Government Speculation on Spillover Effect in the Housing Market : Quasi-Experimental Evidence from House Purchase Restrictions in China

This study investigated government speculation on spillover effect in the housing market based on a quasi-experiment related to the house purchase restriction (HPR) policy in China. Using a difference-in-differences research method and the HPR policy applying between 2016 and 2017 in China, this research study found that local governments of unregulated cities actively engaged in the land and bond markets to take advantage of spillover effects resulting from the imposition of HPR policy in neighbouring cities. After implementation of the HPR policy, land conveyance area and land revenue in unregulated cities adjacent to regulated cities, increased by 31.6% and 51.1%, respectively, relative to nearby unregulated cities not adjacent to regulated cities. The issuance volume of urban investment bonds, which heavily relies on land price and revenue, in unregulated cities adjacent to regulated cities, increased by 32.6% in comparison with nearby control cities and the yield spread of newly issued bonds decreased. Overall, this study indicates that local governments actively capitalise on the spillover effects induced by housing policy in adjacent cities