Home away from home? Foreign demand and London house prices

Identifying the effects of “flights to safety” on asset prices using pure time-series methods is difficult because crises are infrequent. We develop a new cross-sectional identification approach, motivated by the insight that investors may differ in their “preferred habitats” within a broad asset cl...

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Bibliographic Details
Published in:Journal of financial economics 2018-12, Vol.130 (3), p.532-555
Main Authors: Badarinza, Cristian, Ramadorai, Tarun
Format: Article
Language:English
Subjects:
Assets
Foreign capital
Global cities
Global economy
House prices
Housing
Housing prices
Immigration
Personal safety
Political risk
Price regulations
Prices
Real estate
Safe-haven demand
Transactions
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Summary:Identifying the effects of “flights to safety” on asset prices using pure time-series methods is difficult because crises are infrequent. We develop a new cross-sectional identification approach, motivated by the insight that investors may differ in their “preferred habitats” within a broad asset class. We apply the method to the question of whether foreign capital is responsible for residential real estate price movements in global cities such as London and New York, especially during crises. Using large data sets of housing transactions, we find that foreign risk strongly affects London house prices. The effects are long-lasting, and are associated with both safe-haven effects and immigration.
ISSN:0304-405X
1879-2774
DOI:10.1016/j.jfineco.2018.07.010