Trump tax breaks seen doing ‘zero’ for home prices in poor areas

President Donald Trump has highlighted that home values in low-income areas picked for new tax breaks “skyrocketed” — evidence that his administration’s policies are fueling growth expectations in some of America’s most-distressed communities.

New research questions the premise. Home values in areas designated as “opportunity zones” appear to have been affected so little it’s “statistically indistinct from zero,” according to a National Bureau of Economic Research working paper released this week by Harvard University’s Jiafeng Chen and Edward Glaeser and the Brookings Institution’s David Wessel.

Using repeat-sales data from the Federal Housing Finance Agency, the researchers did their own review of home values in the zones and compared it with a widely reported Zillow analysis from earlier in 2019. That study had found prices rose 25 percent in the more than 8,700 zones the government designated in 2018, compared with 8.4 percent in areas that were eligible for the incentives but weren’t picked and 2.5 percent elsewhere in the country.

The latest findings are sure to complicate the debate over whether the opportunity zone incentives are worth potentially billions of dollars in forgone U.S. tax revenue. Since Trump signed them into law in late 2017, critics have said the perks have been used to juice investments in luxury developments from Florida to Oregon, while proponents contend they are spurring revitalization efforts from Alabama to Pennsylvania.

Why the discrepancy between the two studies? The authors of the NBER paper cited Zillow’s “opaque algorithm” for calculating prices, rather than actual sales data. Zillow’s study also could have exaggerated the effect of the tax breaks by not controlling for earlier trends in home prices, they wrote.

“The hope of this program is that it would generate neighborhood revival,” Chen, Glaeser and Wessel wrote. “Yet we find little evidence to support this view at this early date.”

Zillow’s finding of an early surge in prices “didn’t conclude whether any change in underlying value would occur or would hold long-term,” Alexander Casey, the researcher who wrote the earlier report, said in an emailed statement.

“Our finding that there was an immediate spike in sale prices and their finding that it hasn’t affected home values overall aren’t necessarily in conflict,” he said. “As the researchers fairly pointed out, our method could easily reflect what is being sold rather than any changes in actual underlying value.”