Household debt-to-GDP in New Zealand rises at a relatively fast pace

Westpac’s report said that household debt in New Zealand has risen to record levels, and it has been rising at a faster pace than in other developed economics. This warning comes on top of concerns expressed by the Reserve Bank on the financial risks of the housing bubble.

In large part, the rise in household debt has been due to the strong gains in New Zealand house prices. House prices in May surged to their fastest pace since 2004 driven largely by low interest rates and high population growth. Surging household debt levels will create a lengthy debt hangover, potentially hitting growth for years to come, economists warn.

"The increase in household debt doesn't mean that the economy is about to topple over. However, it is likely to provide a brake on longer term growth, and means that we are more vulnerable to unfavourable changes in economic conditions," said Westpac in a research note.