Housing price and entrepreneurship in China

Li, Lixing, and Wu, Xiaoyu—Housing price and entrepreneurship in China Housing price has increased dramatically in China during the past decade. The appreciation of house value could relax credit constraint and thus encourage entrepreneurship. However, a house serves as both an important investment channel and a prerequisite for marriage in China. The continuous high return of investment in housing and intensified marriage market competition make house purchase a priority for young people and their parents, which would crowd out entrepreneurial activities. Using two large datasets, we find that high housing price in general discourages entrepreneurial activities for urban adults. For house owners, while house value appreciation has a positive wealth effect, the ratio of mortgage over income has a negative effect. For non-owners, a higher ratio of housing price over income corresponds to a lower probability of entrepreneurship. This study highlights the negative consequences of surging housing price on entrepreneurship in developing countries. Journal of Comparative Economics xxx (xx) (2013) xxx–xxx. China Center for Economic Research, National School of Development, Peking University, China; China Academy of Public Finance and Public Policy, Central University of Finance and Economics, China. 2013 Association for Comparative Economic Studies Published by Elsevier Inc. All rights reserved.