Authors: Zhi Liu, Wenjing Li

Original article: Effects of housing purchase restriction on market behavior in China, published in Transactions in Planning and Urban Research, May 2025.

Following the market-oriented housing reform launched in 1998, China’s urban housing market expanded rapidly and urban residents’ living conditions were greatly improved, yet housing prices also surged substantially. To stabilize housing prices and boost housing affordability, central and local governments have rolled out a suite of housing regulatory policies. As a short-term regulatory instrument, housing purchase restrictions have been widely adopted by real estate hot cities since 2010 to curb speculative housing demand.

A new study released by the Peking University–Lincoln Institute Center for Urban Development and Land Policy analyzes the impacts of housing purchase restrictions on China’s urban housing market, published in the international journal Transactions in Planning and Urban Research. Based on panel data covering 35 large and medium-sized Chinese cities from 2009 to 2019, the research establishes a simultaneous equation model of housing supply and demand to empirically examine how purchase restrictions affect housing transaction volumes, price levels and price volatility. The study finds that purchase restrictions, as a short-term regulatory tool, can effectively cut housing transaction volumes and bring down housing prices. Nevertheless, in cities featuring high demand price elasticity and low supply price elasticity, such policies amplify housing price fluctuations. Policy shifts trigger sequential adjustments on the demand side: for example, buyers may advance home purchases upon the relaxation of restrictions out of expectations that such curbs will be reinstated. In contrast, housing supply cannot adjust promptly in the short run due to construction cycles and land constraints, resulting in supply-demand imbalance and intensified price swings. Moreover, frequent policy interventions disrupt market participants’ formation of rational expectations and fuel short-term speculation. When purchase restrictions are lifted, expectations of policy reintroduction may trigger concentrated housing purchases, driving up prices and eroding housing affordability for middle- and low-income groups.

While housing purchase restrictions can suppress speculative demand in the short run, frequent policy tweaks distort market expectations and exacerbate housing price volatility — a problem that cannot be overlooked. Policymakers should strike a balance between market intervention and market mechanisms. On the one hand, market-based and institutional reforms should be carried out to improve land use efficiency, optimize the housing supply structure, raise housing supply elasticity and guarantee adequate housing supply for middle- and low-income households. On the other hand, financial market reforms should be advanced to offer diversified investment channels for urban residents, reduce households’ overreliance on housing as an investment vehicle, and fundamentally curb speculative demand so as to achieve stable housing market development.

Liu, Z., & Li, W. (2025). Effects of housing purchase restriction on market behavior in China. Transactions in Planning and Urban Research, Advance online publication.https://doi.org/10.1177/27541223251337307