A new study from a property database company has found that a majority of Opportunity Zones in the United States saw increases in median home prices within the last year, a trend that indicates the zones are also experiencing the same nationwide housing market boom as their more affluent neighbors.
ATTOM Data Solutions, based in Irvine, Calif., looked at 4,579 Opportunity Zones (OZ) throughout the country. They found the median home price increasing from the first quarter of 2020 to the first quarter of 2021 in 75% of them. AATOM had sufficient data to discover that the prices increased by at least 10% in nearly 66% of the zones.
According to AATOM, states with the largest percentage of OZs where median prices rose, year over year, during the first quarter of 2021 were Arizona (84%), Idaho (83%), Oregon (83%), Nevada (82%) and Michigan (82%).
Q1 data 2021 for median home prices in Opportunity Zones
Though the trends were encouraging, OZ prices are still behind the national average in the first quarter of 2021, the report found. Nearly half of the examined OZs had median prices of less than $150,000.
"Some of the country's poorest neighborhoods continued riding the long national boom in home prices during the first quarter of the year, reaping increases that pretty much matched those in more affluent areas,” said Todd Teta, chief product officer with ATTOM Data Solutions, in a news release. “Those ongoing gains emerged in the latest price data showing values in designated Opportunity Zones rising at about the same pace, or even more, than in other communities. Home values inside the zones remain quite low compared to the rest of the U.S., but they are far from immune from the boom. That shows continued interest among homebuyers in marginal areas and continues to bode well for the redevelopment that Opportunity Zone tax breaks are designed to promote."
OZs, which are census tracts designed as low income, were created under President Trump’s signature Tax Cuts and Jobs Act of 2017. Investment within the zones qualifies for major tax deductions, and officials promote the program with the hope that the private sector will pump money into low-income areas to boost their economic prospects.
Craig Bernstein, chief investment officer at Washington, D.C.-based OPZ Capital, also credited the government with boosting the zones’ home prices.
“Over the past 12 months we have seen the Federal Reserve pump trillions of dollars of stimulus into the economy,” he said. “This has led to higher asset prices across the board, including stocks, commodities and residential real estate.”
Opportunity Zones hit harder by pandemic than rest of the country
Bernstein added that while employment data shows economically distressed communities, including OZs, were clearly harder hit by the COVID-19 pandemic, “I believe this led to an initial lag in appreciation in Opportunity Zones. What we have seen over the past six months are these specific areas finally playing catch-up with non-Opportunity Zone properties. Over the next 24 months, I expect this trend to continue as the Federal Reserve continues to flood the market with cheap money.”
The cost scenario Opportunity Zones in Puerto Rico
The scenario has been far different in Puerto Rico, where nearly the entire U.S. territory island is designated as OZs.
María de los Ángeles Rivera, a tax partner at Kevane Grant Thornton in Puerto Rico, noted how construction costs there have risen significantly since the devastation levied by Hurricane Maria in 2017. The COVID-19 pandemic didn’t help things, either.
“Therefore, we should expect an increase in housing acquisition prices due to the effect and impact of the increase in construction costs,” she said, adding that Puerto Rican home sale prices have actually decreased in the last seven months.
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