5 ms·

If you want to go on vacation, but you can go on a little bit of a nicer vacation if you wait until next spring... If your old washing machine still mostly wor

If you want to go on vacation, but you can go on a little bit of a nicer vacation if you wait until next spring... 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?

asabjorn 9y ago
What seems to matter more is that there has been a productive deployment of capital that gives you a reason to buy a new product, and that you have discretionary income after housing cost and other fixed costs are paid. 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.
- sliverstorm 9y ago
  productive deployment of capital 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.
  - asabjorn 9y ago
    > 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 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.
    - sliverstorm 9y ago
      I don't have a study, but I think you expect to see all the things you ask about. 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.
tjoff 9y ago
Yeah, let's hold up the vacation so that we can get that airport sandwich for free. 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.
- nerfhammer 9y ago
  Different types of goods are affected differently. Groceries aren't affected at all, but for large purchases there is empirical evidence that expectations of deflation lead to a general decrease in spending: e.g. https://www.dallasfed.org/assets/documents/institute/wpapers/2015/0226.pdf https://www.dallasfed.org/assets/documents/institute/wpapers... , http://www.tandfonline.com/doi/abs/10.1080/13504851.2015.1100242?journalCode=rael20 http://www.tandfonline.com/doi/abs/10.1080/13504851.2015.110...

asabjorn 9y ago

What seems to matter more is that there has been a productive deployment of capital that gives you a reason to buy a new product, and that you have discretionary income after housing cost and other fixed costs are paid. 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.

sliverstorm 9y ago
productive deployment of capital 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.
- asabjorn 9y ago
  > 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 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.
  - sliverstorm 9y ago
    I don't have a study, but I think you expect to see all the things you ask about. 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.

tjoff 9y ago

Yeah, let's hold up the vacation so that we can get that airport sandwich for free. 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.

nerfhammer 9y ago
Different types of goods are affected differently. Groceries aren't affected at all, but for large purchases there is empirical evidence that expectations of deflation lead to a general decrease in spending: e.g. https://www.dallasfed.org/assets/documents/institute/wpapers/2015/0226.pdf https://www.dallasfed.org/assets/documents/institute/wpapers... , http://www.tandfonline.com/doi/abs/10.1080/13504851.2015.1100242?journalCode=rael20 http://www.tandfonline.com/doi/abs/10.1080/13504851.2015.110...