Estimating the effect of long-term mechanism for real estate in China: a regression discontinuity approach

Housing prices in China have risen dramatically in recent decades, giving rise to bubble concerns. Many studies show that short-term regulation of real estate market is ineffective, which drove central government to propose the construction of a long-term mechanism for real estate in late 2016. However, few studies have been conducted to estimate its effects. This article highlights the effects of the long-term mechanism on housing prices, similar to a quasi-natural experiment, with the proposal of the long-term mechanism. In this context, the study was conducted with the end of 2016 as a breakpoint, using the RDiT method and panel data for 35 large- and medium-sized cities from 2009 to 2021, to find out whether the long-term mechanism has stabilized housing prices or not. The results reveal that the long-term mechanism dramatically reduced the divergence and dispersion of housing prices from the long-term equilibrium level. Further study shows that there is significant heterogeneity in the impact of the long-term mechanism on housing prices across cities, with significant effects in second-tier cities but not in first-tier cities, and with significant effects in central and western cities but not in eastern cities. Therefore, we suggest that the eastern, including the first-tier cities, remain the focus of the construction of the long-term mechanism in the future, and continue to implement short-term regulation for key cities, and build a system that coordinates with the long-term mechanism.