The dramatic effect of the housing market on the marketing industry
Owning a house is one of the pillars of Western society. In this blog, we explain why this pursuit is so relevant to people’s desires and the marketing industry. So without further ado, let’s get to it.
A bedrock in society
People aspire to own houses, they are the largest asset and store of wealth that most people have, and the largest outgoing monthly expense. Furthermore, homeownership is often thought of by economists and leaders as a way to develop considerate populations. As the theory goes, owners take greater care of their properties and greater security from which to aspire for success.
This makes the housing market one of the most important barometers of economic health. A healthy housing market powers economic growth, increases social mobility and asset values for those who own homes. However, this comes at a price for those attempting to get on to the property ladder, which has negative consequences for young people.
By contrast, a stagnating housing market is a concern, particularly if owners can’t afford their mortgages, or more seriously if this is accompanied by negative equity. This is where owners have to pay back mortgages above and beyond their present market value. If they try to move, they have to pay back the additional difference caused by the lower sale value.
Impact on thoughts and feelings
These effects on the marketing industry can be profound if translated into people’s thoughts and feelings. Homeownership is aspirational, and so are the majority of marketing initiatives. Marketing has become a way to captivate consumers and make them feel like their needs are being taken care of. And, from a practical perspective, it has been to facilitate the purchase of non-essential or discretionary products.
With increasing interest rates, and pressure in the housing market, consumers are affected differently depending on their housing status. The OECD’s affordable housing database outlines four groups, three of which are critical for marketers; private renters, mortgage owners and those that own their homes outright. These groupings determine household disposable income and spending habits. Renters in most European households are likely to have the least disposable income, naturally incentivising people to move to homeownership.
Since the 2008 financial crisis, the central banks of European nations and the US have kept interest rates very low. This has incentivised homeownership because, as long as people can afford a deposit, their mortgage costs have been low. For renters, the situation has been a little different. Their rents have been dictated by supply and demand, and for those in the UK for example, with space at a premium, rents have risen steadily. The result is that renters have often had to pay a much larger proportion of their salaries to their housing costs each month compared to mortgage owners for a similar size of property. This has created a dynamic which has made it harder and harder for them to save for a house, a gap that has been filled by parental support, as we have covered previously.
This sets the scene for today’s market, with interest rates now rising steadily. Renters incur increases, but at a rate that balances supply and demand. Meanwhile, homeowners experience increases that are by comparison exorbitant. Every % increase from the central bank can mean that many mortgage holders pay hundreds more in fees each month.
These changes have phenomenal impacts on people’s discretionary spending. Both renters and mortgage owners require regular/stable jobs to keep up their repayments. Those who rent are typically younger, more likely to be footloose, live ‘in the moment’ and move around regularly. This makes them a perfect audience for lifestyle products such as experiences, festivals and fast fashion. By contrast, homeowners are more settled, with more set routines, clear spending limits and less spontaneity.
Concerns for marketers
This makes the current housing market bad news for marketers. Combine this with high inflation and an energy crisis, and the situation looks even less favourable. Marketers are forced into making exceptionally difficult decisions as consumers cut back on spending.
This fallout centres on two areas. The first is the money available to run campaigns. Naturally, advertising that can be scaled up or down is scrutinised prompting a decline of revenues for the likes of Twitter and Meta. Secondly, campaign narratives shift from presenting aspirational lifestyles to understanding the struggles audiences are going through.
We hope you enjoyed this blog. You may be interested in reading the blogs and articles linked throughout. Alternatively, if you’d like to discuss this more deeply with us, then please get in touch below.
Until next time.
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