The New Zealand Herald ran a detailed report on Monday decrying the huge build-up of debt in New Zealand, most of which belongs to households leveraging into property, which represents a “ticking time bomb” for the economy:
New Zealand is sitting on a half-a-trillion-dollar debt bomb and Kiwis are increasingly treating their houses like cash machines, piling on the debt as they watch the value of their properties soar…
Households are now carrying a debt level that is equivalent to 162 per cent of their annual disposable income – higher than the level reached before the global financial crisis…
And it’s housing loans where the growth has mainly come from… much of the rising debt on housing was down to investors, as more people jumped into the property market on the back of rising house prices…
Even New Zealand’s Finance Minister, Bill English, has sounded the warning bell:
“I’d expect the financial system to take account of the inherent risk of rapidly rising house prices. Particularly the buyers,” English said.
“The buyers need to pay attention to the fact that interest rates will inevitably rise even if in the next couple of years they can’t see that happening quickly. The debt related to mortgages lasts a long time,” he said.
“Buyers who are really stretching themselves when interest rates are the lowest they’ve been in 50 years just need to be understand the risk of the pressure that might come if the interest rates go up,” he said…
Last week English warned first home buyers about the risks of buying into the Auckland market.
“Right now they do need to be careful about buying at what could be the peak of the market,” he said.
However, for all its efforts, NZ only deserves a minor medal in the household debt stakes, with Australia well ahead on this measure:
Worse, as noted on Monday, Australia has overtaken Switzerland and Denmark to claim gold as the most indebted household sector in the world:
Yet despite this dubious award, we have barely heard boo from the mainstream media, commentators and politicians. Rather than confronting the issue, as is occurring in New Zealand, Australia’s commentariat continues to bury its collective head in the sand, clinging to the out-dated Pitchford thesis that private debt doesn’t matter.
We really do live in the land of Oz.
