The Australian Bureau of Statistics (ABS) has released a great set of articles today examining the growing levels of household debt across Australia.
Below are extracts from the first article examining the types of debts that Australian households have:
Data from Australia’s national accounts at the end of 2013 showed that three quarters (75%) of all household debt was housing debt. This hasn’t always been the case. In 1990, housing debt accounted for less than half (47%) of all household debt.
HOUSING DEBT AND OTHER DEBT AS A PERCENTAGE OF TOTAL HOUSEHOLD DEBT
Source: Australian National Accounts: Financial Accounts, December Quarter 2013 (ABS cat. no. 5232.0)The total housing debt of Australian households was $1.38 trillion at the end of 2013, equivalent to $59,200 for every person living in Australia at that time. After making adjustments to remove the effect of general price inflation (giving a ‘real‘ comparison), this was almost as high as it had been at any time in the previous 25 years, and more than six times what it had been in 1988 ($9,300 in 2013 dollars). It was also significantly higher than what it had been in 2007 ($49,100 in 2013 dollars)…
The housing debt of Australian households rose from a little over 11% of the value of the residential land and dwellings of Australian households at the end of September 1989 to nearly 31% of the value of the residential land and dwellings of Australian households at the end of September 2012. This housing debt to asset ratio subsequently eased to 29% at the end of 2013 after Australian residential dwelling prices resumed their upward trend in late 2012 (see companion article Trends in household debt).
SIZE OF HOUSEHOLD DEBT COMPARED WITH HOUSEHOLD ASSETS
(a) Households’ housing debt to housing assets ratio (e.g. at the end of December 2013, money owing on housing loans taken out by households was equivalent to 29% of the value of residential land and dwellings owned by households).
(b) Households’ other debt to other assets ratio (e.g. at the end of December 2013, households’ non-housing debts were equivalent to 10% of the value of assets other than residential land and dwellings that were owned by households).
Source: Australian National Accounts: Financial Accounts, December Quarter 2013 (ABS cat. no. 5232.0)At 29%, the housing debt to asset ratio of Australian households is well below the equivalent ratio prevailing in the United States when their property prices peaked in 2006. This ratio had increased to around 45% in the United States in the last couple of years of their pre-GFC housing boom, and increased well beyond 45% when their housing prices started to fall.1..
In 2011-12, 40% of all of Australia’s 8.6 million households had some amount of property debt (i.e. home loan debt and/or other property loan debt). More than half of these households owed less than $300,000 in property debt.
SHARE OF PROPERTY DEBT AMONG ALL HOUSEHOLDS, 2011-12
Source: ABS Survey of Income and HousingAround a third of Australian households have some amount of home loan debt (i.e. principal outstanding on loans used to purchase, build, alter or make additions to the property where they usually live). Households with home loan debt had a clearly higher average level of this form of debt in 2011-12 ($224,000) than in 2003-04 ($153,000 in 2011-12 dollars).
The average value of the homes of households with home loan debt also increased in real terms between 2003-04 ($433,000 in 2011-12 dollars) and 2011-12 ($538,000), resulting in the ratio of home loan debt to home value increasing for these households from 35% in 2003-04 to 42% in 2011-12. Despite the rise in this debt to asset ratio, their average equity in their homes increased in real terms between 2003-04 ($280,000 in 2011-12 dollars) and 2011-12 ($314,000), contributing 19% of the real increase in their overall wealth between 2003-04 ($543,000 in 2011-12 dollars) and 2011-12 ($724,000)…
HOUSEHOLDS WITH HOME LOAN DEBT: REAL(a) EQUITY IN HOME AND REAL WEALTH
(a) All dollar values have been converted into 2011-12 dollars using the All Groups Consumer Price Index.
(b) Value of home was estimated by the home owner.
Source: ABS Survey of Income and Housing; Consumer Price Index, Australia, March Quarter 2014 (ABS cat. no. 6401.0)The proportion of households with other property loan debt increased slightly between 2003-04 (10%) and 2011-12 (12%), whereas the average amount of such debt increased considerably between 2003-04 ($239,000 in 2011-12 dollars) and 2011-12 ($357,000).
Among households with other property loan debt, the amount owing on this other property as a percentage of its value (i.e. gearing) was 53% in 2011-12 compared with 50% in 2003-04. The average equity of these households in their other property increased in real terms between 2003-04 ($243,000 in 2011-12 dollars) and 2011-12 ($321,000), contributing 27% of the real increase in their overall wealth between 2003-04 ($1,037,000 in 2011-12 dollars) and 2011-12 ($1,327,000).
HOUSEHOLDS WITH OTHER PROPERTY(a) LOAN DEBT: REAL(b) EQUITY IN OTHER PROPERTY AND REAL WEALTH
(a) Property other than own home.
(b) All dollar values have been converted into 2011-12 dollars using the All Groups Consumer Price Index.
(c) Value of other property was estimated by the household who owned that property.
Source: ABS Survey of Income and Housing; Consumer Price Index, Australia, March Quarter 2014 (ABS cat. no. 6401.0)Between 2003-04 and 2011-12, only 2% to 3% of Australian households had investment loan debt. However, for households who had this type of debt it tended to be sizeable (in 2011-12 dollars), averaging around $127,800 in 2003-04, $203,300 in 2005-06, $234,600 in 2009-10, and $155,400 in 2011-12.
The second ABS article examines the distribution of household debt. Below are some key extracts:
Levels of study loan debt and consumption debt (i.e. credit card debt, vehicle loan debt and other consumption loan debt) varied little between household wealth quintiles in 2011-12. In contrast, households in the lowest wealth quintile tended to have little home loan debt, other property loan debt and investment loan debt whereas households in the highest wealth quintile tended to carry a substantial amount of such investment related debt.
AVERAGE LEVELS OF SELECTED TYPES OF HOUSEHOLD DEBT BY WEALTH, 2011-12
(a) Households with a credit card net credit balance have contributed to the calculation of this average.
(b) For the value of average wealth in each quintile see Data sources and definitions.
Source: Household Wealth and Wealth Distribution, Australia, 2011-12 (ABS cat. no. 6554.0)In 2011-12, only 4% of households in the lowest household wealth quintile owned their home with a mortgage, which largely explains the relatively low average level of home loan debt among these households at that time ($11,200). The proportion of households who owned their home with a mortgage was considerably higher among wealthier households, ranging from 36% in the highest household wealth quintile to 53% in the third quintile.2..
In 2011-12, the average household income of households in the lowest quintile was $393 per week. This was half that of the second quintile ($857 per week) and less than one tenth of the average income of those in the highest quintile ($4,297 per week).2
AVERAGE LEVELS OF SELECTED TYPES OF HOUSEHOLD DEBT BY INCOME, 2011-12
(a) Households with a credit card net credit balance have contributed to the calculation of this average.
(b) For the value of average gross household income in each quintile see Data sources and definitions.
Source: Household Wealth and Wealth Distribution, Australia, 2011-12 (ABS cat. no. 6554.0)Income can be received from a wide range of sources, such as wages, salaries, dividends, rent, interest, and government pensions and allowances. In 2011-12, the main source of household income for nearly two-thirds of Australian households was income from employment (i.e. wages, salaries or own unincorporated business income).1 These households tended to have higher debt levels than other households. Households whose main source of household income was income support payments from government had particularly low levels of debt…
AVERAGE LEVELS OF SELECTED TYPES OF HOUSEHOLD DEBT BY MAIN SOURCE OF INCOME, 2011-12
(a) Households with a credit card net credit balance have contributed to the calculation of this average.
(b) Includes superannuation, workers’ compensation, income from annuities, interest, dividends, royalties, income from rental properties, scholarships and child support.
Source: Household Wealth and Wealth Distribution, Australia, 2011-12 (ABS cat. no. 6554.0)People generally incur and repay various forms of debt at different stages of their life. For example, in 2011-12, young households (i.e. those with a reference person aged 15-24 years) tended to have relatively high levels of study loan debt and vehicle loan debt, and relatively low levels of other property loan debt.
AVERAGE LEVELS OF SELECTED TYPES OF HOUSEHOLD DEBT BY AGE, 2011-12
(a) Households with a credit card net credit balance have contributed to the calculation of this average.
Source: Household Wealth and Wealth Distribution, Australia, 2011-12 (ABS cat. no. 6554.0)Households generally take on home loan debt before other property loan debt. In 2011-12, the amount owed on home loans peaked among households with a 35-44 year old reference person before progressively declining with advancing age. Other property loan debt and investment loan debt was most prominent among middle aged and pre-retirement aged households (i.e. those with a reference person aged 35-64 years).
