The housing boom and selection into entrepreneurship

Abstract

Existing evidence shows that increases in property prices produce immediate positive effects on economic activity and, particularly, on business creation. In this paper, we ask the following question: how does a housing boom alter the selection of individuals that open a firm? The answer to this question is important to understand how robust and long-lasting is the positive effect of a housing shock. We find that the early 2000 US housing boom increased entry into entrepreneurship mostly for lower ability house-owners. We derive our results using IQ scores and an indirect measure of ability constructed from individuals’ wage history.