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

58 Pages Posted: 15 Apr 2020

See all articles by Wenlan Qian

Wenlan Qian

National University of Singapore - NUS Business School

Hong Tu

School of Finance,Nankai University

Jing Wu

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

Weibiao Xu

Nankai University - School of Finance

Date Written: March 21, 2020

Abstract

We empirically investigate how households reallocate their funds in response to an austere housing-market cooling intervention—the Housing Purchase Restriction (HPR) policy in China—that depresses housing 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 opening and capital inflow to the stock market by the affected households immediately after the HPR implementation, which absorbs 54% 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 a higher pre-policy house price growth. The capital reallocation results in a significant trading loss for affected investors. We also find listed real estate developers, even the capital-constrained and more HPR-exposed firms, do not reduce corporate investment and employment 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 Capital Reallocation (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)

HOME PAGE: http://sites.google.com/site/wenlanqian/

Hong Tu

School of Finance,Nankai University ( email )

38 Tongyan Road, Jinnan District
Tianjin, Tianjin 300350
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)

Nankai University - School of Finance ( email )

38 Tongyan Road, Jinnan District
Tianjin, Tianjin 300350
China

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