A Tale of Two Cities: The Announcement Effect of Northern Metropolis Plan

Using announcement of the Northern Metropolis Plan in Hong Kong in October 2021 as a quasi-natural experiment, we discern its immediate impact on household behaviors, including housing price, consumption, and demographic changes. Drawing from a rich dataset spanning 100,576 housing transaction records, 4.7 million consumption records, and demographic data across 18 districts, our difference-in-differences analysis indicates a marked 3.9% rise in housing prices in the Northern Metropolis region one year after the announcement, with a profound 6.9% surge in the initial 4 months. Additionally, we discover a swift 4.1% uptick in consumption for residents in the treated region in the same initial 4 months, predominantly within the private housing market possibly with expected housing wealth realization. Last, we observe a notable inflow of higher-educated individuals, higher-income households, households with children, and increased school enrollment in the Northern Metropolis. Regionally, we observe a spillover effect by rising housing prices and increased transactions in Shenzhen housing market. While our short-term findings hint at narrowing cross-region inequality in the global superstar city, they also suggest burgeoning within-region inequality—particularly challenging to estimate over the long term—as benefits seem skewed towards individuals with higher socioeconomic profiles. We thus call for policy attention on the affordability and welfare of individuals with lower socioeconomic status in the targeted region under mega projects.