Examining the Impact of Home Purchase Restrictions on China’s Housing Market
In 2010–11, central and local governments in China began implementing a set of strict housing market interventions—the policy of home purchase restrictions (HPR). This included directly restricting the number of real estate properties a household can buy based on its registration in Hukou (China’s household registration system) and on the number of years it has continuously deposited into a social security account. Other regulations included increasing the minimum down payment ratio.
Most existing studies on the HPR focus on its impact on overall prices and sales in the housing market. However, little is known about how such policy interventions separately affect demand and supply. In this paper, we analyze:
- the impact of HPR on real estate developers and consumers
- how their responses affect equilibrium housing prices and sales
Specifically, we estimate a structural model of household preference for housing, real estate developers’ pricing decisions, and equilibrium outcome of the housing market in five large cities. We then compare the estimation results from before and after the HPR intervention.
We find that after implementation of the HPR, overall housing demand in most cities became weaker and less sensitive to prices. Meanwhile, real estate developers faced higher holding costs and thus were willing to lower prices and sell more quickly. Counterfactual analyses show that in some cities, alternative policy designs that do not cause such large structural changes in demand could better improve consumer and social welfare than the HPR can.