Small businesses close for all sorts of reasons. Bad location, tough competition, changing consumer tastes. But there's another factor that rarely makes the headlines: access to capital. And increasingly, access to capital depends on something that has nothing to do with your business plan or profitability.

It depends on whether you own a home.

There's a pattern emerging that connects housing prices to something most people don't think about: how businesses get funded, how innovation happens, and why some economies grow differently than others.

Mike Bird, Wall Street editor for The Economist and author of The Land Trap: A New History of the World's Oldest Asset, spent years researching this connection. What he found challenges how we think about real estate markets entirely.

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Why Land Behaves Differently

Most things we own lose value over time. Cars depreciate. Technology becomes outdated. Even buildings need constant maintenance or they deteriorate.

Land works differently. It tends to increase in value, not because of anything the owner does, but because of what happens nearby. A new transit line opens. Businesses move in. Schools improve. All that activity around the property gets reflected in its value.

For homeowners, this has created significant wealth over generations. But this characteristic of land also creates some interesting economic dynamics that ripple through communities in unexpected ways.

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The Homeownership Paradox

There's an interesting pattern in how small businesses get funded in Canada. When entrepreneurs need capital, lenders typically ask for collateral. For most business owners, that collateral is their home equity.

This connection between homeownership and business funding has enabled thousands of ventures over the decades. The coffee shop on your corner, the consulting firm downtown, many tech startups. A significant portion traces their initial capital back to someone's home equity.

Research shows this pattern exists across many developed economies. Without some form of collateral, most traditional lenders consider small business loans too risky.

But as housing markets shift, so does this dynamic. When fewer people can afford to buy homes, fewer people have access to this traditional path to business capital. And when property values reach certain levels, lending institutions tend to focus more heavily on real estate transactions themselves.

Bird's research found that in markets with sustained high property values, banks gradually allocate more resources to mortgage lending and proportionally fewer to business lending. It's a pattern, not a conspiracy. Lending against real estate simply becomes lower risk and more straightforward than evaluating business proposals.

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How Capital Markets Shape Outcomes

Different countries have developed different systems for funding business growth. The United States, for example, has built extensive venture capital and private equity networks. Entrepreneurs there can pursue funding from VCs, angel investors, and other non-bank sources.

Canada's capital markets evolved differently. Data from Q1 2024 shows that 74% of venture capital investment in Canada came from foreign sources, primarily the United States. This represents a historically high level of reliance on external capital, with only 26% coming from Canadian sources.

These numbers don't make one system better or worse. They simply reflect different approaches. In markets with less developed alternative funding channels, traditional bank lending plays a larger role. And traditional bank lending typically requires collateral.

The relationship creates a feedback loop. As more capital flows toward real estate, there's proportionally less available for business ventures. This isn't anyone's fault. It's how capital allocation works when one asset class shows consistent returns over long periods.

Canada's housing sector now represents over 20% of GDP, up from roughly 14% in 2020. That shift tells a story about where investment has been flowing.

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The Reform Dilemma

Over several decades, homeownership became deeply embedded in retirement planning for millions of Canadians. Various policies and tax structures encouraged this, treating principal residences favorably compared to other investments.

Now we face a tension that Bird identifies in his research. Economic theory suggests that taxing land more heavily could redirect capital toward business investment. But decades of messaging about homeownership as financial security created expectations that millions of people have organized their lives around.

Bird notes this creates a genuine challenge. "These homeowners haven't done anything wrong," he observes. They followed the incentives they were given. Changing those incentives now affects real people who made reasonable decisions based on the rules at the time.

This isn't about right or wrong policy. It's about the difficulty of changing course when millions of people have built their financial plans around existing structures. Household mortgage debt stands at approximately $2.3 trillion as of early 2025, with many mortgages renewing at higher rates through 2026. Home prices have adjusted from their 2022 peaks, creating additional complexity.

Any significant policy shift has to account for these realities. Quick changes could create hardship. But slow changes might not address current challenges facing younger buyers or entrepreneurs seeking capital.

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A Different Approach: The Singapore Case

Singapore offers an interesting case study in alternative housing models. In the 1960s, facing severe housing shortages and limited land, the government took an unusual approach. They acquired roughly 90% of the land and developed a public housing system through the Housing Development Board.

Citizens purchase 99-year leases for apartments, with restrictions on owning multiple properties. Non-citizens face significant limitations on property purchases. Through this system, about 90% of Singaporeans own their homes, yet prices remain relatively controlled because supply stays regulated.

This created an environment where capital could flow more readily to business ventures. Singapore's house price-to-income ratio runs well below ratios in Toronto or Vancouver.

The model works for Singapore's specific context as a small city-state with unique governance structures. Whether similar approaches could work elsewhere depends on many factors: existing property rights, political structures, cultural expectations around homeownership, and the timing of implementation.

Singapore made these decisions in the 1960s, before property values had appreciated significantly. That timing mattered. Implementing major changes becomes exponentially more complex once property values represent substantial household wealth across a population.

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Reading Today's Market

Home sales in March 2025 reached the weakest March levels since 2009. National sales fell roughly 20% from their November 2024 peak. Economic uncertainty and tariff concerns appear to have influenced buyer decisions, particularly in Ontario and British Columbia.

At the same time, these broader patterns Bird describes continue to play out. The relationship between property values, capital allocation, and business lending doesn't shift quickly. Lower interest rates may influence near-term activity, but the underlying structures evolve more slowly.

The patterns aren't necessarily permanent, though. They developed over decades through many small decisions and policy choices. Different choices could produce different outcomes, though the transition period would require navigating competing interests and expectations.

Inventory has been increasing in most major markets, changing negotiation dynamics. Prices have adjusted from 2022 levels. Interest rates, while elevated compared to recent years, have started declining from their peaks.

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Making Informed Decisions

Understanding these broader patterns adds context to individual housing decisions. Building more homes addresses supply constraints, which matters. But Bird's research shows how housing markets connect to capital flows, business formation, and wealth building in ways that simple supply and demand don't fully capture.

Beyond the immediate transaction, real estate decisions carry weight because property plays multiple roles in our economic system. A home provides shelter for your family. It typically becomes your largest financial asset. It may serve as collateral if you ever need business capital or face other financial needs. Understanding these interconnections helps inform better decisions.

At Coldwell Banker Horizon Realty, we provide clear insight on market conditions, pricing, and timing so you can move forward with confidence.