Tight Housing Market Could Prime Economic Recovery

A recession is coming, though we don't know how big it will be or how long it will last. Compared to the Great Recession, the housing market could potentially help, rather than hurt, economic recovery, according to the analysis shared here.

2 minute read

May 29, 2020, 5:00 AM PDT

By James Brasuell @CasualBrasuell


Rich Suburban House

Andrew Guyton / Flickr

"Although it’s too soon to say how far the economy will fall and when the slide will end, the housing industry may be poised to help lead the recovery, when it occurs, unlike it was after the Great Recession of the late 2000s," writes Daniel McCue.

Interest rates allow the housing market to lead the country out of, according to the article, as has been the case in past downturns.

Simply put, this is because recessions lead to a decline in interest rates that lowers borrowing costs for both homebuyers and builders, which makes homebuying more attractive and spurs homebuilding and the many related durable consumer goods industries that drive GDP growth. The strong connection has been documented by economists such as Edward Leamer, whose 2007 working paper goes so far as to carry the title, “Housing Is the Business Cycle.”

After detailing the methodology of studies that quantify the connection between the housing market and economic recovery, McCue also documents the differences between the current economic downturn of the coronavirus and the circumstances of the Great Recession. According to McCue, "one key difference between the Great Recession and today is the lack of a substantial overhang of distressed and foreclosed properties, which after the last recession needed to be absorbed before housing construction could be a driver of recovery."

McCue also notes that the suspension of housing construction projects, as mandated in many parts of the country during the worst of the coronavirus outbreak, will contribute to housing shortages in an already tight housing market—in another fundamental difference from the previous recession.

While McCue focuses on the redemptive potential of a tight housing market, others, like a team of researchers at the Urban Institute, have expressed concern that the tight housing market will only exacerbate the pre-existing inequalities in both the housing market and the larger economy.

Thursday, May 28, 2020 in Joint Center for Housing Studies of Harvard University

portrait of professional woman

I love the variety of courses, many practical, and all richly illustrated. They have inspired many ideas that I've applied in practice, and in my own teaching. Mary G., Urban Planner

I love the variety of courses, many practical, and all richly illustrated. They have inspired many ideas that I've applied in practice, and in my own teaching.

Mary G., Urban Planner

Get top-rated, practical training

Close-up of "Apartment for rent" sign in red text on black background in front of blurred building

Trump Administration Could Effectively End Housing Voucher Program

Federal officials are eyeing major cuts to the Section 8 program that helps millions of low-income households pay rent.

April 21, 2025 - Housing Wire

Logo for Planetizen Federal Action Tracker with black and white image of U.S. Capitol with water ripple overlay.

Planetizen Federal Action Tracker

A weekly monitor of how Trump’s orders and actions are impacting planners and planning in America.

April 23, 2025 - Diana Ionescu

Ken Jennings stands in front of Snohomish County Community Transit bus.

Ken Jennings Launches Transit Web Series

The Jeopardy champ wants you to ride public transit.

April 20, 2025 - Streetsblog USA

View of Washington state capitol dome in Olympia, Washington at golden hour.

Washington Legislature Passes Rent Increase Cap

A bill that caps rent increases at 7 percent plus inflation is headed to the governor’s desk.

April 29 - Washington State Standard

Low view of Glendale Narrows section of Los Angeles River with concrete bottom and cloudy storm sky over head.

From Planning to Action: How LA County Is Rethinking Climate Resilience

Chief Sustainability Officer Rita Kampalath outlines the County’s shift from planning to implementation in its climate resilience efforts, emphasizing cross-departmental coordination, updated recovery strategies, and the need for flexible funding.

April 29 - The Planning Report

Grandparents sitting on bench with young girl and boy, girl holding ball and boy holding ukelele.

New Mexico Aging Department Commits to Helping Seniors Age ‘In Place’ and ‘Autonomously’ in New Draft Plan

As New Mexico’s population of seniors continues to grow, the state’s aging department is proposing expanded initiatives to help seniors maintain their autonomy while also supporting family caregivers.

April 29 - Source NM