Can Housing Booms Elevate Financing Costs of Financial Institutions?

113 Pages Posted: 19 Jan 2024

See all articles by Chao Ma

Chao Ma

WISE & SOE, Xiamen University

Shuoxun Zhang

Sichuan University

Date Written: June 6, 2023


We show that house price appreciation elevates financial institutions’ financing costs because it can make households invest more in houses and invest less in or require higher returns on other assets. For identification, we employ the unique feature of wealth management products (WMPs, the largest component of China’s shadow-banking sector) that the issuing markets are local whereas the markets of some products’ underlying assets are national. Stocks, bonds, and deposits do not possess this feature. We find that house price growth raises WMPs’ expected returns offered by banks. Household-level analyses further confirm that house price growth reduces households’ WMP-investment demands.

Keywords: house price, housing boom, financing costs, financial institution, bank, wealth management products, shadow banking

JEL Classification: G2, G5, R2, R3

Suggested Citation

Ma, Chao and Zhang, Shuoxun, Can Housing Booms Elevate Financing Costs of Financial Institutions? (June 6, 2023). Journal of Development Economics, Vol. 167, No. March, 2024, Available at SSRN: or

Chao Ma (Contact Author)

WISE & SOE, Xiamen University ( email )

A 307, Economics Building
Xiamen, Fujian 10246

Shuoxun Zhang

Sichuan University ( email )

29 Wangjiang Road
Business School
Sichuan University, 610064

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