Top Earners Flocked to These Opportunity Zones Pretax Break

(Bloomberg) -- A new tax break intended to lure investors to poor areas includes many communities where high-income families had already been moving in droves, signaling developers may not have needed the extra incentive at taxpayers’ expense.

More than 20 of the “opportunity zones” -- a designation created by the 2017 tax law -- have seen the concentration of $200,000-plus households increase by at least 10 percentage points since the year 2000, according to a study released Tuesday by San Francisco-based consulting firm Webster Pacific, titled “Wind at Your Back: Finding the Top 50 Opportunity Zones for Real Estate Investment.”

The paper, by Ames Lyman and Steve Bazant, said income growth correlates with rising property values and, therefore, the areas on the list are likely to see continued real estate appreciation. The No. 1 zone is in the Gowanus neighborhood of South Brooklyn, where the concentration of households earning $200,000 or more has climbed to 22 percent from almost zero at the turn of the millennium. No. 4 on the list was in Williamsburg, also part of Brooklyn.

The report identifies the zones where the concentration of households earning $200,000 or more was already growing the fastest since 2000, according to U.S. Census Bureau data adjusted for inflation. Opportunity zones are based on census tracts, which typically encompass 8,000 people or fewer, and they generally had to meet a threshold for poverty or income, or be adjacent to another qualified zone. Governors ultimately get to nominate the zones in their states as long as they meet the basic criteria.

The opportunity zone program was created as part of the 2017 Tax Cuts and Jobs Act, and was meant to bring development dollars to areas that otherwise might have been left to languish. The lion’s share of the zones are in areas of significant need. But, as critics point out, the 8,700 eligible “opportunity zones” also include a number of neighborhoods that probably would have lured investment anyway, even without the tax savings.

Investors will aim to put money where they stand to earn the greatest returns, Samantha Jacoby, a senior tax legal analyst with the Center on Budget and Policy Priorities in Washington, said in an interview Tuesday. “It’s entirely possible, maybe even likely, that a disproportionate share of investment will go to those areas, even though a vast majority of zones are distressed.”

Among the top 50, 15 were in the New York metropolitan area. A complete list of the top 20 is replicated below.

StateMetro AreaTractHouseholds Earning $200k+ (2017)Percentage point
change
(2000-2017)
New YorkNew York3604701190021.6%21.3%
IndianaEvansville1816300180021.4%19.8%
OklahomaOklahoma City4010910380016.2%16.2%
New YorkNew York3604705490021.7%16.0%
Dist. of ColumbiaWashington1100100340016.1%14.3%
New YorkNew York3604700150017.2%14.0%
CaliforniaLos Angeles603719070015.7%13.9%
New YorkNew York3606101350015.7%13.8%
ConnecticutBridgeport900102010018.0%13.3%
CaliforniaSan Francisco600140280015.1%13.2%
PennsylvaniaPhiladelphia4210103690012.8%12.8%
New YorkNew York3604700530016.4%12.3%
TexasHouston4820110000026.4%12.1%
New YorkNew York3604701170013.1%12.0%
MarylandBaltimore2451023030012.3%11.9%
CaliforniaSan Jose608550080020.0%11.4%
OhioCincinnati3906100090011.0%11.0%
FloridaCape Coral1207105010315.1%10.9%
IllinoisChicago1703184100010.8%10.8%
New YorkNew York3604701270012.9%10.8%

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