The analysis reported in this article incorporates direct measures of borrowing constraints into an otherwise standard model of the home-ownership decision in Australia. Borrowing constraints take into account mortgage underwriting criteria, household incomes and wealth, and the household's optimal level of consumption of housing services. Models containing borrowing constraint measures are estimated for households with heads ages 25-34, the age-group that is most likely to be moving into home-ownership. Consistent with previous findings in the US and Canada, borrowing constraints are significant determinants of the probability of ownership. Including borrowing constraints in the tenure-choice model results in a reduction in the independent impacts of household income and the relative costs of owning and renting, implying that in the standard model these variables are at least in part proxies for borrowing constraints. As wealth is the binding constraint for most constrained renters, the article concludes that government programmes to encourage first-time buyers should focus on reducing deposit requirements.
Get full access to this article
View all access options for this article.
References
1.
Bourassa, S.C. (1995) A model of housing tenure choice in Australia, Journal of Urban Economics, 37, pp. 161-175.
2.
Bourassa, S.C., Greig, A.W. and Troy, P.N. (1995) The limits of housing policy: home ownership in Australia, Housing Studies, 10, pp. 83-104.
3.
Bourassa, S.C. and Hendershott, P.H. (1992) Changes in the relative incentives to invest in housing: Australia, Sweden, and the United States , Journal of Housing Economics, 2, pp. 60-83.
4.
Dilnot, A.W. (1990) The distribution and composition of personal sector wealth in Australia, Australian Economic Review, 1st quarter, pp. 33-40.
5.
Duca, J.V. and Rosenthal, S.S. (1994) Borrowing constraints and access to owner-occupied housing, Regional Science and Urban Economics, 24, pp. 301-322.
6.
Hendershott, P.H. and Slemrod, J. (1983) Taxes and the user cost of capital for owner-occupied housing, Journal of the American Real Estate and Urban Economics Association, 10, pp. 375-393.
7.
Housing Loans Insurance Corporation (1993) 29th Annual Report & Financial Statements: Year Ended 30th June 1993. Sydney: HLIC.
8.
Jones, L.D. (1989) Current wealth and tenure choice, Journal of the American Real Estate and Urban Economics Association, 17, pp. 17-40.
9.
Linneman, P. and Wachter, S. (1989) The impacts of borrowing constraints on homeowner-ship , Journal of the American Real Estate and Urban Economics Association, 17, pp. 389-402.
10.
Moody'S Investors Service (1994) Asset Credit Evaluations: Australasia. Sydney: MIS (September/October).
11.
National Housing Strategy (1991a) The Affordability of Australian Housing. Issues Paper No. 2. Canberra: Australian Government Publishing Service .
12.
National Housing Strategy (1991b) Financing Australian Housing: The Issues. Issues Paper No. 3. Canberra: Australian Government Publishing Service .
13.
Neutze, M. and Kendig, H.L. (1991) Achievement of home ownership among post-war Australian cohorts, Housing Studies, 6, pp. 3-14.
14.
Pagan, A. (1984) Econometric issues in the analysis of regressions with generated regressors, International Economic Review, 25, pp. 221-247.
15.
Zorn, P.M. (1989) Mobility-tenure decisions and financial credit: do mortgage qualification requirements constrain home ownership?, Journal of the American Real Estate and Urban Economics Association, 17, pp. 1-16.
16.
Zorn, P.M. (1993) The impact of mortgage qualification criteria on households' housing decisions: an empirical analysis using microeconomic data , Journal of Housing Economics, 3, pp. 51-75.
