Housing debt in overdrive
Article Category: Loans & Lenders
By By Anthony Keane, News Limited newspapers, 22 February 2010
HOMEBUYERS and investors have nearly doubled their borrowings over the past five years, figures show.
Latest Reserve Bank of Australia figures show total housing debt hit $910.1 billion in December, up 17 per cent over 12 months and up 92 per cent since December 2004.
Total housing debt is set to reach $1 trillion within a year.
The figure itself is not a worry, but there is concern the pace of borrowing is exceeding household income growth.
AMP Capital Investors chief economist Shane Oliver says the rapid growth of housing debt could be Australia's "achilles heel" amid any sharp rise in interest rates or unemployment, although neither is expected in the short term.
Oliver says factors driving the borrowing boom include government first-home buyer incentives in recent years, generational lows in interest rates and rising house prices as demand outstrips land releases.
"Last year we started building 135,000 houses but the underlying demand was (for) 180,000-190,000," he says.
"This year we should start building about 155,000 houses but the underlying demand is close to 200,000."
"It's a worry that we have such a high level of household debt. Over the past 20 years we have gone from the low end of comparable countries to the high end," Oliver says.
Reserve Bank figures show our housing debt is currently 135 per cent of disposable household income. Ten years ago, it was 75 per cent and 20 years ago it was 45 per cent.
"The RBA has to be careful raising interest rates because, if they go too far, they can end up tipping the economy over the edge," Oliver says.
Investors represent about 31 per cent of total property debt, down from 34 per cent five years ago. In 2003, it was 50-50, amid concerns about a property investment bubble that did not eventuate.