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How worrisome is Australia’s high household debt? Paul Bloxham

Australia’s household debt has been rising and is high by international standards.

The household debt-to-income ratio has risen from 167 percent in 2011 to 190 percent in Q4 2016. Assessing how much to worry about this is not straightforward.

On the one hand, high levels of debt make the economy more vulnerable to a negative economic shock. On the other hand, appropriately allocated debt is an engine of economic growth, as it better allocates resources between savers and investors.

Our long held view is that high household debt is not, in itself, a problem, as long as it is held by households that can continue to service it. The problem faced by many economies during the global financial crisis, such as the US and Spain, was that household debt was misallocated to households that could not service it. In Australia, the latest available statistics suggest that the distribution is fairly favourable.

As at 2014, most of the debt was held by high income earners and there were few low income households with large debt servicing burdens. In addition, Australia does not have sub-prime borrowers and all of the mortgages are full recourse.

 

http://www.propertyobserver.com.au/forward-planning/advice-and-hot-topics/70295-how-worrisome-is-australia-s-high-household-debt-paul-bloxham.html

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