Can housing booms elevate financing costs of financial institutions?

Chao Ma and Shuoxun Zhang

Journal of Development Economics, 2024, vol. 167, issue C

Abstract: We show that house price appreciation elevates financial institutions' financing costs because it can make households invest more in houses and invest less in or require higher returns on other assets. For identification, we employ the unique feature of wealth management products (WMPs, the largest component of China's shadow-banking sector) that the issuing markets are local whereas the markets of some products' underlying assets are national. Stocks, bonds, and deposits do not possess this feature. We find that house price growth raises WMPs' expected returns offered by banks. Household-level analyses further confirm that house price growth reduces households' WMP-investment demands.

Keywords: House price; Housing boom; Financing costs; Financial institution; Bank; Wealth management products; Shadow banking (search for similar items in EconPapers)
JEL-codes: G2 G5 R2 R3 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:deveco:v:167:y:2024:i:c:s0304387823001864

DOI: 10.1016/j.jdeveco.2023.103230

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