How a Short-Lived Rumor of Residential Redevelopment Disturbs a Local Housing Market: Evidence from Hangzhou, China

Yanjiang Zhang, Hongyi Fan, Qingling Liu, Xiaofen Yu () and Shangming Yang
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Yanjiang Zhang: Chinese Academy of Housing and Real Estate, Zhejiang University of Technology, No. 18 Chaowang Road, Gongshu District, Hangzhou 310014, China
Hongyi Fan: School of Management, Zhejiang University of Technology, No. 18 Chaowang Road, Gongshu District, Hangzhou 310014, China
Qingling Liu: School of Management, Zhejiang University of Technology, No. 18 Chaowang Road, Gongshu District, Hangzhou 310014, China
Xiaofen Yu: Chinese Academy of Housing and Real Estate, Zhejiang University of Technology, No. 18 Chaowang Road, Gongshu District, Hangzhou 310014, China
Shangming Yang: Hangzhou Jointfounder Information Technology Co., Ltd., Hangzhou 310012, China

Land, 2023, vol. 12, issue 2, 1-15

Abstract: This paper investigates how a short-lived rumor of residential redevelopment triggered herding trading and housing price overreactions in a local housing market in Hangzhou. Through event studies, we find that herding purchasing caused a short-term housing price overreaction. Simultaneously, existing homeowners became reluctant to sell, and the number of new listings for sale decreased temporarily. However, we find no evidence of a decrease in market efficiency. A herding investor who purchased an average home may have suffered a loss of CNY 593,907 after the rumor weakened, equivalent to 8.7 years of income for an average resident in Hangzhou in 2021. This study reveals the importance of government policy communication, and the detrimental impact of ambiguous urban renewal policies on housing market stability and wealth redistribution.

Keywords: residential redevelopment; housing price; herding; policy communication (search for similar items in EconPapers)
JEL-codes: Q15 Q2 Q24 Q28 Q5 R14 R52 (search for similar items in EconPapers)
Date: 2023
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