comments 2

Shrinkflation in the housing market

We all know that inflation is a thing right now. Prices are rising. One way businesses can choose to respond to this is through something called “shrinkflation”, which the Financial Times writes about here. The idea behind shrinkflation is that, instead of just raising end prices to absorb higher costs, you instead shrink or reduce your product or service offering. Of course, you could also do a combination of both things: increase your price and shrink your offering.

This shrinking can take many forms. A few less chips in your bag. A slightly smaller chocolate bar. Smaller food portions at the restaurant. Or maybe opt-in room service for your hotel room. It can also take the form of less space. Average apartment sizes in most big cities have trended downward over the years for this exact same reason. Developers are working to maintain some kind affordability in the face of rising costs.

I think a lot of people like to scoff at these sorts of practices. Why can’t we just build bigger family-sized suites? But the reality is that it is being driven by real market constraints. Without something giving, like suite sizes, urban housing would be multiples less affordable compared to current levels. The developers I know don’t have any sort of deep-rooted philosophical aversion to selling 5,000 square foot estates in the sky. The problem is simply that most buyers and renters won’t like the sticker price.

2 Comments

  1. Judith Martin

    It may be different in the US or Canada (although I doubt it) but in the UK it’s all about developer profits. If they can get away with flogging undersized accommodation they will. It’s not so much about rising costs, or at least hasn’t been until now with Ukraine and energy prices, it’s about what owners can get for land and what shareholders and directors can stash as ‘earnings’. https://www.thisismoney.co.uk/money/markets/article-10362863/Britains-biggest-housebuilders-make-7bn-profit-pandemic.html And the UK Government’s Help To Buy scheme, instead of helping young buyers, helped developers to double their profits – and the young buyers to get deeper in debt.

    Like

  2. Jakob P

    It will be interesting to see how manufacturers in different industries deal with the situation when no more shrinking is possible. I mean yes, you can always sell 450g of pasta instead of 500g, and then 410g instead of 450g, but there is a lower limit where it just doesn’t make sense for anyone to buy anymore. If it gets too small, I’ll just look for the larger size because the smaller one doesn’t do the job anymore.

    And this is particularly true for housing. Yes, people have been used to square footages larger than what’s absolutely necessary to live, and we’re still not at the level of, say, Tokyo or Hong Kong in terms of miniaturization. But the day will come, and then what are developers (and home buyers) going to do? And do we have any chance of retaining a significant amount of families in the city core as we approach this point?

    Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s