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Mortgage affordability and entrepreneurship: Evidence from spatial discontinuity in Help-to-Buy equity loans

Author

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  • Szumilo, Nikodem
  • Vanino, Enrico
Abstract
We exploit a policy change in the UK Help-to-Buy (HTB) equity loan scheme in order to identify the causal link between mortgage affordability and entrepreneurship activity at the local level. We contribute to the literature on the relationship between housing finance and entrepreneurship by demonstrating the impact of government equity loans on entrepreneurship through the release of trapped liquidity. When less equity is required to buy a house, households could use the ‘additional’ liquidity to start a business. We use a spatial discontinuity in treatment methodology to take advantage of the reform of the Help-to-Buy scheme in 2016, which increased the limit of equity loans provided in London. By using data on business population at the postcode sector level, we are able to measure the impact of the new policy by comparing similar areas on the opposite sides of the Greater London Authority boundary. Our results show that an increase in mortgage affordability fosters entrepreneurial activity in affected areas by 20%, resulting in 1 more start-up on average per postcode per year. The new businesses are mainly single-plant micro enterprises in capital intensive sectors with low income volatility.

Suggested Citation

  • Szumilo, Nikodem & Vanino, Enrico, 2021. "Mortgage affordability and entrepreneurship: Evidence from spatial discontinuity in Help-to-Buy equity loans," Journal of Business Venturing, Elsevier, vol. 36(4).
    • Handle: RePEc:eee:jbvent:v:36:y:2021:i:4:s088390262100015x
    DOI: 10.1016/j.jbusvent.2021.106105
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    Cited by:

    1. Grant Alexander Wilson & Jason Jogia & Tyler Case, 2024. "Post-Pandemic Rental Housing Affordability Economics in the U.S., U.K., & Canada," Economic Analysis Letters, Anser Press, vol. 3(2), pages 74-82, June.
    2. Sanchis-Guarner, Rosa & Szumilo, Nikodem & Vernet, Antoine, 2024. "Startup stations: the impact of rail access on entrepreneurship (self-employment) in England and Wales," LSE Research Online Documents on Economics 124680, London School of Economics and Political Science, LSE Library.
    3. Rosa Sanchis-Guarner & Nikodem Szumilo & Antoine Vernet, 2024. "Startup Stations: The Impact of Rail Access on Entrepreneurship (Self-Employment) in England Wales," CESifo Working Paper Series 11227, CESifo.

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    More about this item

    Keywords

    Entrepreneurship; Home-ownership; Help-to-buy; Home equity; Trapped liquidity;
    All these keywords.

    JEL classification:

    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R38 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Government Policy

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