Australian Households – The Most Indebted in the World

January 16, 2016

The results are in: Australian households have more debt compared to the size of the country’s economy than any other in the world.

Research by the Federal Reserve has shown the consolidated household debt to GDP ratio increased the most for Australia between 1960 and 2010 out of a select group of OECD nations. Australia’s household sector has accumulated massive unconsolidated debt compared with other countries.

As of the third quarter of 2015, it now has the world’s most indebted household sector relative to GDP, according to LF Economics’ analysis of national statistics.

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. 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.

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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. Apart from Switzerland (which alongside 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%.

Due to Switzerland’s opaque financial accounts, it is impossible to calculate a figure for this quarter. Its ratio for the second quarter of 2015 is 121.3%, and household debt is rising very slowly, so it would take an extraordinary increase over the quarter to potentially beat Australia.

The final confirmation of the trend is expected when the Bank of International Settlements publishes its analysis of private credit statistics from the third quarter.

Australian property investors and homeowners are burdened with massive mortgages, especially new and marginal entrants. Unlike winning a gold medal at the Olympics, having the world’s most indebted household sector is not an achievement the nation should be proud of. This is where Australia’s real debt and deficit problem lies, not in the public sector.

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.

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