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Home-Purchase Limits and Housing Prices: Evidence from China

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Abstract

Home-purchase limits, introduced by China’s central government in April 2010 and afterward implemented by the local governments of major cities successively, were usually regarded as the most stringent policy instruments regulating over-heated Chinese housing markets over recent years. Our study attempts to investigate the effects of the home-purchase limits based on the micro data of resale housing transactions between January 2008 and December 2011 in Guangzhou city, one of the largest cities in mainland China. Our regression results show that, while the central government’s notice negatively affects housing prices, the localized home-purchase limit measures have positive effects on housing prices in Guangzhou, which deviate far from the expectations the policy makers might have. We also find that the effects of the policies are significantly stronger for the housing units of high-rise building (or with big size) relative to those without elevators (or with small size). We provide the explanation from the aspects of policy uncertainty and redevelopment option embodied in the housing.

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Notes

  1. Although numerous studies have addressed housing policies in mainland China, the overwhelming majority of these studies focus only on the introduction and changes of these policies, such as Wang and Murie (1999), Wu (1996), Wang (2000), Huang and Clark (2002), Deng et al. (2011), and Zou (2014). Zou (2014) also provides a recent review on these papers.

  2. To measure the redevelopment potential of a building, Clapp et al. (Clapp et al. 2012a) and Clapp and Salavei (2010) define the intensity of the building as the ratio of its existing structure value to land value.

  3. In Clapp and Salavei (2010) and Clapp et al. (2012a), building intensity is used as a proxy measuring the redevelopment potential of a building.

  4. Data source: Guangzhou Statistic Yearbook 2013.

  5. Data source: Guangzhou Statistic Yearbook 2013.

  6. Data sources: The average price of newly built homes in 2012 is from the official website of National Bureau of Statistics of the People’s Republic of China, while the average price of resale housing is from Wind Information Company.

  7. Data source: Wind Information Company.

  8. According to Beijing’s HPL, households with a Beijing local Hukou are only allowed to buy a housing unit if they had not owned a home in Beijing. If they have already owned a housing unit, they can buy an additional housing unit only under certain special conditions. Household who have already owned two or more housing units, and non-local-Hukou households were prohibited from buying any home in Beijing (Zheng et al. 2013).

  9. There are two advantages of making use of data from real estate agents. On one hand, in the data the transaction dates recorded are the actual transaction dates and not the official registered transfer dates that will be at least one month later. On the other hand, the recorded housing prices are accurate as they are the actual purchase prices of the homebuyers. For resale housing transactions in China, their sellers and buyers might register housing prices lower than their actual transaction prices in their official transfer registration in order to decrease the relevant tax costs.

  10. In Guangzhou, multi-storied buildings usually have six floors. There are only a small number of buildings without elevators whose heights are more than six floors. But the maximum building height for this type of buildings does not exceed nine floors.

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Authors and Affiliations

  1. School of Business Administration, Guangzhou University, 230 Wai Huan Xi Road, Guangzhou, 510006, China

    Shijun Jia

  2. School of Management Science and Engineering, Central University of Finance and Economics, 39 Xueyuan Nan Road, Haidian District, Beijing, 100081, China

    Yourong Wang

  3. Department of Real Estate Studies, Konkuk University, 120 Neungdong-ro, Gwangjin-gu, Seoul, 143-701, Korea

    Gang-Zhi Fan

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  1. Shijun Jia
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  2. Yourong Wang
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  3. Gang-Zhi Fan
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Correspondence to Gang-Zhi Fan.

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Jia, S., Wang, Y. & Fan, GZ. Home-Purchase Limits and Housing Prices: Evidence from China. J Real Estate Finan Econ 56, 386–409 (2018). https://doi.org/10.1007/s11146-017-9615-2

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