It’s possible to get rich if your business only caters to rich people. But it’s hard to have a massive and really successful industry in the United States today if you only cater to rich people. There are only so many people in the country with good credit and lots of cash sitting around. And this week, we got evidence that one of America’s largest industries may be running into trouble because its products appeal only to the upper crust. I’m not talking about jewelry or apparel. I’m talking about housing.
And yet the article goes on to provide little evidence that the housing industry will be in trouble if it continues on this path. The profit margins are higher. The big builders, like Toll Brothers highlighted in the story (as they almost always are when there is a story about luxury housing), and the big investors who swooped in during the housing crisis are doing fine. There are not that many smaller builders left. A loss in building volume would probably mean some job losses in real estate, construction, banking, and other related services. But, perhaps the housing industry in the future is leaner and aimed at the upper end?
As I mentioned in Friday’s post, if markets work as they are said to work, there are plenty of opportunities here for businesses to jump in. Newer technologies can lead to cheaper housing units and lower construction costs. There is a huge need for affordable housing so there shouldn’t be a shortage of demand (even if it may be difficult to find sites where neighbors aren’t opposed to it). Doesn’t someone want to grind out profits at a lower margin? The question moving down the road is whether the housing industry will react in such a way or not. There is no guarantee that it will.