Economists studied a dataset which follows 4,000 households to understand how household indebtedness changed between 2002 and 2014.
A quarter of the growth in Australian household debt over the past decade has been attributed to rising house prices in a recent University of Sydney analysis.
Economists studied data covering a 12-year period, to provide the first Australian analysis of the link between housing wealth and household debt.
Significantly, it was found poor or heavily indebted households are not taking on new debt, but middle and higher income households are, said Professor Garry Barrett.
“This is individually financially rational, but it does pose a concern about the exposure of this group to higher interest rates, or other unexpected events,” said Professor Barrett.
“For homeowners, taking on new debt and having high loan-to-value ratios, the present low interest rate environment is unlikely to last forever.”
Dr Rebecca Edwards said the effect of house prices rises on household debt in Australia is larger than was found in other studies in the United Kingdom and the United States, although data for these nations extended only to between 2005 and 2007.
The analysis, which was carried out using Household Income and Labour Dynamics in Australia (HILDA) data, may enable policymakers to understand how households respond to debt levels.
“To date, macroeconomic policy makers have been relatively sanguine about high levels of debt and the rising household debt-to-income ratio in Australia. That’s because debt has been held by higher income and higher wealth households,” said Dr Kadir Atalay.
“Changing patterns of debt between owners and investors, the rising share of older households with mortgages, and a changing distribution of income and wealth may change this.”
However, Dr Atalay said it is unlikely monetary policy can target outcomes in housing markets. “Policy settings that ensure steady growth and avoids speculative bubbles can at best be supported rather than achieved directly from monetary policy settings,” he added.
The analysis builds on September 2016 research conducted for the Australian Housing and Urban Research Institute (AHURI, which found a $1,000 increase in house value is associated with a $240 increase in household debt among property owners.