New Zealand is poised to exceed half a trillion dollars worth of gross debt as mortgage lending accelerates at its fastest rate since the global financial crisis.

Averaging more than $100,000 for every New Zealander, increasingly alarmed economists and market watchers fear soaring house prices may be taking us into bubble territory.

Lending for housing is growing at an annualised rate of 8.3 per cent - a level not seen since 2008 (when lending rates were on their way down from pre-GFC peaks above 10 per cent).

New Zealand: Nation of Debt
NZ homes among most indebted


Nominally, mortgage debt is at an unprecedented high of $217.5 billion. Combined with consumer debt it takes total household debt to $232 billion - almost half of New Zealand's total debt mountain. The rest is comprised of $91.34 billion in business debt, $59.42 billion in agricultural debt and Government debt at about $110 billion.

It is household debt and specifically housing that worries economists and market watchers.

"Government debt is relatively low but private debt is very high. That's the striking thing for me," says Professor Robert MacCulloch of the University of Auckland business school.

Watch: Westpac Economist Satish Ranchhod on NZ's growing household debt levels:

In Finance Minister Bill English and Michael Cullen before him, New Zealand has a track record of focus on surpluses and keeping public debt under control, he says.

But concerns about private debt are very real.

"There is a big ramp up in property prices and the Government can't control private borrowing very much, without drastically regulating borrowing," he says.

The deeper issue was driven by consumerism, he says.


"Kiwis are not great savers," he says. "We borrow a lot to do things like buy houses and 2008 showed the risks that come with that. If we wake up in the morning and Wall Street has fallen 20 or 30 per cent, immediately the NZ market would start falling and suddenly property prices could start crashing and people could be left with debts bigger than the value of their properties."

Fund manager and market commentator Brian Gaynor agrees the big issue now is housing debt.

"I've got a real concern about private debt. I think it's far too high in New Zealand and it's very leveraged into the housing market, which is still very strong and likely to get stronger. But at some point it will turn," he says.

Relatively speaking, government and business had learned lessons from previous market meltdowns and are in much better shape, he says.

Independent economist Shamubeel Eaqub worries there may now be no way out of the housing debt cycle that doesn't involve economic pain for many borrowers.

"There is no easy way out," he says. "Our banking regulation has the kind of policy that allows us to feed on the property market. Of all the debt that is created in NZ, more and more is going towards mortgages because mortgages are perceived as less risky according to our rules and regulations."

"We're not quite at the bubble yet," Gaynor says. "But it won't take much to get there. It's got more and more momentum."