Property Tax Sales, Private Capital, and Gentrification in the U.S.

88 Pages Posted: 22 Sep 2022 Last revised: 14 Nov 2022

Date Written: September 15, 2022

Abstract

Local governments recover revenues from overdue tax bills by auctioning off super senior claims to homes at semi-annual tax lien or tax deed sales. I construct a new nationwide registry of local tax sales to examine how property tax delinquencies facilitate institutional real estate investment in major U.S. metro areas, and the effects of these acquisitions on neighborhood composition and housing disparities. Using detailed data on over 18,000 tax lien sales linked to owners’ overdue tax payment histories, I document tax liens sell at a much larger haircut than mortgage foreclosed homes – for less than 10% of ex ante assessed value in the vast majority of cases. Prices of homes neighboring a tax lien sale property, on average, decline within the first two years of the sale. However, in gentrifying areas, large positive pricing spillovers emerge within three years, driven by investors’ conversion of former tax lien properties into luxury housing and commercial amenities. Underrepresented minority homeowners are more likely to be displaced by tax delinquency and less likely to transact homes in areas containing recent tax sales to institutional buyers. Private capital’s entry into the municipal finance ecosystem has amplified gentrification and the within-city Black-white wealth gap.

Keywords: property tax sales, institutional investors, private equity, gentrification, foreclosure options, municipal finance, distressed properties, racial wealth gap

JEL Classification: G23, G51, H71, R23, R31

Suggested Citation

LaPoint, Cameron, Property Tax Sales, Private Capital, and Gentrification in the U.S. (September 15, 2022). Available at SSRN: https://ssrn.com/abstract=4219360 or http://dx.doi.org/10.2139/ssrn.4219360

Cameron LaPoint (Contact Author)

Yale School of Management ( email )

165 Whitney Ave
P.O. Box 208200
New Haven, CT 06511
United States

HOME PAGE: http://som.yale.edu/faculty/cameron-lapoint

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