in America’s low-income communities. With over 8,700 Opportunity Zones — spanning the entire continental U.S., the District of Columbia and U.S. territories — now eligible to tap into over $6 trillion dollars of unrealized capital gains to support redevelopment projects and new businesses, there’s enormous excitement amongst investors and local policymakers. Equally, there’s enormous concern among local policymakers and community groups who are afraid that this tax incentive will crowdsource unmanaged gentrification and displacement or accelerate climate change.

What is true is that not all Opportunity Zones are created equally for new business or real estate investments. The majority of the the designated Opportunity Zones could be described as low density, drivable suburban areas with significantly higher housing and transportation costs, higher greenhouse emissions and lower quality of life. Despite this current reality, residents and businesses prefer to live or operate in thriving, walkable communities. These desired places, whether in urban, suburban or rural communities, share common characteristics including a mix of building types and uses, diverse housing and transportation options, and social inclusiveness. According to the 2016 Foot Traffic Ahead report, these walkable urban places (WalkUPs) command a 74 percent price premium over their drivable sub-urban counterparts and perform higher on social equity, health and climate resilience.

History has repeatedly demonstrated that investment without protective equitable policy and process mechanisms leads to gentrification, displacement and a lack of access to benefits in many low-income and communities of color. Without any guidance from authorizing legislation or proposed Treasury regulations, investors, local policymakers and stakeholders are asking which Opportunity Zones have the greatest potential to create vibrant, inclusive walkable communities. What people-centered place-based policy framework is needed to ensure Opportunity Fund investments lead to the creation of more walkable places that are healthy, prosperous, and resilient?

Communities of color and low-income neighborhoods want greater investment that preserves and strengthens current residents, business and cultures, instilling value in people rather than displacing them. The Opportunity Zone designation can offer an opportunity for communities to develop their vision for investments and implement protective policies to keep people in place while enhancing and offering access to new streams of capital and investment. Cities in collaboration with community leaders must pursue protective investment strategies with intentionality on the census tracts being targeted for investments and make available data aggregated by race, income, gender with full consideration for the social and economic vulnerabilities that exist in each region – be it health, climate/environment or transportation issues. Working with communities helps to guarantee that investment yields the greatest returns when it is community informed and community driven.

The LOCUS National Opportunity Zone Ranking Report, first of its kind, ranks each of the designated Opportunity Zones based on its Smart Growth Potential (SGP) as well as its Social Equity + Vulnerability Index score (SEVI).

This study creates a “Smart Growth Potential” filter for investors to identify which Opportunity Zones should be prioritized for investment from a triple-bottom-line perspective that can deliver positive economic, environmental, and social returns. Additionally, this study is intended to provide local policymakers and community groups with a policy framework to manage and ensure equitable, inclusive development in Opportunity Zones.

How Do Our Rankings Work?

For Smart Growth Potential (SGP), we scored Opportunity Zones on four metrics — walkability, job density, housing diversity and distance to the nearest Top 100 central business district — to generate a final score ranging between 0 and 20 indicating how “like” a WalkUP the zone is. The score of 10 is the minimum score to be designated a SGP opportunity zone.

For Social Equity + Social Vulnerability, we used a four-part variable — 1) Transit Accessibility; (2) Housing and Transportation Affordability; (3) Diversity of Housing Tenure and (4) Social Vulnerability Index — to generate a final score ranging between 0 and 20. The score of 10 is the minimum score to be designated a SEVI opportunity zone.

The research revealed several interesting findings:

  1. Office: Downtown Oakland (Ranked #3) and Downtown Sacramento (Ranked #8)
  2. Retail: Kansas City, MO (Ranked #6) and Silver Spring, MD (Ranked #8)
  3. Multifamily: Cleveland, OH (Campus District) (Ranked #2) and Downtown Houston (Ranked #9)

Social Equity Performance:

Top Social Equity and Vulnerable Places with High Smart Growth Potential

We ranked the Opportunity Zones with the highest Social Equity and Vulnerability Index score according to their Smart Growth Potential to (1) determine which Opportunity Zones present the best investment profile (highest reward, lowest risk) for investors; and (2) identify which Opportunity Zones should immediately prioritize place and people-based “do no harm policies” that protect vulnerable residents and business and incentivize new supply of attainable housing and commercial spaces.

Click here to download the report.