Macroeconomics Seminar - Nalini Prasad (University of New South Wales)

Title: The Effect of Credit on the Housing Market: Evidence from Restrictions on Investor Credit

Abstract: We seek to identify the causal effect of changes in the supply of mortgage credit on housing prices. We look at changes in regulatory policies in Australia that restricted mortgage credit to investors but regulations governing credit supply to owner-occupiers were largely unaffected. We find that these policies reduced credit growth to investors relative to owner occupiers. Using geographic variation in the share of the housing stock owned by investors, we find evidence that areas where investors owned a relatively higher share of the dwelling stock experienced slower housing price growth compared with regions with a higher share of owner-occupiers. Similarly, we find evidence that apartments, which are far more likely to be owned by investors than houses, experienced slower price growth than houses. Our results have implications for how rental housing should be treated in housing models.