The shortage of safe assets and China's housing boom

Scholars have focused on macroeconomic fundamentals and speculative value to understand China's housing boom; however, this study empirically finds that great economic uncertainty and bleak economic prospects increase housing prices. We study this flight-to-housing effect in a two-regional model with housing. The results indicate that a bubble burst shock contributed to the safe-asset shortage in China following the 2008 global financial crisis, prompting households' demand for housing assets as stores of value and generating a housing boom. The financial market collapse and economic slowdown intensified the shortage and fueled the housing boom. Moreover, our findings suggest that the “housing purchase restriction policy” cannot curb the housing boom; the policy transfers the boom from one region to the other. This study provides a systematic framework to understand China's housing boom from the new standpoint of housing as a safe asset.