swigski

Last week, July 2009 data became available for Australian household debt to household disposable income.

Household debt as a percentage of household disposable income peaked at 159.8%, just shy of 160% in the December 2007 quarter. In the quarter after, the official cash rate peaked at 7.25% and together, the high level of debt combined with moderate interest rates strangled the economy.

One year later in December 2008, Household debt fell to 154.5%. Australian’s were starting to pay down their debt after a decade of living beyond their means.

But as soon as there was a little glimpse of the GFC, a healthy little correction after an unprecedented 16-year expansion, the Rudd Government pumped Billions into the pockets of consumers so they can continue on the path of living beyond their means.

Rudd knows the majority of household debt comes from the housing bubble. He said in his essay “these debts were racked up on the back of skyrocketing asset prices. Stock and house values soared far above their true long-term worth, creating paper wealth that millions of households used as collateral for their growing debts.”

Despite this, the government is throwing everything it can behind keeping the housing bubble from deflating. It has introduced extra grants only locking young first home buyers into decades of excessive debt, extended the duration the grants are available for so they can lock even more first home buyers into even more debt. The result, you guessed it. Household debt is rising again.

In Australia the total debt to GDP ratio is at 160 percent, compared to 100 percent in 2000 and 50 percent in 1980. Household debt to disposable income is over 150 percent, compare to 50 percent in 1990.
The US reached a height of around 130. Australia has gone over 160. It doesn't matter if we don't have a high level of sub-prime loans in Australia - we are up to our ears in debt.

ABCDiamond

From the above link.
Michael McNamara is the property expert who said this in http://www.takeonit.com/expert/365.aspx
And more Michael McNamara (property expert) opinions on property prices...

http://www.realestate.com.au/doc/Res...eal-estate.htm

ABCDiamond

That gives us the Household debt as a percentage of household disposable income.

What is the figure for Household Assets as a percentage of household disposable income ?

One reason for this debt figure being high is because many Australians have borrowed to buy properties.

If all investors, for example, sold up and repaid loans, what would that do to the above figure ?

WillBlack

Make housing worth-next-to-nothing and do nothing-much to the debt.

swigski

Another reason that this debt figure is so high is that MANY Australians have had to borrow a higher % of their household income to buy overpriced homes.

Why would all investors sell up and repay their loans? A ridiculous question which would have little effect on the overall figure!!

ABCDiamond

As 87% of household debt is housing debt, it would clear the debt figure down to 13% of what it is now.

My comments were to illustrate that this high debt is due to people buying property. If everyone had been renting instead of buying, the Housing debt figure would be minuscule.

swigski

Your initial question was what would the figures be if all investors sold up. The drop from 87-13% is based on all owner occupiers and investors selling their properties.

However, you seem to forget one thing which is quite important in the actual sale.

Who's going to buy them??

More investors or owner occupiers! Unless they were all able to purchase outright would mean same or increased debt levels!!

Swerv-o

Don't forget the impact that negative gearing has on the market. For an awful lot of property investors it is much more financially advantageous to have a big mortgage on an under-performing rental property so that they may claim a big heft tax return cheque at the end of the financial year.

The tax breaks given to investment owners are what makes the opportunity to buy investment properties so attractive to the Australian public. It is also a key difference in the property market in Australia and that of other developed western countries.


S

swigski

Madness!!

ABCDiamond

The comments were to illustrate that this high debt is due to people buying property. If everyone had been renting instead of buying, the Housing debt figure would be minuscule.

eg:

A country full of renters, would have a Nil, or a very low Household debt as a percentage of household disposable income.

However, a country full of property owners with say 50% equity in their houses would have a much higher Household debt as a percentage of household disposable income.

Which of the two though, is really in the best position. All renters with no debt, or home owners with 50% equity in their property ?

Not forgotten, Overseas investors would do the trick, and keep Household debt right down.
or Governments could buy them to take over providing rented accommodation.

But as I said, it was to illustrate the reason for this high debt,

ABCDiamond

Which bit is madness ?

A business venture being able to claim a tax loss against other income.
or
A government relying on private individuals to provide rented accommodation to the masses, so that it doesn't have to use public funds for that purpose.

swigski

For these reasons:

http://www.smh.com.au/opinion/politi...ml?comments=51

Swerv-o

This is part of the problem in my opinion:


People need to start being pragmatic about where they want to and need to live if they want to buy a house. Houses nearer the city are bound to be more expensive than ones further away from it. I was lucky enough to buy a house about 20 minutes walk away from Central in Sydney. In comparison, I doubt very much that the same money would have bought me a similar house 20 minutes walk from Kings Cross/St Pancras.

What I see in Sydney is an awful lot of people who feel that they have a given right to live close to the city (or beach), yet cry over-priced housing because they can't afford to. People who complain that they can't afford to buy a house in Coogee, or that they have to buy a house in St Marys and then have an hour and a half commute into the city.

Yet, these are premium areas in terms of housing. What do they really expect? Lots of people want to live in the city and near the beach, and because of the skills shortage driving wages, lots can afford to. This will inevitably drive the lower paid professions out of the area, as it has in London. If you drive an hour out of Sydney, there is plenty of affordable housing available, but that's not good enough for the "I want it all now" generation. The housing 'ladder' is called that for a reason - you start at the bottom and work up. It's not called the housing 'start somewhere in the middle or near the top.'

Sadly people are unwilling to make sacrifices about where they live. Though, part of this is the fault of the authorities. People don't want to live out of the city, because there's nothing there - certainly in terms of community and transport links. Maybe faster and more frequent rail links would open up the suburbs, but until we start to see suburban living as desirable, there will always be this clamour to live as close to the city as possible, which is in turn only going to exacerbate the affordability problem.


S

ozzieeagle

Tell that to my Cousin who made circa Aud 500,000 in 11 years via buying 4 properties and living in a rental from 1994 through to 2005.

He bought 1 on the Gold Coast, 1 at Gladstone, 1 in Cairns and 1 in Darwin. All on interest only payments and all rented out.

swigski

He obviously had the money to buy 4 properties which is the point I disagree with. Negative gearing favors the already wealthy when the low income earners struggle to even get on the property ladder. The rich get richer and the poorer get poorer paying inflated rental prices due to the supply problem!

Why don't the Government spend the $5.4 billion a year they give out as tax payments to investors on building houses on a lease to purchase scheme or a 50/50 rent/mortgage scheme. It would certainly be money better spent, allow thousands of low income earners a foot on the housing ladder and provide jobs to builders nationwide.

But, is this in the best interests of the Government?