New York City may be far from the rural or underinvested areas often envisioned as a prime candidate for the federal opportunity zone program, yet nearly half of the five boroughs’ census tracts are up for consideration in the next version of the program. 

If played right, the economic development incentive could help deliver on Mayor Zohran Mamdani’s goal of developing 200,000 new housing units over the next decade and preserving 200,000 more, according to one of the city's top housing officials.

“As many folks probably heard, we have very ambitious development goals,” Department of Housing Preservation and Development Deputy Commissioner Lucy Joffe said at a Bisnow event Tuesday. “The question for the city is: Can we, over time — and as we get better data, as we better understand how the new program is going to work — really channel that in a way that strategically meets our goals?”

New York state has been relatively buttoned up compared to its peers when it comes to the census tract designation process for OZ 2.0. At Bisnow’s New York Opportunity Zones Conference, Joffe, seated alongside a panel of developers, provided insights into what the city wants from the program. 

Like many others, city officials are advocating for data transparency and tracking of results, as federal reporting standards were previously lacking. 

The city is also exploring ways to channel investments into affordable housing production, such as by making the program pair better with existing affordable housing financing structures and pushing to include preservation of affordable housing as an investment eligible for the tax benefit.

“It's great that [OZs are] a good investment tool,” Joffe said. “I have no problem with that, but I care most about what comes out at the other end.”

Joffe added that the city has “pushed for some changes that might make it easier for OZs to support on the rehab side.”

New York City has more than 1,000 census tracts eligible for OZ 2.0, which carries tighter restrictions for the definition of “economically distressed” than the version Congress passed in 2017. Joffe said the city is working with the governor’s office to finalize the designated zones. States have until Sept. 28 to submit their nominations to the Treasury Department, which must approve the official map by 2027.

New York City will have fewer OZs this time around after the new version of the program reduced the overall number of zones by 25%.

In the program's maiden voyage, 40% of the city’s census tracts, accounting for 27% of the land, were eligible. Ultimately, 14% of tracts, or 13% of land, became a designated OZ.

OZs have spurred development, but not so much affordability. Because OZ 1.0 was created using 2010 census data, those areas included neighborhoods booming with development. Parts of the Lower East Side, Williamsburg and Long Island City were among the qualified boundaries. 

Naturally, developers flocked to those already pricey neighborhoods, a trend that echoed across the country. Plus, OZ 1.0 allowed tracts adjacent to economically distressed areas to qualify for benefits, further attracting investment to highly developed areas. That loophole was removed from OZ 2.0.

“We didn't get into this to go into blighted neighborhoods and rebuild. We got into it because we were a for-profit business, and the investors wanted to make money,” Arden Group Chairman and CEO Craig Spencer said onstage. “We've been going through urbanization in this country for 25 years, so these were some of the best development sites in the United States, and people took advantage of that. And, yeah, we did as well.”

An analysis by the NYU Furman Center found that New York City’s 306 OZs outpaced their eligible-but-not-designated counterparts in housing production. But the resulting units tended to be more expensive.

More than 57% of new apartments in OZs were market-rate, compared to 48% in eligible-but-not-designated areas. Roughly 28% of units in OZs were specifically targeted to low-income households, as opposed to 37% in eligible-but-not-designated tracts, according to the Furman Center. 

OZ 2.0 relies on 2020 census data, yet areas like Chelsea, Times Square and the Upper West Side are eligible for designation. Public housing developments and rent-stabilized units are among the factors that can make a tract simultaneously high-poverty and high-income.

The lack of affordable housing production has caused some to question whether the incentive is worth it. Backlash led New York in 2022 to decouple certain state income tax benefits from those provided under federal tax law.

Another bill, passed by the New York Senate but stalled in the assembly, proposes fully decoupling New York from the federal code. The legislation was sponsored by Queens politician-turned-casino-project-spokesperson Michael Gianaris, who once said OZs were “manipulated to pump money to developers.”

Developers said Tuesday at the New York Marriott Marquis that the bigger issue is that the OZ program rewards investment, not affordability. Affordable housing developments require complicated capital stacks and other subsidy programs, which, as presently designed, the OZ program doesn't work well with.

“The OZ program is not perfect for capital-A affordable housing because this is an incentive for private capital to invest in things that they expect for long-term capital appreciation,” LMXD Managing Director Sam Chapin said. “That's not what capital-A affordable housing is.”

Some of the proposed changes in OZ 2.0 are far from new. In February 2019, New York City Housing Development Corp. President Eric Enderlin called for monitoring projects in OZs to ensure affordable housing creation and coordination to make the incentive work with existing tools on the local level.

A few months later, then-New York City Council Speaker Corey Johnson wrote to the IRS requesting that the federal government allow the addition of localized criteria to ensure that OZ development doesn’t result in displacement of low-income residents. 

OZ 2.0 will come into effect in a whole new environment. City of Yes upzoned neighborhoods across the five boroughs, 485-x replaced 421-a and shrank the average new building, voters passed measures to fast-track affordable housing, and the low-income housing tax credit program has undergone reforms and expansions. 

On top of that, the Mamdani administration has proposed a sweeping $22B housing plan that aims to supercharge housing production.

“A lot of what we've already been putting in place, we think, is complementary, both based on what we've seen and what we know about how these things can work together,” Joffe said.