You are using an older browser version. Please use a supported version for the best MSN experience.

Rising household debt a worry, NZIER says

NZ Newswire logoNZ Newswire 2/03/2017 Paul McBeth

New Zealand households are now borrowing more relative to their disposable incomes than they did before the global financial crisis when a red-hot housing market was encouraging consumers to tack a little onto the mortgage to pay for big ticket purchases.

Kiwi household debt is now a record 167 per cent as a proportion of disposable income, and New Zealand Institute of Economic Research senior economist Christina Leung says that's a key risk to the economy.

Reserve Bank data show total household borrowings were up 8.7 per cent to $248.16 billion in January from a year earlier.

The bulk of that was in housing, which was up 9 per cent at $232.07 billion. However, a 4.6 per cent increase in consumer credit to $16.1 billion continued a trend of accelerating growth.

"With consumers feeling more confident about discretionary spending we're seeing a pick-up in consumer credit growth," Mr Leung told a briefing in Wellington.

"There are two key risks from these growing debt levels in terms of serviceability: interest rates are likely to be on the way up, and the potential for a downturn in the labour market meaning reduced incomes for households."

The Reserve Bank is watching local consumer spending closely after being surprised by an acceleration in consumption through the second half of last year.

Record levels of net inbound migration and tourism have been bolstering the country's retail sector, while at the same time jobs have been plentiful enough to meet the demands of an expanding population, with high participation rates and unemployment by global standards.

RBNZ governor Graeme Wheeler on Thursday reiterated his fears about the local housing market, which has faced an imbalance between supply and demand, pushing up prices at a time when tepid inflation called for record low interest rates.

While he noted there's been some moderation in house price inflation in recent months, those imbalances and the debt servicing costs will "likely be important influences on household spending and the level of aggregate demand in the economy".

image beaconimage beaconimage beacon