Many (most?) retirement plans involve downsizing from the large home in a (sub)urban area where they raised children and worked for most of their life to a lower-cost area in a lower-cost house. If my SFH is worth $1,000,000 and my retirement plan involves selling and moving to a $500,000 condo, that's $500,000 of money in my retirement account. If politicians implemented a policy that slashed housing prices in half, suddenly I'm going from $500k->$250k, which means I only have $250k from the downsizing. This is a significant impact to my retirement plan.

On the other hand, we’ve made it so new condos are so hard to get built that a 2 bedroom condo in a walkable neighborhood (which you likely need when you retire) is the same or more expensive than a 4 bedroom suburban home. In order to be able to downsize, you need the smaller unit to be less expensive than your current home, and in many markets right now that’s barely, if at all, the case.

> a walkable neighborhood (which you likely need when you retire)

Really don't agree with this -- retiree doesn't mean "decrepit". You're still very capable of driving. My own parents recently retired to a rural area in the US, in a neighborhood with other retirees, where they're a 5 minute drive from the nearest grocery store and a 30 minute drive from the nearest "city" of ~20k people.

It's very walkable in the sense that there are sidewalks and parks, but not in the sense of living in a downtown core with public transit access to essential services.

I don't think it's safe to bank entirely on driving-as-transportation in old age. My grandparents and my partner's grandparents all live(d) in unwalkable places in the US, and it was hell on their families when they slowly lost the ability to drive. You somehow have to either drive them around yourself (expensive and a massive time commitment), move them in with you, or move them into a retirement community when they eventually lose the ability to drive safely around others. It's inevitable!

Most people are not downsizing by such massive amounts though. The median home price is only $470kish and people aren’t going to accept massive quality of life drop..I.e. very few people are selling $470k homes to buy $150k homes. Thus the gains will be much smaller..

and with a $1M house should have a sizeable 401k specifically so they’re not relying literally on the housing market to retire. Any number of events could cause the same scenario you mentioned.. so I’m pretty much any realistic scenario for most people, tax deferred investments dwarf the small boost you get from buying a slightly cheaper house.

And having more $250k houses now means it’s easier for everyone else to build up a retirement plan.

The problem isn't retirees who paid out their house already, it's the households who still have a big mortgage on their house.

What would change for them? They still need to pay that down in either case, don't they?

Granted, they can sell at some point and make a 3x their investment. But by then, buying another house will also be 3x, and rent will be 5x, so they're kind of back where they started.

The point is that if housing prices tank, they won't have made 3x on their investment. They are talking about the case where you sell below what you paid.

But they'd also pay much less for their next house, making up for it. If we all take a 90% pay cut but all products now cost 90% less, nothing really changes, does it?

I guess the exception would be if they sold and then moved to a different area with a very different housing market (or left the country), but at least for domestic migration, I suppose the more rural and the cheaper the houses are, the worse the necessities for the elderly will be, e.g. doctors will be far away, no home nursing services, no local shopping.

First, The idea behind housing as a retirement plan is that eventually you cash out that retirement plan, not taken to the Grave. If you never sell, or buy only equivalently priced houses, it's not really helping with your retirement.

Second, if you buy a house for a million dollars and sell it for 500K, it doesn't matter if you can buy an equivalent house for 500K, you are still 500k in the hole on the balance sheet.

What do you do when you cash out though, live in a van? Any house you'll then buy will be at the same price level.

And yeah, sure, you'll be down 500k in nominal value, but you'll exchange one house for the value of another. If that's 500k or 1m doesn't really matter, if you've lived in that house, you'll need another place to live at. Of course this changes drastically if it was a house you bought only for investment purposes, with no intention of living in it. But at that point, it's pure speculation, and I don't see why we should protected that asset class more than stocks or baseball trading cards.

>What do you do when you cash out though, live in a van? Any house you'll then buy will be at the same price level.

You rent or move somewhere with lower COL.

If selling your house is how you plan to pay for costs in retirement like food, healthcare, or leisure, you must must cash out at some point. If you have 500k less to spend on food, healthcare, or leisure, it will suck.

If you dont plan to sell your house for the rest of your life, the market value isn't relevant to your retirement. In that case you are right that it doesn't really matter.