A red flag has appeared for financial advisors who have put their clients into so-called Opportunity Zone funds.

Housing prices have remained stagnant — failing to increase a statistically significant amount — in neighborhoods designated by the U.S. Treasury as eligible to benefit from the federal government’s Opportunity Zone program, according to a new study by Harvard University and the Brookings Institution.

Identified by one financial advisor as “Roth IRAs for the rich," the Opportunity Zone program became effective in January 2018, after President Donald Trump signed the Tax Cuts and Jobs Act of 2017.

With that legislation, Congress aimed to generate investors’ enthusiasm for long economically-neglected neighborhoods. The program offers capital gains tax relief as a carrot to lead investors to buy stakes in some 8,700 census tracts located in all 50 states, which Treasury designated as economically disadvantaged enough to become Opportunity Zones.

Under the program, investors can defer capital gains taxes — and even avoid some entirely — if they deploy their recently-realized capital gains to buy stakes for the long haul in the designated tracts. To achieve the maximum tax benefits, investors are required to make a 10-year commitment.

“All estimates rule out price impacts greater than 1.3 percentage points with 95% confidence, suggesting that, so far, home buyers don’t believe that this subsidy will generate major neighborhood change,” write the new study’s authors, Jiafeng Chen and Edward Glaeser of Harvard and David Wessel of Brookings.

In neighborhoods where few residents are employed, the Opportunity Zone designation actually led to housing prices dropping, according to the study’s authors, "perhaps because buyers think that subsidizing new investment will increase housing supply,” they write.

For their report, the authors compared prices in Opportunity Zones to those in census tracts that were initially eligible for Opportunity Zone status but then not included on Treasury’s final roster. The authors also compared housing prices in Opportunity Zones to those in neighborhoods bordering the designated census tracts.

“All exercises yield a similar result: Opportunity Zones appear to have a negligible price impact that is statistically indistinct from zero,” the authors conclude.

For FA-IQ’s previous coverage of the Opportunity Zone program, read here.