In geographically segmented credit markets, local real estate booms can divert capital away from manufacturing firms, create capital scarcity, increase local real interest rates, lower real wages, and cause underinvestment and relative decline in the industrial sector. Using exogenous variation in the administrative land supply across 172 Chinese cities, we show that the predicted variation in real estate prices does indeed cause substantially higher capital costs for manufacturing firms, reduce their bank lending, lower their capital intensity and labor productivity, weaken firms' financial performance, and reduce their TFP growth by economically significant magnitudes. This evidence highlights macroeconomic stability concerns associated with real estate booms.