Birmingham Opportunity Zones Could Transform The Area
Birmingham recently became eligible for a federal program that provides tax breaks to investors who are willing to put their money into specific low-income areas around the metropolitan area. This could be a game changer for the city and could potentially have a positive impact on home values located in these areas.
The program provides numerous tax benefits to investors that would allow these underserved communities to be revitalized with new businesses and infrastructure. There are several notable buildings such as the Brown Marx Building and Carraway Hospital that would most likely be redeveloped into mixed-use facilities.
With the potential for this urban revitalization to occur it is natural to ask whether this will impact residential home values that surround these areas. We can look at the factors that influence value and make some informed predictions.
What Economic Factors Influence Home Values?
Interest Rates- There are certain factors such as interest rates that affect the overall economy and city and not just one area of town, however, if they are favorable they can help facilitate other positive factors. So if an area of town is benefiting from opportunity zones, favorable interest rates can help magnify other positive factors that are occurring.
Unemployment Rate- Another positive economic indicator is the unemployment rate. When more people are working, they have a better chance of getting a loan in order to buy a home. More people working helps to increase spending which helps the retail sector and contributes to the overall economy.
At the time of this writing, the national unemployment rate is at 3.7%, which is the lowest it has been since 1969. The unemployment rate in Birmingham is a little higher at 4.4%, however, that is still an encouraging number that can only be positive for those wanting to buy a home.
Residential Investors- You not only have those investors that want to invest in the commercial sector of the market but also residential investors. Many of these depressed areas have a substantial inventory of homes that can be purchased at a low price and flipped for a healthy profit.
Shopping and Dining- Investment in the neighborhood support services contributes to the desirability of the area for potential residents. If people know they have shopping near their home as well as dining and entertainment choices they will be more willing to buy in the neighborhood.
Zoning Regulations- Zoning regulations can also provide a positive direction for the area. They help to contribute to positive growth patterns that balance commercial and residential districts to maximize property values and encourage appropriate uses of the land.
Gentrification- One consequence of this type of urban revitalization is gentrification. Many times when an area undergoes this type of activity there is a natural increase in property values and rents.
This can make the area unaffordable to the existing residents which can lead to animosity between them and the new ones. It takes careful planning to balance the revitalization of an area with the happiness of the residents.
Two Up and Coming Birmingham Neighborhoods
Two areas within the Birmingham market that appear to be going through a positive transition are the East Lake and North Birmingham/Norwood areas. Up to this point, it has not been because of opportunity zones since these tax breaks are not available yet but once they are it could enhance the current trend that these areas are experiencing.
I recently completed assignments in both of these areas and each market is seeing increased investor activity. The sales prices of renovated homes are reaching higher than typical levels. Opportunity zones could facilitate an even greater increase in activity if investment in the infrastructure and commercial concerns is made.
Looking Ahead
If opportunity zones are implemented in these and other areas around Birmingham will we see an increase in home values? Only time will tell, but if we keep in mind the factors that positively impact home values the chances are that it will. It will be interesting to see if gentrification occurs and if so how it will be managed so that both existing residents and newcomers to the area will live in harmony.
If you have any appraisal questions feel free to contact me and I’ll do my best to answer them. As always, thanks for reading.
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Sounds like there is lots of “opportunity” here Tom…. Kidding. Keep us posted how it pans out. This is a good reminder there are many layers of the market that impact value. It’s not just about supply and demand, but financing, investor activity, wage growth, and so many other things. Maybe Opportunity Zones are a layer here…. We shall see.
I will be tracking this to see what impact if any it has. City officials are really excited about this so I think it has big implications for the urban renewal and revitalization of areas that use to be prominent in the area but have since declined.