[grey-area]

Housing is not independent of other goods, house prices go up because we use inflation to manage the economy. They make people money because they are the one example of large yet safe leverage which most investors have access to, so they are a good hedge against inflation. This is why buying is worthwhile long term. Over a lifetime the gains can be considerable because of the falling value if the debt and the rising value of the asset. Of course a volatile market makes this very risky and is highly undesirable.

Deflation is generally agreed to be a bad thing by economists. I disagree falling housing costs would be good as then no-one would want to buy and quality would fall.

All that said I agree relatively stable housing costs are desirable, and in fact quite achievable as the government controls pricing via planning laws. They are in fact 'making' buildable land all the time, and the supply is tightly constrained and tightly regulated in cities. This is a solvable problem.

[bradleyjg]

> Deflation is generally agreed to be a bad thing by economists. I disagree falling housing costs would be good as then no-one would want to buy and quality would fall.

Is it a bad thing when the prices of mobile phones and large screen TVs fall? Does those falling prices mean no one wants to buy them? Do they imply falling quality?

[baybal2]

Taiwan was nearing net deflation for 2 decades while the GDP grew at double digit rates. That saying that is more of a self fulfilling prophecy, than something with fundamental underlying mechanism.

[AJ007]

Deflation is the critical component of human progress. Economic cycles and interest rates can make it difficult to see the long term, underlying trends. This becomes very destructive when governments pursue policies which pretend otherwise.

I'm generalizing a great deal without providing examples, because it is such a large topic and economics is filled with misleading theories. In the simplest example, when prices are flat or declining, if you want to do well financially you have to be more productive, produce more and/or better products. When prices just go straight up, borrowing money and buying assets is "profitable."

This stuff is really obvious for those of us who have been in technology a few decades but I can understand why people in other areas are led to believe ideas which aren't very logical.

[phkahler]

>> Housing is not independent of other goods...

Yes it is. Or rather, prices rise with inflation but there is another much larger influence on housing prices - interest rates. When rates fall, prices rise and when rates rise prices fall. This may actually be a driver of inflation, as it is the biggest way consumer borrowing changes things.

[dragonwriter]

> Or rather, prices rise with inflation but there is another much larger influence on housing prices - interest rates. When rates fall, prices rise and when rates rise prices fall.

Interest rates have the exact effect you describe on all prices, because they effect consumer credit at all levels (and houses aren't the only thing typically bought on credit), business access to capital (and thereby employment), etc., which drives the demand curve in every sector of the economy.

So, no, that's not a unique effect on housing prices. It's the reason monetary policy is a lever for effecting the economy broadly.

[phkahler]

Consumers don't borrow money for most spending. Houses and cars are primarily it. Credit cards are generally at higher interest rates that the Fed doesn't really have control over and that's not a consideration in most buying decisions. I would hypothesize that one of the primary ways Fed interest rate changes influence the economy is through home lending and the resulting consumer spending of that borrowed money.

[maxerickson]

Withdrawing tax benefits and government backing for long term mortgages would both probably reduce the increases in housing prices.

As would higher price inflation. Because people decide on a monthly payment and more price inflation means higher interest rates. Those interest rates would reduce the size of mortgages that people would enter into.