Buying or renting smaller spaces related to less consumer spending

If Americans turn away from McMansions and toward smaller homes or renting, they may also spend less on other items:

The apartment/renting moves have two implication for consumer spending. First, less space means less stuff. Second, rental units typically aren’t fitted with high-end appliances and finishes.

Looking at real spending for certain home goods, the data show annual increases in spending on items like appliances, furniture and window treatments are averaging less than they did during the boom years. That means that, like home construction, demand for home goods isn’t supplying the boost to economic growth that it did before the recession.

The Demand Institute, a joint initiative of The Conference Board and Nielsen, looked into the shift’s impact on consumer spending in a 2012 study. The DI analysis expected demand for home goods to pick up as housing recovers, but “value-oriented brands are likely to see the greatest growth,” the report said, a short-run trend “driven by landlords and renters who want to spend less on fixtures and furnishings than homeowners [do].”

Renting households also tend to own fewer vehicles, said the DI report, in part because their finances are worse than homeowners but also because parkingspots are limited. That shift will limit future car sales

All together, this links spending in one large area – housing – to spending in other sectors. Take owning a large suburban house. Such a home tends to support a more robust housing industry including construction and real estate. Such homes are often built in more sprawling suburban neighborhoods, leading to more cars and more road construction. Bigger homes require more furnishings, landscaping, and opportunities for improvements and repairs, supporting more suburban big box stores and other retailers.

I do wonder how much this is a case of spurious correlation versus indicating broader shifts: is this all linked to people having less disposable income? If they feel they have less money, they might make different choices about housing as well as consumer goods. Or, due to the economic crisis and relatively stagnant income for many Americans, consumers might be shifting their preferences in a number of ways that could upset traditionally important economic sectors. It could be a move away from expensive and more durable goods (houses, cars) toward electronics (like smartphones) and entertainment (the creative class).

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