How Risky Is Australian Household Debt?

Jonathan Kearns, Mike Major () and David Norman

Australian Economic Review, 2021, vol. 54, issue 3, 313-330

Abstract: Household indebtedness has increased substantially in Australia. We consider how significant a risk this debt poses. Our results suggest that banks appear resilient to a severe downturn, thanks to moderate loan‐to‐valuation ratios on residential mortgages and generally sound lending criteria. Household debt seems to pose a bigger risk to consumption, since a large but plausible decrease in asset prices could precipitate a substantial decrease in consumption. Moreover, the increase in indebtedness over the past decade has slightly increased the potential decline in consumption. However, the distribution of debt across households appears to slightly mitigate these risks.

Date: 2021
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https://doi.org/10.1111/1467-8462.12422

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Working Paper: How Risky is Australian Household Debt? (2020)
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