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

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.

Housing Purchase Restriction and Birth Rates: An Unintended Consequence of Governmental Intervention

“…A counterfactual analysis done by Du and Zhang demonstrates that purchase restriction effectively reduced the annual growth rate of housing prices in Beijing [12]. On the contrary, different results are found by Somerville et al showing that there are no relative changes post-policy introduction in housing prices between restricted and unrestricted areas [13]. Studies by Zhang and Wang show that the HPR policy can restrain the investment demand, but it's difficult to reduce housing prices in cities with high house prices already [14].…”

“…Average birth rates and housing prices before and after the implementation of HPR In general, two contradictory perceptions regarding the relationship between HPR policy and housing prices persist: one view considers HPR a successful policy in curbing the housing prices and the other considers HPR an unsuccessful policy that fails to reduce rising housing prices [1,[11][12][13][14][15].…”

Examining the impact of home purchase restrictions on China's housing market

“…These buildings share common areas, services, and facilities. overall effects on the equilibrium outcome, i.e., housing price and sales quantity (Deng et al, 2018;Jia et al, 2018;Sun et al, 2017), and very few look at the impact on supply and demand separately (except Somerville et al, 2020). The general finding is that implementing HPR immediately "freezes" the housing market: the quantity sold is reduced sharply and the price increase is slowed down in the short run.…”

“…Du and Zhang (2015) develop a theoretical model and used a counterfactual analysis to examine the treatment effect of the HPR and trial property taxes in Shanghai and Chongqing on housing prices. The most recent paper by Somerville et al (2020) is among one of the few that have looked at the effect from both demand side and supply side in four cities. They measure the effect of the HPR on supply using government land auction data and a difference-in-differences approach.…”

On the economic impacts of constraining second home investments

“…Studies on the economic impacts of restrictions on non-resident buyers are still rare and have so far focused on China. Somerville et al (2020) document that purchase restrictions in China significantly reduced the housing transaction volume in restricted areas in the short run but that these effects diminished over time. Interestingly, they do not find any differential price effects between restricted and unrestricted areas.…”