Unintended Consequences of Demand-side Housing Policies: Evidence from Household Reallocation of Capital

60 Pages Posted: 15 Apr 2020 Last revised: 11 Nov 2022

See all articles by Wenlan Qian

Wenlan Qian

National University of Singapore - NUS Business School

Hong Tu

APEC Study Center of Nankai University

Jing Wu

Tsinghua University - Hang Lung Center for Real Estate; Tsinghua University - Department of Construction Management

Weibiao Xu

Singapore University of Social Sciences

Date Written: March 21, 2020

Abstract

We empirically investigate how households allocate their funds in response to an austere housing-market cooling intervention—the Housing Purchase Restriction (HPR) policy in China—that depresses housing investment demand. Based on a proprietary dataset on individual stock accounts from a large stock brokerage firm, we find a significant increase in new stock accounts and capital inflow to the stock market by the affected households immediately after the HPR implementation, which absorbs 58.3% of the capital that would have flowed into the housing market. The affected investors more likely steer capital toward investment in the listed real estate developers, a pattern that is prevalent across investor demographics and particularly strong in HPR cities with higher pre-policy house price growth. The affected investors subsequently experienced significant trading losses, especially in real estate stocks. We also find listed real estate developers, compared with the non-listed real estate developers, increase their land purchases after HPR despite the negative demand outlook.

Keywords: housing market, housing demand, housing policies, expectation formation, extrapolative belief, stock market participation, investment choice, resource allocation

JEL Classification: R38; R21; G11; G41

Suggested Citation

Qian, Wenlan and Tu, Hong and Wu, Jing and Xu, Weibiao, Unintended Consequences of Demand-side Housing Policies: Evidence from Household Reallocation of Capital (March 21, 2020). Available at SSRN: https://ssrn.com/abstract=3558307 or http://dx.doi.org/10.2139/ssrn.3558307

Wenlan Qian

National University of Singapore - NUS Business School ( email )

15 Kent Ridge Drive
Singapore 117592, 119245
Singapore
(65) 65163015 (Phone)

Hong Tu

APEC Study Center of Nankai University ( email )

Weijin Road No. 94, Nankai District
Tianjin, Tianjin 300071
China

Jing Wu

Tsinghua University - Hang Lung Center for Real Estate ( email )

HeShanHeng Building
Beijing, 100084
China

HOME PAGE: http://thuwujing.net

Tsinghua University - Department of Construction Management ( email )

Heshanheng Building
Tsinghua University
Beijing, 100084
China

HOME PAGE: http://thuwujing.net

Weibiao Xu (Contact Author)

Singapore University of Social Sciences ( email )

461 Clementi Road
599491
Singapore

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