House Prices, Home Equity and Entrepreneurship: Evidence from U.S. Census Micro Data

During 1992-2007, house price growth is strongly correlated with local entrepreneurship. We show with Census Bureau data that most of this entry is related to construction and real estate; these entrants tend to be small and short-lived. Using a 1998 Texas reform that allowed home equity lending for the rst time in the state, we isolate that entrepreneurship through the collateral channel tends to be longer-lived and more balanced across sectors. The collateral channel is a tenth or less of the entry associated with house price increases, driven by a small share of homeowners who are constrained without price growth.