Opportunity Zones are a new federal program to incentivize development in low-income areas by giving tax breaks to investors who purchase and substantially improve property there. Across Chicago there are 135 Census tracts that are designated as Opportunity Zones. Census tracts are areas that are smaller than neighborhoods, and these 135 tracts have an average of 2,716 people.
Illinois municipalities were allowed to nominate Census tracts to the Illinois Department of Commerce and Economic Opportunity (DCEO), which made the final selection in April 2018. Opportunity Zones rules said that Census tracts had to be low-income communities (an individual poverty rate of at least 20 percent, and median family income of up to 80 percent of the area median income), but allowed a certain number of bordering tracts that didn’t meet the criteria to be nominated.
The City of Chicago has been commended for choosing mostly non-gentrifying areas of the city, unlike other cities, but the DePaul University Institute of Housing Studies still found overlap between Chicago’s Opportunity Zones and areas with “displacement pressure”.
See our previous blog post which shows the Opportunity Zones in Chicago with the greatest smart growth potential, which are also probably "gentrifiable" areas.
Illinois DCEO used additional criteria to choose amongst the eligible Census tracts:
Poverty, crime, and unemployment rates
Number of children in poverty
Proximity to amenities like water features, infrastructure, and economic development potential
Each of the state's 88 counties has at least one Opportunity Zone
Each municipality outside of Cook County was limited to five zones
Places in need
In my own review of the 135 Opportunity Zones in Chicago, most lost population between 2010 and 2015 and a majority of them were classified as "disinvested" by (CMAP). These areas have had long-term job loss, low levels of lending to small businesses, and low property values.
Additionally, CMAP classified all but one of the 135 Opportunity Zones in Chicago as an "economically disconnected area", where there's "a concentration of low income residents and either minority residents or residents with limited proficiency in English." These findings matter because CMAP, as the regional plan maker, decides how to spend a significantly-sized stream of federal funds. Part of the current plan, ON TO 2050, are strategies to develop and fund projects that reconnect these residents to the regional economy.
Are Opportunity Zones in gentrifying areas?
The Institute of Housing Studies recently updated their "displacement pressure" map of Chicago to show where areas at risk of gentrification coincide with Opportunity Zones in Chicago.
IHS's displacement pressure map looks at housing sales data to find areas in Chicago that have single-family home price growth faster than the city average and where "a significant share of residents are vulnerable to displacement due to factors such as income, housing cost burden, and renter status".
Of the 135 Opportunity Zones in Chicago – which you can browse on Chicago Cityscape – 79 percent overlap with areas having displacement pressure.
None of the Opportunity Zones in Chicago are in the highest risk category, those places with high-cost housing and significantly rising prices. However, there are many Opportunity Zones in the second highest risk category, places with high-cost housing but prices that aren't rising as significantly.
What does all of this mean? The Opportunity Zones program was designed to attract new capital to underinvested and disinvested areas across all 50 states and Puerto Rico and the U.S. Virgin Islands. New capital can accelerate the gentrification process, when new residents who have higher incomes move in and raise property prices and values which ends up displacing people unable to afford the increases.
Additionally, the Opportunity Zones program doesn't have rules or guidelines to ameliorate the impacts of new capital, which has been a criticism and concern from a number of organizations that care about development-sensitive urban areas (namely the Urban Institute). Ninety percent of the money raised in an Opportunity Fund – a company set up by developers and investors to collect capital gains profits and purchase property with – must be invested in an Opportunity Zone by buying and substantially improving property.
Other communities which overlap Opportunity Zones that IHS analyzed are still at risk of seeing populations displaced. But, IHS says, "Most of these areas are likely at limited immediate risk of gentrification...if these investments are responsive to community needs, aligned with a broad spectrum of place-based community development strategies to improve neighborhood quality of life, and include affordable housing strategies to support existing residents."
The City of Chicago doesn't have an Opportunity Zones-specific policy or guidelines, but has created dozens of neighborhood-level plans that point out needs, assets, and local concerns about development and desired new amenities.
Many of these areas that IHS says have displacement pressure will probably be attractive to investors because of their proximity to 'L' stations and the future Obama Presidential Center.
Planning for inclusion near transit
Elevated Chicago is a group of community group leaders that has done similar neighborhood-level planning and organizing to strengthen communities' say in development around seven CTA stations in a process called “equitable Transit Oriented Development”, or eTOD.
Eleven Opportunity Zones (which are just Census tracts) intersect the eTOD areas.
MAP Strategies can help you get creative with land selection while being sensitive to local factors in a neighborhood that could have adverse responses to certain developments. With MAPS's pre-development services, we can assist developers in making sensitive design and program choices, starting with land selection, that adheres to guidelines and recommendations in local plans.
Additionally, MAPS uses Chicago Cityscape's mapping platform to find the intersections among Opportunity Zones, neighborhood-based organizations, TIF districts, New Market Tax Credit eligible areas, Opportunity Investment Fund areas and other financial incentives, and complementary developments and initiatives.