Skyrocketing Rent Is Driving Inflation

The Democrats, we are told, are very serious about inflation. The The Biden administration said this “will give the Fed the space and independence to do its job” of raising rates by a historic amount, risking the deterioration of a robust labor market and inciting a recession, despite little indication that the interest rate will fix the supply chain problems. When gas prices surged, House Democrats came together to pass the Consumer Fuel Price Prevention Act, and last week the Food and Fuel Cost Reduction Act. When the cost of plane tickets soared, Transportation Secretary Pete Buttigieg ferried the CEOs of major airlines to a meeting to question them (although do something about it that’s another matter). It has been reported that the White House is considering send cashback cards to Americans to cover soaring energy prices.

But one of the biggest drivers of inflation, at least according to the latest Consumer Price Index report, hasn’t even caught the attention of the political class: soaring housing prices. According to the distribution of services, the housing cost now far surpasses airfare, along with other services combined, as the main driver of inflation. In fact, as reported by the Council of Economic Advisers, rising rents have been responsible for almost 40 percent of the CPI base number in May. Worse still, the 0.6% increase in the housing index in May marked the largest monthly increase since March 2004, according to the Bureau of Labor Statistics. The year-over-year increase is the largest since February 1991.

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At least 35% of Americans are renters, and anyone who has recently moved or whose landlord has reset the price is feeling the pressure. According to a recent redfin report, the national median asking rent was $2,002 in May, the first time it eclipsed the $2,000 mark. That represented a 2% gain from April and a stunning 15.3% year-over-year increase. The rent and the equivalent rent of the owners – the amount of lease who should be paid to replace a rental property with a currently owned home – are on a historic inflationary tear. These are the two main factors the BLS uses to calculate housing costs, and they’re not slowing down.

Yet relief for renters and protection from soaring housing prices have remained curiously absent from Democrats’ messaging on inflation. “There are three main things you can do to combat these rental costs, and no one has done any of them,” said Paul Williams, a member of the Jain Family Institute which focuses on housing. “You can give people more money by making vouchers a right, you can build more housing, or you can have rent regulations. None of this is happening and it’s chaos.

Indeed, there has been no national discussion of anything like rent control or a voucher program to give cash assistance for rent relief. Meanwhile, rising interest rates have increased the cost of a mortgage. Not only does this discourage people from buying homes, but it subsequently discourages new construction which could help increase supply and reduce costs.

For many, the housing cost crisis is just beginning.

The now defunct Build Back Better Act is actually featured meaningful solutions which could have blunted the most acute angles of this crisis. Almost all of the housing investments included in BBB’s plan were counter-inflationary, from funding housing trusts to supporting development for low-income people to expanding vouchers. Of course, there’s no indication that the housing package could end up in the revived and stripped-back Build Back Better that is rumored to be in the works.

It’s not just congressional Democrats who are falling on the job. Just days ago, New York State’s Democratic supermajority failed to pass a good cause eviction bill which had been under consideration since 2019. The bill would have guaranteed lease renewals and limited rent increases to 3% per year or by tying them to inflation, and would have done well to curb extreme rent increases seen in places like Manhattan. The bill failed thanks in part to a lobbying effort and millions of dollars from landlord groups, and despite a frenzy of New York City rental horror stories that dominated local media.

There are many reasons to believe that the rent crisis is actually worse than the BLS data indicates. Since rents are often tied to 12-month contracts, these trends may be slower to manifest, as they are only enacted once contracts are up for renewal. “Basically every month, only 10 or 12 percent of the people surveyed in these CPI reports are those who just signed a new lease,” Williams said. Evidence of the pervasiveness of these increases may therefore be delayed before they appear in the official CPI figure. The upshot is that the current figure is likely artificially attenuated and will continue to rise for months to come as the data catches up with the reality on the ground. Indeed, rents have increased in 2021, but this fact was not even recorded in the inflation data until the beginning of this year; it may take up to 12 months before the official inflation figures catch up rent hikesas Fortuneby Tristan Bove Noted.

There are other reasons to believe that these numbers will also continue to deteriorate. As small and medium-sized towns saw their rents soar as remote workers fled expensive metropolises like San Francisco and New York in the early months of the pandemic, that migration began to reverse. With companies calling their workers back to the office, people started returning to big cities.

Those places, in turn, have recently seen rents soar from their pandemic lows. And because these cities have the highest population, they represent a higher percentage of the rental population. “I think the rent in the CPI still has room to go up because those big cities are going to start going up more, and they have a higher weight in how the CPI is calculated, because they have more people,” Williams added.

After going through a ton of trouble getting started with the American Rescue Plan Act’s rent relief program, this help ended up make a huge difference for tenants nationwide. More five million households received emergency housing assistance between January 2021 and March 2022. This financial assistance likely played a key role in prevent a resurgence of evictions after the national eviction moratorium expired in August 2021, although getting a clear picture of this has been hampered by the fact that the federal government does not track evictions.

But those programs have long since run out and, for many, the housing cost crisis is just beginning. Absent a national push to renew a broader voucher program and a Democratic ruling class well beyond the 1980s, there are plenty of landlords and landlords and few tenants with a sense of first rank of the immediacy of this crisis. Meanwhile, young people, whose alienation from ruling Democrats has been demonstrated in countless polls, are suffering the most. The same goes for black and Hispanic Americans, who are more likely than their white counterparts to rent.

For many renters, especially those in large urban areas where transit is dominated by Democrats, increases in housing costs are likely to be far more costly and pressing than the price at the pump. Yet there remains little will to tackle this component of inflation head-on.

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