NIMBYs helped us avoid a repeat of 2008 and are keeping inflation sky-high in the process
Tiana Lowe
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Despite the worst inflation in four decades moderating toward the end of last year, consumer price index inflation has stagnated at 6%, in large part due to sky-high real estate prices, which comprised 70% of February’s CPI increase.
Goldman Sachs has found that the United States is alone in the resiliency of its housing market. While the Federal Reserve hopes that its interest rate hikes will specifically quell housing demand through rising mortgage rates, American housing prices will only decline a total of 5% compared to double-digit declines in New Zealand, Canada, Sweden, and Australia.
JEROME POWELL’S PAUL VOLCKER MOMENT
Why aren’t we seeing a repeat of 2008 despite the evident fragility of American lending and banking? Goldman attributes the difference between the U.S. and the rest of the G-10 to our “extremely low vacancy rate.”
The rental vacancy rate is 5.8%, the lowest level since 1984, and the homeowner vacancy rate is just 0.8%, the lowest ever recorded by the Census Bureau. The U.S. only has 400 homes per 1,000 residents overall, compared to the Western European average of 560 per 1,000 residents, and the American rate has actually fallen in recent years.
The obvious culprit of this shortage can be explained in the solution. A study by Realtor.com found that the dearth of single-family homes compared to household formation over the last decade grew to an astounding 6.5 million homes.
“However, including multi-family home construction reduces this gap to 2.3 million homes,” the data analysis read.
Our greater inflation crisis was caused by the Fed financing trillions in Congress’s coronavirus spending, expanding the money supply by 40% in just three years and stoking consumer demand in the process. The expansion of asset bubbles included some artificial increases in housing prices, but fundamentally, sticky home sale and rental prices alike are a product of supply, a paucity of housing specifically demanded by the local government overreach of onerous zoning restrictions.
What other than government regulation explains the lack of housing development despite demand unabated by the highest mortgage rates since the Great Recession? Throughout the nation (especially in high-demand urban locales), a patchwork of laws mandating parking spaces, banning extra floors, and imposing minimum square footage and lot sizes forces consumers to pay premiums on extra property they do not need while pricing lower-income earners out of the property they do need. On top of making life more expensive for individual buyers, NIMBY zoning laws are harming the Fed’s ability to kill inflation overall.