Fla. has over 400 Opportunity Zones to create affordable housing and encourage development, but rising prices and demand have dampened their impact.
TAMPA, Fla. – The 2017 tax reforms signed into law by former President Donald Trump created what’s called a qualified opportunity zone to encourage home construction in low-income areas. Florida is home to over 400 of these zones, where the U.S. Census Bureau identified concentrations of low-income residents and a need for more affordable and workforce housing.
The affordable housing construction program has kept home prices lower in some areas, but costs still rose significantly along with the rest of the U.S. housing market.
A study by real estate data curator ATTOM found home prices in 56% of the opportunity zones went up by at least 20% from October to December of 2021. While price increases were lower in opportunity zones, cost surges did occur even where financial opportunity exists to keep housing affordable.
According to the Florida Department of Economic Opportunity, the 2017 Tax Cuts and Jobs Act allows state governors to designate up to 25% of their low-income census tracts for use as an opportunity zone. And construction companies building housing on those locations got big financial boons for doing so. Builders whose bids were accepted for development in the zones were able to have their capital gains taxes deferred and reduced for years.
“Investments are made in Opportunity Zones through U.S. Treasury Qualified Opportunity Zone Funds, which must invest over 90% of their assets in Qualified Opportunity Zone properties and businesses,” according to a statement from the DEO “Qualified Opportunity Zone Funds attract investors through possible tax benefits.”
The financial benefit of the zones gains value over years, depending on how long the funding investment is held. The DEO says the benefits for construction companies are aimed to continue through at least the end of 2026, if not longer.
- Taxes are deferred on capital gains rolled into Qualified Opportunity Zone Funds and the original tax bill through Dec. 31, 2026, or the sale of the Opportunity Zone investment, whichever is earlier
- Taxes are reduced on capital gains held in Qualified Opportunity Zone Funds for certain lengths of time; for investments held for five years, the cost basis for tax purposes is increased by 10% and for investments held for seven years, the cost basis increases an additional 5%
- The rolled over capital gain appreciates tax-free if the investment in the Qualified Opportunity Zone Fund is held for 10 years or longer
As municipalities work to address housing needs that have only increased since the passage of Trump’s tax law, the pricing issue remains a core difficulty in America’s economic situation.
The ATTOM study found that of the more than 5,000 zones they surveyed at the end of 2021, the single-family homes in more than half of the country had their prices jump 16.1%. At a time when real estate values are rising every month and inventory continues to shrink, ATTOM said the median prices in 76% of the opportunity zones had risen beyond the 16% national gain.
Prices in the qualified opportunity zones, areas of between 1,200 to 8,000 residents, grew as part of the same 10-year surge experienced in the rest of the U.S., according to ATTOM.
“Gains in Opportunity Zones again pretty much matched what was going on elsewhere and even beat out the rest of the market in some ways,” said Todd Teta, chief product officer with ATTOM. “While Opportunity Zone markets remained depressed, the increases probably reflected the trickle-down effect of buyers priced out of more expensive neighborhoods. The gains also represented an ongoing sign of vitality in lower-income areas – something that ups the ante for investors looking to take advantage of Opportunity Zone tax breaks.”
Teta also said the neighborhoods near the poorest parts of the U.S. rose the national housing boom throughout the end of 2021, even as the speed of the price increases slowed down. In Florida, the DEO provides a map of different locations that could qualify for the development program. The U.S. federal government provides their own interactive map of opportunity zones by state online.
Florida has 427 potential locations or regions that could qualify for the QOZ funds and development. Under the law, the 25% portion that can be selected to use would mean about 106 or 107 different areas could benefit, if builders are interested and approved to begin construction.
The Internal Revenue Service calls the zones an economic tool to allow investment in “distressed areas” of the U.S. and spur economic growth, job creation and provide tax benefits to investors for aiding low-income communities through the programs.
The latest quarterly reports from Florida Realtors showed the median price of a home for sale in the state was about $350,000. In the opportunity zones, ATTOM reported the national median for a home in a low-income area was between $200,000 to $299,999, though 25% of the locations were above the national median home price of $315,000.
Florida remains more expensive as more people move to the state, and development stalls due to lack of materials. Due to the ongoing issues with material costs and delivery, even if the projects are submitted for approval and given the go-ahead, a clear timeline for construction is difficult to forecast.
