Comments Off on Opportunity Zones: An Investment in Smart Gentrification?
In October 2018, the Internal Revenue Service released regulations for investment in Opportunity Zones, a concept established in the Federal Tax Codes and Jobs Act of 2017. The zones are designed to spur private investment in economic and community developments in economically distressed communities. The State of California now has 890 designated Opportunity Zones out of 8,000 nationwide. The zones would function as a form of impact investing, where private investors are interested in two bottom lines: the capital impact and the social impact.
Map of the San Diego Promise Zone, which includes the same Census tracts as the new Opportunity Zone
Within California, Opportunity Zones have the potential to replace public redevelopment dollars lost by the dissolution of redevelopment agencies. Opportunity Zones also allow private investors to contribute to their local communities. The regulations released by the IRS in October were particularly investor-friendly and include a provision clarifying that all capital gains on investments made in Opportunity Zones before 2048 would be excluded from the capital gains tax. Investors may invest capital gains from an asset in a Qualified Opportunity Fund (QOFs) within 180 days of the transaction. The taxes on those gains are then deferred through the end of 2026.
Given the incentives, investors’ interest in Opportunity Zone funds has grown rapidly. Community advocates, especially those concerned with equitable development, have expressed growing concerns about gentrification and displacement within the Opportunity Zones. Given that the tax subsidy grows as property values increase, investors in quickly gentrifying neighborhoods will receive the highest return on investment. The Brookings Institute suggests that with some guardrails, such as tenant protection policies, Opportunity Zones could lead to “smart gentrification,” or gentrification that does not displace existing residents. The long-term impact of Opportunity Zones is yet unknown, but housing advocates hope it could mean the return of redevelopment.
Liz Tracey, Senior Principal, is an expert on affordable housing and community development finance using tools such as the Low-Income Housing Tax Credit and New Markets Tax Credits. For information about community development financing resources, contact Liz Tracey at firstname.lastname@example.org.
Comments Off on Cultivating Housing Policy Leadership
Debbie Ruane of the San Diego Housing Commission speaking to the Housing Policy Leadership Academy.
Most professionals working in housing-related fields are acutely aware of the impact that the high cost of housing has had on individuals and communities statewide, but fewer understand how they can influence policy to promote smart growth. The Housing Policy Leadership Academy, which launched in September, brings together a diverse group of more than 30 emerging leaders to examine the causes and consequences of the housing crisis and explore viable policy solutions.
“Real World” Insights
Intended to deepen participants’ knowledge on a wide range of housing policy issues, the course emphasizes both best practices and “real world” insights from local leaders. During the first couple sessions, the group was oriented to how housing markets function, the causes of the current housing crisis, and useful frameworks for thinking about how to boost housing production.
Debbie Ruane, Executive Vice President and Chief of Strategy for the San Diego Housing Commission, talked about the importance of setting annual housing production goals, streamlining regulations, unlocking land, and increasing financial resources available for housing. She also sparked debate about Proposition 13, which limits property taxes, and its role in reducing turnover within the housing market.
“What I’d say is the most interesting is that people come to the class probably with their own agenda of what they think should be done,” said Barrett Tetlow, Chief of Staff to Councilmember Scott Sherman. “If you’re a Republican, you think you’re going to cut taxes and government fees. Somebody else says rent control is the answer. The truth is that it’s much more complex than that, so in that sense it’s been eye opening.”
The Life of a Deal
The course also explored the differences between market rate and affordable housing, the lifecycle of a deal, and how to work with developers to complete projects. Both Andrew Malick of Malick Infill Development and Sarah Kruer Jager of the Monarch Group shared case studies based on their experiences, including one which was significantly delayed by the 2007-2008 downturn in the housing market. The developers also talked about how specific decisions, such as those related to parking requirements, cause significantly increase the costs of development.
“Listening to developers speak when they want to build in a community was really valuable,” said Megan Gamwell, an economic development specialist from National City. “From a city’s point of view, we’re looking at specific factors about what we want to see in our community, but hearing from developers about why things might not fit and what they’d like to see to incentivize more building is something I can take back to work.”
Gentrification and Displacement
Gentrification and displacement in Barrio Logan and City Council District 9, which includes City Heights and Mt. Hope, was another hot topic discussed during the course. Vivian Moreno, who is both a participant and a representative for San Diego City Councilmember David Alvarez, traced the interrelationship between development and population displacement in Barrio Logan and explained the ongoing controversy about efforts to update the Barrio Logan community plan.
“Those of us who work in city government are on the frontline for land use matters, and it’s important to understand what the issues are and how they can be remedied,” said Moreno, reflecting on the discussion. “We need to build more housing prevent, displacement, and look at how we can use funding to preserve the culture of our communities. We also need to look at what other big cities are doing to see if it can be replicated.”
Stephen Russell, Executive Director of the San Diego Housing Federation, provided insight on how the gentrification of City Heights, which traditionally had a sizeable stock of naturally occurring affordable housing, has started to force out the large refugee population that have called the neighborhood home for decades. Keryna Johnson, a policy advisor to Councilmember Georgette Gomez, supplemented Russell’s presentation with a story about her own experience as a new homeowner and the realization that she, too, has played a role in gentrifying and possibly displacing residents from her community.
The topic was especially relevant for Eric Morrison-Smith, leadership development manager at RISE San Diego, an organization focused on urban leadership and civic engagement.
“I didn’t realize how important housing was until I started digging into the data and hearing the stories about people from urban communities and how it’s affected them,” said Smith. “I really appreciated how the speakers put responsibility on me to think about how I may be gentrifying certain communities.”
The remaining sessions will focus on federal and state policy, equity, design and construction, and urban planning. Speakers will include California 39th District Sen. Toni Atkins, San Diego Councilmembers Chris Ward and Georgette Gomez, Congressman Scott Peters’ Chief of Staff Mary Anne Pintar, architects Maxine Ward and Andy Spurlock, and urban designer Howard Blackson.
Artemis Spyridonidis covers housing policy issues, including structural solutions to the housing affordability crisis, consolidated plans, housing elements, accessory dwelling unit policy implementation, and regional issues across the state of California.