SACRAMENTO, Calif. — As federal policy shifts to make Opportunity Zones a permanent feature of the tax code, housing experts argue that states must rethink how the program is implemented to better address the nation’s deepening housing crisis.
A new analysis by Bruce Katz and Frances Kern Mennone contends that the next phase of Opportunity Zones—often referred to as “OZ 2.0”—offers a significant opportunity to expand housing production, but only if state housing agencies are given a central role in the designation process.
Originally created as part of the 2017 Tax Cuts and Jobs Act, Opportunity Zones were designed to attract private investment into low-income communities through tax incentives. Investors can defer capital gains taxes by placing funds into designated zones, with additional tax benefits if investments are held long term.
According to the analysis, the first iteration of the program mobilized approximately $100 billion in private capital, with roughly 75% of that investment going into real estate, particularly multifamily housing.
Researchers found that Opportunity Zones increased new housing construction by 70% in designated areas, resulting in more than 416,000 new residential addresses nationwide.
Despite those gains, the report argues that the program’s impact was uneven and often limited by poor planning, lack of transparency, and insufficient local capacity.
The authors emphasize that the next phase of the program must correct those shortcomings, particularly as the housing shortage has worsened significantly since 2017.
Under new federal legislation, Opportunity Zones are now permanent, with redesignations occurring every 10 years. This change is expected to provide greater certainty for investors and allow for more strategic, long-term planning.
The revised structure also eliminates the previous fixed deadline for tax deferrals, replacing it with a rolling five-year deferral period tied to the timing of investment. This shift is intended to reduce pressure on investors to act quickly and instead encourage more deliberate, high-quality projects.
In addition, new reporting requirements will mandate disclosure of investment types, locations, and outcomes, addressing one of the major criticisms of the original program—its lack of transparency.
The designation process for OZ 2.0 is set to begin July 1, 2026, with governors given 90 days to submit eligible census tracts to the U.S. Treasury. Approved designations will take effect Jan. 1, 2027, and remain in place for a decade.
Eligibility criteria have also been tightened. Census tracts must now have a median family income below 70% of the area median income or meet specific poverty thresholds, which is intended to better target truly distressed communities.
However, the report warns that the success of the program will depend heavily on how states select those tracts and whether they align investment with broader housing and economic development goals.
“The national OZ 2.0 designation process will kick off on July 1, 2026,” the Economic Innovation Group report states. “Governors will have 90 calendar days from then to transmit their lists of nominated OZ census tracts to the Secretary of the Treasury.”
To date, few states have clarified how they will approach the designation process or which agencies will lead it. Texas is cited as an exception, having already announced that its Economic Development & Tourism Office will oversee a data-driven selection process.
Katz and Mennone argue that this approach—focused primarily on economic development—risks overlooking the critical role housing must play in the program’s success.
They contend that state housing agencies should be directly involved in selecting Opportunity Zones, given their expertise in housing production, financing, and land-use dynamics.
The analysis highlights several reasons for this recommendation.
First, the housing shortage in the United States is now measured in millions of units, making it one of the most pressing economic and social challenges facing policymakers.
Second, Opportunity Zones have already demonstrated their potential as a housing tool, with a significant share of new multifamily construction occurring within designated areas.
Third, housing agencies are better positioned to identify sites where development is feasible and aligned with community needs, including access to jobs, transportation, and services.
The report also points to the potential for Opportunity Zones to support a broader range of housing types, including workforce housing, mixed-use developments, and the preservation of existing affordable housing stock.
In some cases, underutilized office space in central business districts could be converted into residential units, particularly as remote work continues to reshape urban economies.
Similarly, vacant or underdeveloped parcels could be leveraged for mixed-use projects that combine housing with retail and commercial uses, increasing both economic activity and housing supply.
The authors also note that older subsidized housing developments facing rising costs could be recapitalized through Opportunity Zone investments, helping to preserve affordability over the long term.
In rural areas, the program could support housing development near major employment centers, reducing long commutes and making jobs more accessible.
Beyond housing, the report underscores the growing connection between housing availability and economic development.
Regions seeking to attract employers and workers must ensure that sufficient housing exists to support that growth. Conversely, areas struggling with vacant commercial space may benefit from integrating housing into redevelopment strategies.
The authors argue that formal involvement by state housing agencies would not only improve the selection of Opportunity Zones but also increase the likelihood that those agencies remain engaged throughout project development and financing.
They emphasize that solving the housing crisis will require not just more projects, but more coordinated ecosystems involving developers, lenders, investors, and public agencies.
The report concludes that Opportunity Zones alone will not solve the housing crisis, but they represent a potentially powerful tool if implemented strategically.
It calls on state leaders to take a more deliberate approach in the upcoming designation process, ensuring that housing priorities are fully integrated into economic development strategies.
“The escalating and multidimensional nature of the nation’s housing crisis is already stimulating a range of state and local innovations,” the authors write. “Maximizing the potential of Opportunity Zones to boost housing production, in strategically located places, could be a fertile area of progress in years to come.”
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