Rumour of administrative division adjustment and regional housing markets: housing listings, prices and speculation

ABSTRACT

We trace the rumour that two undeveloped regions were to be administratively merged into Beijing, which is the capital of China. Applying a difference-in-difference approach, we find that housing listing prices in the two undeveloped regions declined by 25.1% after local governments clarified the rumour. Our results are robust after considering possible confounders such as contemporary housing market policies, business cycles and migrations. The price reduction caused by the rumour collapse averages to 347–396 thousand yuan, a comparable number to the value of ‘Hukou’ in Beijing. Finally, we show that herding and speculation accelerate the price bust after the rumour collapses.

KEYWORDS:

• Housing price
• rumour
• herding
• speculation
• contagion

JEL CLASSIFICATION:

• R31
• R30
• G14
• R53

Acknowledgments

This paper was previously circulated under the title “The Rise and Fall of a Rumour: Evidence from Regional Housing Markets in China”. We thank Weida Kuang and all participants at the 2020 Joint Real Estate Conference by AsRES, GCREC and AREUEA. Fan Zhang acknowledges that this project is supported by “the Fundamental Research Funds for the Central Universities” in UIBE (20QN06). Yanjiang Zhang acknowledges that the paper is supported by the National Natural Science Foundation of China (No. 72004203) and Fundamental Research Funds for the Provincial Universities of Zhejiang (No. GB201901002).

Disclosure statement

No potential conflict of interest was reported by the author(s).

Supplementary material

Supplemental data for this article can be accessed online at https://doi.org/10.1080/00036846.2023.2206633

Notes

¹ The Beisan counties, which refer to Sanhe county (where Yanjiao Town is located), Dachang County and Xianghe County in Heibei Province, are less developed regions with lower housing prices and inferior urban amenities such as education and social security than Beijing, although they border Tongzhou district of Beijing.

² https://m.nbd.com.cn/articles/2016-04-12/997396.html.

³ Due to data availability, we only include two of the adjacent counties, i.e. Yanjiao/Dachang, as treated regions in our study. Xianghe is another neighbouring county to the southeast of Tongzhou, but housing data on Xianghe are not available.

⁴ Several news reports have stated that Beisan counties were merged into Beijing. These reports are typical examples of the rumour, which may falsely drive people’s expectations. (https://www.sohu.com/a/17912283_187172; https://bbs.focus.cn/langfang/110167/cc3bdd57b0adc2b3.html).

⁵ http://www.beijing.gov.cn/zhengce/zhengcefagui/201905/t20190522_59313.html.

⁶ http://www.xinhuanet.com/politics/2017–01/18/c_1120337621.htm; https://www.thepaper.cn/newsDetail_forward_1603140.

⁷ https://house.focus.cn/zixun/07d5c53f995d1ac7.html; http://finance.sina.com.cn/roll/2017-02-11/doc-ifyamkzq1233579.shtml; http://finance.sina.com.cn/xiaofei/consume/20060918/11122923668.shtml.

⁸ We use housing listing prices instead of contract prices in the analyses for two reasons. First, the listing price reflects the willingness to sell by sellers. Our study focuses on home sellers rather than buyers, as buyers are subject to the home purchase restriction implemented in June 2017, while sales actions were not restricted during the sample period. Second, the contract price, which is commonly used as a proxy for the transaction price, is probably lower than the actual transaction price by a substantial margin. Agarwal et al. (2020) find that in China’s resale housing market, the actual transaction prices can be 23.3% higher on average than the transaction prices reported to the authorities (i.e. the contract price) to partially avoid transaction taxes.

⁹ Note that we have more than 6 quarters before the event, thus, $\mathit{Pr}{e}_6$ includes observations in and before quarter −6.

¹⁰ In 2010, Beijing imposed the first round of restrictions on housing purchases, but Langfang did not implement the policy until June 2017. In addition, Beijing and Langfang raised the minimum down payment ratio requirement in the first half of 2017.

¹¹ Before the shock, Nankai and Hexi have an average listing unit price of 23,515 and 26,557 yuan. Such price inYanjiao/Dachang is 19,749.

¹² ‘What’s the Value of Hukou in China’s Mega Cities?’ in People’s Daily, Oct.11, 2013.

¹³ https://fangjia.gotohui.com/years/1/2013/; https://fangjia.gotohui.com/years/1/2021/.

Additional information

Funding

The work was supported by the National Natural Science Foundation of China [72004203]; “the Fundamental Research Funds for the Central Universities” in UIBE [20QN06]; Fundamental Research Funds for the Provincial Universities of Zhejiang [GB201901002]