The unintended socioeconomic consequences of housing demand shock: evidence from the home-purchase restriction policy in China

Purpose This study aims to evaluate the systemic socioeconomic and fiscal consequences of China’s home-purchase restriction (HPR) policy, tracing its impact from housing demand to developer behavior, land markets and municipal public finance. Design/methodology/approach This study uses a difference-in-differences (DID) framework on a matched sample of 71 Chinese cities (2007–2016). To address endogeneity, this study incorporates city and year fixed effects, city-specific linear trends and affordability-based matching. Findings HPR implementation effectively cools housing prices and leads to a significant contraction in housing investment and sectoral employment. Crucially, the policy triggers a 3.95 percentage point decrease in the ratio of land-leasing revenue to total municipal revenue. This fiscal shock is primarily driven by reduced bidding intensity and lower land premiums rather than a reduction in land supply volume. No significant short-term impact on aggregate urban GDP was detected. Research limitations/implications The results highlight the structural vulnerability of local budgets to housing market cooling and suggest a need for diversifying municipal revenue sources. Originality/value This paper provides a unified empirical assessment of the “fiscal cost” of housing market cooling in a land finance-dependent economy. It identifies the specific transmission mechanism from demand-side shocks to the structural vulnerability of municipal budgets.