Property prices have dropped sharply in recent months
Commons leader Harriet Harman has told MPs there is "grave cause for concern" about the housing market but said the government was "taking action".
Lib Dem Vincent Cable had urged the government to "get its priorities right" and recognise the "deep crisis".
Ms Harman, filling in for Gordon Brown at prime minister's questions, said she agreed it was "serious" but said it was not as bad as during the 1990s.
She highlighted ministers' action such as £200m given to buy up unsold homes.
Mr Cable said the Housing Corporation proposal was a good one, but a "drop in the ocean".
He said: "Can't the government get its priorities right...?
"Could the government acknowledge we've now got a very deep crisis in the housing market - probably the worst in our lifetime, leading into a serious recession?
"It's time the government accepted responsibility for dealing with that."
Ms Harman said the situation was serious but not as bad as in the 1990s - and it was important to keep employment rates high and interest rates low.
"Those who are working hard in the construction industry and in small and big businesses across the country don't want the opposition to be, at this point, talking the economy down," she said.
The exchanges came as house builders Bovis Homes and Redrow up to 40% of their staff will have to go.
Mr Cable asked Ms Harman to note the "severity of the crisis in the housing industry", which he said was causing private house builders to go bust, sack their workers and drag down the banks because of the excess of unsold private houses.
"Will the government build up its sensible, but pathetically small programme, for acquiring property, and give genuine freedom to councils and housing associations to acquire property in order to let it out to the 1.7 million people on housing waiting lists?"
Ms Harman replied that the situation in the housing market was "a grave cause for concern" but she said the government was taking action.
She said ministers had asked the Bank of England to provide £50bn to help the banks and had reduced stamp duty for first time buyers.