Australia’s vast household debt a giant economic millstone

Over the June quarter, Australia’s household debt hit a record high 191% of household disposable income, after roughly tripling since the late-1980s:

The latest Bank for International Settlements (BIS) global household debt data also confirmed that Australia has the second highest debt load in the world behind Switzerland, as well as the second highest average principal and interest payments on debt:

According to the ABC’s Michael Janda, Australia’s record household debt loads have become a millstone around the economy’s neck, forcing households to both work longer and spend less:

Ninety per cent of the nearly 55,000 respondents to the ABC’s Australia Talks National Survey rated household debt as a problem for the nation.

On an individual level, 37 per cent are struggling to pay off their own debts, with almost half of millennials reporting that debt is a problem for them personally…

Professor Roger Wilkins from Melbourne University is the deputy director of HILDA… says housing debt has more than doubled in real terms since HILDA was launched in 2001.

“So it’s now averaging around about $350,000 for those who actually have mortgage debt, compared with around about $160,000 in 2002, 2001,” he observes…

“When people are increasing their debt from one year to the next, they’re essentially accessing the equity in their home … people are evidently using that increased equity to fund consumption.

“Now that consumption could take many different forms — it could be renovating the home, it could be going on holiday, buying a new car.”

The problem is, after many years of a virtuous circle of rising home values on the back of rising debt, allowing further rises in home values and funding our lifestyles, to an extent the music has stopped…

“Such things as reducing interest rates as a guaranteed way of increasing demand so that there’s more employment, more housing, more purchase of housing and so forth, that no longer works”…

“What this research from the RBA shows is that households that have a higher level of debt, even if they have the same level of wealth overall, are going to have lower levels of consumption,” says Zac Gross, an economics lecturer from Monash University who used to work at the Reserve Bank…

Given Australians are amongst the world’s most indebted people, it’s no surprise then that we’re not running to the shops…

But we’re not just saving money by spending less, we’re also trying to work more.

Professor Rachel Ong ViforJ from Curtin University has found that the increasing number of older Australians who have yet to finish paying off their mortgage are far more likely to remain in the workforce.

“If you’re aged in your 40s, 50s or 60s and you’ve paid off your mortgage debt then the odds of you leaving the workforce is about four to five times higher than someone in the same age group who still has a mortgage debt burden,” she says…

Dr Manning says the ultimate flow-on from continued high debt levels is the risk of a financial and economic crisis if Australia’s overseas creditors get nervous about our ability to repay what we owe them on time and in full…

“If foreign lenders begin to take a dim view of Australia and, particularly, its banks, they’ll be reluctant to reinvest, they may require a higher interest rate, they may, in the last instance, simply refuse, in which case you’ve got big problems,” he says.

There’s nothing here readers of MB don’t already know. We’ve raised these risks repeatedly since our inception in 2011.

The drain on Australia’s economy is illustrated below. Household consumption accounts for around 55% of Australia’s final demand:

Household consumption is falling fast as consumers tighten their belts amid stagnating incomes:

As bad as the situation is, it would be much worse had the household savings rate not crashed and household debt risen, thus allowing households to increase their consumption spending as their incomes stagnated:

Obviously, the ability (and willingness) of Australian households to continue leveraging up to fund consumption is hitting its limits, which means that consumption spending growth must continue to fall.

Which make you wonder the Government’s overriding economic plan is to drive that leverage higher.

Basically, the Australian economy is facing a long period of sluggish demand growth as our record high household debt becomes a giant millstone around the economy’s neck.

Leith van Onselen


  1. Stewie GriffinMEMBER

    This is good – all that debt keeps idle minds hard at work, working for our masters.

    Debt must be preserved at all costs! Lower interest rates, then QE, then more QE, then negative interest rates – anything to enforce the new cultural orthodoxy around the preservation of debt.

    • “This is good – all that debt keeps idle minds hard at work, working for our masters.”

      I actually had a banker/wanker acquaintance who actually, in all seriousness, pretty much said that to me…he said it gives people a reason to get up each day….as if there were no other reasons, no other alternatives, no other ways…they really believe this stuff…..madness…

  2. Good on you for reporting the DSR. According to the BIS own research it’s the best early warning indicator of economic crisis. And ours is the highest in the world

  3. Who could have knowed? Spending most of your income servicing expensive property debt leaves very little left for everything else.

    There is no wonder the big banks are Australia’s biggest and most profitable companies!

    Which make you wonder the Government’s overriding economic plan is to drive that leverage higher.

    What else can they do but kick the can down the road? Labor had some plans that were different, but they got kicked in the a$s last election.

    • Jumping jack flash

      Not only that, but everyone forgets about the interest.

      When everything works by borrowing money into existence and attaching it to houses, causing their prices to rise and giving the illusion of productivity, actual productive activities are reduced in favour of this easy money.

      However the interest must be paid on this debt from the increase in productivity that the debt is meant to create.

      Therefore it means that at the moment we’re paying our interest bill from the capital gains that the increasing debt creates…. the debt is effectively repaying itself from its own growth. In essence we’re using one credit card to repay the other and just getting bigger credit cards when we max it out.

      Sounds sustainable? This is why house prices must always keep rising and also why the debt growth cannot stop. They will do anything to keep this happening.


    Shouldering a massive mortgage debt is a cheerful exercise when the ‘promise’ of realizing a life-changing gain was a near certainty.
    “Why wouldn’t ‘you’?”
    We asked ourselves this and looked around to everyone that was now breaking into a run towards the prize that we deserved and joined them.
    Now it seems, the spectacular results that we once saw with our own eyes are getting fewer and farther between and a chilling cloud has blocked the once always sunny and optimistic path to the promised land.
    We’re noticing those in our circle who’ve made these similar big commitments are now frequently expressing doubts-but just in small quantities to avoid putting a mozz on the “likely’ certainty it all works out to the good.

    Yes, the lower interest rates means the backpack full of truck batteries ‘should’ feel lighter, but the property value jumps sure seem to be taking a long time (something has changed- its palpable) and our pals are singing the same melancholy song.

    Occasionally, after a ‘few’, ( to help us unwind) we revel in the role of property ‘bear’ and surprise ourselves with valid points why the whole thing will come tumbling down upon us (just our rotten luck) and laugh a bit too enthusiastically at our own stupidity for ever thinking this move was a good idea.

    We also notice, despite our attempts to keep ‘it’ away (must be patient we’ve been told over and over) that the stress from being a part of a financial commitment that appears to be NOT working as planned, has some pretty scary flow-on effects.

    Driving, we find ourselves yelling at the enemy/morons who have no idea of what we are going through and when we abruptly and aggressively change lanes before signalling, that feeling of power and control we used to enjoy now evades us.
    Our colleagues at work sense that ‘something’ is wrong and try their best to calm us down but their half smiles and raised brows only increase our annoyance with the the world. They know now not to bring up any discussion on local property values and we can see the hurt on their faces; disappointed that the ‘expert’ on all things property, who really knows their stuff, is no longer interested in providing guidance to the less knowledgeable and less experienced.

    To ourselves ( when we can muster the right attitude and honesty) we provide pep talks about the ‘formula’ and our Gov’t ‘s commitment to other ‘goers’ like ourselves, and do our darnedest to re-convince ourselves that we’re on the right track, but that nagging doubt that we’re not just keeps returning- like the rhythmic drip of a leaking tap no matter how much you tighten the handle.

    • Me in a nutshell – add to that I’ve no longer got any political representation and I’m scared of everything…EVERYTHING.

    • And when we go to pat our Dog he looks embarrassed and slinks over to the other side of the room.

    • I have at LEAST half a dozen very close friends whom I thought would grow old and die as a couple break up and are prepping for divorce this year alone.

      I have no doubt more are on the way.

      They all claim its not property related – but the fallout is epic. The expectations are mind boggling as well – the whole who will get the house and we will have to buy a unit for the father stuff.

      No – you will have to sell the house and move out to Tarneit – the absolute shock of reality is hard for many of them.


  5. Classic ponzi scheme. But what if there’s not enough fuel to make the next major leg up? Will those who’ve leveraged into this bubble hoping for great gains suddenly see the light and pull the pin? There’s an old trading floor saying:

    The first cut is always the cheapest, or ..

    … he who panics first, panics best.

    Millenials on the property ladder will get smoked and many Boomers / GenX won’t enjoy that comfy retirement they’d planned on as their ‘nest egg’ turns to dust. How could this happen? they’ll cry …. but the warnings were all around them for years. They just chose not to heed them.

  6. Aussie’s are basically the biggest debt junkies on the planet. And like all junkies, when the ride comes to an end, when the highs become lower and lower, when they eventually crash, the whingeing will be epic and the scapegoating will never end.

  7. Even StevenMEMBER

    Many good comments on here from many fine contributors. As there were 5 years ago. 10 years ago. 15 years ago.


  8. The crisis is already here. There is no crash because it’s all hands on deck to keep the property market rising. RBA, APRA, the immigration numbers, all working overtime to keep the household balance sheet in the black.
    Next will be a massive increase in assets sales to foreigners.

  9. The crisis is in the living standard of the average punter. High taxes, crowded everything, long commutes, no wages rises, lack of skilled industries.

    • St JacquesMEMBER

      Sactly. And then *they* wonder why consumer confidence is tanking and the whole system is slowly sliding towards the cliff edge. Wankers.

  10. Jumping jack flash

    “Obviously, the ability (and willingness) of Australian households to continue leveraging up to fund consumption is hitting its limits, which means that consumption spending growth must continue to fall.”

    Nothing that more migrants won’t be able to fix. Stoke ’em in!! Get them either slaving away, or working for reasonable incomes, it matters not. It is all extra consumption even if it is tiny amounts.

    “Which make you wonder the Government’s overriding economic plan is to drive that leverage higher.”

    It worked in 2006. It’ll work now! Just ask Josh. 7 trillion extra debt dollars required by 2030 to have the same effect. “Make it so, RBA” says Josh.

    “Basically, the Australian economy is facing a long period of sluggish demand growth as our record high household debt becomes a giant millstone around the economy’s neck.”

    Yes, about 30 years, or whatever the average mortgage term is. However it will only abate once the debt injections are stopped and that’s another story completely.

    The book on “How to create a booming economy using debt and nothing else” unsurprisingly doesn’t cover the exit strategy of how to taper the debt off without crashing everything. Nobody’s worked that out yet.

  11. We’re mostly debt slaves now. Really went downhill in the last 20 years. But in all seriousness I’m not sure they want debt to go higher; they just want the collateral of that debt (housing) not to fall so we don’t have wide spread defaults as people sell. If that happens on lower volumes so only the distressed actually transact so be it. I don’t know if they can actually engineer this without some trickery however. Bar helicopter money that has to go into the debt repayments/savings or nationalizing exporting industries I’m not sure of the way out of this.