Australia’s economy is on a crash course with a major downturn in fortunes due to mounting unsupported debt.
Professor Steve Keen has branded the country a “walking dead of debt” as a result of government interventions to artificially prop up the housing market and mounting household debt. Professor Keen’s remarks come as tensions continue to rise over the genuine state of the nation’s housing market.
Australia has the world’s fourth-highest level of household debt as a percentage of disposable income at 212%. Professor Keen argues that Australia has “delayed its day of reckoning” in financial terms, and is primed for a major crisis when the housing bubble bursts.
“The housing bubble makes the politicians look good because A, people are feeling wealthier, and B…people are borrowing money to spend,” he told news.com.au.
“Then the government runs a balanced budget and looks like it really knows what it’s doing. It hasn’t got a…clue frankly”
Professor Keen’s new book, Can We Avoid Another Financial Crisis?, predicts that Australia, along with Canada, Belgium and several other nations, will suffer the consequences of running a national deficit in the near future.
“Both [Australia and Canada] will suffer a serious economic slowdown in the next few years since the only way they can sustain their current growth rates is for debt to continue growing faster than GDP,” he writes.
Sydney and Melbourne have recently been identified as the 14th and 15th most expensive cities in the world by the Economist Intelligence Unit, with Sydney found to have house prices now at a level roughly 10 times the average income for the city.
Professor Keen argues that the best solution to the problem, including a way of dramatically reducing the average household debt, is to stop treating housing as an asset and to consider it as a necessity for people instead.
“Make housing a place for people to actually live. So you go back to saying ‘what’s desirable is affordable houses’ and affordable means it doesn’t cost a first homebuyer more than three or four years’ income to get a property,” he said.