How Opportunity Zones 2.0 Can Leverage Existing Vacant Property Inventories

One of the major roles of the National Land Bank Network is to amplify the voice of land banks in securing federal policy changes that better equip your communities to address property vacancy, abandonment, and deterioration.

What to know: Signs are pointing to the upcoming reauthorization of the Opportunity Zone (OZ) tax incentive program. The OZ program was created by the Tax Cuts and Jobs Act of 2017 and is set to expire in 2026 without Congressional action. Many Opportunity Zones overlap with land bank service areas, as we show on our new map, and land banks should know what neighborhoods in their communities are eligible for OZ investment.  

Why it matters to land banks: While the first iteration of the OZ program led to billions of dollars of investment in housing and local business ventures in Qualified Opportunity Zones (QOZ), many of the most distressed areas struggled to attract Qualified Opportunity Fund (QOF) investments. Some of these communities received no investment at all.

Given the overlap between Opportunity Zones and land bank service areas, land banks should consider the unique advantages they offer in spurring revitalization of distressed areas:

• Land banks have ready access to property and can sell it at a discounted rate. This reduces developers’ acquisition time and risk and can enable them to get to the substantial improvement requirements more rapidly.
• Land banks are experienced development partners with strong, existing local relationships. They specialize in transforming long-vacant properties into neighborhood assets and they can bring their strong relationships with local government, financial partners, and community organizations to bear for the right project.

To help expand the program’s reach into these areas in distressed communities, and unlock opportunity zones to help transform the properties land banks steward, here are some initial ideas about added incentives in OZ 2.0 that could leverage land banks’ unique qualities and drive investment to community revitalization.

1. Incentivize Investment for Deeply Distressed Areas 

Communities with many vacant, abandoned, and deteriorated properties need substantial investment to support their revitalization—and the level of investment required outstrips available public resources. To broaden the impact of the OZ program in these communities, the next iteration of the OZ program could add designations to define more deeply distressed areas and property types, along with stronger incentives to attract private investment in these challenging areas.  

Potential ideas include:

1. Create a Qualified Land Bank Opportunity Zone which would make any investments involving land bank-owned property an opportunity zone. This could be done in alignment with other proposals such as Qualified Brownfield Opportunity Zone or Qualified Rural Opportunity Zones. 
2. Create “Deeply Underserved Community” designation. These would be census tracts with significantly higher rates of property vacancy and deterioration.

Investments in either of these newly created areas/designations could come with any of these incentives:  

• longer tax deferral periods
• higher or earlier capital gains tax liability reduction  
• earlier forgiveness of tax liability on future gains  
• reduced or stepped substantial improvement requirement
• extended timeline for challenging redevelopment

2. Align Opportunity Zone Investment with Existing Tools 

Building affordable housing, mixed use, or neighborhood-scale commercial projects in deeply distressed areas is challenging: market conditions make it difficult for these development projects to “pencil out.” To increase the likelihood of these development types in these zones, Opportunity Zones could be tweaked to better align with existing tools to maximize investments.

Potential ideas we have heard discussed in the land banking field include:

• Incentivize projects that develop housing affordable for those who are cost-burdened, including those that leverage other existing housing, mixed use, and main street level community development tax credits.
• Increase transparency and measure success by instituting data collection and reporting on OZ performance, including how OZ investments are being leveraged alongside existing tools, as is called for in the bipartisan Opportunity Zones Transparency, Extension, and Improvement Act.

While the items above are far from an exhaustive list of ideas, they represent a common refrain heard from communities that seek ways to attract additional investment for the communities with the greatest need, and to incentivize development. 

If you work for a land bank, make sure to join the National Land Bank Network to get regular updates on policies affecting community revitalization and resources to help you turn vacant properties into opportunities for a thriving community. Membership is free for land banks—join today!