Are property price rises bad for the economy? 

price risesI met John key for a few brief moments after a conference. He really didn’t have time to speak to me but as we walked down a corridor flanked by his entourage I did get to ask him a question. I asked, “If small business is the biggest employer in New Zealand, and the banks want housing collateral to lend to small business, isn’t property growth a good thing as it funds small business?”

For me this comes from owning a small business. When I wanted money to expand or even to cover a cash shortfall the only thing the banks were interested in was how much real estate I owned and what my equity in it was. That was the only security that counted for a business loan.

They wanted to know how the business was going, but the business was worth nothing in terms of a security. The only security they valued was the equity in my private house or houses. Therefore as far as I was concerned my residential housing funded my business. The more my house was worth the more secure my business was.

I’m still not sure if John Key was really answering the question or just trying to get rid of a pesky business owner in his rush to get to his next appointment… The brief answer he gave suggested he agreed. “Yes! I get that, residential housing funds small business.”

I have always felt comforted by his reply as it suggests there is agreement in top circles that the two are linked. A healthy rising real estate market bodes well for small business as it makes small business more secure. I have heard figures that around 90% of jobs are in small business. I always wonder if the softly softly approach the government seems to take to residential investment isn’t tied in with this concept…

What are your thoughts?

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