Homeownership, home equity, and black-owned business starts: examining the impact of racial disparities in housing assets on firm creation
AbstractIn this article, I examine the ways in which housing wealth explains observed differences in the probability of starting a business for blacks as compared with whites. A growing body of empirical work on the housing collateral channel shows a positive relationship between increases in housing assets and the likelihood of entering entrepreneurship. It is well documented that blacks possess less housing wealth than whites on average in the US. Though the literature identifies racial differences in access to financial capital generally as a leading driver of black-white disparities in entrepreneurship, it is virtually silent on the extent to which black-white disparities in housing wealth, in particular, may explain racial differences in firm starts.
Using non-linear decomposition techniques, I estimate that the differences in average levels of home equity account for approximately 13 percent of the black-white gap in firm starts among homeowners. I also estimate entrepreneurial choice models on panel data from 2003 through 2013, a time frame that includes a housing boom and subsequent bust. I exploit the variation in home-based assets during this period to examine whether there is a differential effect of these assets on firm starts by race. I find no relationship between homeownership and starting a business, however; conditional on owning a home, an increase in home equity is positively related to the probability of starting a business for whites but not for blacks. Thus, while deficits in home assets contribute to black-white gaps in entrepreneurship, blacks who do own home assets are less able than similarly situated whites to access the housing collateral channel.