Do increases in real estate prices benefit productive investment by all companies?

Summary From the end of the 1990s to the financial crisis, real estate prices in many advanced countries experienced a very strong expansion, unprecedented in terms of its magnitude and duration, raising questions among analysts about its impact on productive investment. In countries such as Spain, where property prices fell after a very sharp rise, the adjustment revealed a very poor allocation of capital and led to a rebalancing in favour of the export sector (Cette, Fernald and Mojon, 2016). In France, on the other hand, there was no significant correction in real estate prices. They have remained higher than in the 1990s in relation to consumer prices or equipment prices. That said, France also raises questions about the impact of the very strong expansion in property prices on sectoral allocation and productive investment (Askenazy, 2013). Has this expansion altered the allocation of investment, directing it towards less productive firms and sectors? The effect of real estate price increases on collateral is mitigated by a negative profitability effect. So far, the literature has mainly focused on the collateral channel. In an imperfect credit market, the deposit of collateral enhances firms' ability to borrow. The ability of lenders to capture deposited collateral increases borrowers' ability to borrow because it mitigates the effects of the principal-agent problem that characterizes this external financing relationship. The extent to which depositing collateral relaxes the credit constraint depends on the liquidation value of the collateral. Real estate assets often constitute the bulk of firms' collateralizable assets because they can be easily redeployed and have a long life.