Stable home prices are critical to a healthy housing market and sustainable development. Home prices in many Chinese cities have increased dramatically in past decades. The China’s central bank uses two primary monetary controls on overheated housing prices: the bank lending supply and lending rate. However, little to no evidence informs whether the nation-level bank lending controls are effective at the city level. Unlike extant studies that only focus on nation-level effects of such controls, this research analyzes long-run effects on housing prices at the national, regional, and city levels. The authors perform cross-sectional time-series regressions on empirical data from 35 major Chinese cities for the period 2003 to 2015. Results confirm that controlling lending rates is effective as a long-term measure at the national, regional, and city levels, whereas controlling the lending supply is effective as a short-term measure for many cities. Results also reveal that housing prices cause lending supply changes for many regions in a long run and indicate that credit policy often lags in response to housing price changes. Findings show that the effectiveness of bank lending largely varies at the city level, suggesting city-tailed bank lending rather than the centralized controls at the national level.
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