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Seattle’s International District is an Opportunity Zone at high risk of displacement. (GeekWire Photo / Kurt Schlosser)

When Congress enacted a powerful new tax incentive that encourages investors to funnel capital gains into economically distressed areas, community leaders immediately began sounding alarm bells fearing gentrification. The concerns are particularly acute in already fast-growing tech hubs like Seattle and San Francisco.

A new report ranking the so-called “Opportunity Zones” based on their risk of gentrification isn’t likely to assuage those fears. Researchers discovered that among the Opportunity Zones likely to be the most lucrative for investors, the ones in West Coast tech hubs have the greatest risk of displacement.

Opportunity Zones are newly designated neighborhoods where investors can bankroll businesses using funds from the sale of other assets. If they wait long enough, those investors can avoid paying capital gains tax on their Opportunity Zone investments. The goal of the new provision is to unlock unrealized gains and direct them into neighborhoods that need an economic boost.

Wealthy tech tycoons funnel gains into low-income ‘Opportunity Zones’ under new tax law

According to the research, the Opportunity Zones with the highest risk of gentrification and most attractive investment potential are Downtown Oakland, Downtown Seattle, Downtown Portland, Downtown Newark, and the International District in Seattle.

“It could be a total gentrification machine,” Maiko Winkler-Chin, director of the Seattle Chinatown International District Preservation and Development Authority, told GeekWire.

Researchers from Smart Growth America’s LOCUS team and George Washington University ranked Opportunity Zones by a variety of factors. They include the potential for an investment to deliver a positive financial, environmental, and social return — in other words, an investment that makes money and is good for the public. They also looked at factors like walkability, access to transit, housing affordability, diversity and “social vulnerability,” a measure of how likely residents are to be displaced.

The report’s authors are urging local lawmakers to enact policies that allow for investment in areas like Downtown Seattle and Oakland while protecting longtime residents from displacement.

“The real potential impact of Opportunity Zones lies in the cooperation of local governments, philanthropies, and investors to work together to accelerate the creation of economically, socially and environmentally sustainable urbanism, while protecting and enhancing existing vulnerable residents and businesses,” said LOCUS Chair Chris Leinberger in a statement.

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