Poster Paper: Accidental Attenuation: Impacts of Property Tax Circuit Breakers on Gentrification

Friday, November 3, 2017
Regency Ballroom (Hyatt Regency Chicago)

*Names in bold indicate Presenter

Jason Daniel Shumberger, Seongkyung Cho and Joanna Duke Lucio, Arizona State University

Urban revitalization within the last decade has increased concerns of gentrification. Around 20 percent of low-income neighborhoods have been gentrified since 2000 (Governing, 2015). Gentrifying neighborhoods can result in the displacement of low-income residents who cannot afford the increasing property values. Although not specifically designed to mitigate negative impacts associated with gentrification, property tax circuit breakers are a widely-used state policy to attenuate property tax impacts on low-income, senior, and renting households. Currently, 30 states and the District of Columbia offer some type of property tax circuit breaker programs aiming at overcoming regressive nature of the property tax (ITEP, 2016). The purpose of this paper is to estimate the impacts of property tax circuit breakers on gentrification.

Property tax circuit breaker policies universally exclude rental property owners from receiving the rebates. Since only some individuals vulnerable to property taxes are eligible for the credits, twofold impacts are expected: 1) changes in the costs of the housing market generally; and 2). Variations in the negative outcomes of gentrification. Significant differentiation exists in target populations and scale of circuit breakers across states, allowing for differing incentive levels. We use this variation, along with states that do not employ property tax circuit breakers, to evaluate the impacts of these policies on tendencies for neighborhood gentrification. In addition to policy-based data such as circuit breaker program existence and scale, we use the American Community Survey (ACS) data to identify gentrifying neighborhoods. We utilize a fixed-effects difference-in-differences model to exploit the cross-sectional variation in treatment and treatment intensity. This strategy allows us to identify the impacts of property tax circuit breakers across a diverse set of cities within states with varying gentrification and tax circuit breaker conditions.

Two mechanisms are presented for property tax circuit breakers work to reduce gentrification: 1) the direct effect of targeted property tax reduction impacts on those at greatest risk of property tax increases and 2) the reduction of the relative value of rental ownership against household ownership and renting. The direct effect reduces the negative impacts of forced moves from gentrification by alleviating gentrification costs to at-risk households. The indirect effect works by reducing gentrification tendencies in the housing market introduced by rental property ownership. Although property tax circuit breakers have long been implemented to attenuate tax burdens to vulnerable populations, little has been studied on its impacts on gentrification. The results of this study fill that gap and provide empirical evidence for policy makers in states and locales with and without property tax circuit breakers.