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Housing Leverage in Australia

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Author Info

  • Luci Ellis

    (Reserve Bank of Australia)

  • Jeremy Lawson

    (Reserve Bank of Australia)

  • Laura Roberts-Thomson

    (Reserve Bank of Australia)

Abstract

A home is the single largest purchase that most households make, and it is one that usually requires some debt financing. Because housing debt is such a large component of households’ balance sheets, it is important to understand the financing decision. In this paper, we use household level data from the HILDA survey to relate households’ leverage to their observed characteristics using both graphical and econometric techniques. We also model the decisions to own a home and to have debt against it. We correct for any possible selection bias arising from these decisions before drawing conclusions about population behaviour. Much of the variation in leverage is attributable to the passage of time, as borrowers pay down their loans on schedule and the value of their homes rise. On top of these largely exogenous effects, we find evidence that some households make conscious decisions that strongly affect leverage. For example, Australian homeowners generally plan to pay off their mortgage before its contracted end date, and many are therefore ahead of schedule in paying off their housing debt. On the other hand, a minority of households have higher leverage than similar households because they have engaged in leveraged investment in both owner-occupied and rental housing.

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Bibliographic Info

Paper provided by Reserve Bank of Australia in its series RBA Research Discussion Papers with number rdp2003-09.

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Date of creation: Jul 2003
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Handle: RePEc:rba:rbardp:rdp2003-09

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Related research

Keywords: household survey; housing debt; leverage;

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References

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  1. Anna J. Schwartz, 2002. "Asset Price Inflation and Monetary Policy," NBER Working Papers 9321, National Bureau of Economic Research, Inc.
  2. David Genesove & Christopher J. Mayer, 1993. "Equity and time to sale in the real estate market," Working Papers 93-6, Federal Reserve Bank of Boston.
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  4. Ben S. Bernanke & Mark Gertler, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," NBER Working Papers 5146, National Bureau of Economic Research, Inc.
  5. Little, Roderick J A, 1988. "Missing-Data Adjustments in Large Surveys," Journal of Business & Economic Statistics, American Statistical Association, vol. 6(3), pages 287-96, July.
  6. James J. Heckman, 1976. "The Common Structure of Statistical Models of Truncation, Sample Selection and Limited Dependent Variables and a Simple Estimator for Such Models," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 5, number 4, pages 475-492 National Bureau of Economic Research, Inc.
  7. Gronau, Reuben, 1974. "Wage Comparisons-A Selectivity Bias," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1119-43, Nov.-Dec..
  8. Fishe, Raymond P. H. & Trost, R. P. & Lurie, Philip M., 1981. "Labor force earnings and college choice of young women: An examination of selectivity bias and comparative advantage," Economics of Education Review, Elsevier, vol. 1(2), pages 169-191, April.
  9. John L. Goodman, Jr. & John B. Ittner, 1993. "The accuracy of home owners' estimates of house value," Working Paper Series / Economic Activity Section 131, Board of Governors of the Federal Reserve System (U.S.).
  10. Lewis, H Gregg, 1974. "Comments on Selectivity Biases in Wage Comparisons," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1145-55, Nov.-Dec..
  11. Bourassa Steven C., 1995. "A Model of Housing Tenure Choice in Australia," Journal of Urban Economics, Elsevier, vol. 37(2), pages 161-175, March.
  12. Christopher Kent & Philip Lowe, 1997. "Asset-price Bubbles and Monetary Policy," RBA Research Discussion Papers rdp9709, Reserve Bank of Australia.
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Citations

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Cited by:
  1. Marion Kohler & Anthony Rossiter, 2005. "Property Owners in Australia: A Snapshot," RBA Research Discussion Papers rdp2005-03, Reserve Bank of Australia.
  2. Luci Ellis, 2006. "Housing and Housing Finance: The View from Australia and Beyond," RBA Research Discussion Papers rdp2006-12, Reserve Bank of Australia.
  3. Carl Schwartz & Tim Hampton & Christine Lewis & David Norman, 2006. "A Survey of Housing Equity Withdrawal and Injection in Australia," RBA Research Discussion Papers rdp2006-08, Reserve Bank of Australia.
  4. Carl Schwartz & Tim Hampton & Christine Lewis & David Norman, 2007. "A survey of housing equity withdrawal and injection in Australia," IFC Bulletins chapters, in: Bank for International Settlements (ed.), Proceedings of the IFC Conference on "Measuring the financial position of the household sector", Basel, 30-31 August 2006 - Volume 1, volume 25, pages 115-131 Bank for International Settlements.
  5. Ellis Connolly & Daisy McGregor, 2011. "Household Borrowing Behaviour: Evidence from HILDA," RBA Bulletin, Reserve Bank of Australia, pages 9-14, March.

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