Wednesday, January 20, 2021
Michelle Layser (Illinois) presents Redevelopment Tax Incentives and Gentrification: A Spatial Analysis online at Toronto today as part of its James Hausman Tax Law and Policy Workshop Series:
Place-based tax incentives, such as the New Markets Tax Credit (NMTC) and Opportunity Zones incentives, are often used to promote investment in low-income census tracts. Critics fear that when gentrifying neighborhoods are eligible for incentives, they will attract investment away from the neighborhoods that need it most. However, few studies have provided empirical analysis to assess whether these concerns have merit. Through a novel geospatial analysis of the location patterns of tax-subsidized projects, this Article provides new evidence of inequitable distributions of tax credits, which can inhibit their ability to benefit struggling communities. These findings have profound implications for the federal and state NMTC programs, as well as the new Opportunity Zones law. This Article analyzes 15 years of NMTC data to explore location patterns of tax subsidized investments in 20 U.S. cities. It employs spatial analysis methods to describe the location patterns of investment and their relationship to two variables known to correlate with gentrification: high vacancy rates and increasing rental rates.
The results show that NMTC subsidies have disproportionately flowed to eligible census tracts that exhibit signs of gentrification. The observed spatial patterns reflect inefficient allocations, limit the program’s ability to promote equitable change, and cast doubt about whether federal regulators can effectively shape program outcome.