Australia’s Household Debt Crisis Looms

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Australia’s Household Debt Crisis Looms

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Today in the news, former economics advisor John Adams proposed that Australia is too late to stop an ‘economic apocalypse’ despite his incessant warnings to the political elites in Canberra. He went on to implore the Reserve Bank to raise interest rates to stop household debt getting further out of control.

This bubble is simple to understand. Confidence! It’s the misled perception that Australia’s last 20 years of continued economic growth will never experience any kind of correction is most disconcerting. Australia survived the GFC and a mining boom and bust. In the meantime, Sydney and Melbourne house prices have not missed a beat or taken a backward step. Regretfully, the decision makers and powerful elite in this country reside in these two cities, and see Australia’s economic hurdles through an entirely different lens to the rest of the country. It’s a two-speed economy spiralling uncontrollably.

I acknowledge that this impending crisis isn’t just as simple as house prices in our two biggest cities, however the average house prices in these cities are ever rising and contribute considerably to total household debt. The specialists in Canberra recognise there’s an overpriced house market but seem to be loathed to take on any focused steps to correct it for fear of a property crash.

As far as the remainder 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 plumetting downwards for years now.

Just one of the indicators that demonstrate the household debt crisis we are beginning to see is the surge in the bankruptcy numbers across the entire country, especially in the 2017 March quarter.


In the insolvency market, our team are witnessing the destructive effects of house prices going backwards. While it is not the leading cause of personal bankruptcies, it certainly is a crucial factor.

House prices going backwards is just part of the challenge; the other thing is owning a home in Australia enables lenders to put you in a very different space as far as borrowing capacity. Simply put, you can borrow much 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 based upon algorithms and risk, so I suppose if you own a home you’re more likely to have consistent income and less likely to end up bankrupt, so subsequently 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 seems we are running into a wall at full speed, and there are very few people suggesting we slow down. If you need to know more about the looming household debt crisis then give us a ring here at Bankruptcy Experts Wollongong on 1300 795 575 or visit our website for more information:

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