Behind the facade of our miracle economy

Reserve Bank figures show that in 1992 household debt was 56 per cent of income. At the end of 2002 it was 125 per cent. Over that period the average mortgage went from $82,000 to $175,000. Over the same period income rose about 40 per cent and, at the same time, jobs became increasingly casual or part time and so less secure.

It was in outer suburbs such as Mill Park that people worried during the recent election campaign about how a possible interest rate rise would threaten prosperity. Yet because people on the outer suburban fringe are among the most reliant on the motor car, we now know higher petrol prices are having the impact of a de facto rate rise.

There is an interesting precedent for a glittering facade. Gregor Alexandrovich Potemkin was an 18th century Russian military leader, politician and lover to Empress Catherine the Great. His name comes down to us partly because of his construction of elaborate fake villages in the Ukraine and Crimea for Catherine to see during her royal tours. She was apparently unaware that the prosperity was a fake.

So are our suburbs a reflection of economic potemkinism?

Economist Peter Brain, who heads the National Institute of Economic and Industry Research, thinks it is a facade and thus unsustainable and liable to collapse.

'One of the problems of borrowing against home values is that values can fall, but the debt will not. House prices are static in most of Australia and have already started to fall in Sydney,' he says. 'We are borrowing overseas to fund consumption and leaving nothing to the next generations except debt. The next generations, X and Y, will have nothing to inherit.'

So who will own the tracts of housing in a generation? Brain thinks that in 20 or 30 years, if we don't do something to stop the debt blow-out, much of our housing could be owned by overseas investors, the same sort of people who are lending money to the banks for us to borrow.

Debt is the elephant in the living room. Next time the opposition has a chance, perhaps they'll discuss this instead of signing Potemkin guarantees to keep interest rates low and 'easy' credit flowing. Next time someone is looking for a populist campaign platform how will the Coalition or Labor deal with a movement based on denouncing the faceless investors beyond our shores who want to take the McMansions away?