The rise in land prices that I have spoken about is inextricably linked to the rise in household borrowing. Together, these two developments have grossed up the household sector’s balance sheet (Graph 9). This means that, on the assets side of the balance sheet, a given percentage change in housing prices has a bigger effect than it once did.
And on the liabilities side, movements in interest rates also have a bigger effect. We are still trying to understand fully the implications of all of this. However, I think it is difficult to escape the conclusion that household balance sheets are, on average, a little more risky than they once were. Many Australian households also seem to have reached a similar conclusion.