Australia’s Household Debt Crisis Looms

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Australia’s Household Debt Crisis Looms

Today in the news, former economics advisor John Adams suggested that Australia is too late to avoid an ‘economic apocalypse’ regardless of his recurrent warnings to the political elites in Canberra. He continued to implore the Reserve Bank to raise interest rates to prevent household debt getting further out of hand.

This bubble is very simple to understand. Confidence! It’s the flawed perception that Australia’s last twenty years of continual economic growth will never encounter any kind of correction is most disturbing. Australia survived the GFC and a mining boom and bust. At the same time, Melbourne and Sydney house prices have not skipped a beat or taken a backward step. Regrettably, the decision makers and powerful elite in this country live in these two cities, and see Australia’s economic problems through a totally different lens to the remainder of the country. It’s a two-speed economy spiralling out of control.

I concede that this looming crisis isn’t just as straightforward as house prices in our two largest cities, however the average house prices in these cities are ever rising and contribute strongly to total household debt. The experts in Canberra appreciate there’s an enflamed house market but appear to be detested to take on any genuine steps to correct it for fear of a house crash.

As far as the rest of the country goes, they have a completely different set of economic priorities. For Western Australia and Queensland specifically, the mining bust has sent property prices tumbling downwards for years now.

Among one of the warning signs that demonstrate the household debt crisis we are beginning to see is the surge in the bankruptcy numbers over the entire country, specifically in the March 2017 quarter.


In the insolvency sector, our firm are encountering the distressing effects of house prices going backwards. Although not the leading cause of personal bankruptcies, it most certainly is a critical factor.

House prices going backwards is just part of the dilemma; the other thing is owning a home in Australia allows lenders to put you in a very different space as far as borrowing capacity. To put it simply, you can borrow a lot more if you are a home owner than if you are not a home owner. I bankrupt people everyday and the level of debt varies largely from the non-home owner to the home owner. Lending is hinged on algorithms and risk, so I suppose if you own a home you’re more likely to have consistent income and less likely to end up bankrupt, so in turn you can borrow more. If you own a home in Sydney and Melbourne, you’re a safer risk than if you own a home in Mackay, simply due to the fact that in one area the median house prices are booming and the other is going backwards, as it’s been doing so for years.

In conclusion, it appears we are running into a wall at full speed, and there are few people suggesting we slow down. If you would like to know more about the looming household debt crisis then get in touch with us here at Bankruptcy Experts Lismore on 1300 795 575 or visit our website for additional information:

By | 2020-08-14T04:14:38+00:00 September 14th, 2017|article, bankruptcy, blog|0 Comments

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