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Boon or Burden? Evaluating the Competing Effects of House-Price Shocks on Regional Entrepreneurship

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  • Nicholas Kacher
  • Luke Petach

Abstract

This paper examines the impact of changes in housing affordability on regional entrepreneurship. Two-way fixed-effects estimates suggest an increase in the level of house prices in a commuting zone results in a decline in establishment openings as a share of existing establishments—consistent with a crowding-out effect. In contrast, an increase in the growth rate of house prices results in a small (although not always statistically significant) increase in establishment openings—consistent with a positive wealth effect from capital gains. To address endogeneity concerns, the authors adopt two alternative instruments for commuting zone house-price growth: a measure of local real estate lending and a geography-based measure of the elasticity of local housing supply. They extend the analysis using restricted-use establishment-level microdata from the Quarterly Census of Employment and Wages (QCEW) for the state of Colorado. Results from the QCEW data are consistent with those from the commuting zone sample.

Suggested Citation

  • Nicholas Kacher & Luke Petach, 2021. "Boon or Burden? Evaluating the Competing Effects of House-Price Shocks on Regional Entrepreneurship," Economic Development Quarterly, , vol. 35(4), pages 287-304, November.
    • Handle: RePEc:sae:ecdequ:v:35:y:2021:i:4:p:287-304
    DOI: 10.1177/08912424211041084
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