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How home ownership boosts entrepreneurship
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Entrepreneurship can do a lot to drive economic growth, but what spurs entrepreneurship?
Shing-Yi Wang, a professor of business economics and public policy at Wharton, sheds light on that question in her study of Chinese property reform in the 1990s.
Among the many free market reforms launched by China in that decade, the privatization of state-owned housing in 1994 had a significant impact on fostering entrepreneurship, notes Wang in her paper, “Credit Constraints, Job Mobility and Entrepreneurship: Evidence from a Property Reform in China,” which was published in the journal The Review of Economics and Statistics.
The study is one of the first on the economic effects of employer-provided housing, according to Wang, who adds, “The big question I’m looking at in this paper is how giving individuals private property rights over their homes affects decisions on entrepreneurship.”
The study finds that the reform, whereby state employees purchased their government-owned homes, increased the odds of those residents entering self-employment by two times.
The reasons: Residents, no longer dependent on state jobs for their housing, could pursue other avenues. Home ownership also provided residents with capital to start businesses.
“The findings,” Wang says, “can help inform policies in developing countries where a large percentage of housing is government-owned.”
The experiment that Wang studies in the paper is China’s 1994 plan to sell state-owned housing in cities nationwide, which affected more than 40 percent of urban households.
Current occupants of the housing had the choice to buy full or partial ownership of their dwellings at highly subsidized rates, most purchased at below 15 percent of market value, according to Chinese press reports.
Highest rate of home ownership
As a result, China now has one of the highest rates of home ownership in the world, notes Wang.
To identify the reform’s impact, Wang studied the employment choices pre- and post-reform of 4,400 households and 16,000 individuals in the China Health and Nutrition Survey of nine provinces, including Guangxi, Guizhou, Heilongjiang, Henan, Hubei, Jiangsu, Liaoning and Shandong — all with varying geography and economic development levels.
Before the reform, self-employment for state housing residents didn’t differ much from the rates of those employed by the state or private sectors living in private homes. But in 1997, the first set of survey data available after the 1994 reform showed that individuals who bought homes from the government became entrepreneurs at a much higher rate than those who had been living in private housing previously.
According to Wang, there are two reasons for this effect: The delinking of housing from employment and the alleviation of credit constraints on households.
Increased labor mobility
When housing was tied with employment, people didn’t want to change their job, she notes. By disentangling housing and employment, labor mobility increases and more people began to start their own businesses.
Moreover, the ability to realize the value of home ownership gives residents capital with which to start entrepreneurial ventures by taking out loans collateralized by their homes, or selling or renting their homes at market prices. Before, they could use the home, but not tap into the value in any other way, Wang says.
While the paper focuses on a past reform unlikely to be repeated in China, it raises questions related to China’s current urbanization effort aimed at moving more rural residents to the cities, notes Wang.
In China, all the land is owned by the government, she says. Farmers still can’t sell their land, but recently, they received the rights to rent out their land.
The question is how property rights reform impacts the mobility of farmers. If farmers can access the value of their land by leasing it, rather than losing it altogether, that could encourage them to move to better opportunities.
Wang is currently studying other property rights and migration issues in China. In particular, she’s examining what happens to rural households when family members leave to work in the city and how their agricultural investment decisions are affected not only by the reduction of available farm labor, but also by the increase in remittances from the migrant worker.
In a separate study, Wang is exploring how home ownership affects the way that husbands and wives make household decisions.
Some of her findings so far: When men get the title to their homes, they do less housework. When women get the title, household consumption of cigarettes, associated as a male-favored product, declines.
Adapted from China Knowledge@Wharton,http://www.knowledgeatwharton.com.cn. To read the original, please visit: http://knowledge.wharton.upenn.edu/article/jump-home-ownership-boosted-entrepreneurship-china/
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