["Real Estate Economics, EarlyView. ", "\nAbstract\nIn response to the COVID‐19 pandemic, numerous countries implemented lockdowns. In Victoria, Australia, a unique two‐tier system was employed, segregating areas with a Ring of Steel boundary and imposing additional restrictions within. This study focuses on the impact of lockdowns on housing prices and rents, exploring whether people are willing to pay a premium to live in areas with fewer lockdown restrictions and thus proposing this premium as an alternative measure of lockdown cost. We utilized a spatial difference‐in‐differences design to test on the lockdown boundary area and address many confounding factors. The research reveals a 7%–8% relative drop in housing rents within the Ring of Steel, dissipating within 6 months after lockdowns ended. A surprisingly large drop of 6%–7% in housing values is observed inside the Ring of Steel. These empirical estimates suggest homebuyers’ behavioral biases could further depress housing values during a pandemic.\n"]