House Prices, Home Equity and Entrepreneurship: Evidence from U.S. Census Micro Data" with Sari Pekkala Kerr (Wellesley College) and William R. Kerr (Harvard Business School)

Abstract:

We use Census Bureau micro data to shed new light on the relationship between home values and US entrepreneurship during the house price run-up of the early 2000s. In isolating the causal effect of higher collateral on entrepreneurship, we estimate that a 10% increase in house prices led to a 0.6% increase in entrepreneurship over this period. We show that the primary mechanism through which the collateral channel operated was through the deleveraging of home owners who would not have had borrowing capacity absent the price run-ups. Only a modest number of households were sufficiently leveraged for this to have a meaningful aggregate impact on entrepreneurship, however, which explains the relatively weaker aggregate role for the collateral channel in entrepreneurship compared to the more widespread impact of increased home equity on household consumption over this period.