Local Effects of Global Capital Flows: A China Shock in the U.S. Housing Market

Abstract

We show that foreign real estate capital inflows have positive real effects and adverse distributional consequences. Using transaction-level data, we document (i) a China shock in the U.S. housing market characterized by surging foreign Chinese housing purchases after 2008; and (ii) home bias in these purchases, as they concentrate in neighborhoods historically populated by ethnic Chinese. Exploiting their temporal and spatial variation, we find that these capital inflows raise local house prices and employment, with the employment effect transmitted through a housing net worth channel. At the same time, they crowd out low-income residents and widen economic inequality across neighborhoods.