A Research Discussion Paper from the Reserve Bank of Australia
Link is here, but in brief:
- fundamental factors (higher real incomes, a fall in nominal interest rates, financial liberalisation and household ownership of the rental stock) mostly account for the current level of household debt;
- banks appear resilient to a severe downturn thanks to moderate loan-to-valuation ratios on residential mortgages;
- and the distribution of debt does not appear to heighten wealth effects on consumption.
- However, there are risks. Our model cannot account for the increase in debt over the past four or five years. In addition, we demonstrate that a large but plausible fall in asset prices could lead to a substantial fall in consumption and that the increase in indebtedness over the past decade has slightly increased the potential loss of consumption during periods of financial stress.
