Effects of Gentrification on Homeowners: Evidence From a Natural Experiment

Abstract

A major overhaul of the property tax system 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 has been no sign of a large-scale departure of elderly or financially disadvantaged homeowners in gentrifying neighborhoods. Tax delinquencies were somewhat inflated by appeals for reassessments, and programs designed to provide tax relief for long-term homeowners and new construction also 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 their displacement.

Keywords: Gentrification, Property Tax, Tax Delinquency, Residential Mobility

JEL Classification: H20, H31, H71, R51