Residential property in Australia: mismatched investment and rental demand

Abstract

Housing prices in Australia have demonstrated strong growth in recent decades, and many argue housing supply is not keeping up with the demand. The Australian government purports to increase the private construction of new houses and availability of rental housing primarily through taxation offsets. However, inflated house prices are also at least partially explained by housing supply shortage. This work studies Australian residential property investors to understand their characteristics and role in contributing to the supply of rental housing. Using rich proprietary loan-level data on over 1.1 million mortgage applications during a period of stable policy and house price appreciation, we study the determining factors for accessing finance for the purpose of residential investment as opposed to owner-occupation. Our findings use historical data to present new evidence of the increasingly non-metropolitan location choice for real estate investment properties. This is a potential explanation for the shortage of suitable housing in metropolitan regions but may contribute to regional development.

Keywords:

• Housing supply
• residential property investors
• housing affordability
• mortgage choice
• rental demand

JEL classification:

• R31
• G21
• O18

Acknowledgements

We acknowledge funding support from ARC DP120100842. We acknowledge support, data provision and advice from Prof. Mardi Dungey. We are grateful for the comments received on earlier versions of this paper presented at: the Australian Social and Affordable Housing Symposium, Griffith University; ACE Sydney; and AHRC RMIT. We are grateful to suggestions made by anonymous reviewers.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 Australian Bureau of Statistics, Catalog 6416.0 – Residential Property Price Indexes: Eight Capital Cities https://www.abs.gov.au/Ausstats/[email protected]/exnote/6416.0 (accessed 12 December 2019).

2 Reserve Bank of Australia (2015).

3 Australian Bureau of Statistics, Catalog 560 – Lending Indicators, Australia, https://www.abs.gov.au/AUSSTATS/[email protected]/DetailsPage/5601 (accessed 5 December 2019).

4 These figures are relatively stable. For July 2017, 83 percent of all finance commitments for investment housing were purchased for rent or resale by individuals, while only 8.9 percent were purchased for rent or resale by others.

5 Australian Bureau of Statistics, Catalog 5609.0 Housing Finance, Australia

6 Australian Bureau of Statistics, Catalog 4130.0 Housing Occupancy and Costs

7 APRA 2014, https://www.apra.gov.au/sites/default/files/141209-Letter-to-ADIs-reinforcing-sound-residential-mortgage-lending-practices.pdf (accessed 26th May 2021).

8 For pioneering work on the choice between adjustable rate mortgages (ARMs) and fixed-rate mortgages (FRMs) see Brueckner & Follain (1988) and Brueckner & Follain (1989). For an Australian analysis on mortgage choice see Dungey et al. (2015).

9 Australian Bureau of Statistics, Catalog 6523.0 – Household Income and Wealth, Australia, 2015-16 – http://www.abs.gov.au/ausstats/[email protected]/mf/6523.0. (accessed 20 November 2019).

10 Note that postcodes vary significantly in area size and generally include more than one neighbourhood.

At the extreme, Australian postcode 4350 includes the delivery areas for 38 different suburbs.