In both countries, output growth has expanded continuously since 1991, house prices have more than doubled since
the mid-1990s and household debt has surged from very much less than national disposable income in the mid-1990s
to very much more today. The UK and Australia most vividly illustrate these trends, but they are not alone.

In the US, house prices are up by one-third since the late 1990s and household credit has expanded along with house
prices. Canada and New Zealand are experiencing the same trends, which are thus common to all major economies of
the Anglosphere.

High house prices are now a common complaint in these countries. But as the Bank of International Settlements has
noted, there is little doubt that the success of central banks in perpetuating low inflation and rising employment created
the housing boom.

Households expect inflation and interest rates to remain low and employment and incomes to continue to increase.

They are more willing and able to take on debt and acquire assets. Higher house prices increase household wealth,
perhaps encouraging households to spend more of their income on consumption.

But if lower interest rates encouraged higher house prices it follows that sooner or later rising interest rates will cause
house prices in the US, UK, Canada, Australia and New Zealand to falter.

Then, it is commonly argued, households will try to increase savings to offset the decline in wealth; consumption will
fall; and a global downturn will inevitably follow.

It is a compelling argument and, as Australian experience this year shows, at least partly right. Since the Reserve Bank
of Australia increased the cash rate by half a percentage point in total late last year, residential property transactions
have plummeted and house-price growth overall has stopped. Many sellers have reduced prices or decided not to sell.

But the striking fact in Australia is that the arrest of house-price inflation this year has had no effect on consumer
confidence, household spending, the banking system or the wider economy.

Two successive consumer confidence surveys in the past three months have shown near record levels of
opti mism. In the most recent numbers, retail trade turnover increased by a higher percentage than in any month for the
past three years. Presented with unexpected cash by a government about to go to the polls, households declined
the opportunity to save it.

Three months ago, the Australian central bank signalled that it thought house prices were coming down and therefore
would not again tighten rates. This month it was confident enough of housing market stability to suggest that interest
rates at some stage would be increased.

Australia's unflustered exit from a long house-price boom is not surprising. In spite of concerns expressed by both the
central bank and the treasurer, there has been little evidence over the past decade that higher household wealth has
driven domestic household consumption or that rapid credit growth has facilitated it.

As a share of nominal gross domestic product, nominal household consumption held quite steady while house prices
were rapidly increasing.

Although considerable equity has been withdrawn from the housing market, much of it is accounted for by older

Australians trading down and using the difference to buy a pension.

If consumption was not tied to house-price inflation and credit growth on the way up, there is no powerful reason to
expect it to be tied on the way down. Charles Bean, the Bank of England's chief economist, recently made many
similar points about the UK.

Nor is the sharp drop in residential property transactions or the arrest of nominal price inflation very surprising. This is
exactly the way the Australian housing market has behaved in the past, as it has in the US and the UK. When interest
rates increase and expected house-price inflation slows, homeowners have reason to stay put.

House prices stop going up, but do not fall. With employment and incomes increasing and mortgage rates still close to
the average of the past six years, it would be puzzling if Australian house prices fell enough to threaten a more general
downturn.

The UK and US housing markets differ from the Australian market and from each other, but there are sufficient
similarities to demonstrate the possibility of well-managed monetary policy bringing house-price booms to a calm end.

• The writer is HSBC's chief economist for Australia and New Zealand