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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