Household Mobility and Collateral Constraint: Cash-based Housing Resettlement in China

How does relaxing household borrowing constraint affect housing markets in models with endogenous migration? We answer this question by exploiting the cash-based housing resettlement in China’s shantytown renovation program during 2015-18. We first document empirical evidence showing that cash resettlement increased intercity migration and raised house prices in destination cities due to higher immigrant demand. Notably, the effect is strongest for city-pairs with larger house price gaps, suggesting that relaxed borrowing constraints enable households to upgrade to previously unaffordable locations. Endogenous migration amplifies the impact of relaxed borrowing constraints, as households are more likely to face binding constraints when purchasing houses in desired cities. We develop a dynamic spatial model with collateral constraints to evaluate the program’s effects and the role of migration. The individual counterfactual analysis predicts household location upgrading and an amplification effect of migration on housing spending following relaxation in borrowing constraints. The model predicts that the program increased the nationwide house price by XXX – significantly more than in a no-migration model (XXX).