Individual Investors' Housing Income and Interest Rates Fluctuations

103 Pages Posted: 20 Oct 2022 Last revised: 10 May 2024

See all articles by Antonio Gargano

Antonio Gargano

University of Houston - C.T. Bauer College of Business

Marco Giacoletti

Marshall School of Business

Date Written: October 18, 2022

Abstract

We study the relationship between interest rates and the decision to invest in rental
properties. Using unique tax filing data from Australia, we show that declines in interest
rates between 2006 and 2019 coincide with a substantial increase in the share of landlords,
driven by middle-income retirement-age individuals. Empirical tests, field surveys, and
results from a quantitative portfolio model point to reaching-for-income as the mechanism.
Retirees favor consuming from income payments, rather than liquidating wealth. As
rates decline, they substitute interest income with rental income. This behavior impacts
homeownership rates and retirees’ exposure to local shocks.

Keywords: Household Income, Interest Rates, Landlords, House Prices, Rents

JEL Classification: D1, R21, E43

Suggested Citation

Gargano, Antonio and Giacoletti, Marco, Individual Investors' Housing Income and Interest Rates Fluctuations (October 18, 2022). Available at SSRN: https://ssrn.com/abstract=4251621 or http://dx.doi.org/10.2139/ssrn.4251621

Antonio Gargano (Contact Author)

University of Houston - C.T. Bauer College of Business ( email )

Houston, TX 77204-6021
United States

Marco Giacoletti

Marshall School of Business ( email )

701 Exposition Blvd
Los Angeles, CA California 90089
United States

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