The Effect of Mortgage Regulation on Entrepreneurship
56 Pages Posted: 18 Aug 2017 Last revised: 2 Mar 2022
Date Written: March 1, 2021
I show that policies restricting the ratio of mortgage payments to income are particularly costly for self-employed workers. I identify these effects using local variation in exposure to the Ability-to-Repay and Qualified Mortgage rule. By limiting mortgage payment size as a share of stable, documented income, the rule disproportionately reduced credit to self-employed workers and led to a decline in self-employment and small business employment. The employment response is concentrated in new businesses and in industries where start-up costs are low enough to be financed primarily with mortgage credit.
Keywords: financial regulation, self-employment, entrepreneurship, mortgages
JEL Classification: G21, G28, L26, J23
Suggested Citation: Suggested Citation