Quantity restrictions on investment in residential real estate : a within-market analysis

As part of their efforts to cool the housing market, in late 2010 and early 2011 the Chinese government introduced a series of restrictions on housing demand and the supply of credit. In addition to standard financial sector macro-prudential policies targeting mortgage credit, the government also introduced restrictions on the number of housing units households could buy as investments. This paper examines the effectiveness of these latter policies by exploiting variation in the implementation within cities. We take advantage of the differences in the cross-sectional and temporal introduction of the restrictive policies to test for their effectiveness in both slowing house prices and reducing market activity, the two stated goals of the Chinese government. In doing so, though we also compare these with city differences with the broader policy effects in city level panel tests based on variation in the implementation dates of restrictive policies. Consistently we find the same results: little effects on prices or the rate of price appreciation, but significant declines in transactions. Strong restrictions on financing and in particular on purchases can be effective in near-term slowing of housing market activity, but even over two years do not seem to have a meaningful effect on house price levels.Business, Sauder School ofNon UBCStrategy and Business Economics, Division ofUnreviewedFacultyGraduat