We're both handwaving here, but Wikipedia says: "In economics, deflation is a decrease in the general price level of goods and services. Deflation occurs when the inflation rate falls below 0% (a negative inflation rate)." https://en.wikipedia.org/wiki/Deflation

The inflation rate is given by a price index which typically includes housing. If housing prices fall while everything else holds steady, that index has nowhere to go but below 0%.

I realize that this is distinct from a systematic deflationary spiral that affects the entire economy. The point was, some people might only look at the inflation rate, see it's below 0, and start panicking and doing stuff to "prop up" prices instead of letting people profit from affordable housing.

But this doesn't seem like a bad thing. Would you prefer the alternative, that technology improvements stop and computers become more expensive, so they become good investments? And people do still seem to buy lots of electronics even though they don't hold their value.

Generally speaking, lower prices are better. There are only a few exceptions such fossil fuels and cigarettes where you can say cheaper is worse, due to externalities.

To be sure, if tomorrow a magical new technology gave us free, clean energy, health care, or housing, this would be a tremendous financial shock. Many investments would be worthless. But this is because it's a big, sudden change, not because it's inherently bad. A more gradual decrease in prices is a good thing.

Not an economist, but I believe that statement needs to be indexed to inflation/deflation. Lower prices relative to income, in other words higher purchasing power, is good. But you can't inflate/deflate your way to lower real production costs or higher wages.

prices of computers and electronics are always dropping due to technology improvements

Right, the electronics market is in some senses an example of the behavior of a deflationary market, but it is also different than prices dropping due to financial wizardry.

Would you prefer the alternative, that technology improvements stop

In many parts of the market, improvements have stopped. Continuing improvement is clearly best, but not always an option. A gallon of milk or a shovel isn't getting any better next year. So what then?

Technology hasn't stopped in agriculture. For example, there are automatic milking machines [1], and there's a well-funded startup that wants to grow lettuce in warehouses built near distribution centers [2].

I wouldn't expect the price of milk to change much in the short term. In the long run, who knows? Maybe biotech improvements will mean we don't need cows?

[1] https://www.nytimes.com/2014/04/23/nyregion/with-farm-roboti... [2] https://www.bloomberg.com/news/features/2017-09-06/this-high...

If your old washing machine still mostly works, the new one will be cheaper if you can get the old one to limp along for a while longer...

People don't completely stop buying things; life must go on. But people would start to drag out purchases where ever they can.

Have you ever put off buying a computer or phone because you know next year's chips will be faster and batteries will last longer?

High housing costs are an incredibly unproductive use of capital unless it leads to building new supply and is therefore effectively a temporary incentive for developers to build more. Landlords on the other hand want there to be an undersupply, and don’t fully align with developer interests.

Prices for consumer goods have decreased for quite a while and people still buy.

And even when computers were improving significantly every year and prices went down people on average still increased their buying of new computers.

Right, and the economists argue a deflationary market makes capital scarce

High housing costs are an incredibly unproductive use of capital

Right; it seems desirable for housing costs to keep even pace with the rest of the market, and ideally stay close to depreciated replacement cost

And even when computers were improving significantly every year and prices went down people on average still increased their buying of new computers.

I still buy computers in the deflationary technology market, like everyone else. But because I am putting off purchases and cannot recoup my costs with a sale, I probably buy a lot less computing hardware than I would if, for example, improvements were still just as big but much less frequent. I'm not saying it would be better for the world if computers improved more slowly- but clearly market behavior would change.

In markets where there is enough housing supply, do we see people change housing ownership more often? E.g. buy a bigger apartment when they get kids or downsize when they are empty nesters.

In markets with enough housing supply, do we see higher expectations for housing being modernized and up to code instead of being resold with only cosmetic changes? E.g. most bay area housing is very drafty and energy inefficient since it was built in the 60s/70s.

If there is enough housing supply, prices are reasonable and moving to a different house isn't a $2M transaction, it's $100k. Aside from other things this makes the finances easier- if the down payment is $200k, you must line up the purchase & sale. If the down payment is $10k, you can front that, and the purchase isn't 100% contingent on the sale. (purchase/sale contingencies sink a lot of home sales) Additionally shopping for a house is not a dog-eat-dog fight.

If there is enough supply, you don't have to spend every dime of your income in a bidding cage match with other buyers, which leaves you with capital available for real repairs & renovations. Builders and private developers can buy the really crappy old houses for very low prices and knock the whole thing down and build new. Plus, in a market where appreciation is the prime determinant of value, and it's a major seller's market, why bother doing much renovation? It'll sell no matter how bad it is.

My local market certainly shows all these things compared to California- but, who can say exactly how much of the state of the California housing market is due to Prop 13?

P.S. Yeah, it's ironic how the Bay Area is this wealthy progressive metro, and yet so much of the housing stock is ancient, way behind code, and terribly energy inefficient.

I don't even think people have a grasp of the effects on inflation/deflation in practice anyway, let alone suddenly make strategic decisions upon it.

e.g. https://www.dallasfed.org/assets/documents/institute/wpapers... , http://www.tandfonline.com/doi/abs/10.1080/13504851.2015.110...

I mean, which of the thousands of inflation rate definitions are you talking about? The FRED database tracks 34,000 different series of some 10,000 inflation measures. More importantly, people don't sense overall inflation at all, they make decisions on domain specific inflation. Prices dropping for farm equipment or homes does not mean businesses stop buying computers and homes stop buying washing machines. It is entirely possible for housing prices to tank while prices for nearly everything else increase...in fact, we've already seen it happen.

Think about what you are proposing: you're saying that even if prices are irrational and we are in a bubble, the only response is to maintain those irrational prices for that bubbled item and inflate everything else until we reach equilibrium. That is insane. If we did that, we'd still be trying to catch up with railway mania. And it puts us at far more of a risk of runaway inflation problems than letting housing prices drop would ever put us at a risk of a deflationary spiral.

It's time to start questioning your axioms. Don't get me wrong, there are plenty of blowhard macroeconomists out there that share the idea, but there are far more economists that have far more nuanced views and understanding of inflation and how it really affects people's behavior, and it is nowhere near axiomatic.