At a macro level and over the long term, even if prices fall and this means that slightly less rich people can buy them instead, big houses are more expensive and more work to look after and maintain and there is a limit to the number of people willing and able to do that. The ultimate end result could be that some of these houses become derelict, which isn’t really good for anyone.

This is what happened to a good number of the large country houses in England after food prices fell in the late 19th and early 20th century.

Knock $10-20k off the price and put that towards hiring people to clean it. Bundle the house sale with cleaning services for a few years or something. The amount of people willing to deal with it will grow as the price falls, but that's not newsworthy. That's the uncomfortable truth for people wanting to sell.

There's still energy costs wasted on heating and cooling 4x more space than you need.

Not just energy costs - replacements for kitchen/bathroom fittings as they fail, painting/decorating, cleaning, basic maintenance to ensure the place doesn’t fall down, keeping gardens from becoming overgrown, the list goes on.

Exactly, these are brick and mortar resources and skilled labor being poured into personal assets, not into infrastructure or affordable housing or charitable causes. If all these mega homes or mega expenditures of any kind were instead more usefully applied, capitalism would feel a much friendlier and just system.

People don't like it when supply and demand applies to them, especially wealthier folk like those who can build mansions.

Yep. Functions as it should.

It almost seems like a majority of people expect that the nature of supply and demand should not apply to real estate.

Which is a fair expectation to have.

Free markets are nearly optimal for commodities, restaurants, and similar sorts of goods, as well as many competing small businesses.

They grind along for IP, utilities, and some sectors of education, as well as large businesses.

They break down almost completely for large-scale finance, real estate, medicine, and other sectors of education.

Curiously, much of this was predicted by Adams in Wealth of Nations (read his sections on real estate; they sound downright dystopian). Even more curiously, China has privatized all the sectors where free markets work, kept public all the ones where they don't, and their economy exploded. The US economy exploded with free markets when it was driven by essentially commodity manufacturing. As IP, finance, and real estate became more important, it began to fall behind.

>They break down almost completely for large-scale finance, real estate, medicine, and other sectors of education.

You just rattled off a list of sectors where the free market is the least free (though in the case of finance I think they more than earned it).

Of the four things you mentioned I would deregulate two, regulate the crap out of one and get the federal government out of the business of backing loans on another.

There's a difference like night-and-day between regulated markets and government-provided services.

If I had my druthers, finance, real estate, and health care would be run by the government. If I couldn't get that, I'd have at least real estate and health care almost completely deregulated -- some transparency and truth-in-advertising laws, but not much more.

It's often painted as a scale from free markets to regulated markets to government-run, but I'm not sure that's a fair model. In many cases, the so-called mid-point of regulated markets works the worst.

>maybe what you consider an ideal world or even positive outcomes or even onerous regulations are not what others have in mind, what with your "dark views of humanity" and all?

Many people (dare I say the overwhelming majority) on HN agrees that real estate needs a heck of a lot less regulation so supply can do better meeting demand and costs can drop.

We may argue about the minutia but pretty much everyone on HN also agrees that medical (in the US) is nowhere near a free market and substantial de-regulation (so the "race to the bottom" can control costs) and/or (but probably "and") a government option (to provide a cost and quality controlled baseline of care) could/would improve the situation.

"Ideal" or not a heck of a lot of people believe that deregulation (within reason) of some/all of the things you listed as free market failures would result in a large improvement from the status quo.

>hmmm you elsewhere, on a topic about the harrowing conditions of FB moderators, claim that "there's a lot of variance between individuals ... I'm not the kind of person that's particularly bothered by graphic violence. My opinion of humanity is dark enough to accommodate it"

How is my opinion of a particular workplace at all relevant to a macroeconomic discussion?

If you think you can "win" an argument by saying "hurr durr, this guy I'm arguing with has opinions other people don't like" then you are sorely wrong. That is how Reddit works but thankfully HN has still not stopped that low and FYI the comment below the one you linked where I expanded on and clarified my point is highly up-voted. ;)

>cause it sounds to me like you deeply believe in naturalistic hierarchies

I'm not sure I'd say that. It greatly depends on the issue but regardless, what is wrong with that?

Real estate is most efficient when it's managed in the public sector. The government owns all or most of the land, and provides everyone with free housing from taxes.

Free markets tend towards a land-owning aristocracy and peasant renters being charged what the market will bear.

I'm not suggesting any particular course of action. I know of no way to move real estate into the public sector without the short-term transient driving the economy into the stone age. But if one were starting form scratch, that's definitely the way to go. It's more economically efficient and more equitable.

It's actually less about the houses on the land as about the land itself, but it's hard to decouple the two. Rent-collecting resources work best as a public good.

Private sector+heavy regulation isn't a mid-point between private and public. In many cases, including real estate and medicine, it's less efficient than either extreme.

>The government owns all or most of the land, and provides everyone with free housing from taxes.

I for one don't enjoy soviet apartment blocks.

Have you ever lived in one? The architecture wasn't pretty, but thy have a lot of upsides too: Everyone has enough space for a family. There's a real sense of community. There's plenty of green space and playgrounds. They're also super-sturdy.

I have to admit that I really prefer soviet apartment blocks to, for example:

* massive cramming of housemates in London, New York, San Francisco, or similar areas with rent going to a landed gentry

* to being saddled with mortgage debt which takes half of my post-tax income, with that going to a financial system

* to living outside of economically-viable areas, where cheap housing might be found, but where I have a lousy job

or many of the other pathologies of the current market. The capitalist model works just fine when land is cheap or free, as it was for most of America's history. Once it's about inherited land ownership and collecting rents, it breaks down.

However, in a democracy with public housing, you'd likely end up with something much nicer than soviet-style apartment blocks. Compare British health care to soviet health care.

Interestingly, I've come to the opposite conclusion. More regulation is the only answer to many of these problems.

It would help if there wasn't a party trying to self-destruct our country every time they get power.

A hint as to how that happened: Regulation isn't about more or less, so much as about good regulation versus bad regulation.

True, good regulation is what is necessary. We need to get rid of the notion that the government never does anything right. It's simply not true and it's harmful.

Well, we have two notions:

1) Government can't do anything right, and we need no regulation.

2) Capitalism will f-k people over without regulation, and we need maximum regulation.

Neither is true. Markets work pretty well where they work, and regulations work pretty well when they're well-designed. Both work pretty badly when they're corrupted, gamed, or poorly-designed. I see very few discussions of what works well, versus a left-right push-pull.

Loss of wealth is never good for anyone. Start with the waste of resources – money was spent on pointless construction and creation that have much lower value than expected. Empty unsold houses benefit no one. Those resources could have been used productively for long term benefit. It’s in all of our interests to discourage the waste of resources like that and encourage productive uses.

Then there’s the re-allocation of resources to cover the loss. If a couple make a loss of $1m selling a house, then they may need to liquidate $1m of savings to cover the loss, withdrawing that capital from the cycle of investment in productive economic activity. Interest and profits on investment don’t come from nowhere, they’re generated from the productive activities those investments support. Now there is less capital available to do useful economic work.

I see what you're saying. In any healthy economy though, there are going to be some people who make investments that lose money. That money gets redistributed to the workers they employ and circulates out through the rest of the economy. We need people to risk money in order to have the economy function. Necessarily some of those risks won't work out, but this should not be an existential threat to the economy as a whole.

A house, especially a luxury house, should be considered a purchase and not a store of value. The actual physical materials of the house only depreciate over time. Sometimes the underlying land can go up in value if it's in a desirable area, but that's not the case here.

> If a couple make a loss of $1m selling a house, then they may need to liquidate $1m of savings to cover the loss

This doesn't make sense?

Firstly, the point at which the capital was withdrawn from savings was the time the house was built - savings turned into a physical capital asset. That house has lost value, but that doesn't affect liquidity.

Secondly, there's a global capital glut to start with - that's why interest rates are so low and people are building McMansions.

The couple sells the house and then wants to do something else with the money they get back. Maybe they buy another house or give money to their children or both. They still want to do those things, but they have $1m less from selling the property than they expected, so they liquidate $1m in savings which they wouldn't have otherwise needed to do. Alternatively they spend $1m less, or invest $1m less, which is $1m less revenue or capital for people and businesses in the rest of the economy. Either way it's not good.

It's a bit simplistic, but the point is there is a real loss of wealth in society. If the house is sold the new buyer got a bargain, but they probably just got more house for the same money spent on their side. That's good for them, but on that end of the transaction it's likely to be roughly economically neutral, in terms of the whole economy.

You can flip this argument around for the person buying the house, though, so it doesn't really work. What if the house didn't sell for $1m less? Then those new buyers just lost an extra $1m that they otherwise could have invested elsewhere in the economy. Or conversely, when the house sells for $1m less, you're freeing them up from that additional burden and they can put their next $1m into investments besides the house.

That wealth wasn't doing anything useful. It was just a number on a piece of paper. Sure, they had borrowed against it but their cavernous house isn't capital in the same way a hammer is. They can't tear of a piece of house and barter it for food, for example. There's no utility in their house for anyone but them. I hope that extra million at least made it into the pockets of some of the homebuilders.

I am no economist but a 50% decrease in price value is going to leave some scars on the performance of some portfolios. That lack of revenue (or growth) will be passed to the weakest link: the consumer.

That depends on whether they took on a mortgage. If they're indebted and were considered a low-risk borrower, then it matters very much if a lot of them suddenly become a default risk.