Household Migration and Collateral Constraint: Cash-based Housing Resettlement in China

Collateral constraints limit household migration to expensive locations by restricting financing for home purchases. Such endogenous location choice amplifies the impact of relaxing household borrowing constraints. Using China’s cash-based shantytown renovation program (2015-2018) as a natural experiment, we provide evidence that cash resettlement—by converting illiquid shanty houses into cash—facilitated household location upgrading and raised house prices in more expensive locations. A dynamic spatial model with collateral constraints confirms household migration responses to the cash transfer. Quantitatively, endogenous migration amplifies household housing expenditure responses by around 40%, and is able to explain more than 20% of the housing price growth in 2016-2020.