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The effect of house prices on households’ financial decisions has been an important question facing researchers and policy-makers. Increases in house prices may lead households to take on additional debt, refinance an existing mortgage, or change the composition of the debt held. Studies of labour supply have also found significant changes in work patterns due to house price movements. Labour force participation and hours of work decisions have been found to be sensitive to households’ housing tenure and their age. To inform the development of policy in Australia, empirical evidence is needed to confirm the importance of these relationships, and to gauge the magnitudes of the effects.

This research uses the Household Income and Labour Dynamics in Australia (HILDA) dataset, 2001–2012. The analysis exploits the longitudinal nature of the survey and the rich information on households and individuals available in the data. In particular, every four years, respondents in the survey are asked detailed questions about their holdings of assets and liabilities. We supplement the HILDA data with a panel of local government area house price data collected by Residential Property Data.

The longitudinal nature of HILDA provides an opportunity to examine the dynamics of labour supply, household debt and the borrowing behaviour of Australian households. The study examines these questions by using panel data and cross-sectional econometric models.

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