The Effect of the Down Payment Constraint on House Prices: Evidence from a Natural Experiment in China

Xingyou Ye, Renmin University of China

The down payment constraint is commonly adopted as an effective means of stabilizing the housing market. However, there is a lack of empirical evidence on its effects on house prices. We estimate the impact of raising the minimum down payment by exploiting Beijing municipal’s ordinary and non-ordinary housing policy. Specifically, we incorporate the spillover effect into an RD-DiD setting to allow for violation of SUTVA and difference out the confounding effect. Empirical analysis shows that the treated homes have their prices decreased by more than 10%, whereas the prices of the untreated within the same residential unit increase by a similar magnitude. As for the dynamics, the effects rise in the first three years after the implementation of the policy and fall in the fourth year.

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