RDP 2017-05: The Property Ladder after the Financial Crisis: The First Step is a Stretch but Those Who Make It Are Doing OK Appendix C: Extensions and Robustness Tests

C.1 Interacting the Main Demographic Variables with the Post-2007 Dummy

To assess whether there has been a change in the relationship between demographic factors and FHBs between the pre- and post-2007 period we re-estimate Model 1 and include interaction terms between the main demographic variables and the post-2007 dummy. Results from this estimation are shown in Model 1a (Table C1) and indicate no significant difference in the coefficients between periods.

C.2 Including Time Fixed Effects

Park and Phillips (2000) discuss the challenges of using non-stationary explanatory variables in discrete choice models. In particular, they argue that convergence is not guaranteed in binary choice models with integrated regressors.

To evaluate if our results are influenced by the non-stationarity of the state housing price indices, we include time fixed effects instead of the post-2007 dummy in Model 3a (see Table C2 for results). Using this approach, we get quantitatively similar results to Model 3, suggesting that non-stationarity is not an issue here.

C.3 Local Government Area (LGA) Housing Prices

We also test whether the state housing price index is not capturing some other state-time fixed effect by also estimating the model using APM data on LGA-level housing prices.

It should be noted that these more disaggregated data are only available for the capital cities of Sydney, Melbourne and Brisbane, and only cover the period 2001 to 2012, which results in a smaller sample size for estimation of Model 3b. Despite these limitations, we find that using the alternative housing prices measure in Model 3b provides very similar results to Model 3 (Table C2).

C.4 Alternative Models of Debt Levels for FHBs

It is not obvious which particular measure of household debt should be used as a dependent variable. Each choice implicitly embeds a particular functional relationship between debt, income and asset values. In this section, we vary the functional form of the dependent variable to test for the sensitivity of our results to this choice. Model 6 from Table 4 is re-estimated using log FHB mortgage debt and the FHB debt-to-assets ratio as alternative dependent variables. To test how sensitive the model is to extreme values of the FHB debt-to-income ratio we also estimate a median, rather than a mean, regression. Results from these alternative specifications are largely in line with Model 6 (once allowance is made for changes in the coefficient restrictions implicit in the different specifications).