House Money and Entrepreneurship

50 Pages Posted: 18 Aug 2015 Last revised: 2 Sep 2015

See all articles by Sari Pekkala Kerr

Sari Pekkala Kerr

Wellesley College

William Kerr

Harvard University - Entrepreneurial Management Unit

Ramana Nanda

Harvard University - Entrepreneurial Management Unit

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Date Written: August 2015

Abstract

We examine the relationship between house prices and entrepreneurship using micro data from the US Census Bureau. Increases in house prices are often thought to drive entrepreneurship through unlocking the collateral channel for bank loans, but this interpretation is challenged by worries regarding omitted variable biases (e.g., rising local demand) or wealth effects (i.e., that people with more valuable homes are more likely to enter entrepreneurship for reasons other than access to collateral). We construct an empirical environment that utilizes very localized price changes, exploits variations in initial home values across residents in the same zip code, and embeds multiple comparisons (e.g., owners vs. renters, homestead exemption laws by state). For the United States during the 2000-2004 period, the link of home prices to the rate of entrepreneurship through home equity channels is modest in economic magnitude. This is despite a focus on a time period that experienced the largest concentration of US home price growth over the last two decades. Even when we do connect home equity to entrepreneurship, part of the effect is linked to an increased demand for entrepreneurship. While housing collateral plays a role in the entry that we observe, it does not seem to be a major barrier to entrepreneurship in our context.

Suggested Citation

Kerr, Sari Pekkala and Kerr, William R. and Nanda, Ramana, House Money and Entrepreneurship (August 2015). NBER Working Paper No. w21458. Available at SSRN: https://ssrn.com/abstract=2645554

William R. Kerr

Harvard University - Entrepreneurial Management Unit ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

Ramana Nanda

Harvard University - Entrepreneurial Management Unit ( email )

Boston, MA 02163
United States

HOME PAGE: http://www.people.hbs.edu/rnanda

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