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Breaking the Link between Housing Cycles, Banking Crises, and Recession

Policy Briefs 16-3


The housing market lies at the center of the biggest banking crises across the world. The recessions that follow these banking crises are generally deeper and longer than others. The collapse of housing prices amid rising unemployment is a major source of inequality. Persaud explains how the nexus between housing, banking, and the economy can be broken. He shows that two modest regulatory changes would result in life insurers and pension funds providing mortgage finance, which would better insulate the economy and homeowners from the housing cycle than financing from banks or markets can. History shows that safer housing finance would do more to make the financial system resilient than all the other recent initiatives combined.

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