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

44 Pages Posted: 22 Oct 2018

See all articles by C. Tsuriel Somerville

C. Tsuriel Somerville

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

Long Wang

ShanghaiTech University - School of Entrepreneurship and Management

Yang Yang

The Chinese University of Hong Kong - CUHK Business School

Date Written: September 8, 2018

Abstract

In response to worsening housing affordability resulting from rapid housing price appreciation, governments in some high housing price areas have introduced taxes or restrictions to reduce investment by non-residents in residential real estate. We study the effectiveness of these efforts using the restrictions imposed by local Chinese governments in November 2010 on apartment (condominium units) purchases. Our contribution comes from using data that exploits within city variation in restriction implementation to better control for unobserved city differences and the incorporation of land auction data to identify the supply effect of these policies. Our results suggest that restrictions on non-owner-occupant purchases significantly reduce activity levels by approximately 40% in the short run, compared to areas without restrictions. These effects diminish with time. However, housing price changes are not different 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 neither the number of land auctions or prices paid for land have differential changes between districts with and without purchase restrictions.

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 8, 2018). 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)

Long Wang

ShanghaiTech University - School of Entrepreneurship and Management ( email )

No.393 Middle Huaxia Road
Pudong district
Shanghai, AK Shanghai 210201
China

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

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