debt burden

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.   Read more »