Capital Flows, Asset Prices, and the Real Economy: A "China Shock" in the U.S. Real Estate Market

06/30/2020 | 05:34 pm

June 2020

Capital Flows, Asset Prices, and the Real Economy: A 'China Shock' in the U.S. Real Estate Market

Zhimin Li, Leslie Sheng Shen, Calvin Zhang


We study the effects of foreign real estate capital flows on local asset prices and employment using detailed housing transactions data. We document (i) a 'China shock' in the U.S. real estate market after 2007 driven by the Chinese government's house purchase restrictions and (ii) 'home bias' in foreign Chinese housing purchases in the United States as they are concentrated in ZIP codes historically populated by ethnic Chinese. Exploiting the quasi-random temporal and spatial variation of real estate capital inows from China, we find that foreign Chinese housing purchases have a positive and significant effect on local housing and labor markets. A one standard deviation increase in exposure to these purchases explains 24% and 18% of the cross-ZIP-code variation in local house prices and employment, respectively, with the employment effect transmitted through a housing net worth channel. We also show that these purchases drive out lower-income residents. Our results highlight the role of foreign real estate capital ows in both stimulating the real economy and inducing gentrification in local economies.

Keywords: Keywords: Capital flows, house price, employment, China shock


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Board of Governors of the Federal Reserve System published this content on 30 June 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 30 June 2020 21:33:08 UTC

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