Soos in The Guardian: How Australian households became the most indebted in the world

Soos in The Guardian: How Australian households became the most indebted in the world
Soos in The Guardian: How Australian households became the most indebted in the world

Australian households are saddled with more debt in relation to the size of the economy than any other country, according to a new report published by LF Economics.  

In a piece written for The Guardian, Philip Soos from LF Economics said Australia's household sector has accumulated massive unconsolidated debt compared with other countries and as of the third quarter of 2015 has become the world's most indebted household sector relative to GDP.

"Denmark long held this unholy accomplishment, but has been slowly deleveraging over the last several years as its housing bubble peaked and burst during the GFC," he said.

"The latest debt-financed boom in Sydney and Melbourne has resulted in Australia now overtaking Denmark, a comparison of official figures from Australia and Denmark has shown.

"Australia has around $2 trillion in unconsolidated household debt relative to $1.6 trillion in GDP. Australia’s ratio is 123.08%, while Denmark’s fell slightly to 122.99% in the third quarter of 2015, a marginal difference of 9 basis points. Although Denmark holds the record in terms of peak debt of 140.14% in the last quarter of 2009, as Australia continues to leverage and Denmark deleverages the current gap between the two will widen."

He said apart from Switzerland, which with Denmark has a negative interest rate, no other country is close in terms of having such extreme household sector debts. The UK ratio is 85.9% while in the US it is 79.1%.

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Soos in The Guardian: How Australian households became the most indebted in the world

Soos, the co-author of Bubble Economics: Australian Land Speculation 1830-2013 and co-founder of LF Economics, says over the last two decades, Australia has been beset by rampant housing price inflation.

"Since 1996, prices have outpaced fundamentals such as inflation, incomes, construction costs, rents and GDP, making it difficult for potential first home buyers to enter the market "while lower income households and marginal groups struggle to afford decent shelter."

He calculates between 1996 and 2015, housing prices (adjusted for inflation and quality) have boomed by 141%, "without a large and obvious downturn."

"Contrary to the analyses of the vested interests, the data clearly establishes Australia is in the midst of the largest housing bubble on record," he concludes.

"Only a couple of housing market metrics is needed to identify a bubble, and are now considered commonplace: nominal price to inflation, price to income and price to rent. 

"On all three, Australia is both historically and internationally at or near the top."

Tags: 
Housing Finance Household Debt

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