Australians continue to raise household debt, RBA finds

Australians continue to raise household debt at a rate more than twice than that of their income growth. Housing credit rose a further 0.5 percent in August from July, latest data from the Reserve Bank of Australia has revealed.

It is said to be an imbalance in the economy, which alarms global ratings agencies. The Organisation for Economic Cooperation and Development puts the nation’s household debt at more than 200 percent of incomes.

The Reserve Bank of Australia is also alarmed. There are fears that too much debt might snuff out consumer spending, which is a main driver of economic growth.

Economic downturn

"The slowdown in credit for investor housing appears to have abated following the new regulatory measures enacted by APRA earlier in the year," the economist said, according to Fox Business. She added that the high level of household debt could “badly exacerbate the next economic downturn when it comes.”

The RBA has long emphasised the risks to the economy of the debt build-up. The Australian Prudential Regulation Authority announced further curbs for lending to property investors earlier this year, rivalling lending for owner-occupier property.

The RBA also welcomed a stronger pace of job creation. But the consumer’s current burden is expected to take a long time to ease, if wages were to nudge up.

In minutes of one of its policy meetings, the RBA said wages and inflation had remained low but stable, adding it was expected to remain the case for some time. It is still unable to raise interest rates amid weak inflation and wages growth, and interest rates cut appears equally as unlikely.

Housing credit

Furthermore, housing credit grew a further 6.6 percent from a year earlier. It is comparable with wages growth of less than 2 percent on-year and incomes growth as weak as it has been since the last recession.

Commonwealth Bank of Australia economist Gareth Aird said housing credit growth runs at more than double the rate of growth in household income. The country’s household debt-to-income ratio has edged up in August to another record high.

The pipeline for housing credit is still relatively robust regardless of regulatory moves to tighten the criteria around lending to property investors. St George Bank economist Janu Chan said that lending for investor housing credit is still a key driver of credit growth more broadly. Last month, investors' credit rose 0.5 percent compared to a 0.4 percent increase in July.

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