NZ's household debt at $80 billion and rising

By MARK FRYER

It may not be the most sensitive time of year to mention this fact, but New Zealanders now owe more than $80 billion.

That's "household" debt - the money we owe as individuals or families, as distinct from company or Government debt.

The $80 billion figure was the tally to the end of October, Reserve Bank figures show. Those numbers also show debt has been rising at about 9 per cent a year, the fastest growth rate for the past two years or so.

If we keep borrowing at that pace, our indebtedness will be up to about $86 billion by the end of the year. In fact, the tally will be even higher, given that the Reserve Bank figures don't include student loans, which account for another $5 billion or so.

The vast majority of our debt - about $73 billion in October - is in the form of mortgages, although not all of that money will have been used for housing, given the flexibility of today's mortgages. The rest is made up of an assortment of other types of borrowing, including personal loans, hire purchase and credit cards.

Given the way mortgages dominate the debt figures, it's fair to assume that the latest rise is largely a reflection of the manic state of the housing market, and the fact that the economy and the job market are relatively healthy, which gives people the confidence to borrow more.

While a 9 per cent rise in debt in the space of a year sounds high, it's much lower than the sort of increases experienced during the 1990s, when we rushed to embrace ever-increasing amounts of debt.

The latest figures are a continuation of the trend since the mid-1980s, which has seen New Zealanders go from being relatively lightly-indebted - in relation to our incomes - to having debts which are on a par with other Western nations.

By the end of 1999, household debt had risen to a point where it was about 114 per cent of household disposable income. In other words, the average household would have needed about 14 months' income to pay off all its debts. Fifteen years earlier, the debt-to-income ratio was only half as high.

Whether this change is a bad move, or just one of those things, depends on your point of view. On the one hand, it does make us more vulnerable to an economic shock of some sort, as former Reserve Bank Governor Don Brash used to warn from time to time.

On the other hand, higher debt levels could be seen as just a rational response to the fact that interest rates have fallen sharply since the mid-1980s, while borrowing has never been easier.

Whatever your view, there's no sign that the trend is about to reverse. It may take something major, like a sudden rise in interest rates or a plunge in house prices, to make us lose our appetite for borrowing.