Bet the house: Home ownership an uncomfortable challenge at small business summit

It commanded no keynote speech or panel, but home ownership emerged as the de facto theme of 2024’s most important small business summit, with politicians and policy experts alike conceding the housing market is punishing young entrepreneurs.

From federal Leader of the Opposition Peter Dutton to NSW’s Labor Premier Chris Minns, lawmakers of all stripes used this week’s Council of Small Business Organisations Australia (COSBOA) summit to suggest soaring house prices are working against the next generation of small business owners.

Economic analysis from Reserve Bank of Australia financial system assistant governor Brad Jones crystallised the issue, revealing the “outsized” importance of home ownership when accessing small business finance, as home ownership rates fall among young Australians.

Despite those admissions, reshaping the role of property in Australia’s economy is a politically torturous task — and it will take more than one business summit to unpick the relationship between home ownership and the urgent need for new and dynamic businesses.

Age-old problem

The problem, as described by groups like CPA Australia, is simple.

Booming house prices are making it harder for young Australians to climb the property ladder.

In turn, young Australians who do not own a home struggle to access small business finance, as banks prefer to collateralise their loans with bricks and mortar.

This results in fewer small businesses being formed by young Australians: data shows 55% of Australian small business owners are now above 50 years old.

Booming house prices, and the policy settings that encourage property investment, may convince young people that earning a wage to service their mortgage is the end goal — not leveraging their equity to fund a risky new enterprise.

Perhaps Jones put it best, devoting a portion of his speech on SME financing to the housing conundrum.

“Given that almost all SME lending is secured, and residential property has an outsized role in collateralising the loans of small businesses, access to innovation-based debt financing is not straightforward,” he said.

“This is particularly the case for younger entrepreneurs struggling to get onto the housing ladder.”

“Even if small business owners do hold residential property, some are understandably reluctant to post it as collateral given the stress involved,” he continued.

“And, if they do, they are more likely to be more risk averse in their business investment decisions when their family home is on the line.”

Source: Reserve Bank of Australia

For an economy desperately seeking productivity growth, economic dynamism, and innovation, that’s very bad news.

It is not just grim for young Australians, either: aging business owners looking to sell up and retire may find it increasingly difficult to find a new owner.

And linking small business formation to home ownership rates is doubly concerning in terms of gender equity in the small business space.

March data from CoreLogic suggests 51.6% of gen Z men own a home, almost double the rate of gen Z women at 27.3%.

Leaders speak out

Discussion of the generational gap in small business ownership — and its causes — filtered through the conference.

Opposition Leader Dutton, who took a part-time interest in property development alongside his career in the Queensland Police Force, approached the issue on Wednesday morning.

He “saved like crazy” to purchase his first home by the age of 20, Dutton said.

“It kills me today that the same kid in those circumstances would have no prospect of buying a house in this modern market, and it’s one of the biggest policy issues for us.”

NSW Premier Chris Minns had a sharper take, saying house prices and sluggish property development rates are causing a significant brain drain in his state.

“We’re losing twice as many young people as we’re gaining in return,” Minns said Thursday.

“These are people who are in the primes of their lives. They’re raising families, joining communities, they’re starting their own small businesses, and we’re losing them.

“It’s an exodus of talent and we need to reverse it.”

No consensus on the way forward

While bipartisan recognition may exist, there is no consensus on how to respond.

For its part, the Coalition has suggested Australians should be free to tap into their superannuation to buy a home.

Minister for Small Business Julie Collins — who also holds the federal housing portfolio — has championed the $10 billion Housing Australia Future Fund to increase the supply of social and affordable rental housing.

The Labor government also wants 1.2 million new homes built over the next five years, framing undersupply as the key constraint to home ownership.

It is also true that alternatives to traditional, property-backed bank loans are helping entrepreneurs access capital, even without a home to their name.

Australia’s venture capital scene is maturing, startup debt financing options are becoming more common, and government-backed initiatives like the Australian Business Growth Fund are backing growing businesses with a proven track record.

But if the nation really wanted to encourage entrepreneurship, it could reconsider the incentives that make property investment so enticing.

Such reforms could reshape homes as shelters, not investments, and encourage young entrepreneurs to take a punt on a new business idea, instead of working for a big business and waiting for capital gains.

Those discussions are politically treacherous and might be too big for a two-day conference.