Housing Speculation and Entrepreneurship

We document a speculation channel through which housing market booms negatively affect entrepreneurship but increase entrepreneurial quality by screening off lower-type entrepreneurs. To establish causality, we exploit plausibly exogenous variation in house prices generated by staggered and unintended policy spillovers in China. Reduced labor supply, reduced capital supply, heightened entry costs, and forced homeownership do not appear to explain our main findings. The negative effect is more driven by house price growth rather than price levels, and exhibits in the OECD countries as well. Our paper complements the well-documented collateral channel by offering nuanced evidence on a previously under-explored effect of house market booms on entrepreneurship.