Opportunity Zones, 1031 Exchanges, and Universal Housing Vouchers

California Law Review

In “Opportunity Zones, 1031 Exchanges, and Universal Housing Vouchers,” Professor Brandon M. Weiss argues that eliminating the Opportunity Zone program and § 1031 exchanges could fund a significant expansion in the Housing Choice Voucher program. Author: Brandon M. Weiss is an Associate Professor of Law at American University Washington College of Law. Host: Carter Jansen Technology Editors: NoahLani Litwinsella (Volume 110 Senior Technology Editor), Carter Jansen (Volume 110 Technology Editor), Hiep Nguyen (Volume 111 Senior Technology Editor), Taylor Graham (Volume 111 Technology Editor), Benji Martinez (Volume 111 Technology Editor) Other Editors: Ximena Velazquez-Arenas (Volume 111 Senior Diversity Editor), Jacob Binder (Volume 111 Associate Editor), Michaela Park (Volume 111 Associate Editor), Kat King (Volume 111 Publishing Editor) Soundtrack: Composed and performed by Carter Jansen Article Abstract: The Tax Cuts and Jobs Act of 2017 contained former President Trump’s signature economic development initiative: the Opportunity Zone program. Allowing a deferral of capital gains tax for certain qualifying investments in low-income areas, the Opportunity Zone program aims to spur economic development by steering capital into economically distressed neighborhoods. The program is the latest iteration of an overly simplistic market-based approach to community development—an approach that transcends political party—based on a flawed yet enduring notion that mere proximity of capital will solve deeply entrenched issues of poverty and racial inequity. In reality, the legacy of Opportunity Zones is likely to be one of accelerated neighborhood gentrification left in the wake of wealthy taxpayer windfalls. Opportunity Zones are more akin to a classic tax shelter than an effective anti-poverty strategy. They share a fundamental DNA with a much older real estate-related tax break, § 1031 like-kind exchanges, which allow for the nonrecognition of gains for certain qualifying transactions that involve trading one piece of real estate for another. Section 1031 is one of the largest corporate tax expenditures in the U.S. tax code. Yet, as examined in this Article, the four primary theoretical bases upon which § 1031 rests—measurement, administrability, liquidity, and economic stimulus—have eroded over time and are ultimately unpersuasive. Redirecting the value of the Opportunity Zone program and § 1031 exchanges to the Housing Choice Voucher program could roughly double the number of housing vouchers available to extremely low-income households in the United States. I argue that this sort of intervention would have far greater impact in addressing the ills of poverty and racial inequality in the United States than the Opportunity Zone program. This argument is timely in light of President Biden’s recent support for reforming Opportunity Zones, limiting § 1031, and expanding the Housing Choice Voucher program.