I mostly agree with what Ross Gittins writes. But I think he’s off the mark in today’s SMH. Ross plays down concern about growing household debt, noting that it is more than offset by growth in assets. He writes

The value of all our houses accounts for more than 60 per cent ($2.1 trillion) of total assets and it’s been rising at the rate of more than 12 per cent a year. So rising house prices and strong investment in new housing account for most of the growth in our wealth.

The problem here is what’s sometimes called a fallacy of composition. Any one household can deal with a debt problem by reducing housing wealth (taking a second mortgage, or selling their house). But households collectively can’t do this, since the only potential buyers are other households.

What this means is that, far from being part of the solution to the debt problem, the increase in house prices is part of the problem. If there is a general increase in the difficulty of servicing household debt, for example arising from an increase in interest rates, individual households will respond rationally by seeking to sell their housing assets. But since households generally will be trying to do this, house prices will fall, exacerbating the original problem.

The longer house prices (more accurately, land prices) stay high, the more debt individual households will accumulate against their wealth and the worse the problem gets. In fact, having taken on a mortgage in my move to Brisbane, I’m part of the problem – you can’t beat the Zeitgeist I guess.