Monday, October 18, 2010

Uncooperative consumers

I had previously blogged about Witold Rybzcynski's Last Harvest which I use as a case study in one of my classes. It is (among other things) all about the mysteries of demand seen through sellers' eyes. In this case, putting a new flavor of residential development (New Urbanist) on the market is a tough gamble. Finding the sweet spot where product quality (with all of its dimensions) and the price it will fetch cover all of the costs involved (including investor expectations) is shown to be very hard work. And the sweet spot is a moving target. This is much more interesting and more useful for the students than just throwing demand curves up onto blackboards or powerpoints.

Yesterday's NY Times Magazine included "The Elusive Small-House Utopia" which covers some of the same ground (with comments from Rybczyinski). The article does acknowledge demand uncertainties, but veers into old cliche land: peculiar U.S. policies explain Americans' demand for living space. But there are plenty of places abroad with higher home ownership rates than here. Persons-per-room is the same as the U.S. (average of 0.5) in Canada, the U.K., Germandy, Sweden, New Zealand. With six others at 0.6.

It's just like the automobile story. The cliche that the U.S. is different may have been true twenty and more years ago, but it's high time to drop it. Regardless of policy differences, consumers know what they want -- even if their betters don't approve.