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Tax breaks could drive new development in Durham. Could they also worsen gentrification?

U.S. Sen. Tim Scott explains what is an Opportunity Zone

U.S. Sen. Tim Scott R-North Charleston, and S.C. Gov. Henry McMaster discuss efforts to revitalize poor communities under new federal opportunity zone legislation.
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U.S. Sen. Tim Scott R-North Charleston, and S.C. Gov. Henry McMaster discuss efforts to revitalize poor communities under new federal opportunity zone legislation.

Developers have a new reason to build in already-booming Durham. A new federal incentive will encourage investors in certain parts of the city, including East Durham, west of Duke University and in Southwest Durham.

But the “opportunity zones” could also lead to private investors tearing down existing houses to build big, new houses and getting tax breaks on their returns, Durham County Commissioner James Hill said Monday.

“This is why this has been called the Kushner bill,” he said, referring to Jared Kushner, President Donald Trump’s senior adviser and son-in-law.

“So you drive gentrification, is that your point?” asked Commissioner Heidi Carter. “Seems like it would drive up the cost of rent.”

Durham’s growth, with about 20 people moving here every day, has led to a housing crisis. One way local leaders have responded to gentrification and housing pressure is to commit to building affordable housing on publicly owned property downtown. Being in an Opportunity Zone may help one of those projects get built.

Durham has seven Opportunity Zones, which are in or next to low-income census tracts. Most are clustered in East Durham, and include the 500 block of East Main Street, where the county plans to turn a parking lot into a parking garage and affordable housing.

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Durham’s Opportunity Zones, which gives a federal tax break to investors in low income or low income adjacent census tracts. Durham County

“Once you select a developer, they will go out courting OZ [Opportunity Zone] investors right away,” Sarah Odio of the UNC School of Government Development Finance Initiative told the commissioners Monday.

The initiative is helping the county plan for development on the 500 block. The 300 block of East Main Street, which the commissioners also voted to turn into affordable housing units and a parking garage, is not in an Opportunity Zone.

The zones were created through the 2017 federal Tax Cuts and Jobs Act. They started in 2018 and are now in all 50 states. North Carolina has 252 zones.

The N.C. Department of Commerce says the state’s Opportunity Zones program is designed to spur job growth, housing and other investments. The program reduces and defers federal capital gains tax liability on reinvestment of gains into Opportunity Zones, Odio explained.

But projects have to be “investment ready,” Odio said. If Durham leaders have an idea for a project, they need to get moving on making it a reality. Projects have to make a “substantial improvement” on the property, she said.

Odio cautioned that the Opportunity Zone program does not make a project cheaper, it just opens a door to capital.

“If a public-private partnership was needed before the OZ designation, it is still needed after the OZ designation,” she said. “This project is not a magic bullet in the way that its structured. The designation by itself is not a strategy.”

“There’s no guarantee it’s not a vehicle to accelerating gentrification in an area already being gentrified,” Odio said.

What’s next

County Manager Wendell Davis said the driver of the Opportunity Zones “is more so the private sector than it is us.”

Still some commissioners want to talk with their City Council counterparts to see if they can jointly market Durham to the investors.

They plan to talk with the city to go over exactly what properties are own by the government in all the zones at their Joint City-County Planning Committee meeting March 12.

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