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This paper provides novel evidence that public pension accounting rule changes have real economic consequences on local housing markets and the surrounding economies. After the introduction of pension accounting rules GASB 67 and 68, pension liabilities have to be disclosed on governments’ balance sheets, and lower investment returns should be used to calculate the present values of pension liabilities, which significantly increase the salience and magnitude of governments’ pension underfunding problems. By applying a contiguous border-county approach, I find that after the GASB rule changes, the housing prices in counties from states with larger pension liabilities as a percentage of total GDP grow more slowly relative to their adjacent counties. Every 10 percent increase in the level of pension underfunding leads to a 0.2 to 0.3% decrease in the annual growth rate, which translates to a 10 to 15% relative decline from a normal growth rate of 2%. I also find that the negative relation between housing price growth and pension underfunding is stronger for states that are expected to be impacted more by the rules. Other local economic variables, including new building permits, business establishments and public employment outcomes are also negatively impacted by the revelation of pension underfunding. This paper sheds light on the channels through which the US pension crisis influences the real economy, and how accounting treatments amplify this effect.