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Housing Leverage in Australia

Author

Listed:
  • 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.

Suggested Citation

  • Luci Ellis & Jeremy Lawson & Laura Roberts-Thomson, 2003. "Housing Leverage in Australia," RBA Research Discussion Papers rdp2003-09, Reserve Bank of Australia.
  • Handle: RePEc:rba:rbardp:rdp2003-09
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    File URL: http://www.rba.gov.au/publications/rdp/2003/pdf/rdp2003-09.pdf
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. 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.
    2. Windsor, Callan & La Cava, Gianni & Hansen, James, 2015. "Home price beliefs: Evidence from Australia," Journal of Housing Economics, Elsevier, vol. 29(C), pages 41-58.
    3. Luci Ellis, 2006. "Housing and Housing Finance: The View from Australia and Beyond," RBA Research Discussion Papers rdp2006-12, Reserve Bank of Australia.
    4. Ellis Connolly & Daisy McGregor, 2011. "Household Borrowing Behaviour: Evidence from HILDA," RBA Bulletin, Reserve Bank of Australia, pages 9-14, March.
    5. Gurdgiev, Constantin T., 2006. "Owner-occupied housing in a model of exchange rate determination," Journal of Housing Economics, Elsevier, vol. 15(3), pages 217-229, September.
    6. Marion Kohler & Anthony Rossiter, 2005. "Property Owners in Australia: A Snapshot," RBA Research Discussion Papers rdp2005-03, Reserve Bank of Australia.
    7. 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.

    More about this item

    Keywords

    household survey; housing debt; leverage;

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand

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