Australian soaring debt levels leave households vulnerable

The number of debt-laden households has almost doubled over the last decade, according to alarming figures from the Australian Bureau of Statistics.

The Australian Bureau of Statistics Household Income, Wealth and Expenditure Survey reveals the average amount of debt has risen from $94,100 in 2003-04 to $168,600 in 2015-16.  

And nearly one in three households, at 29 per cent, are classified as “over-indebted” in terms of their debt-to-income ratio or debt-to-asset ratio. That’s up from 21 per cent in 2003-04. 

Wealthy households are particularly vulnerable if the housing market crashes and interest rates start going up.

“Nearly half of our most wealthy households (47 per cent) who have a property debt are over-indebted, holding an average property debt of $924,000,” ABS chief economist Bruce Hockman said. 

“This makes them particularly susceptible if market conditions or household economic circumstances change.”  

The big driver of the debt is the value of the real estate.

For high wealth households, property values more than doubled, going from $829,200 to $1.7 million between 2003-04 and 2015-16.

Younger households are particularly over-indebted.

According to the ABS, three-in-five households (62 per cent) headed by a 25-34 year-old, and one-in-two (51 per cent) of 35-44 year-old households who held a property loan are classified as over-indebted.

The highest actual number of over-indebted property owners are in Sydney and Melbourne.

In Sydney, over-indebted households owe an average of $765,000.

That’s $269,000 more than the average property debt in Melbourne.

An award winning author and journalist, commentator, lecturer, and speaker, Leon is a freelance business journalist who covers a range of areas including politics, strategy, globalization, leadership and all the big trends ahead. His main skill is summing up all the news that’s around. For the last 30 years, his main focus has been on management issues. He also produces two podcasts for RMIT University, Talking Business and Talking Technology. Leon has worked for Fairfax, News Limited, AAP and the Herald and Weekly Times.

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