A fall in the costs of shelter, both in terms of lower house prices to buy, and lower rents, means that households have much increased disposable income. This fall in the costs of shelter, also, however, represents a fall in the value of labour-power, which should translate into lower wages, and higher relative surplus value. Of itself, that facilitates greater capital accumulation, and an expansion of the real economy, as the liquidity released by falling asset prices then facilitates this greater productive and unproductive consumption.
However, money wages do not tend to fall, being sticky downwards. Instead, this fall in wages is achieved via a relative increase in the prices of other wage goods. Moreover, the conditions described are ones in which the long wave cycle has facilitated this increase in economic activity, a rise in the demand for labour, and capital, which results in the higher interest rates which causes the asset prices to fall, and the excess liquidity tied up in assets to then be released. In those conditions, as the demand for labour rises, its not only money wages that rise, but, at a certain point, as seen, for example, in the 1960's, wage share rises relative to profits.
This is also why the notions of a negative wealth effect are wrong. From around 1965 until around 1985, asset prices fell in inflation adjusted terms, but this did not result in any kind of negative wealth effect undermining consumer spending. Quite the contrary, it was a period not only of rising money wages, but also of rapidly rising real wages, and consumer spending, including consumer spending on whole ranges of what were previously luxury goods, and on whole new ranges of goods and services developed in response to it.
If it were only a question of existing land in cultivation, or existing houses being bought and sold, then its quite true that a fall in land prices would not have this effect. But, that is not the case. New farmers enter production, and the capital they have available for productive use is very much determined by what they have to pay for land to begin farming. House and other property builders are continually buying land for new developments, and the same applies that the amount of capital they have available for productive use, and so the amount they are able to produce is determined by what they have to pay for land.
This applies to other assets too. Pension funds, receive new money from workers and employers each month, and must be used to buy additional bonds and shares, and other assets, from which to derive the revenues to meet future liabilities. Suppose, the additional liabilities that these funds must meet each year amounts to £1 million, and the average amount of interest/dividend per bond/share is £10. To meet the additional liabilities, therefore, the fund must buy 100,000 bonds/shares. If the average price of a bond/share is £100, the fund must obtain £100 million in contributions to make these purchases. This is £100 million deducted from surplus value, either directly from profit, or indirectly via wages. If, the average price of bonds/shares, however, falls to £50, only £50 million in contributions is required.
In practice, just as, when these asset prices inflated, contributions did not increase proportionately, so as to buy the same quantity of assets, leading to an undermining of the capital base of the funds, and subsequent black holes, so contributions tend not to be reduced when asset prices fall, other than that employers may seek a pension holiday, once the fund can be shown to be able to meet liabilities. Workers contributions, remain at the same monetary level, which means that the capital base of the fund gets rebuilt. Its one reason, again, the ruling class does not like such devaluation of assets, because, now, a greater proportion of them are accounted for by these workers' pension funds, rather than being in their personal possession. Again, however, their control over the majority of shares in banks and finance houses, means that these institutions, which act as managers of the pension funds, continue to also control this collective workers' property, just as they do the collective workers' property in the form of socialised capital.
The workers monetary contribution is not reduced, but as commodity prices and wages rise, it falls in real terms, so that it forms a smaller proportion of their income, leaving a greater proportion available for spending on other wage goods. And, similarly, the owners of existing bonds and shares, whilst they now have the money paid for them in their bank account rather than that of the worker or businesses, in a climate of falling asset prices, rising commodity prices, and demand for real capital, they are more likely to throw it back into the real economy for those purposes than simply to bid up the prices of existing assets.
In short, a fall in asset prices, whilst it may have catastrophic effects for the existing owners of those assets, not only need have no such catastrophic effect on the real economy, meaning that, where some lose others gain, but also results in benefits for the real economy, because it means that, as with a release of capital, it means that money that has been tied up in the sphere of assets is released into the real economy, stimulating consumption, and capital accumulation.
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