The Effect of Investor Credit Supply on Housing Prices

Abstract

What is the effect of investor credit supply on housing prices? We provide causal evidence 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. The second policy placed a bank-level cap on interest-only lending, which is predominantly used by investors. Both policies caused a large and sharp reduction in new investor lending relative to new owner-occupier lending. We examine the effect of these policies on the housing market using unit-record data on property sales and listings. We show that the restrictions on investor lending reduced the share of properties purchased by investors and reduced the relative price of properties in investor segments of the market.

Keywords: credit, investors, macroprudential policies, house prices

JEL Classification: E44, E5, G21, G28, R21