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Shrinkflation

 

Do you remember when the airlines reduced legroom and squeezed more seats into a plane and raised prices? Many food suppliers have been doing the same recently. Often the big packages have reduced content or the entire package quantity has shrunken but the price has increased. The past 3 years have given corporations an unprecedented opportunity to raise pricing well beyond their higher costs - further fueling inflation purposefully and artificially - and doing so is easily obscured simply by reducing quantities and blaming it all on 'high inflation'.



So how does this relate to real estate? We've seen this happening for years in real estate whereby developers shrink proportions of rooms in new buildings to absorb higher building costs, maximize price per square foot and fuel profits. If you doubt this, simply look at the recent financial results of many home builders. Lennar's gross margin on new home sales was 24.4%, higher than expected, especially since home builders have been decrying rising material and labor costs. Obviously, they have been able to tag on higher prices or build more efficiently scaled homes by shrinking dimensions to generate extra profits.


So while there are clearly several tangible reasons why inflation is higher - excessive stimulus (government handouts and spending and tax cuts), oil production cuts, Russia-Ukraine War, etc) - let's not fool ourselves to believe the record profits generated over the past 2 years are not a direct result of market forces allowing a wee bit of greed to add more to rising prices - and profits - and thereby fuel inflation further. 

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Ken interprets market data, staying in constant communication and offering valuable insight that then translates into an informed decision.

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