The paper provides a review of the literature that links housing, housing finance, and economic development. The housing sector may support poverty reduction and inclusive growth in two general ways. First, housing construction contributes to economic output, creates employment, and generates a demand for materials and related services. Second, improved housing raises the standard of living of occupants. At the same time, housing purchases are costly for individuals, constituting the most valuable asset owned by most households and often requiring housing finance (mortgages) to allow for purchase. These links— between housing and the economy and between housing and housing finance— are explored in this review paper. It finds that the benefits of housing for individuals accrue in large part indirectly through better health, based on improved water and sanitation. Housing also generates large multiplier effects in terms of employment and output. Employment is created for both skilled and poorer, unskilled workers. The evidence also suggests that there is a symbiotic relationship between housing finance and financial sector development. Housing finance helps to develop the financial sector (contributing to economic growth) and is also helped by financial sector development. The global financial crisis of 2008–2009 demonstrated the powerful links between the housing sector, finance, and the economy.

In the United States (US), lax underwriting standards and aggressive selling of mortgages to sub-prime and other borrowers and their packaging into complex financial products plunged the economy into deep crisis. Problems in the world’s largest economy then spilled over to countries throughout the world. Subsequent efforts to revive the US economy have required, in part, a revival of the housing and construction sectors. Problems in the housing sector upset the global economy through the important connection to the financial sector. A house (or apartment) is the most expensive asset that most families possess. Its purchase usually requires external financing in the form of a mortgage. The mortgage market, in turn, accounts for a significant portion of the funds intermediated by financial institutions. Crisis notwithstanding, mortgages provide a key source of stable income for the financial sector. Moreover, housing is an important part of the real economy through its direct and multiplier effects. Construction creates demand for labor and building materials and housing is connected to the land market and a range of professional services from real estate brokers, lawyers, and engineers, to assessors and advertisers.