CRE Development Potential and the Selection of Opportunity Zones

Place-based policies are often caught between two potentially conflicting aims: (i) directing aid to needy communities and (ii) spurring investment. We study this tradeoff in the context of the Opportunity Zones (OZ) program. Leveraging unique phase-level microdata on commercial construction projects, we show that US state governors prioritized designating tracts where construction projects were already being planned. About two-thirds of the greater construction growth in OZs can be attributed to this selection. States prioritizing tracts with greater investment opportunities observed larger construction increases in designated tracts. We calibrate a structural model to quantify the effects of the program and examine counterfactuals under alternative preferences or eligibility criteria.