On Thursday, May 8th, Smart Growth America, LOCUS, and a coalition of 12 other impact-focused stakeholders in the federal housing and community development policy space sent a letter to Congress detailing suggestions on how the Opportunity Zone (OZ) incentive could be sharpened for impact if extended in upcoming tax legislation. The letter emphasized that the tool should incentivize affordability in residential development, be modified to work for more communities, be updated to include reporting requirements, and should continue to be thought of as a distinct, specialized tool rather than a replacement for others.
As the Republican-controlled Congress considers a comprehensive tax package, there has been buzz about the potential renewal and extension of the Opportunity Zone incentive (OZs), especially given HUD Secretary Turner’s leadership on OZs during the first Trump administration. The Opportunity Zones tax incentive is a tool designed to catalyze investment and growth in distressed communities by offering a tax incentive to entities who invest capital gains into projects in those communities. Since its creation in the 2017 Tax Cuts and Jobs Act, it has driven a new wave of investment, particularly into housing production.
This week, Smart Growth America and a coalition of impact-focused partners urged Congress to strengthen the Opportunity Zone (OZ) incentive to better support the use of OZs to boost housing supply and deliver high-impact projects such as affordable housing in well-connected locations. While OZs have largely attracted market-rate housing investments to underserved areas, the current structure of the incentive doesn’t drive its use for projects like affordable housing or community facilities. With a few key reforms, the OZ incentive could be adjusted to help to address the housing shortage and bring more impactful projects to a wider range of communities.
“If Congress chooses to extend the OZ program in upcoming tax legislation, we believe that it should continue to be refined to facilitate high-impact projects aligned with critical national needs, such as rural housing, workforce housing, missing middle housing, affordable housing, and brownfield redevelopment,” the letter reads.
The coalition’s letter includes a number of proposals to help deliver these outcomes and notes that the proposals are not intended to address every adjustment to the program or rewrite it whole cloth, but instead are potential adjustments that could help steer the tool towards higher impact projects without adding significant complexity or limitations to the program.
Many of the included proposals align with SGA’s recommendations to reinvigorate OZs to deliver housing and smart growth, including providing an incentive for affordability, improving the tool’s usability for preservation and rehabilitation projects, and adding a “Core OZ” designation to drive investment into downtowns in urban and suburban areas and rural main streets. Some also align with bipartisan fixes pursued or considered in previous Congresses, such as the addition of reporting requirements.
The coalition’s final argument, that OZs are one tool of many rather than a replacement for other programs, alludes to the need for developers and communities to have a variety of instruments to meet specific community needs.
“If Congress wants to improve the tax code to incentivize more targeted community investments while also building the range of homes the country needs, from starter homes for first time buyers to affordable rentals for seniors and veterans, communities and developers need all of the tools in the toolbox,” the group wrote.
Groups cosigning the letter include the Center for Community Progress, Community Opportunity Alliance, Grounded Solutions Network, Habitat for Humanity, Housing Assistance Council, Living Cities, Local Initiatives Support Corporation (LISC), National Association of Counties, National Community Reinvestment Coalition, National Housing Conference, National Neighborworks Association, and the Greater Ohio Policy Center. Read the full letter here.