This study investigates how house purchase restriction (HPR) affects stock market participation among households in China. Using a staggered difference-in-differences (DID), we observe a decrease in household stock market participation following the adoption of the HPR policy in a city. HPR decreases stock market participation by 1.72 percentage points and households' net equity purchase and equity to total wealth ratio by 17% and 0.2 percentage points, respectively. These findings suggest that house and stock investments cannot substitute each other. Furthermore, our analysis reveals that the negative effect of HPR is not driven by pecuniary consideration (house price and income risks) but rather by nonpecuniary consideration (risk aversion). Although the HPR policy is designed to curb the surge in local house prices, it reduces household's demand for equity investing, which creates a negative externality on the financial market.