Individual Investors' Housing Income and Interest Rates Fluctuations

We study the relationship between the level of interest rates and the share of individuals who own rental properties. Using unique tax filing data from Australia, we show that declines in interest rates over the period between 2006 and 2019 have coincided with a substantial increase in the share of landlords, in particular among middle-income retirement-age individuals. We use both empirical tests and a survey of Australian landlords of our own design to explore different mechanisms, and find evidence consistent with reaching for income. Retirees have a preference for income-paying assets. As rates decline, they substitute interest income with rental income. This reaching for income behavior has aggregate effects on the homeownership rate, and on the exposure of retirees’ income streams to local shocks.