Guest Post: Some facts to dispel the alarmism over the “Debt Armageddon”

by Michael Littlewood

Two recent pieces in the Herald on New Zealanders’ apparently terrible borrowing habits caught my attention in the last couple of days.

1. Debt armageddon: In NZ’s Half Trillion Dollar Debt Bomb, 7 June, the Herald painted an apparently worrying picture of households overburdened with debt but there is actually another side to that story.

The latest Reserve Bank data on total household balance sheets showed that all households had borrowed a total of just 12.4% of total gross assets ($163 billion of debt on $1,286 billion of gross assets).  Perhaps not all debt was included (though that seems unlikely); certainly, not all assets were included as the Reserve Bank acknowledges.

The recent growth in debt and the sustainability of house prices are actually less concerning than the ability of New Zealanders to service what are relatively modest borrowings.  So income levels are more important than the total borrowed.  Some may have borrowed too much and will pay the price for that.  But across the whole country, there seems less to worry about than the Herald’s article suggested.  

Even if house prices halved and nothing else changed, the debt to gross assets across all households would rise to just 16.6%. That’s because just 50.5% of all households’ gross assets are in ‘housing and land value (excluding vacant land)’ as the Reserve Bank’s data suggest.

2. Student debt: Today’s debt shock-horror story paints a dire picture of the apparently burgeoning student debt mountain.

A quick glance across the prominent chart showed that all was actually not as presented.  For starters, dollars of 2005 were being put alongside dollars of 2015 (a bit of a no-no, that).  Secondly, there had been a large increase in the number of borrowers over the period – up from 445,074 in 2005 to 728,348 in 2015.

Here is a slightly less sensational view of the student loan story:


Note: CPI adjustments use the Reserve Bank’s inflation calculator on June to June years.

Conclusion: not too much of a story here either.  Real debt per borrower is actually lower now than in the period 2005-2011.  It’s a pity that the reporter didn’t do a bit more digging.


Michael Littlewood was the former head of the Retirement Policy and Research Centre, now retired.


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  • sheppy

    Yet another inaccurate Herald “we’re all doomed and only policies of the left can save us” article. As usual conveniently forgetting that the massive tax hikes needed to fund the left’s tax and waste policies will take a considerable amount of money from people’s pockets and result in day to day living being much more unaffordable for those that dare to work for a living.
    Maybe it’s time for the “free student loans if you vote for us” press release

  • one for the road

    Clearly NZHerald not following Press Council Guidelines on reporting (once again)!

    • Miss McGerkinshaw

      Normally don’t bother reading these sorts of ‘legalese type’ documents as brain tends to get bored and go walkabout. In this case decided to read it and can’t see one guideline that they are following fully.
      Have any of them actually read the guidelines I begin to wonder.

      • one for the road

        it would appear that the journalists seem to be following your approach Miss McGerkinshaw, ie. cannt be bothered reading these sorts of ‘legalese type’ documents as brain tends to get bored….Principle 1 seems to sum it all up..

  • Quinton Hogg

    I cast my eyes over these pieces when they appeared.
    My initial reaction was tabloid hysteria from the Herald and didn’t bother to take them seriously.
    It is nice to see someone like Mr Littlewood cast a critical eye over this rubbish and confirm that it just that.

  • shykiwibloke

    Listening to various commentators about loan restrictions – and I don’t think one has pointed out an obvious risk – that small businesses raise capital on the owners house. Fiddle with loan criteria and you are likely to have unintended consequences with plumbers, builders and farmers. Heartland voters all.

  • Bob Dazzler

    Yep thats why I cancelled my subscription to that rag.

  • Bryan

    again just proves exactly what the Fiji leader is saying about our media cannot report simple facts correctly

  • Intrigued

    I can’t read a newspaper story anymore without questioning the veracity of what is stated or questioning whether the origin of the bad news story came from Labour or the Greens. But this pattern of blatant lies as to the facts that we’ve seen just this last week (e.g. Labour on health funding for one) is really disturbing. It’s pretty obvious that we will really need to rely more on the fact checkers like Mr Littlewood to provide the balance and clarity in the lead up to the next election. Well done and thank you Mr Littlewood.

  • cows4me

    This is all fine and well but these debt levels and the ability to pay for them require a stable economy. We may well have our house in order but our house is only a garden tool shed in the overall scheme of things. Should things start to go tits up overseas then these debt levels would be millstones around our necks. Take dairy farming. If land values drop because of crashing commodities how long do you think before the banks start foreclosing because assets can’t cover the mortgage.

    • axeman

      I see where you are coming from, but in general terms the banks lend to an LVR of around 60-70% on farms which again in general terms means the banks have some head room in normal circumstances. What you are advocating is that farmers including dairy should perhaps look to have more head room than that, and thus more ability to sustain adversity. To be fair this principle should apply to all borrowers. But the banks who have again more money available to them and need to get it out, along with the have to have it now generation are a dream marraige. Of course when it does go “tits up” it will all be John Keys fault

  • Keanne Lawrence

    Great response where simple facts and figures paint a picture in true colour. Sadly this is becoming all to repetitive where it takes an honest person to dispel the fairy tales and falsities poured out by the Media party.
    The old puzzle of “what is black and white but Red all over” was penned well before it’s time when news was reported and not made up.
    Actually it seems that NewShub has finally decided to play a tag game form of teamwork. Henry makes the “news”. Then that “news” is featured somewhere else on the page with somebody else’s credit. So what we get is the deadline being reached with dodo’s and diddle squat as they end their day patting each others backs.
    It seems they are now extending their stable to include NewShub Explains? What is that?

  • Zanyzane

    What a disgrace Kathryn Ryan was on Radio NZ 101.4 this morning repeating this lie that NZ households have half a trillion in Household debt. What a blatant disregard for accuracy by a news reporter. The idiocy of it all was that you also had Dominik Stephens of Westpac who did not even bother to try and correct this blatant error and then came along the next speaker, a professor in economics. No wonder our economists do not know how to research the truth and instead just rely on headline news poorly researched and totally inaccurate. What a disgrace to economists and news reporting.