This paper shows that housing wealth helps alleviate credit constraints for potential entrepreneurs by enabling home owners to extract equity from their property and invest it in their business. Using a large U.S. individual-level survey dataset for the 1996–2006 period, we find that a 10% increase in home equity raises the share of individuals who transition into self-employment each year from 1% to 1.07%. Our results persist when we use proxies for aggregate housing demand shocks and for the topological elasticity of housing supply to generate variation in home equity that is orthogonal to entrepreneurial choice.

We show that after the start of the euro area sovereign debt crisis, lending by non-GIIPS European banks with sizeable holdings of GIIPS sovereign bonds declined relative to nonexposed banks. This effect is not driven by changes in borrower demand or by other shocks to banks’ balance sheets. We also find that affected banks withdrew from all foreign markets with the exception of the USA, suggesting an increase in home bias. The slowdown in lending continued after ECB’s LTRO in December 2011, but it was lower for banks that increased their risky exposures in the early stages of the crisis.

This paper shows that housing wealth helps alleviate credit constraints for potential entrepreneurs by enabling home owners to extract equity from their property and invest it in their business. Using a large U.S. individual-level survey dataset for the 1996–2006 period, we find that a 10% increase in home equity raises the share of individuals who transition into self-employment each year from 1% to 1.07%. Our results persist when we use proxies for aggregate housing demand shocks and for the topological elasticity of housing supply to generate variation in home equity that is orthogonal to entrepreneurial choice.