Are Mortgage Regulations Affecting Entrepreneurship?

50 Pages Posted: 18 Aug 2017 Last revised: 14 Feb 2020

See all articles by Stephanie Johnson

Stephanie Johnson

Rice University, Jones School of Business

Date Written: July 15, 2019

Abstract

I show that rules designed to reduce high debt-to-income mortgage lending restrict self-employed households’ access to credit and reduce entrepreneurship. I identify the effects of a recent policy by using local variation in exposure to banks subject to the regulation. The policy reduced mortgage credit in high self-employment census tracts and banks receiving exemptions expanded market share in these areas. Growth in self-employment and new small business employment was lower in areas where more banks were affected. I estimate that the policy reduced self-employment by around 2 per cent and new small business employment by at least 3 per cent. This unintended effect on entrepreneurship demonstrates that mortgage finance is important for early stage businesses, and is an additional cost to be taken into account when evaluating mortgage policy.

Keywords: financial regulation, self-employment, entrepreneurship, mortgages

JEL Classification: G21, G28, L26, J23

Suggested Citation

Johnson, Stephanie, Are Mortgage Regulations Affecting Entrepreneurship? (July 15, 2019). Available at SSRN: https://ssrn.com/abstract=3021306 or http://dx.doi.org/10.2139/ssrn.3021306

Stephanie Johnson (Contact Author)

Rice University, Jones School of Business ( email )

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