Credit Tightening and Housing Prices: Empirical Research on the Channel of the Housing Supply Side

Little is known about how credit affects housing prices from the housing supply side. The Chinese government has implemented a differential credit tightening policy for the real estate sector since Q3 2020, providing a quasi-natural experiment for answering this question. Using the data of 1275 housing projects from Q3 2019 to Q3 2021, we find that the policy has reduced the prices of housing projects by 5.5% and that this result has hardly changed after addressing the problem of sample incomparability and sample grouping. The negative impact is more pronounced for the heavily regulated developers and private-owned developers, advancing the understanding of the basic result. Further investigations show the policy has indeed restricted developers' debt financing and deteriorated their liquidity but has not suppressed the housing demand statistically. Consequently, this paper proves a supply-side channel of credit's impact on housing prices.