Political instability and housing investment: evidence from the Catalan secessionist conflict

This paper examines the impact of political uncertainty on housing investment using the Catalan secessionist conflict as a case study. We study how institutional instability in the form of political conflict affects housing purchases by local residents, residents in other Spanish provinces, and non-residents in Spain (those living abroad). We also evaluate effects by nationality and by housing typology. Applying synthetic difference-in-differences, we show that the escalation of the conflict following the illegal independence referendum in October 2017 led to a decline in housing transactions in Catalan provinces by non-resident buyers of 19.6% as compared to a synthetic counterfactual. However, no effects are found on total sales or on sales to local residents. We also document a drop in urban land prices in Catalonia of around 12%, consistent with the idea that investments with longer horizons and higher irreversibility are more responsive to political uncertainty. Overall, our findings indicate that institutional instability generated heterogeneous responses across buyer types, with foreign non-residents reacting more strongly.