Australia has become the "walking dead of debt" due for a financial reckoning that could shock the housing market "bubble" within months.

That's according to "anti-economist" Professor Steve Keen who defines Australia as a "zombie to be" given soaring personal debt that has created a government-induced property bubble ripe to burst.

"Australia has simply delayed its day of reckoning," he told in reference to the global financial crisis that shocked many countries around the world from 2008 but left the lucky country relatively unscathed after a series of government interventions.

The Kingston University Professor claims first homeowners grants rolled out by successive governments have artificially kept prices high creating a form of "instant prosperity" that politicians are loath to stop.


"The housing bubble makes the politicians look good because A, people are feeling wealthier, and B ... people are borrowing money to spend," he said.

"Then the government runs a balanced budget and looks like it really knows what it's doing"

"It hasn't got a f***ing clue frankly, because what's actually happening is the reason it's making that money is credit is expanding," he said.

"It's the old classic story, you're criticising a party because someone's laced the punchbowl. You try to take the punchbowl away from the party you're a very unpopular person but you need to because what's actually happening is people are getting intoxicated with credit".

His latest book, Can We Avoid Another Financial Crisis? argues Australia, along with Belgium, China, Canada and South Korea, is a "zombie" economy sleepwalking into a crunch that could come between 2017 and 2020.

"Both [Australia and Canada] will suffer a serious economic slowdown in the next few years since the only way they can sustain their current growth rates is for debt to continue growing faster than GDP," he writes.

The comments come amid national uproar around housing affordability following the government's first home super saver scheme that will allow people to salary sacrifice into an account for a house deposit. While it's designed to help people by providing pre-tax savings, critics have dubbed it a "cruel hoax" that will benefit vendors.

Australia already has the fourth highest ratio of household debt as a percentage of net disposable income in the world at 212 per cent, according to the OECD with Sydney house prices more than 10 times the average income. Sydney and Melbourne have also recently been ranked the 14th and 15th most expensive cities in the world by the Economist Intelligence Unit.


AMP capital economist Shane Oliver warned this week he expects a "soft patch" in housing price growth at a time when cost of living is rising faster than real wages and consumer confidence is dipping.

"The peak in home price growth in [Melbourne and Sydney] has likely been seen with the combination of bank rate hikes, tightening lending standards, surging unit supply and a reduction in expenses that can be claimed under negative gearing all likely to help drive a slowing going forward," he wrote in a recent research note.

Reserve Bank Governor Dr Phil Lowe has already indicated high household debt levels have affected spending. This, combined with lower wage growth is something the central bank was "learning" how to deal with, he said in February.

"Households are carrying more debt than they have before and, at the same time, they are experiencing slower growth in their nominal incomes than they have for some decades," he said.

"For many, this is a sobering combination. Reflecting this, our latest forecasts were prepared on the basis that growth in consumption was unlikely to run ahead of growth in household income over the next couple of years."

For Prof Keen, the solution for governments to an overheated housing market is obvious: "Stop making housing into an asset."


"Make housing a place for people to actually live. So you go back to saying 'what's desirable is affordable houses' and affordable means it doesn't cost a first homebuyer more than three or four years' income to get a property," he said.

As for those struggling to get on the ladder in the meantime?

"The only thing you can do in the middle is say I'm just not going to join in, and if it happens on a collective level .... it's game over for the bubble because the bubble only works if more people keep taking out more leverage."