Powered by MOMENTUM MEDIA
subscribe to our newsletter

'Investor-led property boom' playing a major role in household indebtedness

The excessive levels of household debt in Australia are largely a result of an investment boom, Shadow Treasurer Chris Bowen MP has suggested.

Speaking at the FSC Leaders Summit 2017 on Tuesday, Chris Bowen MP, federal member for McMahon and Shadow Treasurer, highlighted that Australia has high household debt levels when compared with comparable western societies, such as the UK and US.

Noting that, at 123 per cent of gross domestic product (GDP), Australia is “now amongst the highest of all advanced nations when it comes to the indebtedness of households a proportion of the economy” (while the average for advanced economies is around 75 per cent of GDP), Mr Bowen said: “Like most comparable countries, household debt increased in Australia in the lead up to the GFC.

“But unlike, say the US and UK, which have reduced their household leverage levels since then, ours has continued to increase strongly over recent years,” he said.

Adding that the US and UK household debt to disposable incomes is now down to 112 per cent and 150 per cent, respectively, Mr Bowen said that “Australia’s household indebtedness has gone in the other direction, with an investor-led property boom playing a major role.”

Advertisement
Advertisement

He added: “We are going against international trends, and in the wrong direction.”

The Shadow Treasurer said that leverage rates are a cause for concern, and are “no doubt something spurred on by tax concessions like negative gearing and capital gains tax which encourages leverage”.

Citing former RBA Governor Glenn Stevens that, when it comes to property prices, “It’s actually the leverage that matters”, Mr Bowen said this was particularly the case for property “because of the sheer size of the housing market, the importance it plays in underpinning the ability of households to spend, and the interconnections between the housing market and the broader financial system – particularly the banks”.

“But it’s also the composition of the property market – investors versus owner occupiers – and how it might behave in the event of a downturn,” he warned.

As such, Mr Bowen said that while he did want to be “alarmist, or overly pessimistic”, he thought a Royal Commission into the financial sector, including a look at the “evolving architecture” of financial and prudential regulation, should be undertaken.

PROMOTED CONTENT


“It is vital that Australia’s regulatory settings are fit for purpose," Mr Bowen said, "and that the changing roles and responsibilities of our regulatory agencies are well understood given the risks that are inherent with a highly indebted household sector.”

'Investor-led property boom' playing a major role in household indebtedness
mortgagebusiness

Annie Kane

Annie Kane is the editor of The Adviser and Mortgage Business.

As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts. 

Contact Annie at: This email address is being protected from spambots. You need JavaScript enabled to view it.

Latest News

The big four bank has confirmed that it is rolling out a new program of work to increase the speed in which it provides unconditional approv...

The ASBFEO has called on government to fund a revenue-contingent loan scheme for SMEs to help them manage cash flow once support measures en...

The fintech’s debit card and pay facilities will come offline today following the neobank’s decision to exit the banking business. ...

FROM THE WEB

Join a group of highly informed brokers.

Broker Pulse, a community-driven knowledge base of lender performance Reveal exactly which lenders are making life easiest for brokers and their clients by taking this monthly survey and joining a group of highly informed brokers who leverage these insights every month.

JOIN NOW
podcast

LATEST PODCAST: A new mortgage lender enters the fray

Do you expect to see strong uptake of the HomeBuilder scheme?

Website Notifications

Get notifications in real-time for staying up to date with content that matters to you.