San Jose’s proposed tracts illustrate the difference between meeting federal eligibility requirements and providing practical opportunities for investment or development.
California’s draft Opportunity Zone 2.0 map raises a policy question that extends beyond San Jose: When several census tracts meet the federal eligibility requirements, what additional factors should states consider before making their final selections?
Income and poverty data identify communities eligible for consideration. Those data do not indicate whether land is available, zoning permits additional development, parcels can be assembled, infrastructure is adequate or a project can obtain financing and regulatory approvals.
These practical conditions do not determine whether a community needs or deserves investment. They may, however, affect whether an Opportunity Zone designation results in qualifying investment activity during the designation period.
San Jose provides one case study. Fifteen of Santa Clara County’s 17 recommended tracts are located within the city. The number of recommended tracts may appear significant, but the number alone does not indicate what types of investment or community development could realistically occur within them.
This article discusses public policy and land-use considerations. It does not evaluate or recommend any security, fund, property or investment strategy. Opportunity Zone designation does not establish the merits, suitability or expected performance of any investment.
Under Opportunity Zones 2.0, a census tract in a metropolitan area such as San Jose generally qualifies for consideration if:
Meeting one of these tests makes a tract eligible for consideration. It does not guarantee that the tract will be selected or receive investment.
Governors may nominate no more than 25% of their states’ eligible low-income census tracts. California must therefore choose from a larger group of qualifying communities.
The state’s selection process may consider economic conditions, community priorities, local recommendations and other policy factors. Development feasibility is one additional consideration that may help officials evaluate what forms of activity a designation could support.
Sources: California Governor’s Office of Business and Economic Development and IRS Revenue Procedure 2026-14.
Opportunity Zone designation may permit certain qualifying investments to receive preferential federal tax treatment if all applicable statutory, regulatory and holding-period requirements are satisfied.
Designation does not:
The availability and value of any federal tax treatment depend on numerous requirements and an investor’s individual circumstances. Tax laws, regulations and interpretations may change.
California does not conform to the federal deferral and exclusion of capital gains invested in Qualified Opportunity Funds. Investors should consult independent legal and tax professionals before making decisions involving Opportunity Zones or Qualified Opportunity Funds.
Federal eligibility standards are intended to identify economically distressed communities. They are not a substitute for project-level due diligence or land-use analysis.
Factors that may affect activity within a designated tract include:
Even when these conditions appear favorable, a project may not proceed or may fail to meet its objectives. Real estate development involves substantial risks, including changes in market conditions, construction costs, interest rates, financing availability, regulations and demand.
Several of San Jose’s recommended tracts appear to provide limited opportunities for ground-up multifamily development based on their current land uses, ownership patterns and zoning.
One recommended tract includes both San José State University and San Jose City Hall. Several recommended tracts in the Alum Rock area consist largely of established single-family neighborhoods.
Institutional ownership and existing development patterns in these locations may limit the number of sites available for additional multifamily housing. A complete assessment would require project-specific review, including title, zoning, environmental, infrastructure, financial and market analysis.
Limited potential for ground-up multifamily development does not mean that these communities are undeserving of designation or investment. It also does not mean that housing should be the only objective of Opportunity Zone policy.
Depending on applicable law and local conditions, Opportunity Zone capital may be used in connection with operating businesses, infrastructure, energy projects, rehabilitation of existing properties or other qualifying activities. Whether any particular activity qualifies or is economically viable depends on its specific facts.
Other eligible San Jose tracts appear to contain underutilized properties, transit access or zoning that may permit additional development. These characteristics do not guarantee that investment or development will occur. They are factors the state may consider when comparing eligible tracts.
The original Opportunity Zone program illustrates the difference between designation and reported investment activity.
A June 2026 Treasury analysis found that 77% of Opportunity Zones in the 50 states and Washington, D.C., had received reported qualified investment through tax year 2024. Approximately 23% had received no reported investment, while another 34% had received some reported investment but less than $1 million.
These figures have important limitations. They do not establish why a tract did or did not receive investment. They do not measure investment performance, project viability or community benefit. Treasury also identified limitations in the available tax data.
Accordingly, the figures should not be interpreted as evidence that any particular tract was selected correctly or incorrectly. They indicate only that designation has not resulted in the same level of reported investment activity across all tracts.
A designation permits qualifying activity under the program. Developers, businesses and investors must still identify opportunities, conduct due diligence, obtain approvals, arrange financing and satisfy applicable program requirements.
Source: U.S. Treasury Office of Tax Analysis, June 2026.
No single formula can determine which eligible census tracts should receive Opportunity Zone designations. The circumstances and priorities of individual communities vary.
When comparing eligible tracts, states may consider questions such as:
Economic conditions, poverty, housing needs, infrastructure and local priorities may all be relevant.
Potential activity could include housing, operating businesses, infrastructure, rehabilitation or other uses, subject to applicable requirements.
Ownership patterns and existing uses may affect the practical availability of sites.
An Opportunity Zone designation does not override local land-use rules.
Infrastructure requirements, parcel assembly, environmental review, approvals, construction costs and financing conditions may affect feasibility.
Census-tract-level analysis cannot replace a complete evaluation of a specific property, business or investment.
Considering these questions does not require states to select only locations that are easiest to develop or expected to generate the greatest financial return. Such an approach could be inconsistent with the program’s focus on economically distressed communities.
Instead, feasibility analysis may provide additional context regarding the types of activity a designation could potentially support and the barriers that may remain.
San Jose has experienced limited housing supply relative to demand. That condition may support considering housing capacity as one factor in the tract-selection process.
An Opportunity Zone designation does not resolve the many obstacles to housing production. It does not change zoning, lower construction costs, ensure financing, accelerate approvals or guarantee that a housing project will be completed.
However, when the state compares eligible tracts, it may consider whether current land uses, zoning, transit access and infrastructure are consistent with local housing goals.
Housing capacity should be evaluated alongside economic need, community input, business-development potential, infrastructure priorities and other relevant considerations.
During the public-comment period, Urban Catalyst asked California to reconsider several recommended San Jose tracts and evaluate other eligible local tracts that may provide different opportunities for housing or other development.
California has said it will review public comments alongside demographic and socioeconomic indicators, local recommendations and other factors as it prepares its final nominations.
The state must now determine how to balance those considerations. A tract’s eligibility, development characteristics and community needs provide different types of information. None independently establishes what investment will occur or what benefits a designation will produce.
San Jose has 15 recommended tracts. Before finalizing those recommendations, California has an opportunity to evaluate whether the proposed selections appropriately reflect the city’s needs and the practical limitations within each tract.
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