A leading economist says New Zealand has the wrong mix when it comes to borrowing.
The latest data shows business lending has dropped by $9 billion in the past year while home lending has increased by $30 billion.
Economist Cameron Bagrie told The AM Show low-interest rates are partly to blame.
"From a purely economic perspective in regards to a productive, dynamic economy for the long term it's completely the wrong mix.
"But unfortunately, that is partly symptomatic of New Zealand's appetite for housing, but also just how low-interest rates work. Low-interest rates stimulate the hell out of the housing market and we've been off to the races," he said on Tuesday.
He said businesses are finding it harder to get loans and are more cautious amid economic uncertainty from the COVID-19 pandemic.
"What we have also seen through the business sector is two things. One, it has been harder for businesses to extract money out of the banks - the banks are asking a lot more questions given the economic environment.
"And secondly, businesses have been lukewarm about investing, about deploying their cash until we see a bit of that economic uncertainty clear."
Bagrie said the good news is the uncertainty should start to clear over the next six to 12 months and hopefully encourage businesses to invest.
"We need to see firms investing down the track and one of the key bellwethers of that is whether the money is coming out the door of the banks and flowing out to the business sector."
While business lending has taken a hit, home borrowing is seemingly unstoppable despite Government moves to dampen the market.
Bagrie said while investor borrowing is slightly down, owner-occupier is still going strong.
He said the Reserve Bank's introduction of Loan to Value Ratios (LVRs) has had mild success when it comes to deterring investors.
"The banks have been applying these [LVRs] for a while and we have seen a little bit of a pullback from the investor borrowing but by and large if you look at owner-occupier stuff it's still pretty much game on."
The Government in March announced a raft of housing changes in an effort to dampen rampant house price growth. The changes included stripping landlords' ability to offset interest costs to reduce their tax liability, bringing them into line with owner-occupiers.
The Reserve Bank has also introduced lending restrictions. Only a small fraction of banks' lending can now go to investors with less than a 40 percent deposit.
