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International Real Estate and Institutions: In Honor of Austin Jaffe

Paper Session

Friday, Jan. 3, 2020 2:30 PM - 4:30 PM (PDT)

Manchester Grand Hyatt, Coronado A
Hosted By: American Real Estate and Urban Economics Association
  • Chair: Brent Ambrose, Pennsylvania State University

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

Jing Wu
,
Tsinghua University
Wenlan Qian
,
National University of Singapore
Hong Tu
,
Nankai University
Weibiao Xu
,
Nankai University

Abstract

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 drastically depresses housing demand. Based on a proprietary dataset on individual stock accounts from a large brokerage firm, we 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. More importantly, we also document that these new stock market investors are more likely to invest in the listed real estate developers relative to accounts that were opened 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 drop. Moreover, our analysis reveals that such investment strategy results in a substantial trading loss. These new stock market investors also show stronger disposition effects, especially for those with exposure to real estate stocks.

The Role of Agents in Fraudulent Activities: Evidence from the Housing Market in China

Wang Long
,
National University of Singapore
Sumit Agarwal
,
National University of Singapore
Weida Kuang
,
Renmin University of China
Yang (Zoe) Yang
,
Chinese University of Hong Kong

Abstract

This paper examines the role that agents play in fraudulent activities in the housing market in China. Using a representative sample of housing transactions in Beijing from 2014 to 2017, we investigate the existence and magnitudes of the so-called Yin-Yang contracts, and explore whether and how agents affect tax evasion. First, we find that agents can learn the monitoring distance of local tax authorities through their cumulative experiences and strategically report prices as close as possible to the internal guideline prices set by local authorities. At the same time, agents' involvement in tax evasion is significantly affected by the tax evasion behaviors of their peers. Second, we show that agents’ work experiences contribute to creating more severe Yin-Yang contracts in the presence of loosening financial constraints, and vice versa. Our results suggest that agents' expertise becomes more important for buyers who face a trade-off between reporting higher to borrow more from the bank and reporting lower to evade taxes.

Inside Job: Evidence from the Chinese Housing Market

Daxuan Zhao
,
Renmin University of China
Yongqiang Chu
,
University of North Carolina-Charlotte
Weida Kuang
,
Renmin University of China
Xiaoxia Zhou
,
Shanghai University of Finance and Economics

Abstract

Using a comprehensive dataset of housing transactions, we find that government officials are more likely than non-officials to buy housing units before government-imposed housing purchase restriction policy. We also find that the effect is more pronounced for officials closer to the decision-making process and officials with higher ranks. Furthermore, we find that officials use their power to speed up the loan application process to complete the transactions before the policy. Overall, the results suggest that officials trade on the private information they gained during the policy-making process.

The Effects of Urban Growth Boundaries on Urban Development: Evidence from Beijing

Shihe Fu
,
Xiamen University
Yizhen Gu
,
Jinan University
Ying Long
,
Tsinghua University

Abstract

"When estimating the effects of urban growth boundaries (UGBs) on urban development, existing studies used either a differences-in-differences (DID) approach or a regression discontinuity design (RDD) method based on boundary discontinuity. However, the DID method cannot exclude the confounding polices that coincide with the UGB policy; and the RDD method cannot address the endogeneity of the UGB¡¯s location, location-specific time trend, or confounding policies with a spatial discontinuity. We combine both the DID and RDD approach to address both types of issues and examine the effects of Beijing¡¯s urban growth boundaries on urban development.
In 2004, Beijing government implemented an urban planning regulation that is very similar to urban growth boundaries, restricting land development outside the UGBs. Using data on land use permits issued between 2003 and 2010, we find that this policy have to some extent curtailed urban development outside the UGBs. The development probability of land parcels located just outside the UGBs was seven percentage point smaller than those just inside UGBs. This finding is robust to various sensitivity checks. "
Discussant(s)
Lynn Fisher
,
Federal Housing Finance Agency
James Conklin
,
University of Georgia
Lily Shen
,
Clemson University
Moussa Diop
,
University of Southern California
JEL Classifications
  • R2 - Household Analysis
  • G1 - General Financial Markets