Australia’s Household Debt Crisis Looms

Australia’s Household Debt Crisis Looms

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

This bubble is very simple to express. Confidence! It’s the flawed perception that Australia’s last twenty years of continued economic growth will never encounter any kind of correction is most disturbing. Australia survived the GFC and a mining boom and bust. Meanwhile, Sydney and Melbourne house prices have not missed a beat or taken a backward step. Regretfully, the decision makers and powerful elite in Australia reside in these two cities, and see Australia’s economic problems through an entirely different lens to the rest of the country. It’s a two-speed economy spiralling out of control.

I acknowledge that this impending crisis isn’t just as straightforward as house prices in our two largest cities, however the average house prices in these cities are ever rising and contribute significantly to total household debt. The specialists in Canberra understand that there’s an enflamed house market but seem to be reviled to take on any stern efforts to correct it for fear of a property crash.

As far as the rest of the country goes, they have an entirely different set of economic considerations. For Western Australia and Queensland specifically, the mining bust has sent real estate prices tumbling downwards for years now.

One of the indicators that confirm the household debt crisis we are beginning to see is the rise in the bankruptcy numbers across the entire country, specifically in the March 2017 quarter.


In the insolvency market, our firm are observing the terrible effects of house prices going backwards. Even though it is not the prime cause of personal bankruptcies, it evidently is a pivotal 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. Put 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 extent of debt fluctuates substantially 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 stable income and less likely to wind up bankrupt, so in turn 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 due to the fact that 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 appears 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 call us here at Bankruptcy Experts Tablelands on 1300 795 575 or visit our website to find out more: