Australians are racking up extreme levels of debt to buy homes that are among the world's most expensive, a ticking time bomb that could wreck the economy if it is hit by a sudden shock, experts warn.
While the country is one of the best-performing developed global economies, soaring property prices have also made it a world-beater in household debt.
The nation has a household debt-to-GDP ratio of 123 percent, largely housing debt -- second only to Switzerland, according to the Bank of International Settlements.
Those levels exceed the US, Spain and Ireland before their property market crashes, global ratings agency Moody's said in a report this month, warning Australians also held limited liquid assets.
"Australians have borrowed up a storm, and housing prices in this nation are now dangerously dumb," prominent Australian economist Chris Richardson said this month.
"Compared with the global financial crisis, our vulnerabilities are higher, our defences are weaker."
Such dire warnings contrast with Australia's recent economic experience, with the country on course for a record 26 years without a recession.
It fared well during the 2008 financial crisis, aided by its largest trading partner China's hunger for commodities.
But interest rates have been slashed to a record-low 1.50 percent to boost growth as Australia shifts from a dependence on mining-driven expansion, heating up the housing market.
Sydney's median house price is Aus$1.1 million (US$830,000) and nationally prices have soared 250 percent in real terms since the mid-1990s, the OECD said in March.
- Little buffer left -
However, wage growth has been tepid recently, forcing people to spend a higher proportion of their incomes on mortgages.
Reserve Bank of Australia governor Philip Lowe issued a blunt warning this month that "stretched balance sheets make for more volatility when things turn down".
"In some cases, lenders are assuming that people can live more frugally than in practice they can, leaving little buffer if things go wrong," he added.
Modelling by National Australia Bank found difficulties could kick in if the jobless rate, currently at 5.9 percent, rises to 8.5 percent, chief economist Alan Oster said.
"As a bank, what we do is we look at unemployment by postcode," Oster told AFP.
"And what we find is there is around 50 postcodes where we personally don't want to lend much," he said, adding that areas that benefited from the mining boom were now struggling as investment falls.
Analysts said a financial crisis worsened by severe household debt would take on a different flavour in Australia.
In the US during the 2008 crisis, homeowners walked away from mortgages when situations turned sour.
But Down Under -- home to the "Great Australian dream" of owning property -- locals go to great lengths to avoid defaulting on loans.
"Australians will take their kids out of private school, they'll sell their car, they'll not go on holidays... they'll do whatever they feasibly can to avoid defaulting on their mortgage," independent economist Saul Eslake told AFP.
"The risk is that if interest rates go up, people will be forced to spend more servicing their mortgages, and thus have less to spend on other things. It's a risk to economic growth, not a risk to financial stability."
- RBA reluctance -
Most of the debt is held by the richest 20 percent, while banks' bad debt ratios were low, Oster added.
Financial institutions are meanwhile viewed as well-capitalised and able to withstand adverse shocks.
At the same time, Australia is one of the world's most urbanised developed nations despite being the sixth largest country by land mass, concentrating property purchases in built-up areas.
Coupled with local laws stifling development and population rises boosted by immigration, demand has grown faster than supply in big cities.
Yet the central bank is reluctant to raise rates to cool the market, as price increases have been uneven across the country.
It has instead turned to financial regulator the Australian Prudential Regulation Authority and corporate watchdog the Australian Securities and Investment Commission to tighten lending standards and police the banks.
Canberra is also under growing pressure to enact policies to drive supply and affordable housing, and has hinted at new measures in May's national budget.
The government has so far cracked down on illegal home purchases by foreigners and imposed new taxes on non-local buyers.
But politicians have been reluctant to wind back housing tax deductions and concessions blamed as among the biggest culprits in inflating prices, for fear of alienating voters.
"There is this... immediate fear, to say we can't impact the price because then what's going to happen to the current borrowers," Pimco's Australia chief Robert Mead told AFP.
"It's not popular but I think that's the more sensible approach. It's harder for any government policy to immediately create jobs or immediately increase wages... to improve income."