Do housing costs affect transportation? Longitudinal evidence from Australia

Abstract

Utilising an instrumental variable alongside longitudinal data from Australia, this study investigates the causal relationship between housing costs and transportation outcomes. We combine the average costs of rent and mortgage payments to construct a composite housing cost measure and then estimate its impacts on four transportation variables and relocation. The instrumental variable relies on plausibly exogenous variations in composite housing costs influenced by foreign investments that are distributed disparately across local government areas in Australia on the basis of historical settlement patterns of immigrants. The findings reveal that increased housing costs lead to increased commute duration and a noticeable redistribution of expenditure, favouring public transport costs over fuel expenses. These findings are largely consistent with the predictions of standard urban theory. As the impacts of rising housing costs fall disproportionately on less educated individuals, our findings suggest that housing and transportation policies targeted at the housing and transportation options of these individuals can potentially reduce the inequality effects of rising housing costs.