Effects of Gentrification on Homeowners: Evidence from a Natural Experiment

Ding, Lei; Hwang, Jackelyn

doi:10.21799/frbp.wp.2020.16

Working Paper

Effects of Gentrification on Homeowners: Evidence from a Natural Experiment

Abstract: A major overhaul of the property tax system in 2013 in the city of Philadelphia has generated significant variations in the amount of property taxes across properties. This exogenous policy shock provides a unique opportunity to identify the causal effects of gentrification, which is often accompanied by increased property values, on homeowners’ tax payment behavior and residential mobility. The analysis, based on a difference-in-differences framework, suggests that gentrification leads to a higher risk of delinquency on homeowners’ tax bills on average, but there was no sign of a large-scale departure of elderly or long-term homeowners in gentrifying neighborhoods within five years after adoption of the new policy. While tax delinquencies were somewhat inflated by appeals for reassessments, programs designed to provide tax relief for long-term homeowners help mitigate the risk of tax delinquencies and displacement. Findings from this study help researchers, policymakers, and practitioners better understand the mechanisms through which gentrification may impact long-term homeowners and the effectiveness of policies to mitigate these tax burdens and displacement.

Keywords: gentrification; property tax; tax delinquency; residential mobility;

JEL Classification: H20; H31; H71; R51;

https://doi.org/10.21799/frbp.wp.2020.16