Housing Bubble and Government Regulation : Evidence from China

Facing rampant real estate price surge, Chinese government imposed the home purchase restriction policy to dampen the speculation activity in major cities in 2010. Using a comprehensive dataset covering the real estate markets across various cities, we find that the policy triggered substantial decline in the property price and transaction volume. Cities having higher reliance on real estate sector for fiscal revenue and economic growth experienced greater drop in housing prices following the policy implementation. However, the policy had no measurable effects on the construction boom, hinting the limitation of the policy to correct the housing bubble. These evidences are robust to endogeneity concerns addressed by both two-step difference-in-difference approach and endogeneous treatment effects regressions