RDP 2005-03: Property Owners in Australia: A Snapshot 1. Introduction

Australia has a strong tradition of home ownership, with rates reaching the current level of close to 70 per cent in the early 1960s, at the time a high level by international standards. Over the past decade, there has also been an increasing interest in owning other residential property, particularly for investment purposes. In 2002, 17 per cent of Australian households owned residential property which was not their main home. This is considerably higher than in other countries, such as Canada, the United Kingdom or the United States.

Australian households' interest in property is also strongly reflected in their balance sheets. While housing has always been an important component of the household balance sheet, recent house price appreciation has led to residential property now accounting for more than 60 per cent of total household assets. At the same time, since most purchases require mortgage financing, property debt accounts for 84 per cent of all household debt and the debt-to-asset ratio amounts to 23 per cent.

This paper examines who owns property in Australia and the gearing choices of property owners using a cross section of 7,245 households from the 2002 Household, Income and Labour Dynamics in Australia (HILDA) Survey. In addition to considering the choices of owning and holding debt on property, the decisions regarding the value of assets held in property and the loan-to-valuation ratio are also modelled.

While there are many previous studies which consider the tenure choice of households and some that consider household debt choices, relatively few examine both perspectives of home ownership. Generally, this is considered explicitly within a portfolio system, such as King and Leape (1998) or Arrondel and Lefebvre (2001), though some studies also consider it separately (see, for instance Curcuru 2003 and Ellis, Lawson and Roberts-Thomson 2003). Our study is closely related to that of Ellis et al (2003), who analyse the leverage of home owners in Australia using the 2001 HILDA survey. The 2002 survey provides more comprehensive data on household assets and debt, which allowed us – unlike Ellis et al (2003) – to include household wealth as an explanatory variable and to extend the analysis to all residential property owned by households. Specification tests also suggested that a different modelling approach to that used by Ellis et al (2003) is more appropriate for our data set.

Most of the existing literature focuses only on owner-occupied property and neglects the important role of other property ownership. A few studies consider both types. Manrique and Ojah (2003) examine both primary and secondary property ownership for Spain by modelling expenditure on the various types of housing, similar to Ioannides and Rosenthal's (1994) treatment for the US. Arrondel and Lefebvre (2001) further decompose other residential property into secondary residences and dwellings rented out to others in France, while also examining housing loans over all property types.

Like Arrondel and Lefebvre (2001), this paper examines the cross-sectional microeconomic aspects of households' decisions regarding owner-occupied and investment property, which we describe as any other residential property owned by a household. In addition, we also consider mortgages for owner-occupiers and investment property owners separately. In Section 2, we discuss some factors affecting property ownership in the light of previous studies. Section 3 establishes the modelling framework used in the paper and discusses the results from the econometric models. We conclude in Section 4.