This last week of February I was lucky enough to be able to participate in two days of Milken Institute convenings in Oakland. Our conversations centered around affordable housing, opportunity zones, and how local and statewide policies in California can be structured to influence positive outcomes. Milken’s Financial Innovation Lab discussions are held under confidential Chatham House rule, but here are my generalized takeaways.
- There was significant discussion—and conflict—about financial versus social returns. The question lingers: will investors accept anything that might be considered “concessionary” from a financial risk/reward standpoint? If investments make strong social change and positive—albeit difficult to measure—externalities, does the line shift?
- To that end, there was often mention that the Opportunity Zone tax incentives aren’t enough to entice new participants to invest in a lot of these projects, or even really that exciting to investors beyond the hype.
- There were noted differences in the push for scale versus small project developers; the marginal incentives for the big projects and funds are totally different than for the smaller community-focused projects.
- California is not set up for successful Opportunity Zone projects. There is a huge construction cost delta between California and other states, leaving us stuck in the mire of not being able to build enough at a price point that results in affordability. The costs of real estate, labor, and even some materials in California are markedly higher than our neighboring states. Those high costs are one of the reasons why we see so many luxury developments rather than affordable or attainable ones. Luxury users can absorb higher developer costs in their rental and purchase prices.
- Building large 200-unit buildings to house teachers and other parts of the “workforce” is not the same as building neighborhoods. Creating self-reinforcing neighborhoods requires a very different approach and creativity.
- Financiers and investors want policy reform, and policy folks want financial reform.
The underlying element for me: depending on the point of view, the perspective on the needs and opportunities around affordable/attainable housing and OZ’s is quite different. And likely not easily resolved.
Read more of our insights on Opportunity Zones and learn more about our Opportunity Fund strategy.