When Wealth Builds or Buries Entrepreneurship: The Homeownership Paradox in High-Growth Venture Formation

Abstract

This paper establishes a novel causal relationship between housing markets and high-growth entrepreneurship characterized by a surprising reversal pattern beyond a critical homeownership threshold. Using metropolitan-level panel data from 2006-2016 and employing a Bartik-inspired instrumental variables approach, I demonstrate that a 1% increase in housing prices boosts high-growth entrepreneurship by 5.9% in high-income metro areas. This effect, however, depends on homeownership rates: it's strong in areas with average or below-average homeownership, weakens as homeownership increases, and becomes negative once homeownership exceeds 69.1%. This homeownership paradox challenges conventional wisdom in entrepreneurial finance, which typically assumes uniformly positive effects operating through collateral channels. Crucially, the homeownership paradox operates specifically through entrepreneurial quality rather than quantity, indicating housing wealth enables founders to pursue more ambitious, growth-oriented ventures. The results are robust across multiple specifications and remain consistent even when distinguishing between technology hubs and other high-income metropolitan areas. These findings significantly advance our understanding of the complex relationship between housing markets and entrepreneurial activity, with important implications for both housing and innovation policy.