If you were asked to describe the general characteristics of Opportunity Zone locations, the 8,766 census tracts themselves, how would you describe them? You might most likely focus on the problems: low income, high unemployment, high vacancy rates, history of disinvestment. After all, that’s why these census tracts were chosen as OZs in the first place. From the outset of the legislation, the focus on OZ locations has been on negative attributes. But that focus may be influencing perception on OZs as good investments.
When speaking with fund managers, developers, and investors about OZs, many of them say they face uncertainty about OZs. Sometimes it is their own uncertainty about these locations; other times pushback comes from investment partners. Usually this pushback stems from a perception that OZs lack the qualities needed to be successful investments.
But the reality is, OZs are starting to show a great deal of potential. A closer look at some key facts and figures paints a more complete and more promising picture of these zones. Here are some of the ways in which OZs are beginning to buck prevailing perception.
OZ RESIDENTIAL RENTS ARE RISING JUST AS FAST AS OTHER PLACES
While some residential rents in OZs remain low, recent rent growth has been competitive. Of the nearly 8,000 OZs with rent data, average rent is barely above $700, compared to $935 nationally . However, rent growth in OZs has kept pace with the rest of the country – OZ rents increased 25% from 2010 to 2018, nearly identical to the national average of 26%. About half of all OZs exceeded national median rent appreciation over that time. And this above-market rent growth in OZs are all over the country, as the map here shows.
This is a reversal of the long-term trend of OZ neighborhoods lagging behind the nation in rent growth. Given the long-term nature of OZ investment, this is good news and important news for all investors.
OZs ARE EMPLOYMENT CENTERS WITH A WIDE RANGE OF JOBS
The average OZ is a hub of employment. OZs have an average of 2,745 jobs in them, compared to 1,848 jobs in all other census tracts. OZs are particularly strong in manufacturing jobs, transportation, distribution, and wholesale trade, and in some office-focused jobs including health care, public administration and management. Many of these industries are among the nation’s fastest growing employment sectors. OZs are underrepresented in retail jobs and in high-end professional services like technology, consulting and finance. And data on tract-level wages also suggests that workers in OZs are paid competitively – an equal proportion of workers make $40,000 per year in OZs as in non-OZs. With OZs already established as employment hubs, there are ample opportunities for commercial and residential development that leverages this employment strength. These strengths only increase as real estate development increases in a community, as development generates short-term construction jobs and longer term jobs that are attracted to an area based on this new development.
OZ RESIDENTS ARE SEEING COMPETITIVE INCOME GROWTH
Incomes are substantially lower in OZs. This is a primary rationale for OZ designation, after all. The median household income of OZ tracts in 2018 was about $37,195, nearly $25,000 less than the national median. And barely 5% of OZs have incomes above that national median. These are the kinds of statistics most concerned investors will point to. But income growth in OZs has outpaced non-OZ tracts over the past 5 years – a 15% increase from 2013-2018 compared to 13% elsewhere. This is an important development, as income growth in OZs lagged behind the nation in years prior.
And it is not necessarily the case that this income rise comes from new residents. Population growth in OZs over the past 5 years has been only half that of non-OZs (population rose by an average of 135 people in OZs and 270 elsewhere ). Having incomes in OZs rise at or above national levels opens up many new investment opportunities through stronger spending power and support for a stronger housing market.
OZs HAVE STRONG TRANSPORTATION ACCESS QUALITIES
OZs generally have strong transportation infrastructure and services. Good transportation of all modes – auto, transit, and rail – is critical for business and residential growth, especially in urban areas. More than half of all OZs are within 1 mile of a major highway, which benefits office and industrial businesses. Over 4,800 OZ tracts have rail access, either passenger or freight. And there are more than 9,000 transit stops – ferry, bus, and rail – within OZs, providing non-auto travel options for both residents and workers. Overall, the level of transportation access in OZs is better than non-OZ tracts. As more businesses and residents desire strong transportation access, OZ’s transportation benefits are positioned to be a strong attractor of growth and supporter of economic activity.
OZs HAVE A LOT OF YOUNG PEOPLE
OZs have a higher proportion of residents aged 18-34 than non-OZs. This cohort accounts for 27% of the population in OZs compared to only 23% elsewhere. Young people are much more likely to rent, and are attractors of entertainment, retail and food service businesses. Additionally, younger people generally have lower incomes but relatively more disposable income. So, while incomes in OZs are still low, perhaps purchasing power is a bit higher.
OZS HAVE PLENTY OF LOCAL AMENITIES
Finally, OZs are not without their fair share of local attractions and amenities. For instance, 4,300 OZs contain a park or recreation area, including 339 OZs have golf courses. Some 820 OZs have a shopping center, 688 OZs contain a college or university. These types of amenities are drivers of long-term value creation and can serve as catalysts for rapid change.
Overall, the locational attributes of OZs – strong employment options, high quality infrastructure, growing rent and income, local amenities, and plenty of young people – make OZs increasigly attractive investment locations. These locational strengths can help you be more confident about OZ investment for you and your partners. In the end, finding the right OZ to invest in will require some education about what these locations really are – not their perception but their reality. The reality is that there are a lot of positives about these places. It’s time we start letting people know.
 Rent and rent growth data from US Census American Community Survey, 2010 – 2018, https://data.census.gov/cedsci
 Employment data from Census Longitudinal Employer-Household Dynamics Origin-Destination Employment Statistics, 2017, https://lehd.ces.census.gov/data/
 Income data from US Census American Community Survey, 2013-2018, https://data.census.gov/cedsci
 Population and age data from US Census American Community Survey, 2013-2018, https://data.census.gov/cedsci