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Does the loan-to-value policy constrain housing prices? Evidence from China

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  • Shi, Yu
  • Xiong, Hu

Abstract

The goal of macroprudential policy is to prevent systemic financial crises, including safeguarding housing market stability. The loan-to-value (LTV) ratio is one of the widely used tools in the housing macroprudential policy. Given the debate over the effectiveness of LTV policy, this study uses provincial-level data from China spanning January 2005 to December 2021 to examine its impact on housing prices by employing a Global Vector Autoregressive (GVAR) model. The findings reveal that the real estate market in China is integrated. Moreover, the results demonstrate that although the tight LTV policy does not effectively decrease housing price level, it exhibits a limited effect in curbing housing price growth without adverse effects on macroeconomic outcomes. The evidence helps explain previous contradictory findings in the literature and emphasize the need for a more integrated policy that combines LTV with other regulatory instruments to stabilize the housing market.

Suggested Citation

  • Shi, Yu & Xiong, Hu, 2026. "Does the loan-to-value policy constrain housing prices? Evidence from China," Economic Analysis and Policy, Elsevier, vol. 90(C), pages 851-868.
    • Handle: RePEc:eee:ecanpo:v:90:y:2026:i:c:p:851-868
    DOI: 10.1016/j.eap.2026.01.067
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