The Reserve Bank of Australia's (RBA) attempts to cool the country's housing market could significantly hurt consumer demand, according to research from Moody's Analytics.
Australia's central bank underestimates the tight relationship between consumption and house prices, Moody's said in a report, noting that housing currently accounts for 55 percent gross household assets, well above the global average. By comparison, housing constitutes 25 percent of U.S. household wealth.
"Consumer spending has steadily accelerated over the past 12 months… a lot of the consumption lift is thanks to rising house prices, and without it, demand could be considerably weaker," the report said.
"The link between asset prices and consumer spending is particularly important in the current policy environment. A key reason behind the record low interest rates of today's stimulative Reserve Bank of Australia monetary policy settings, which have helped to lift house prices over the past two years, is that they will in turn drive an increase in consumer spending," it added.
However, that assumption may not be well-founded, Moody's argues, pointing to examples of household consumption moving with asset prices. In 2008-2009, slower consumer spending corresponded with a fall in asset prices and housing wealth.