Do local governments capitalise on the spillover effect in the housing market? Quasi-experimental evidence from house purchase restrictions in China

This study used the house purchase restriction (HPR) policy applied between 2016 and 2017 in China to investigate whether local governments actively capitalised on the spillover effects induced by housing policy in adjacent cities. The difference-in-differences (DID) model was employed to estimate the spillover effects of HPR policy on land and bond markets for treatment cities and control cities. After implementation of the HPR policy, land conveyance area and land revenue in unregulated cities adjacent to regulated cities, increased by 32.4% and 47.3%, 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 163.5% 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.