House prices, home equity and entrepreneurship: Evidence from U.S. census micro data

• Explores impact of dramatic 2000s run-up in house prices for entrepreneurship. • Quantifies collateral channel is a tenth or less of macro correlation. • Quantifies heterogeneity in entrant types and survival. • Quantifies entry by individual wealth and likely borrowing constraints. • Provides novel evidence on use of home equity loans by small businesses. 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 first 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.