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.

Shanghai Housing Purchasing Restriction Policy

“…Reduce the phenomenon of excessive real estate speculation. This result is determined by user demand rather than the subsequent supply of land market and developers [8].…”

Did China’s “National Sustainable Development Plan of Resource-Based Cities” Promote Economic Growth?

“…Thus, we conducted extra robustness checks by adding the dummy variables for several other policies into Equation (1). The policies we took into account include the resource-exhausted city support policy in 2008, 2009 and 2012 [31], the low-carbon city pilot project in 2010, 2012 and 2017 [32,33], the smart-city pilot project in 2013 and 2015 [34], the clean-winter-heating plan in Northern China in 2017 [35], and the real-estate-purchase restriction policy in different years [36]. After adding the dummy variables of these policies separately or simultaneously into Equation (1), the estimated impact of the SDPRC policy is still significantly negative and very close to our baseline estimate.…”

The heterogeneous impact of house purchase limits policy on housing prices: Comparison between elite and non‐elite school district houses

“…Researchers discovered that the directives, including loan‐to‐value policies and down payment ratios, impose liquidity constraints to households and force them to adjust their credit levels, thereby curbing the rise of housing prices (Armstrong et al., 2019; Laufer & Tzur‐llan, 2021; Acharya et al., 2022). The second is purchase quantity limitations that limit the number of properties an individual could purchase (Somerville et al., 2020). Studies indicated that the limitations would cause resources misallocation among consumers (Glaeser & Luttmer, 2003; Lu et al., 2021).…”

“…The limits policies are varied across cities, for example, targeting investors differences. These limitations prevented buyers, depending on their residency status (Hukou), from purchasing either a second or third property (Somerville et al, 2020). In this regard, our work is mostly related to Sun et al (2017), Jia et al (2018), andLi et al (2020).…”