Housing Speculation and Entrepreneurship

We document a speculation channel through which house market booms negatively affect entrepreneurship. To address endogeneity concerns, we exploit plausibly exogenous variation in house prices generated by staggered and unintended policy spillovers in China. We find house market speculation triggered by house booms crowds out entrepreneurship. Reduced labor supply, reduced capital supply, and heightened entry costs do not appear to explain our main findings. The negative effect exhibits in the OECD countries as well. Our paper complements the well-documented collateral channel by offering novel evidence on a previously under-explored adverse consequence of house market booms – their hindrance to entrepreneurship.