Capital Spillover, House Prices, and Consumer Spending: Quasi-Experimental Evidence from House Purchase Restrictions

Abstract

We use a unique quasi-experiment – spillovers from the imposition of purchase restrictions on local housing to nearby unregulated cities – to study the effects of out-of-town housing demand on house prices and consumer spending. While these restrictions were effective in containing the local house price surge, they induced capital flight, and sharp abnormal increases in house prices in nearby unregulated cities. The effect of the increases in house prices on consumer spending is positive in the aggregate, but echoing Favilukis and Van Nieuwerburgh (2021), is redistributive – negative for renters and positive for homeowners.

Keywords: out-of-town demand, house prices, wealth effect, consumer spending, capital flight, quasi-experiment

JEL Classification: E21, G12, G18, H23, R21, R51