Study: Buying a house makes people less entrepreneurial

at 01:33 PM ET, 05/31/2012

The recent bust was a rude awakening about the downsides of owning a home. Researchers have uncovered yet another potential drawback: Purchasing a home makes people 20 to 25 percent less likely to start their own business. A new paper from the UK’s Spatial Economics Research Centre explains:
(Daniel Acker/Bloomberg)

Our fixed-effects estimates show that purchasing a house reduces the likelihood of starting a business by 20-25%. ... This result is driven by homeowners with mortgages and persists for several years after entering homeownership. ... We argue that this finding can be rationalized by the fact that homeowners typically have to overinvest in housing (Brueckner, 1997; Flavin and Yamashita, 2002) and therefore cannot adequately diversify their portfolio. As a consequence, individuals choose not to start-up their own business venture at the same time as becoming homeowners since this would imply taking on significant additional risk. Stated differently; investments in homeownership crowd out entrepreneurial engagement.

The researchers examined homeowners in the U.K. but believe their findings are relevant to the United States, which had similar rates of homeownership before the crash. The results might give pause to policymakers who’ve gone out of their way to incentivize home ownership, as well as potential home buyers who may be thinking of other ways to invest their money.

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