Do Opportunity Zones lift up lower-income residents?

The evidence shows the program attracts money and erects buildings more reliably than it lifts the people already living there, and it’s performed especially unimpressively in Illinois.

Illinois is about to lock in a new map of tax-favored neighborhoods for the next decade.

Gov. J.B. Pritzker’s administration has until Oct. 28 to identify which areas it will propose to become part of the federal Opportunity Zones 2.0 initiative. Approved areas will qualify for a federal program that allows investors to defer taxes in exchange for investing in economically distressed areas.

Congress created Opportunity Zones in 2017 to draw private money into low-income neighborhoods. Investors who sell stocks, real estate or other assets at a profit can put that money into a fund that invests in a zone. In return, they can delay paying tax on the original profit, and if they hold the investment for at least 10 years they owe no federal tax on what the new investment earns.

The new zones take effect Jan. 1, 2027, and last 10 years.

The first round of Opportunity Zones did more to move money and put up buildings than to raise incomes for the people already living in these neighborhoods. An older federal program, known as Empowerment Zones, that rewarded businesses for hiring local residents shows stronger evidence of helping local workers, a lesson Illinois should keep in mind as it picks its new Opportunity Zones.

What has happened in Illinois with the first round?

The state’s first round of Opportunity Zones has gone poorly. Through 2024, investors put about $450 million into Illinois zones using the tax break. That’s roughly $35 per Illinois resident, one of the four lowest amounts in the country. Investment reached just 23% of Illinois’ 327 zones, the lowest share of any state, compared with 77% nationally. The average investment in an Illinois zone was about $6 million, roughly a third of the national average.

The state’s own review, published by the Illinois Department of Commerce and Economic Opportunity, names three reasons for the unimpressive results:

• Zones were spread thin. In 2018, the Rauner administration made sure every county with a qualifying neighborhood got at least one zone and limited how many any single city could get. The department concluded that this spread zones across places in which investors had little interest. Investors look for neighborhoods with roads, workers and high-quality existing amenities, and many of the Illinois zones lacked them.
• Investors didn’t understand the program. Illinois made no statewide effort to explain to investors and developers how the tax break worked.
• Nobody connected investors with projects. A private group, the Chicagoland Opportunity Zone Consortium, did some of this work in the Chicago area, but nothing similar existed in the rest of the state. Most of the investment in Illinois landed in Chicago.

 What happened nationally?

The tax break attracted a lot of money. Through 2024, investors put $112 billion into Opportunity Zones nationwide, with money reaching 77% of the zones.

But it didn’t spread evenly.

The top fifth of zones that got investment received about 90% of all dollars. The money went mostly to better-off zones and to neighborhoods where incomes and home values were already rising before the Opportunity Zone designation. About 75% of the money invested in all the zones nationwide went into real estate development.      

What did the money do? Jobs in Opportunity Zones grew 1.3% compared with similar neighborhoods. But more than four of every five of those jobs were offset by losses in nearby low-income neighborhoods, so businesses mostly moved rather than grew.

Fewer than one in eight of the new jobs went to zone residents, while more than three-quarters went to people from better-off areas. Jobs held by zone residents rose less than 1%, mostly at workplaces outside the zones.

Construction also picked up, but about two-thirds of the increase came from governors choosing neighborhoods where projects were already likely to occur.

Supporters of Opportunity Zones often point to the dollars invested and the buildings that went up, but that doesn’t show whether families already living in these neighborhoods ended up better off.

Opportunity Zones vs. Empowerment Zones

A different place-based program shows stronger evidence of effectiveness.

In the 1990s, the federal Empowerment Zone program combined grants and business incentives with a tax credit tied directly to hiring zone residents. A business in a zone could cut its federal taxes by up to $3,000 a year for each employee who lived and worked in the zone. Chicago was one of the first six cities to get an urban Empowerment Zone, in 1994.

Researchers found that the overall package substantially increased employment in zone neighborhoods and raised wages for local workers, without detectable increases in population or the local cost of living.

Opportunity Zones work differently. They cut taxes on investors’ profits, so the biggest breaks go to the most profitable deals, which often would have happened anyway. The Empowerment Zone evidence does not isolate the hiring credit from the program’s other benefits, but it suggests that place-based policies tied more directly to employing residents may do more for local workers than subsidies based primarily on investors’ capital gains.

As Illinois prepares to choose its next round of zones, here are the most common claims about Opportunity Zones and what the evidence shows.

Myth: Opportunity Zones reduced poverty in the neighborhoods they targeted.

Fact: Poverty in these neighborhoods was already falling.

Early numbers seemed to show poverty dropping in zones after they were designated. But researchers found that the drop was mostly the continuation of an earlier trend, not the effect of being named an Opportunity Zone. Once they compared zones with similar neighborhoods that were on the same path, the program showed modest, if any, positive effects among zone residents on employment, earnings or poverty.

A neighborhood also can look less poor on paper when higher-income people move in, even if the families who were already there are no better off.

Myth: Opportunity Zones build housing local families can afford.

Fact: Most new apartments rent for more than the neighborhood typically pays.

Illinois doesn’t track Opportunity Zone projects, but Ohio does. The Urban Institute’s review of Ohio projects using the state’s conforming Opportunity Zone incentive found that 78% of units in multifamily developments receiving Opportunity Zone investment had rents above the median in their census tract.

Research from Howard University found that gentrifying Opportunity Zones were better positioned to attract investment than non-gentrifying zones. Its case study of Washington, D.C., also linked gentrification in designated zones with the departure of lower-income residents.

The Illinois Department of Commerce and Economic Opportunity cited the same national concern, noting that residential development in Opportunity Zones has frequently produced housing priced above local median rents.

New housing still has value, because more homes can ease rent pressure over time. But it isn’t the same as raising incomes or improving housing affordability for the families already living there.

Myth: Opportunity Zones send the most help to the neediest neighborhoods.

Fact: Governors mostly picked struggling neighborhoods, but the money went to the better-off ones among them.

Economists at the American Enterprise Institute and the U.S. Treasury Department found that designated zones generally did have high poverty and weak job markets. But investors put their money mainly where private investment was already happening, often in prosperous counties and fast-growing regions.

Neighborhoods that got nothing had less existing investment and slower growth in home values and population. Treasury’s own data show the same thing: The most distressed zones received the smallest share of the money.

The authors conclude that other policies may be necessary to reach the people that most need help.

Myth: Opportunity Zones don’t do anything.

Fact: They do increase jobs and building in cities. The problem is who benefits.

Research found employment grew 3 to 4.5 percentage points faster in urban Opportunity Zones than in similar neighborhoods. Rural zones saw no job gains.

But while more recent research confirms that businesses inside zones added jobs, much of that gain was offset by job losses in nearby low-income neighborhoods. The program attracts  capital. The evidence is much weaker that it raises incomes for the people who already live there.

Myth: The new version of the program fixes these problems.

Fact: It narrows which neighborhoods qualify but keeps the design that rewards deals that would have happened anyway.

The 2025 federal changes tightened eligibility to be designated an Opportunity Zone. A neighborhood’s median family income must now be no more than 70% of the area median, down from 80%. Better-off neighborhoods next to eligible ones can no longer be designated an Opportunity Zone. Investment funds also must report new data, such as the number of full-time employees and housing units at their projects.

But the core design hasn’t changed. Economists found the tax break’s biggest benefits go to investments that would have happened anyway. The new reporting requirements will count jobs at funded projects, not whether people who already lived in a zone got those jobs, earned more or were able to stay.

When the governor’s office announces Illinois’ new zones, expect headlines about investment dollars and new projects. The better question is whether the people living in these neighborhoods today will have better jobs and higher incomes.

Illinois’ new Opportunity Zones should target neighborhoods with real need that are not already on an upswing but have the basics investors look for, such as workers, roads and sites ready to build. That is where the tax break could change whether a project happens rather than reward one that would have happened anyway. And any state dollars layered on top of the federal break should go to investors who train and hire local residents.