This paper analyzes the costs of housing crises in terms of GDP growth and the economic
conditions under which crises are particularly costly. Housing crises are often followed by recessions
that are longer than other recessions. According to empirical estimates, a housing crisis
reduces the GDP growth rate in the following year on average by two percentage points and has
still a considerable negative impact in the second year. One important channel through which
the effect of housing crises is passed on seems to be the banking sector. In addition, our results
suggest that negative wealth effects possibly cause further reductions in GDP.