Suzy Khimm points out an interesting study from the UK’s Spatial Economics Research Centre:

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 findings aren’t all that surprising, of course. Many major life events—getting married, having a baby, etc.—are likely to lead a person to become more risk averse and thus less entrepreneurial (at least in the short term). But it’s a reminder that the inordinate emphasis Americans place on home ownership can have broad-ranging (and potentially negative) effects on the economy.

  • David

    So… should I live with my parents to help my startup become prosperous?

    • Jordan Ballor

      Every situation is different, of course, David, but the idea that the only or always even best way to prosperity through home-ownership has thoroughly been exposed as fanciful. As I’ve said before, there used to be so much worry about a “rootless” generation that simply moved from big city to big city. But not many who bought a house in the last 7 years is going to be moving so freely or cavalierly anytime soon. So home-ownership, certainly in an economic climate like this, is a drag on geographical shifts in labor patterns.

      I think people also don’t realize how entrepreneurial buying a home really is if you are looking to profit from it. Quite risky, indeed, and once you own the home you begin to realize it. That makes you have someone less of appetite for adding yet more risk!

      I’ve heard friends in economics and other fields say that the people pursing liberal arts degrees (like me) are really the most entrepreneurial, in that we’re taking the biggest economic risk (even if we don’t usually have the categories in mind to think in those terms). There’s some real truth to that.

    • Joe Carter

      Probably so. But you should give your parents preferred stock options as compensation. ; )

      I fully agree with Jordan’s comment. The issue isn’t that people—including future entrepreneurs—shouldn’t buy a home. The point is that when we consider the issue from an economic and public policy perspective we have to think more broadly than we did in the pre-crash era. 

      There is nothing wrong with buying a home for non-economic reasons (e.g., you want to raise your children in a particular area). But too often, as Jordan notes, Americans have considered homeownership as an entrepreneurial venture that can’t fail.

      • David

        Interesting, I bought a house because I have the financial capacity to pay for it… It is true there were many people who couldn’t afford it but wanted “the dream” and caused the housing crisis.  The moral of that story is to wait until you have the capability to pay, ideally after you start a business and make money!  I consider myself lucky being young and being able to pay for a house.

        As for the link to entrepreneurship… being a digital entrepreneur myself makes me think the study referred to is a bit less focused on that sort of avenue.  In fact, the house can actually help more in that sense, assuming you’re relatively small and can operate out of your home.  I’m less mobile and more tied to my location, sure, but for digital work you often don’t have to be mobile.

    • Cridamo

      it’s talking about ‘over-investing’ . there are people that buy over their means.