If a guest user installs cracked software / malware, is the original user compromised? I created a login for my housemate on my MacBook.

I have since learned that they have installed cracked software.

How well am I insulated by macOS security architecture against this breach?
If you didn’t give the guest admin privileges, you’re pretty well protected.

There’s a basic rule when it comes to privileges - what one admin can do, another can (un)do.  This means that if you gave your house mate admin privileges, you gave him/her the same rights you have to modify the system.

So, let’s assume the worst case and say you did give him admin privileges.  “Cracked” software doesn’t automatically mean malware is attached.  But, again assuming the worst, whatever malware installed was done do with (worst case again) root privileges.  

While SIP, Gatekeeper, and Catalina’s new read-only system volume do a considerably good job protecting your system, you can still do some critical damage.  Worse, you could have a keylogger installed that captures login credentials, personal info, and everything required to steal your identity and drain your bank account.

Start with Malwarebytes and scan your Mac for threats.  Personally, I would always have that nagging feeling that it's quite not cleaned.  For me, only a full erase of the drive and only a clean reinstall would give me piece of mind.

This again is if you gave him admin access.  If you didn’t, pat yourself on the back for not doing so, delete the account completely and don’t allow him back on your machine.