Housing Demand Stimulus, Irrational Expectations, and Corporate Financial Decisions: Evidence from China’s Monetized Resettlement Policy

Using manually collected data from 48 cities (2013–2020) and a continuous difference-in-differences model, we analyzed the impact of China’s monetized resettlement policy on housing prices, investment, and corporate leverage across city tiers. Real estate firms held irrational expectations, adopting aggressive strategies and generating a “supply expansion effect,” whereas the policy itself created an “induced demand effect.” Together, these effects raised housing prices and spurred sustained investment and expansion in commercial housing, especially in third- and fourth-tier nonprovincial capitals. With respect to corporate leverage, the two effects offset each other; thus, the policy had no average impact on leverage, but it significantly increased the next-year debt-to-asset ratio of firms in lower-tier noncapital cities. These findings indicate that irrational expectations can undermine macroeconomic policy effectiveness, with implications for behavioral constraints and tiered leverage regulation in emerging economies that similarly adopt housing stimulus policies.