Opportunity Zones: Job Creation in Distress Areas with Tax Incentive. Lessons from America

With an anticipated shortfall of 400,000 homes for older people in the UK by 2030, are there lessons from the USA about tax incentives that can help meet this demand and stimulate local economic and employment opportunities, especially in more deprived areas?

Opportunity Zones

In 2017, “Opportunity Zones” (or “O-Zones”) - co-sponsored by Senators Tim Scott (Republican-South Carolina) and Cory Booker (Democrat-New Jersey) in the USA - were added to the tax code to potentially deliver economic empowerment to distressed communities. These two leaders aspire to stimulate sustainable growth, encourage business start-ups and create jobs with straight-forward tax incentives.

With Opportunity Zone investments an investor’s capital gains are discounted and profits from new business start-ups are exempted. Investors get 15% off their capital gain deferred investments after seven years commitment, and full exemption on new money over ten years. This is an unprecedented top down incentive to stimulate job creation and neighborhood improvement.

Opportunity Funds (O-Funds) are the investment vehicle for equity stakes to build new businesses from the ground up. The primary objective is poverty reduction through the growth of job opportunities producing measurable benefits at the community level. With success, O-Zone resident’s experience a higher participation rate, wage gains and job creation in distressed areas.

The US Treasury provides incentive here to redevelop nearly 9,000 ‘Zones’ across the USA. The key challenge is to stimulate enough investment for sustainable income gains to O-Zone residents by creating meaningful work with purpose.

New Direction – Taking an Equity Stake

The focus of Opportunity Zone business creation is consistent with the USA’s capitalist system and the market economy. Post-bankruptcy Detroit is showing early promise of equity-based growth. It is unequivocally the best path forward for economic development and visible investment in our distressed communities. The business visionaries that have supported O-Zones through Congress have built scalable enterprises. This new public-private partnership model is an equity stake in a business avoiding high leverage or debt instruments. The investor’s want their capital gain deferred investments to create jobs through business ingenuity.

As the UK is one of the fastest ageing populations, it is imperative to educate elders and create employment opportunities to stimulate economic growth.  Below suggestions touch common characteristics to all elder communities for the USA and UK and represent key investment areas offering potential Partnership Opportunities:

• Job/Vocational training – from carers to variously skilled roles in the built environment
• Create greater access to easy to use medical technology with voice-assist for in-home use
• Transportation service companies offer accessible vehicles to elders for low monthly fee
• Expand the UK Homeshare and intergenerational living organizations platform nationally
  • https://sharedlivesplus.org.uk/
• Engage Uk’s heritage organizations to recruit additional sites for living space and training center. UK leads in adaptive reuse for housing and Inland Revenue could provide incentives.
• Network community-oriented senior programs for greater social engagement and reduce loneliness across the UK. Example, wellbeing visits from Royal Mail’s best could be UK-wide
  • http://www.posteurop.org/showNews?selectedEventId=34796
• Meal delivery or within walking distance for seniors – encourage better nutritious food choice.
•  Affordable housing – rehabilitation projects that bring sustainable best practices to upgrading buildings and bringing livability to lower income level residents.
• Promote part-time employment for seniors through employer incentives
• Advocate to convert UK/London ghost homes to senior living facilities via tax incentives/fines
• Occupational therapists can recommend cost-saving home adaptations during well-visits

Existing UK Equivalent Programs could be expanded with Greater Promotion

• Enterprise Zones: New business incentives across 24 different areas of the UK
  • https://enterprisezones.communities.gov.uk/about-enterprise-zones/
• Homeowners get £7,500 tax exemption if you let a room – e.g., seniors let to students
  • https://www.gov.uk/rent-room-in-your-home/the-rent-a-room-scheme
• Capital gain Rollover Relief: Certain assets sold at profit can be reinvested to defer tax. UK’s Inland Revenue could consider a deep discount or exemption if invested in distressed areas.
  • https://www.gov.uk/business-asset-rollover-relief

Measurable Outcomes: U.S. Public-Private, WE are the Partnership:

Checking “Opportunity 360” Measurement Report’s show common characteristics across the nation’s distressed communities. Low and under employment, at-risk health, fewer college degrees earned, significantly lower than national average of home ownership, greater exposure to toxic environmental conditions and higher incidence of single parent family households. In a number to which everyone can relate – median household income is typically less than $20,000 per annum.

Conclusion

With the tax gap and income inequality gap at record levels, O-Zones will promote growth, business formation and liquidity with measurable outcomes. With O-Funds, we can improve tax compliance from top down capital gain investments to bottom up business returns. The forthcoming clarifying regulations from the US Treasury and guidance from Internal Revenue Service (Inland Revenue equivalent in the UK) could truly propel O-Zones to the largest tax incentive program in US history right out of the gate.

Are there lesson from O-Zones for the UK economy?  The Housing LIN would like to hear of other examples of financial initiatives that can stimulate new investment in housing and care opportunities in the UK.