The Impact of Exogenous Demand Shock on the Housing Market: Evidence from the Home Purchase Restriction Policy in the People’s Republic of China
A sharp slowdown in the property sector of the People's Republic of China (PRC) could have a domino effect on the world economy, especially in emerging markets.
To deal with the rampant increase in housing prices, the Government of the PRC implemented the home purchase restriction (HPR) policy to curb speculation and prevent housing bubbles. This policy triggered an exogenous demand shock to the housing market. Employing a two-step difference-in-differences approach, we find significantly negative policy effects on property transaction volume but a small impact on housing prices. Cities that rely heavily on land sales for fiscal revenue experience a considerably higher increase in property investments after implementing the HPR policy.