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I don’t mean to be dismissive here: asset prices do have a large downside potential, and the illiquidity of housing assets is a serious concern for household finances. But I don’t think they support the conclusion that debt-income ratios are what matter most.

To begin with, the debt-income ratio is an apple-to-orange comparison that needs some unpacking, because it uses two very different types of measures: debt is a stock, and income is a flow. Stock variables such as debt and asset holdings have a meaning at any point in time: “How much did I owe at noon on Sept. 15, 2015?” is a meaningful question, even if it might be a difficult one to answer. In contrast, flow variables such as income and expenditures are only defined over an interval of time. One’s income can be expressed at annual, monthly, weekly or hourly rates, but the question “What was my income at noon on Sept. 15, 2015?” doesn’t have a meaningful answer.

This doesn’t mean you shouldn’t use flow-to-stock ratios; just that you have to pay attention to how you interpret them. For example, the ratio of interest payments paid over a certain interval to the stock of debt is the interest rate on debt, and the ratio of investment income received to asset holdings is the rate of return on one’s assets.

So how do you interpret the debt-income ratio? It’s trickier than it sounds. If the interest paid on debt were constant, then interest payments on debt would increase in proportion with debt held: doubling your debt would mean doubling your interest payments. If this were the case, then the 30 per cent increase in the debt-income ratio since 2005 would imply a similar increase in the share of income used to pay interest on debt. I don’t know how deeply everyone has pondered the question of how to interpret debt-income ratios, but I suspect that many people think of the ratio in this way: a higher debt ratio means higher debt payments, and less spending on other things. But there’s a problem with looking at the debt-income this way, and it’s in the assumption that the interest paid on debt is constant. The debt-income ratio becomes almost impossible to interpret as a measure of household finances when interest rates change.