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House Prices, Home Equity and Entrepreneurship: Evidence from U.S. Census Micro Data

Author

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  • Sari Kerr
  • William R. Kerr
  • Ramana Nanda

Abstract

We use Census micro data to shed new light on how growth in house prices boosts US entrepreneurship. At the height of the 2007 real estate boom, 5% of self-employed individuals and 12% of employer-businesses used home equity to partly or wholly finance a new business. Despite this frequency, several analyses suggest that little of the observed city-level relationship between house price increases and entrepreneurship operates through expansion of the home equity collateral channel. First, home equity gains mostly appear to substitute against loans from friends and family. The vast majority of entrepreneurs used personal savings to finance their business, and these individuals usually hold sufficient start-up capital absent the house price increases. Second, we estimate that over 90% of the relationship between house price increases and entrepreneurship observed in city-level analyses comes from higher local demand that boosts entry. Our results provide a nuanced picture: while housing collateral is important for some entrepreneurs to access needed credit, the empirical relationship between house price increases and start-up activity is more about local demand than about financing constraints.

Suggested Citation

  • Sari Kerr & William R. Kerr & Ramana Nanda, 2015. "House Prices, Home Equity and Entrepreneurship: Evidence from U.S. Census Micro Data," NBER Working Papers 21458, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:21458
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    Cited by:

    1. Sari Pekkala Kerr & William R. Kerr, 2016. "Immigrant Entrepreneurship," NBER Chapters, in: Measuring Entrepreneurial Businesses: Current Knowledge and Challenges, pages 187-249, National Bureau of Economic Research, Inc.
    2. Harding, John P. & Rosenthal, Stuart S., 2017. "Homeownership, housing capital gains and self-employment," Journal of Urban Economics, Elsevier, vol. 99(C), pages 120-135.
    3. Javier Mejia, 2018. "Social Networks and Entrepreneurship. Evidence from a Historical Episode of Industrialization," Documentos CEDE 016380, Universidad de los Andes - CEDE.
    4. de Meza, David & Dawson, Christopher & Henley, Andrew & Arabsheibani, G. Reza, 2019. "Curb your enthusiasm: Optimistic entrepreneurs earn less," European Economic Review, Elsevier, vol. 111(C), pages 53-69.
    5. Sari Pekkala Kerr & William R. Kerr & Tina Xu, 2017. "Personality Traits of Entrepreneurs: A Review of Recent Literature," NBER Working Papers 24097, National Bureau of Economic Research, Inc.
    6. Duranton,Gilles & Ghani,Syed Ejaz & Grover,Arti Goswami & Kerr,William Robert & Duranton,Gilles & Ghani,Syed Ejaz & Goswami,Arti Grover & Kerr,William Robert, 2015. "Effects of land misallocation on capital allocations in India," Policy Research Working Paper Series 7451, The World Bank.

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    More about this item

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
    • R32 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Other Spatial Production and Pricing Analysis

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