The New-wave Hunt for Homeowner Value

Photo Courtesy of: traderjoes.com

Photo Courtesy of: traderjoes.com

-JESSE SANDMAN

What’s a product's value; what’s it worth? Can it be measured or evolve based on shifting sensibilities or cultural influences? I believe so, but it’s important to clarify exactly what I mean by “value”.

For this post, I’ll explore the differences between actual value and perceived value. Actual value is hereby defined as a measurement that relates to the actual cost that item takes to produce and sell for a profit. Perceived value, also called intangible value, is what a customer believes a product is worth. This perception is formed by the opinions of the market and by the benefits that the customer expects to receive. Historically, this has been a challenge for American consumers who are bombarded with persuasive (even misleading) advertisements influencing their decision making.

Photo Courtesy of: envisioningtheamericandream.com

During the 1950s, a rapid upscaling of production capabilities created a surge in consumer goods and services. Branding became an important tool for one company to distinguish itself from a sea of seemingly equal competitors. “Brand names that are well-known often add perceived value to a product,” writes Luke Arthur for the Houston Chronicle. “This perception is formed by the opinions of the market and by the benefits that the customer expects to receive if he makes a purchase.” This is why some brands, such as Nike or Addidas, can sell a T-shirt for so much more than production costs. We have been conditioned to perceive value not in pure monetary cost, but also how important it makes us feel, its associations. By recognizing changes in consumer behavior, particularly when it comes to homeownership, we can arrive at a better understanding of how consumers determine actual and intangible value today.

In 2013, Better Homes & Gardens Real Estate published the results of a 2012 survey on adults ages 18-35 and concluded that the "next generation of homeowners are rewriting the rules to homeownership and reinterpreting tradition norms to fit their values." Millennials seem to want “purposeful” homes equipped with modern technological capabilities. Without these modern conveniences 64% stated that they “would simply not consider living there.” Sherry Chris, president and CEO of Better Homes and Gardens, emphasizes that real-estate professional should “understand what embodies a quintessential home for the Millennial generation, which vastly differs from the traditional norms of generations before them.” The study also showed that a whopping 77% of those surveyed “would prefer an ‘essential’ home compared to a grand stereotypical luxury home.” These numbers reflect a seismic change in sensibility for the next generation of homebuilders and homeowners.

Rory Sutherland, an eminent authority on advertising and brand identity, is in favor of creating perceived (or intangible) value versus actual value. He explains that “intangible value, in many ways, is a very fine substitute for using up labor and limited resources in the creation of things.” From this perspective, consumers succumbing to perceived value actually benefits the environment because value is inflated without the use of any additional resources. He cites one example of a popular UK cereal brand’s strategy to add intangible value to their product. This company, which produces shredded wheat woven into squares, saw an uptick in sales when they visually re-branded their product as diamonds, rather than squares. They consequently added value to their product without creating any additional demands on production or environmental resources. Would it be possible for the real estate market to "re-brand" homeownership in order to meet shifting sensibilities?

Photo Courtesy of: thetinylife.com

Smaller homes are increasingly more common, though not a new phenomenon. Part of the hesitation for some, could come from the negative perception of tiny house.

But what exactly are the drawbacks, if any, to tiny living?
The limitation of space is can be an obvious drawback, but the tiny aspect brings with it positives: less house to furnish, less maintenance, coziness, or less house to heat/cool. Pooling data from the US census bureau and the National Association of Home Builders, the digital resource The Tiny Life has produced some compelling numbers concerning tiny homeowners. 
Tiny homeowners typically earn more than the average American and have less credit card debit, wow. Their findings show that approximately 2 out of 5 tiny homeowners are over the age of 50, debunking the perception that tiny homes are only appealing to eccentrics and new-wave hipsters. As tiny homes become more prevalent and the benefits become well-known they should be seen as a real choice, rather than a novelty.

An Urban Land Institute study found in the Midwest, rent per square foot was 150% higher for units less than 600 sq-ft. compared to units over 1,000 sq-ft. With those small homes, there are expectations of amenities.

Photo Courtesy of: uli.org

Photo Courtesy of: uli.org

But wait—people who live in tiny homes aren’t suppose to own nice things, right? Not so.

Why shouldn’t everyone, regardless of lifestyle or financial status, experience the benefits of modern amenities? Especially if tiny homeowners are saving more than the average American, their ability to invest in meaningful purchases seems totally valid. Although, their perceptions of actual and perceived value have been redefined in order to suit modern sensibilities.

Imagine you’ve recently purchased a tiny home, what things would you leave behind and what would remain essential? The answer might surprise you and give you a much better understanding of the differences between actual and perceived value.

 

 

Jesse is a resident at People's Liberty, assisting Brad with aspects of Storytelling for Start Small.