The Effect of Investor Credit Supply on Housing Prices

Abstract

What is the effect of investor credit supply on housing prices? We provide evidence on this question using quasi-experimental variation in credit supply to investors caused by two macroprudential policies implemented in Australia. The first policy placed a bank-level cap on mortgage credit growth to investors while the second policy placed a bank-level cap on the share of interest-only mortgage lending. We show that the first policy caused a sharp and large drop in credit growth to investors relative to owner-occupiers, while the second policy caused a modest relative decline in credit growth for investors, who disproportionately use interest-only loans. We use variation in the investor ownership share across regions and dwelling types to identify the effect of investor credit supply on housing prices, rents and transaction volumes. We find no significant effect on the growth rate of housing prices caused by the first policy. However, there was a relative rise in the price of investor housing following the second policy, which is consistent with the use of interest-only lending being a more binding constraint for owner-occupiers than investors. There is evidence that the lending restrictions lowered transaction volumes but rents were unaffected. Our findings are consistent with models assuming a largely unconstrained housing rental sector.