Power & Market

Little Pink Houses

Oh but ain't that America for you and me.

Ain't that America something to see baby

Ain't that America home of the free

Little pinks houses for you and me.

John Cougar Mellencamp

Released in 1983 after double-digit price inflation from 1979-1981 

Shrinkflation has President Joe Biden annoyed. He called it a “rip off” on social media ahead of the Super Bowl. “Some companies are trying to pull a fast one by shrinking the products little by little and hoping you won’t notice,” said Biden, who evidently just now noticed, and is calling for companies to stop it.

While the President is focused on snacks and such, the New York Times reports that homebuilders like Lennar are building 400 square foot structures and calling them homes. The Times piece by Conor Dougherty entitled “The Great Compression” explains “Over the past decade, as the cost of housing exploded, home builders have methodically nipped their dwellings to keep prices in reach of buyers. The downsizing accelerated last year, when the interest rate on a 30-year fixed rate mortgage reached a two-decade high, just shy of 8 percent.”

“Their existence is telling,” Ali Wolf, chief economist of Zonda told Mr. Dougherty. “All the uncertainty over the past few years has just reinforced the desire for homeownership, but land and material prices have gone up too much. So something has to give, and what builders are doing now is testing the market and asking what is going to work.”

With 400 square feet, no garage, and driveways just wide enough for one vehicle or two motorcycles — builders can offer prices under $300,000 in markets like San Antonio and Redmond, Oregon. The days of the $100,000 to $300,000  starter home are long gone in many markets. “This is the front end of what we are going to see,” said Ken Perlman, a managing principal at John Burns Research and Consulting.

Levittown, N.Y. Cape Cod homes, considered the model post-World War II suburb, were about 750 square feet. However, Americans want more space for their stuff and the median home size has increased to about 2,200 square feet, up from around 1,500 in the 1960s

As for snacks, “This corporate greed is one of the reasons that Americans are frustrated by expensive grocery bills,” Senator Bob Casey D-Pa., said in a December statement.

The good Senator should study the work of Ludwig von Mises who explained,

No complaint is more widespread than that against “dearness of living.” There has been no generation that has not grumbled about the “expensive times” that it lives in. But the fact that “everything” is becoming dearer simply means that the objective exchange value of money is falling.

While prices rise, the value of the dollar shrinks, the number of chips in a bag and the size of houses shrink.

“The advocates of public control cannot do without inflation, Mises wrote. “They need it in order to finance their policy of reckless spending and of lavishly subsidizing and bribing the voters.”

[Pre-order the 4th Expanded Edition of Early Speculative Bubbles & Increases In The Supply of Money today.] 

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