What is the effect of investor credit supply on housing prices? We provide casual evidence on this question using quasi-experimental variation in credit supply to investors caused by macroprudential policy changes implemented in Australia. We focus on a policy change that placed a bank-level cap on mortgage credit growth to investors. This policy caused a sharp and large drop in credit growth to investors relative to owner-occupiers: the value of new lending to investors relative to owner occupiers halved within a year of the policy coming into effect. We use variation in the investor ownership share across regions and dwelling types to identify the effect this relative contraction in investor credit supply on dwelling prices. We find no significant effect on the growth rate of dwelling prices. Consistent with this, we also find no effect on household’s dwelling price expectations and on the supply of new housing for dwellings more likely to be purchased by investors.

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