Soaring household debt poses risk to economy
Growing household debt will pose more risks to macro-economic stability in Australia, according to research undertaken for the Australian Housing and Urban Research Institute (AHURI) by researchers from the University of Sydney.
The “Housing prices, household debt and consumer spending” report showed that the macroeconomic policy-makers should acknowledge the potential risks associated with high levels of household debt and rising household income-to-debt ratios.
The report also stressed that the countries with similar situations had introduced the regulations limiting the growth of household indebtedness, with robust prudential regulation being one of the important policy priority.
According to the research, the households with higher levels of debt were most responsive to increases in house prices and this could become a potential systemic risk.
Associate professor, Stephen Whelan, said: “This is in contrast to a general belief in Australia that debt is held by those most able to service it, namely, higher income and higher wealth households,”
“Financing higher consumption through taking debt among highly leveraged households exposes those households to the risk of significant loss if house prices fall or if interest rates rise,” he said.
The research also proved that there were differences in the consumption responses between home owning investors with and without debt, with investors with a mortgage debt being not as risk-adverse when compared to other homeowners.
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