Using Purchase Restrictions to Cool Housing Markets: A Within-Market Analysis

18 Pages Posted: 22 Oct 2018 Last revised: 17 Nov 2019

See all articles by C. Tsuriel Somerville

C. Tsuriel Somerville

University of British Columbia (UBC) - Division of Strategy and Business Economics

Long Wang

Zoe Yang

The Chinese University of Hong Kong - CUHK Business School

Date Written: September 1, 2019

Abstract

In response to worsening housing affordability resulting from rapid housing price appreciation, some governments have introduced taxes or restrictions to reduce demand for local residential real estate by non-residents. We study the effectiveness of these efforts using the restrictions imposed by local Chinese governments in 2010-11 on the number of residential properties an individual could purchase. We use sales by developers of newly constructed units and exploit within city variation in the imposition of these restrictions to identify their effect on prices and transaction volumes. In addition to these direct effects on demand, we also identify the effects of these policies on supply using data from local government auctions of land to developers. Our results suggest that in the short run, restrictions on non-owner-occupant purchases significantly reduce activity levels by approximately 40%, compared to areas without restrictions. These effects diminish with time. However, there are no relative changes post-policy introduction in housing price between restricted and unrestricted areas. The results operate via end-user demand and not through the land market and the subsequent supply response by developers, as there is no relative change in either the number of land auctions or prices paid for land between districts with and districts without purchase restrictions following their introduction.

Keywords: House prices, Government restrictions, Chinese housing market

JEL Classification: R21, R28

Suggested Citation

Somerville, C. Tsuriel and Wang, Long and Yang, Yang, Using Purchase Restrictions to Cool Housing Markets: A Within-Market Analysis (September 1, 2019). Available at SSRN: https://ssrn.com/abstract=3257195 or http://dx.doi.org/10.2139/ssrn.3257195

C. Tsuriel Somerville (Contact Author)

University of British Columbia (UBC) - Division of Strategy and Business Economics ( email )

2053 Main Mall
Vancouver, British Columbia
Canada
604-822-8341 (Phone)
604-822-8351 (Fax)

Yang Yang

The Chinese University of Hong Kong - CUHK Business School ( email )

7/F, Cheng Yu Tung Building
12 Chak Cheung Street, Hong Kong
Hong Kong
Hong Kong

No contact information is available for Long Wang

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