In any hot real estate market, there are complaints about prices being artificially inflated by foreign buyers. That sometimes sounds a little far-fetched. In cities with tens or hundreds of thousands of homes, how many can really be bought up by absentee owners from abroad? Actually, the answer turns out to be a substantial share.

Federal laws designed to prevent money laundering have long had a gaping loophole. Namely, real estate. People or corporations that pay for houses and condos with cash, whether using currency or wire transfers, can evade disclosure requirements. The sellers and bankers involved don’t have to know who the real entities are behind limited liability corporations nominally making the purchase.

There are any number of reasons why buyers would want to remain anonymous: It allows them to launder money and hide assets from tax collectors -- as well as their spouses if they’re getting divorced, or creditors if they’re going bankrupt. For foreign buyers, it’s a good way of masking their true net worth from authorities back home.

There can also be legitimate reasons to stay private. But in 2016, the U.S. Treasury Department, convinced there was something fishy going on in the Miami and Manhattan real estate markets, issued geographic targeting orders, or GTOs. This bureaucratic-sounding change meant that for high-end real estate purchases, cash buyers had to reveal their true identities. The effect was immediate, with cash purchases dwindling to a small fraction of overall sales. “I and a couple of other analysts have publicly said that the condo market in Miami was being dominated by foreign investors,” says Jack McCabe, a Florida real estate consultant. “In many cases, we suspected it was corrupt or criminal funds that were being laundered by these investments, which was easy to do.”

The Treasury Department soon expanded GTOs into more markets, covering many of the nation’s largest cities. A new study from Sean Hundtofte and Ville Rantala, respectively business professors at Yale and the University of Miami, finds that the disclosure requirements have had profound effects. All-cash purchases by limited liability corporations and other corporate entities shrank from 10 percent of the total dollar volume in the targeted real estate markets to just 2.5 percent. House prices at the high end of the market have dropped by at least 4 percent. The changes have been most dramatic in Miami, where the corporate share of residential transactions has plummeted from 29 percent to 2 percent. “It’s had a chilling effect on condominium sales,” McCabe says. “You can make a pretty strong case that the additional scrutiny of buyers and their funds has played a major part in the slowdown of sales.”

Developers in Miami are now offering enhanced commissions or bonuses such as Teslas and Lamborghinis to Realtors who bring them buyers in bulk. In most markets, the impact has not been as dramatic. But the numbers from Hundtofte and Rantala’s research show that there has been a softening in luxury sales throughout cities under GTOs, suggesting that foreign buyers had been contributing significantly to price increases. “In the long run, this might affect property tax revenue through lower valuations or fewer transactions,” they write. “On the other hand, housing appears to have become more affordable to local residents.”