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'We'll Always Have Paris': Out-of-Country Buyers in the Housing Market

Author

Listed:
  • Dragana Cvijanovic

    (GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC - HEC Paris - Ecole des Hautes Etudes Commerciales - CNRS - Centre National de la Recherche Scientifique)

  • Christophe Spaenjers

    (Department of Economics - Tilburg University [Netherlands])

Abstract

Previous research has shown that non-local household investors make sub-optimal asset selection and market timing decisions. However, in real estate markets, heterogeneity in returns can exist even with identical ex ante investment (timing) choices, given that transaction prices are the outcome of a complex search-and-bargaining process. Analyzing notarial data for the Paris housing market, we find that "out-of-country" buyers indeed buy at higher prices and resell at substantially lower prices than local investors, ceteris paribus. Furthermore, our evidence suggests that this pattern is not due to higher search costs and information asymmetries, but instead stems from wealth-related differences in bargaining intensity. Finally, we estimate the causal effect of out-of-country demand shocks on property prices in Paris to be positive but small.

Suggested Citation

  • Dragana Cvijanovic & Christophe Spaenjers, 2020. "'We'll Always Have Paris': Out-of-Country Buyers in the Housing Market," Working Papers hal-02895964, HAL.
    • Handle: RePEc:hal:wpaper:hal-02895964
    DOI: 10.2139/ssrn.3248902
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    Cited by:

    1. William N Goetzmann & Christophe Spaenjers & Stijn Van Nieuwerburgh, 2021. "Real and Private-Value Assets [Gendered prices]," The Review of Financial Studies, Society for Financial Studies, vol. 34(8), pages 3497-3526.
    2. Jack Favilukis & Stijn Van Nieuwerburgh, 2021. "Out‐of‐Town Home Buyers and City Welfare," Journal of Finance, American Finance Association, vol. 76(5), pages 2577-2638, October.
    3. Pangallo, Marco & Nadal, Jean-Pierre & Vignes, Annick, 2019. "Residential income segregation: A behavioral model of the housing market," Journal of Economic Behavior & Organization, Elsevier, vol. 159(C), pages 15-35.
    4. Carol Camp Yeakey, 2024. "Corporate investors and the housing affordability crisis: Having wall street as your landlord," American Journal of Economics and Sociology, Wiley Blackwell, vol. 83(2), pages 493-510, March.

    More about this item

    Keywords

    foreign home buyers; secondary residences; bargaining; information asymmetries;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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