Property Tax Sales, Private Capital, and Gentrification in the U.S.
85 Pages Posted: 22 Sep 2022
Date Written: September 15, 2022
Local governments recover missing revenues from overdue tax bills by auctioning off claims to homes in what is known as either a tax lien or tax deed sale. I construct a nationwide database of such 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 with information on over 18,000 tax lien sales and individuals’ overdue tax payment histories from Washington, D.C. as a case study, I find prices of homes neighboring a tax lien sale property, on average, decline within the first two years of the sale, consistent with existing research on the local spillover effects of mortgage foreclosures. However, in already 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, gentrification, racial wealth gap, municipal finance, distressed properties, foreclosure auctions
JEL Classification: G23, G51, H71, R23, R31
Suggested Citation: Suggested Citation