The blight [of falling house prices] hits everyone. The most tragic are those whose houses are repossessed, but most of the suffering is hidden. People are trapped and have to put their lives on hold because they cannot move because the housing market is seizing up: the newly retired couple who plan to move out to the country; the woman who wants to move closer to her new job; the family that wants to be nearer a school. Everybody has to abandon or defer their plans.
This is only part of the story. There are also many people for whom lower house prices are a good thing: the prospective first-time buyer who hopes to buy a place; the young family hoping to get a bigger house as their children grow; the people who traded down at the peak of the market; the older home-owners who no longer have to give their children a fortune as a deposit on a flat; the man whose ex-wife copped for the house. And even home-owners gain from falling prices, in the sense that the opportunity cost of living at home (thus foregoing rent) falls. As Willem Buiter said, houses are not net wealth.
Or take five other perspectives:
1. Many men have borrowed thousands of pounds to buy an asset that’s fallen in price. We call them car-owners. No-one worries about negative equity in the car market. So why worry about negative equity in another consumer good?
2. Sure, some people have lost money because they over-invested in housing. But why should we care about these any more than about those who over-invested in Laughing Boy in the 3.30 at Wincanton? It’s not the government’s job to bail out bad gamblers.
3. I’ll grant that some people are “trapped” in their existing home. But this is because capitalist presenteeism forces people to live nearish to where they work. But the problem here is the repressive nature of capitalism, not the housing market.
4. Correlation is not causality. The belief that falling house prices are a bad thing arises from memories of the 1990s recession, when falling prices were associated with rising unemployment and repossessions. But this confuses cause and effect. It was rising unemployment that caused house prices to fall. It’s far from clear that a fall in house prices will have such ill-effects if the labour market remains healthy.
5. Wouldn't it be better for us all if people wanting to get rich were forced to ask: "how can I provide a useful service to others?" rather than just buy a house and wait.
Now, you might object here that I’m taking an overly sanguine view because I traded down near the peak of the market. But then, mightn’t Will be taking an overly gloomy view because his missus is a property developer?