Nicholas Kacher, Scripps College – Rising Home Prices

On Scripps College Week:  Is there a catch to rising home prices?

Nicholas Kacher, assistant professor of economics, determines the unintended consequences of this usually good economic development.

Nicholas Kacher is an Assistant Professor of Economics at Scripps College. Originally from Waltham, Massachusetts, he earned a BA in Economics at Wheaton College (MA) in 2011. He has worked for nonprofit economic development organizations in Tanzania and in Massachusetts, giving him an appreciation for the crucial roles of culture, history, and institutions in regional economic growth. He earned his PhD in economics from Colorado State University in 2019.

Professor Kacher’s research centers on the effects of entrepreneurship on regional inclusive growth and resilience across metropolitan and nonmetropolitan areas in the US and internationally, and examines labor market phenomena related to self employment, contingent work, and working hours.

Rising Home Prices

When home prices in an area go up, is it a good thing or a bad thing? It depends on who you ask. Homeowners will probably be happy, as a valuable asset of theirs is becoming even more valuable. But rising home prices are bad news for prospective buyers, and for renters, since higher home prices usually mean steeper rents. These forces can translate into gentrification, pushing lower-income residents out of pricier neighborhoods, limiting their access to amenities and higher-paying jobs.

Ongoing research finds that rising home prices are a mixed blessing for business creation, too. First, a note on business creation and why it matters: most new jobs in the US come from startups or from existing businesses branching out into new locations. Regions that can attract these new businesses or branches generally experience rising employment and pay, while areas that don’t attract new enterprises risk stagnating or declining.

So how does housing play in? We find that higher regional home prices boost the creation of entirely new businesses, especially in areas with high homeownership rates, since homeowners’ access to credit increases as the value of their homes rise. But higher prices – and especially a lack of affordable rental units – deter existing businesses from opening new branches in an area, likely due to the challenge of attracting employees in unaffordable areas.

Housing policy is vastly complex, but we think it’s important for local authorities to know that decisions affecting housing also impact local job markets. Policies aimed at increasing property values could end up pricing out not just residents, but businesses too.