September 13, 20170

Australia’s Household Debt Crisis Looms

Posted by:Charles Bosse onSeptember 13, 2017

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

This bubble is simple to describe. Confidence! It’s the misconstrued perception that Australia’s last twenty years of sustained economic growth will never experience any sort of correction is most unsettling. 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. Unfortunately, the decision makers and powerful elite in this country reside in these two cities, and see Australia’s economic challenges 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, but the average house prices in these cities are ever rising and contribute greatly to overall household debt. The authorities in Canberra understand that there’s an overpriced house market but appear to be reviled to take on any focused measures to correct it for fear of a property crash.

As far as the rest of the country goes, they have a completely different set of economic considerations. For Western Australia and Queensland particularly, the mining bust has sent house prices spiralling downwards for years now.

Among one of the warning signs that demonstrate the household debt crisis we are starting to see is the increase in the bankruptcy numbers across the entire country, particularly in the 2017 March quarter.


In the insolvency market, our experts are seeing the disastrous effects of house prices going backwards. While it is not the leading cause of personal bankruptcies, it certainly is an integral factor.

House prices going backwards is just part of the problem; 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 far more if you are a home owner than if you are not a home owner. I bankrupt people everyday and the amount of debt varies greatly from the non-home owner to the home owner. Lending is founded on algorithms and risk, so I suppose if you own a home you’re more likely to have consistent income and less likely to wind up bankrupt, so consequently 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 because 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 seems we are running into a wall at full speed, and there are few people suggesting we slow down. If you need to know more about the looming household debt crisis then get in touch with us here at Fresh Start Solutions Melbourne on 1300 818 575 or visit our website to find out more:

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