Property Taxes, Housing Supply, and Gentrification: Evidence from São Paulo

This project studies how a property tax reform in São Paulo affected the housing market and spatial inequality within the city. In 2015, São Paulo introduced a new property tax policy that varied across geographic zones, raising taxes in central areas while reducing them in the periphery. Because renters in Brazil typically pay property taxes, this reform is a shock to the housing demand of residents, which allows me to estimate housing supply in central neighbourhoods relative to others.

I use a regression discontinuity design to compare outcomes across zone borders before and after the reform. This strategy enables me to estimate how sensitive housing supply is to local changes in demand. I find that the response of new housing permits differs significantly across space: supply is less elastic in central areas than in peripheral ones.

Beyond housing supply, I study changes in the characteristics of local residents and amenities. While there is no significant change in the number of restaurants or service establishments, I find evidence of gentrification in central areas. These include increases in average income and the share of residents with a college degree.

The findings show that spatial frictions-such as zoning and rental contract provisions-play a key role in shaping who lives where in a city. The research has broader implications for how tax and housing policies affect urban inequality and residential sorting.

Future work will use a quantitative spatial model to simulate how alternative tax policies could affect overall welfare, housing supply, and inequality.