“Capital Spillover, House Prices, and Consumer Spending: Quasi-Experimental Evidence from House Purchase Restrictions” co-authored by Liao Li, Executive Associate Dean and Chair Professor at Tsinghua PBCSF, Deng Yinglu, Visiting Scholar at Tsinghua PBCSF, as well as Zhang Yu and Yu Jiaheng, was accepted by the Review of Financial Studies. From the perspective of capital spillover, the paper for the first time provides the quasi-experimental evidence for the effect of the increases in house prices on consumer spending.
The paper mainly discusses whether authorities’ restrictions on investment home purchases at local or city level will lead to unexpected outcomes. The paper tries to estimate whether there will be spillover effects of the purchase restrictions on housing in unregulated prefectural cities and what the influences will be.
By exploiting a quasi-natural experiment in China where local authorities imposed restrictions on investment home purchases in 2016 and 2017, the paper found that the restrictions on speculative home purchases will lead investors to purchase houses in unregulated cities nearby, thus, house prices in these unregulated cities rose sharply following the out-of-town home purchases, despite no obvious improvement in local housing fundamentals. The rising of housing price has nothing to do with the local economy development, but the increased housing wealth raised the consumption spending on automobiles in the aggregate.
The paper also finds that the surge of housing prices results in substantial redistribution effects. The locally born population, who are more likely to be homeowners than renters, increased automobile spending with the increase in housing wealth. The non-locally born population instead, did not increase automobile spending. The housing wealth effect shows that: when housing prices increase, the total wealth of individuals increases, it will lead to an increase in consumption, and vice versa, it will lead to a decrease in consumption.
The influence of speculative buyers on many big cities in the world has attracted increasing attention. This paper sheds light on the design of policies to restrict speculative purchases.
Developing countries shows strong housing investment. Different from developed countries, it is not common for residents to take housing mortgage financing. For many developing countries, further research is needed to better understand the interaction of investment demand in the housing market, household financial decisions, and financial market dynamics.
Profile of the authors
Li LIAO, Chair Professor and Executive Associate Dean of Tsinghua University PBC School of Finance,Dean of Tsinghua University Institute for Fintech Research, editor of Tsinghua Financial Review. His research interest is on internet finance and corporate finance.
Yinglu DENG, Visiting Scholar of Tsinghua University PBC School of Finance. She got Ph.D. degree of quantitative Finance and risk management from McCombs School of Business, University of Texas at Austin, Austin, Texas, U.S. Her research interest is on asset pricing, financial risk management, quantitative finance, insurance and household finance.
Yu ZHANG, Assistant Professor of the Finance Department at Guanghua School of Management, Peking University. Zhang Yu graduated from Princeton University with a PhD in Economics in 2017. His main research areas are real estate, household finance, macro finance, asset pricing and supply chain finance.
Jiaheng YU is a third-year PhD candidate in finance at MIT Sloan School of Business. He received a bachelor's degree in economics and mathematics from Tsinghua University in 2018. His main research directions include corporate finance, market design, etc.
Please click for original paper：https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3092107
