Capital Spillover, House Prices, and Consumer Spending: Quasi-Experimental Evidence from House Purchase Restrictions

Abstract

We use a unique quasi-experiment — spillovers from the imposition of purchase restrictions on local housing to nearby unregulated cities — to study the effects of out-of-town housing demand on house prices and consumer spending. While these restrictions effectively stymied the surge in local house prices, they induced capital flight and sharp abnormal increases in house prices in nearby unregulated cities. The effect of the house price increases on consumer spending is positive in the aggregate, but echoing Favilukis and Van Nieuwerburgh (2021), is redistributive, that is, negative for renters and positive for homeowners.

State-Space Modeling of Housing Sentiment for Regressing Changes of Real Estate Prices Following Short-Term Control Policy in China

“…It has been confirmed that sentiments can significantly affect urban real estate prices [24], which suggests that it is meaningful to intervene in real estate prices by inducing market sentiments. Short-term control policies can transfer consumers' attention, and meanwhile, real estate control policies will increase the sentiment of surrounding cities [16]. The emotional shock caused by the perception of short-term regulations will be passed to real estate markets as a driver of lowered prices and unstable housing prices.…”

“…When investments in real estate of local consumers are severely restricted, their demands will be suppressed accordingly and transferred to a neighboring real estate market. Therefore, real estate sentiments in neighboring cities will be stimulated, followed by the increase in local housing prices [16]. Most of the real estate policies are launched firstly on real estate markets that have higher investment values, while the investment values are relatively lower in the neighboring cities where policies have not yet been implemented.…”

Why House Prices Increase in the COVID-19 Recession: A Five-Country Empirical Study on the Real Interest Rate Hypothesis

“…In economic studies, a true experiment using randomized control design may not be viable, but a quasi-experimental design that uses non-randomized control groups can provide a more robust test on causality [33]. Quasi-experiments have been used in recent housing research, but most of them are at the microeconomic level, such as the effects of accessibility [34], airport operations [35,36], and purchase restrictions [37] on house prices. Yet, no quasi-experiment study on the monetary policy hypothesis so far has been done.…”