Millennial innovators take note - Renters are more likely to become entrepreneurs

Millennial innovators take note - Renters are more likely to become entrepreneurs

A recent study in the UK published in the Journal of Urban Economics, looked at the link between mortgage debt and entrepreneurship. Their interest was triggered by the understanding that flourishing entrepreneurial activities and innovation are believed to lead to higher national productivity and economic growth.

The study found that excessive mortgage debt diminishes the likelihood of entrepreneurship by increasing people’s avoidance of risk. 

They looked at homeownership two ways and both led to lower levels of entrepreneurship:

  1. Large mortgages with steady home values lead people to avoid the risk of becoming entrepreneurs.

  2. Large mortgages are with large increases in home prices (i.e., increased net worth), still make people less likely to take on an entrepreneurial enterprise.

Their results have important government policy implications since Canada and virtually all developed countries – including the United States and the United Kingdom – have policies that favour homeownership by making it easier to finance home purchases with a loan.  As a result 40% of Canadians have mortgages.

It also calls into question the value of a $1.26 billion Canada’s Strategic Innovation Fund launched in 2017. The innovation fund may be short changed of talented entrepreneurs due to government programs encouraging homeownership.

Canada’s high levels of home ownership may explain why a Conference Board of Canada report shows Canada ranked 13th, below Germany and Austria.

Switzerland is an example of a success story. Switzerland’s research and leadership in patents and trademarks translate into expertise in knowledge-intensive service, and further to export leadership in pharmaceuticals and scientific instruments. The U.S. is a leader in information and communication technology investment and venture capital investment. It succeeds in translating new knowledge into business value. The top 3 countries ranked for innovation have lower home ownership rates than Canada.


From a policy perspective, the Canadian government may want to consider two goals:

  1. De-emphasize home ownership slightly: For example, they could repeal government sponsorship of home purchases that have less than 10% down payment.

  2. Encourage construction of rental buildings: Provide tax incentives to builders of rentals and offer government sponsored financing for 90% of the construction of rental housing of all types. Abundant cheap rentals allow entrepreneurs and innovators to funnel their cash flow into their businesses instead of real estate

If we can agree on the political goals, the government should have a clear path to act.

Personally, if your aspirations involve finding a steady well paying job and collecting a paycheck every two weeks, then this is just interesting information for your next social gathering. If you have dreams of disrupting an industry or creating new and innovative products, then you should be aware that a big mortgage may hold you back from taking the leap into entrepreneurship.

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