Separating owner-occupier and investor demands for housing in the Australian states

Purpose: There has been declining home ownership and increased acceptance of long-term renting in many western countries including Australia; this has created a problem when examining housing markets as there are dual demand and include both owner-occupiers and investors. The purpose of this paper is to examine the long-run relationship between house prices, housing supply and demand, and to estimate the effects of the two types of demand (i.e. owner-occupier and investor) on house prices. Design/methodology/approach: The econometric techniques for cointegration with vector error correction models are used to specify the proposed models, where the housing markets in the Australian states and territories illustrate the models. Findings: The results highlight the regional long-run equilibrium and associated patterns in house prices, the level of new housing supply, owner-occupier demand for housing and investor demand for housing. Different types of markets were identified. Practical implications: The findings suggest that policies that depress the investment demand can effectively prevent the housing bubble from further building up in the Australian states. The empirical findings shed light in the strategy of maintaining levels of housing affordability in regions where owner-occupiers have been priced out of the housing market. Originality/value: There has been declining home ownership and increased acceptance of long-term renting in many western countries including Australia; this has created a problem when examining housing markets as there are dual demand and include both owner-occupiers and investors. This research has given to the relationship between supply and dual demand, which includes owner-occupation and investment, for housing and the influence on house prices.