The Impact of Real Estate Market Regulation on Macroeconomic Fluctuations in China

ABSTRACT

This paper studies the macroeconomic effects of real estate regulation in China using a multi‐sector DSGE model with household, producer, real estate developer and local government. Within this framework, we examine three regulatory shocks: tightening developer's collateralised borrowing constraints, restricting household housing purchases and expanding local government land supply. The quantitative results show that real estate regulation affects house prices through heterogeneous dynamic channels. House prices decline in the short run, but tend to recover or rise over the medium to long run. All three regulatory shocks suppress residential land prices, but lower land prices do not necessarily reduce local government debt because local governments may expand collateralised borrowing to sustain public investment and stabilise output. Welfare analysis further suggests that regulatory policies involve nontrivial cost structures: the positive welfare effects of developer credit tightening and purchase restrictions mainly reflect lower labour disutility, whereas land‐supply expansion generates a small welfare loss due to lower housing utility and higher labour disutility. These findings highlight the need to coordinate housing‐market stabilisation with land‐finance reform and local fiscal‐risk management.