Policy responses to an overheated housing market: Credit tightening versus transaction taxes

Siu Kei Wong, Ka Shing Cheung, Kuang Kuang Deng and Kwong Wing Chau

Journal of Asian Economics, 2021, vol. 75, issue C

Abstract: Among Asian economies, Hong Kong has experienced the highest real growth in house prices since the 2010s. Two macroprudential measures, namely credit tightening (loan-to-value ratio cap) and transaction taxes (stamp duty), were introduced to cool down the overheated housing market. This study examines and compares their effectiveness based on a set of constant-quality house price indices. Through an error correction model, we find that credit tightening was able to curb house price growth in the high-price segment, while transaction taxes could not. An explanation is that the exemptions from transaction taxes for those with genuine housing needs could be abused by other market participants. It is easier for buyers to exploit the exemptions to get around the stamp duty than to manipulate the property valuation for mortgage lending. The implication is that the effectiveness of macroprudential measures hinges on whether compliance or exemption can be easily monitored and enforced.

Keywords: Transaction tax; Loan-to-value ratio; Macroprudential measures; Repeat sales index (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1049007821000592
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:asieco:v:75:y:2021:i:c:s1049007821000592

DOI: 10.1016/j.asieco.2021.101330

Access Statistics for this article

Journal of Asian Economics is currently edited by C. Wiemer

More articles in Journal of Asian Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().