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Do Property Tax Incentives for New Construction Spur Gentrification? Evidence from New York City

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  • Divya Singh

Abstract

Recently, many cities have proposed property tax incentives on new construction to counteract rising rents. However, to date, there is little empirical evidence on their local effects. This paper uses a natural experiment in New York City to estimate the local effects of new tax-exempt residential construction. In 2006, the city government decided to make property tax incentives on new construction less generous, but only starting in 2008. Developers rushed to build and claim incentives before the deadline in response. I instrument the number of new units developed within 150 meters from a rental building by the baseline number of vacant parcels available within the same distance. Using a new dataset of rents and investment at the level of a building, I find that the existing rental buildingâs rent increased by 2.3% in response to an additional tax-exempt unit built within a 150 meters radius. I provide evidence consistent with the hypothesis that new residential investment rendered neighborhoods more desirable by attracting affluent households and facilitating the entry of businesses and consumption amenities. Overall, the results indicate that tax-exempt new construction spurred gentrification.

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  • Divya Singh, 2020. "Do Property Tax Incentives for New Construction Spur Gentrification? Evidence from New York City," 2020 Papers psi856, Job Market Papers.
  • Handle: RePEc:jmp:jm2020:psi856
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    Cited by:

    1. Brian Asquith & Evan Mast & Davin Reed, 2019. "Supply Shock Versus Demand Shock: The Local Effects of New Housing in Low-Income Areas," Upjohn Working Papers 19-316, W.E. Upjohn Institute for Employment Research.
    2. Bratu, Cristina & Harjunen, Oskari & Saarimaa, Tuukka, 2021. "City-wide effects of new housing supply: Evidence from moving chains," Working Papers 146, VATT Institute for Economic Research.

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    More about this item

    JEL classification:

    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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