Despite achievements in its conceptual rigor, policy capacity still represents a relatively depoliticized concept that fails to sufficiently consider the ways in which politics plays a role in its creation, mobilization, or decay. This article seeks to contribute to this debate by investigating the impact of populism on policy capacity, the type of policy capacity challenges posed and how they are related to populist policy design. Based on a case study of a municipality in Istanbul the article shows how populist politics and national populist policy design erode long‐term municipal policy capacity by enabling the (ab)use of the rule of law, loss of expertise, exhaustion of critical assets such as urban land and financial resources, and erosion of public citizenship due to growing expectations in the form of particularistic benefits. Declining policy capacity in turn leads to a shift in municipal policy priorities.