In the immediate aftermath of the financial crisis in 2008, housing was at the top of policymakers’ priorities. Congress saw a flurry of proposals to deal with the mounting wave of defaults and foreclosures, and the collapse of Fannie and Freddie led first to intensive federal intervention and then to one round of full-fledged debate on what the future of these agencies should be.
Today, with housing in at least as bad a shape as it was in 2008, housing is now the forgotten debate. The conversation over Fannie and Freddie has stalled, if not died altogether; the government’s efforts to stem foreclosures have been largely unsuccessful; and with a handful of bold exceptions, few policymakers are putting forward ideas to restore homeowner equity, cope with burgeoning inventory and spark new demand in the market.
But with the economy continuing to sputter, housing is a problem that policymakers can’t afford to ignore any longer.
While some may debate the chicken-and-egg issue of whether housing can lead the recovery or whether a recovery can stabilize housing, there’s no dispute that the health of the housing market and the broader economy are inextricably intertwined. Housing and its related industries account for roughly 19 percent of the American economy.1 Since the housing crash, housing—especially construction—has shed 2.9 million jobs2 since the start of the recession. Not coincidentally, the states with the highest unemployment rates—California, Nevada, Rhode Island, Michigan3—are among the states that have been hit hardest by the housing crisis. Moreover, Americans
have lost $7 trillion in equity,4 which is dampening consumer confidence as well as forcing many families to rethink their future plans and expectations of financial security.