Housing wealth changes and entrepreneurship: Evidence from urban China

This paper studies the impact of household-level housing wealth changes on entrepreneurship in urban China. Exploiting the 2011-2015 China Household Finance Survey, we control for lagged proxies for wealth, city-by-year fixed effects, and other household attributes and directly estimate the magnitude of homeowner's response to housing capital gains net of home maintenance and upgrading expenditures. We also instrument for housing wealth changes with structural breaks in city housing price trend. We find that a 10,000 RMB increase in housing wealth increases the propensity of a household becoming a business owner by about 0.7 percentage points in IV estimation. In addition, we provide new evidence for underlying channels that housing capital gains alleviate household credit constraints, reduce risk aversion and increase awareness of financial information.

Automated summary

This study examines the impact of household-level housing wealth changes on entrepreneurship in urban China using data from the 2011-2015 China Household Finance Survey. The findings suggest that an increase in housing wealth is associated with an increased likelihood of households becoming business owners, and provide new evidence for the channels through which housing capital gains alleviate credit constraints, reduce risk aversion, and increase awareness of financial information.