Illustration: Simon Letch Back in 2000 it would only have taken a little more than eight months – roughly on par with the rest of the developed world. Today, we are one of just four countries where households owe more than one year's worth of their total economic production. This $2 trillion debt represents a "significant risk", according to economist and partner at Deloitte Access Economics, David Rumbens. "Much of the increase in Australia's household debt has been driven by growth in house prices, which over recent years have become increasingly detached from national income. That is, the level of debt has followed the value of the asset – rather than the ability to repay the debt."

Differing opinions: Economist Saul Eslake says household debt is largely in the hands of those who can afford to service it. Credit:Pat Scala He's not the only one sounding the alarm. The former Reserve Bank governor, Glenn Stevens, used his final speech last month to put household debt on the radar, observing it is largely ignored compared to the conversation about government's debt, which is much lower by international standards. So, how do we get away with being the most indebted households on earth? Household debt relative to GDP. Source: Deloitte Access Economics, Bank for International Settlements The first response is simply that we won't. Chicken Littles have been insisting for more than a decade that Australia's debt ceiling is about to fall in. Inevitably, Australia must revert closer to the mean, they argue, and debt levels must fall relative to incomes. They predict a nasty recession, where widespread joblessness triggers cascading mortgage defaults, falling house prices and pain for all.

The alternate approach is to ask what features of the Australian landscape have enabled us to shoulder a uniquely high debt level? Source: Bank for International Settlements. There are several. Of course, it helps that we haven't had a recession in 25 years and real household disposable incomes have risen steadily, as opposed to shrinking, which they have in other countries. That's pretty helpful for making your mortgage payments. It also helps that house prices have risen, supporting household asset values relative to debt. There is a chicken and egg game going on here, of course. We're in hock to our eyeballs partly because we have to be – housing is so expensive. And the more debt we get, the more we spend on housing – therefore the more debt we need, to buy housing.

Another unique feature of the Australian mortgage landscape, compared to the United States at least, is the fact that we have "full-recourse" loans. In many states of the US, if you can't pay your mortgage, you simply walk away and leave the keys in the mail box – a phenomenon known as "jingle mail". In Australia, you are hounded until you pay the money back. Borrowers, therefore, have more incentive not to take on loans they can't afford, while lenders have more confidence to lend at higher loan to value ratios, knowing they will get their money back. The banks have us over a barrel. But we willingly put ourselves there, if we can afford it. Australia's love affair with home ownership runs deep. We whisper to our children in their cots about the importance of home purchase. When they turn one, we buy them investment properties – a fact celebrated by our prime minister. Until the introduction of compulsory superannuation, housing has been Australian household's biggest asset, a critical plank of many retirement plans.

It's also our biggest tax shelter. Negative gearing tax breaks – unique to Australia – encourage households to take out multiple loans on multiple properties. This means that the provision of rental housing, financed by the business sector in other countries, is on the household balance sheet here. And this hints at another unique feature of Australian household debt. By and large, it is in the hands of those who can most afford it, according to economist Saul Eslake. According to the latest Survey of Income and Wealth by the Australian Bureau of Statistics, 67 per cent of Australian household debt is owed by households in the top 40 per cent by income. At the bottom end, the bottom 20 per cent of households owed just 8 per cent of the debt. According to Eslake, Australian households have amassed higher cash deposits in recent years. Household holdings of currency and deposits have doubled from $491 billion in 2008 to $989 billion in March this year.

Of course, not every household with a big mortgage also has big cash holdings, but many have used lower interest rate to maintain repayments and build a bigger mortgage buffer for a rainy day. So there are many reasons to believe Australian households are not as vulnerable to their debts as they appear on first blush. Of course, unequal access to this credit is fuelling rising inequality. Already well-off households are amplifying their returns by leveraging to the hilt to buy property, aided and abetted by property tax breaks. Meanwhile, the less well off remain locked-out from this high debt, high return strategy. We may yet keep the title of world's most indebted for some time without a nasty adjustment – particularly if we fail to unpick the tax loopholes that encourage excessive borrowing against property. But it won't be fair. And it won't be good for the economy.

Despite lower interest rates, many Australian households remain tightly stretched. As policymakers seek to stimulate growth by lowering interest rates to encourage borrowing, there is only so far we can go. As Stevens put it: "The problem now is that there is a limit to how much we can expect to achieve by relying on already indebted entities taking on more debt." Debt – which has turbo-charged economic growth to date – will increasingly become the lead in our saddle bags.