About two years ago, I spoke at a meeting of Waikato property investors. I mentioned some people chose to invest in growth companies rather than flats.
Xero, back then a little-known company, had listed on the NZX in 2007 after an initial public offering at $1 a share raised $15 million. The investors' response was contemptuous: "It's never made a profit and never paid a dividend."
There was little appetite for anything other than leveraged investment in property, where interest costs could be offset against income and capital gains were tax-free. Our tax and banking systems make leveraged property investment a rational decision - it's why most wealthy people will tell you (privately) they made most of their money via tax-free gains. It's why Parliament's register of pecuniary interests last year showed our 121 MPs owned 292 properties.
Yet, this structural bias in favour of property investment is even beginning to sour at the Beehive. Auckland's housing affordability crisis, a burst of leveraged property investment and Reserve Bank limits on low-deposit borrowing have focused hearts and minds.
The young and poor are pounding at the gate, demanding to share the spoils.
The mood is shifting on tax incentives for saving in vehicles such as KiwiSaver, which are pumping money into our stock and bond markets. In July 2011, Xero had been on the stock market for four years and its shares were trading at about $2. This week, Xero's shares nudged the $19 mark.
This is the sort of investment New Zealanders need, and our tax system should encourage it. I hope those property investors will think twice before dismissing the next Xero with a snigger.