House Money and Entrepreneurship

2013

UNC, and Stanford for thoughtful comments The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

Economic Commentary, 2010

Small businesses continue to report problems obtaining the fi nancing they need. Because small business owners may rely heavily on the value of their homes to fi nance their businesses (through mortgages or home equity lines), the fall in housing prices might be one of the causes of their diffi culty. We analyze information from a variety of sources and fi nd that homes do constitute a signifi cant source of capital for small business owners and that the impact of the recent decline in housing prices is signifi cant enough to be a real constraint on small business fi nances.

SSRN Electronic Journal, 2020

This paper examines how banks reallocate credit after the introduction of a more enforceable housing collateral contract in Brazil. This new contract greatly improved the repossession of real estate assets used as collateral for personal and business loans. We find opposing effects of this policy. Because of the stronger enforcement, credit supply increased in municipalities with higher homeownership, leading to the creation of new firms, higher employment, and economic performance. However, banks restricted credit to borrowers in low homeownership municipalities. These areas experienced a decline in entrepreneurship, local labor demand, and economic activity. The credit reallocation was greatest for credit-constrained banks, consistent with higher external financing costs. Finally, the differential effects in credit supply induced a redistribution of labor in the economy: workers migrated from low to high homeownership municipalities after the reform.

Finance and Economics Discussion Series

Our paper studies the role of the collateral channel for bank credit using confidential bank-firm-loan data. We estimate that for a 1 percent increase in collateral values, firms pledging real estate collateral experience a 12 basis point higher growth in bank lending with higher sensitivities for more credit constrained firms. Higher real estate values boost firm capital expenditures and lead to lower unemployment and higher employment growth and business creation. Our estimates imply that as much as 37 percent of employment growth over the period from 2013 to 2019 can be attributed to the relaxation of borrowing constraints.

econ.yale.edu

develop a model with two goods, "housing" and "nondurables" and show that under a collateral constraint risk sharing will be higher when the relative price of housing is high. They show that this matches the data in the sense that there is more risk sharing between metropolitan areas of the United States when house prices are relatively high. We derive a similar result in a model with heterogenous households who each period choose housing and nondurable consumption but where housing can only be adjusted at a fixed cost. We test the implications more directly by testing if risk sharing is higher within metropolitan areas where house prices are relatively high using household data from the Panel Study of Income Dynamics and house prices from the Office of Federal Housing Enterprise Oversight.

2013

Business starts have received much attention from policy makers with regard to their possible role as economic stimulants. From the many studies that have attempted to identify drivers of small business formation, it is clear that access to finance is critical. In this respect the present study examines the possible role of home ownership and its potential to serve as a collateral for business starters loans. Using a panel data set for 18 countries over the period 2004 to 2009, which covers both boom and slump years, the study supports findings that home ownership may crowd out other investment because acquiring a home requires a large investment. High levels of mortgage indebtedness appear to be related to low levels of new business formation. NEUJOBS Working Documents are intended to give an indication of work being conducted within the NEUJOBS research project and to stimulate reactions from other experts in the field. Texts published in this series are ultimately destined for ac...

2013

Using individual-level data from the 1985-2011 American Housing Survey panel, this paper confirms that housing capital gains encourage transitions into self-employment. Additional findings suggest that this occurs at least in part because homeownership provides an accessible source of potential financing that serves as a form of insurance for aspiring homeownerentrepreneurs. The link between homeownership and self-employment is also stronger for older homeowners who are wealthier and typically have more latitude to take on discretionary mortgage debt to finance an investment. Overall, our results provide support for arguments in previous studies that personal wealth and access to credit are important drivers of selfemployment. Our findings also provide a new justification for longstanding government support for homeownership: homeownership encourages self-employment. JEL Codes: J2, R2, M2

SSRN Electronic Journal, 2000

Financially constrained borrowers have the incentive to influence the appraisal process in order to increase borrowing or reduce the interest rate. We document that the average valuation bias for residential refinance transactions is above 5%. The bias is larger for highly leveraged transactions, around critical leverage thresholds, and for transactions mediated through a broker. Mortgages with inflated valuations default more often; however, lenders partly account for the valuation bias through pricing. Sumit Agarwal Associate Professor of Finance and Real Estate NUS Business School Mochtar Raidy Building, BIZ1 15 Kent Ridge Road

2009

Labour Economics, 2009

This paper investigates the existence of liquidity constraints facing entrepreneurs in the United Kingdom. Using a household-level panel data set, entry to selfemployment is shown to be a function of household net worth. We use inheritances and unanticipated movements in house prices as instruments for shocks to liquidity. Results indicate that inheritances are a poor instrument for liquidity constraints because both past and future inheritances predict entry to self-employment. House prices shocks are a more plausible instrument because self-employed households disproportionately re-mortgage, but our results again indicate little evidence of house price shocks unbinding liquidity constraints facing the would-be self-employed.