The housing crash is one of the fundamentals our economy inherits from the past. This is boom time for the nonresidential sector because, after a long wait, the housing sector no longer absorbs so many resources. If you are young with new business ideas -- good news: you no longer have to compete with the housing sector for funding.
Although business capital and GDP will grow (my detailed predictions are here), there is some crash to this economy. Bad news for older persons who planned to live off past investments: your capital will have to compete with the new projects of well-funded young people. That's part of why the stock market fell. It's not all good news for the young: they'll have to compete in the labor market with older workers who can no longer afford to retire; this is one of those rare occasions when GDP grows more than normal and so does the unemployment rate.
Univ. of Chicago student Luke Threinen and I explain these results in more detailed in a working paper (available from NBER or from www.caseymulligan.net/w14446.pdf). This research is ongoing, so please check back here for updates, corrections, etc. For example, we would like to understand better the implications of Hypothesis G, which is not explored in the NBER wp.
Our favorite empirical result is here:
I just heard through the grapevine that University of Chicago graduate student Pedro Gete has also linked housing construction to the U.S. current account. I will report back when I learn more.