Redevelopment is a major source of housing supply in dense cities, but it is spatially concentrated and often associated with gentrification and displacement. This paper studies the equilibrium consequences of redevelopment and of policies that restrict it. We first empirically evaluate a teardown tax implemented in two Chicago neighborhoods using a spatial difference-in-differences design and find that it substantially reduced demolitions and modestly curbed displacement. We then develop a dynamic general equilibrium model with forward-looking landlords who choose when to redevelop and heterogeneous households who choose across neighborhoods and vertically differentiated housing units. Redevelopment affects income sorting across neighborhoods and generates filtering dynamics over time. Model counterfactuals show that a spatially targeted teardown tax preserves old, affordable housing in treated areas but shifts redevelopment to untreated areas, raising rents there. The policy benefits low-income households but harms middle- and high-income households, with the largest losses for the middle. Land values fall in treated areas and rise elsewhere. We conclude with a discussion of the policy implications of our findings.