Sticky Expectations in the Housing Market: Evidence from the Housing Purchase Restriction Policy

Topic:

 Sticky Expectations in the Housing Market: Evidence from the Housing Purchase Restriction Policy

Time&Date: 

  12:00-13:15 pm, 2019/8/1 (Thursday)

Venue:

  Room 619, Teaching A

Speaker:

 Prof. Wenlan Qian (National University of Singapore)

We empirically investigate how households update their belief as a response to an austere housing market cooling intervention—the Housing Purchase Restriction (HPR thereafter) policy in China—that depresses housing demand. Based on a proprietary dataset on individual stock accounts from a large brokerage firm, we first show that immediately after the Chinese government implemented HPR, there is a significant increase in new stock accounts opening by the affected households (by 47%), which absorbs over 22.4% of the capital that would have flowed into the housing market. Second, these new stock market investors are more likely to invest in the listed real estate developers relative to accounts that were opened just before HRP, despite their poor financial performance. Such a tendency to invest in real estate stocks is prevalent across investor demographics but is stronger in HPR cities with higher pre-policy housing price growth, or cities experiencing larger post-HPR housing sales or price drop. Further analysis using survey data provides corroborative evidence that short term expectation of the housing market remains unaffected by the HPR policy.