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Skyrocketing Rent Is Driving Inflation

But one of the biggest drivers of inflation, at least according to the most recent Consumer Price Index report, has not elicited even a peep from the political class: the soaring cost of housing.

Housing rights activists held a die-in in front of Speaker Carl Heastie and Majority Leader Andrea Stewart-Cousins’s New York City offices, May 27, 2022, calling on state officials to pass good cause housing legislation.,Karla Ann Cote/NurPhoto via AP

Democrats, we are told to believe, are very serious about inflation. The Biden administration has said it will “give the Fed the space and the independence to do its job,” namely to hike rates by historic amounts, risking the degradation of a robust job market and the inducement of a recession, despite little indication that the interest rate will fix supply chain problems. When gas prices surged, House Democrats came together to pass the Consumer Fuel Price Gouging Prevention Act, and last week, the Lower Food and Fuel Costs Act. When airline tickets soared in cost, Transportation Secretary Pete Buttigieg hauled the CEOs of the major airlines to a meeting for questioning (though doing anything about it is another matter). It’s been reported that the White House is considering sending Americans rebate cards to defray soaring energy prices.

But one of the biggest drivers of inflation, at least according to the most recent Consumer Price Index report, has not elicited even a peep from the political class: the soaring cost of housing. According to the breakdown of services, the cost of shelter is now far outpacing airline tickets, as well other services combined, as a primary driver of inflation. In fact, as the Council of Economic Advisers reported, increase in rents was responsible for almost 40 percent of the core CPI number in May. Worse still, the shelter index’s 0.6 percent increase 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.

At least 35 percent of Americans are renters, and anyone who has moved recently or whose landlord has reset the price is feeling the squeeze. According to a recent report from Redfin, the national median asking rent was $2,002 in May, the first time it has ever eclipsed the $2,000 mark. That represented a 2 percent gain from April, and a stunning 15.3 percent rise year over year. Both rent and owners’ equivalent rent—the amount of rent that would have to be paid in order to substitute a rental property for a currently owned house—are on a historic inflationary tear. These are the two major factors that the BLS uses to calculate shelter costs, and they are not slowing down.

Yet relief for renters and protection from skyrocketing housing costs has remained curiously absent from Democrats’ messaging on inflation. “There are three major things you can do to combat those rental costs, and nobody has done any of them,” said Paul Williams, a fellow at the Jain Family Institute who focuses on housing. “You can give people more money by making vouchers an entitlement, you can build more housing, or you can pass rent regulations. None of those are 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 resulted in a surge in the cost of a mortgage. This not only discourages people from buying homes, it subsequently discourages new construction that might help increase supply and drive down costs.

                 For many, the crisis in housing costs has only just begun.

The Build Back Better Act, now defunct, actually featured meaningful solutions that might have blunted the sharpest edges of this crisis. Nearly all the housing investments that were included in the BBB draft were counterinflationary, from the funding of housing trusts to the support of low-income development to expansion of vouchers. Of course, there has been no indication whatsoever that the housing package might find its way into the revived, pared-back Build Back Better that has been rumored to be under negotiation.

It’s not just congressional Democrats falling down on the job. New York state’s Democratic supermajority just days ago failed to pass a good cause eviction bill that had been under consideration since 2019. The bill would have guaranteed lease renewals and restricted rent increases to 3 percent per year or by tying them to inflation, and would have done well to dent extreme rental increases being 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 rental horror stories that have dominated local media.

There’s plenty of reason to believe the rent crisis is actually worse than the BLS data indicates. Because rents are often tied to 12-month contracts, those trends can be slower to surface, as they’re only enacted once contracts come up for renewal. “Roughly every month only 10 or 12 percent of people surveyed in these CPI reports are those who have just signed a new lease,” said Williams. Evidence of the ubiquity of those increases can be delayed, then, before they show up in the official CPI number. The result is that the current figure is likely artificially muted, and will continue to go up for months to come, as the data catches up with the reality on the ground. Indeed, rents rose in 2021, but that fact did not even register in inflation data until earlier this year; it can take up to 12 months before official inflation numbers catch up to rent hikes, as Fortune’s Tristan Bove noted.

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There are other reasons to believe those figures will continue to get worse as well. While small and midsized cities saw their rents skyrocket as remote workers fled expensive metropolises like San Francisco and New York during the early months of the pandemic, that migration has begun to reverse. With companies calling their workers back to the office, people have begun to return to large cities.

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

After experiencing a ton of difficulty getting the rental relief program of the American Rescue Plan Act started, that aid did end up making a huge difference for renters nationwide. Over five million households received emergency rental assistance between January 2021 and March 2022. That financial assistance likely played a key role in preventing a surge in evictions after the national eviction moratorium lapsed in August 2021, though getting a clear sense of that situation has been hobbled by the fact that the federal government doesn’t track evictions.

But those programs have long since been depleted of funds, and for many, the crisis in housing costs has only just begun. With no national push to renew a broader voucher program, and a Democratic leadership class well into its eighties, there are plenty of homeowners and landlords and few renters with a front-row sense of the immediacy of this crisis. Meanwhile, young people, whose alienation from the Democrats in power has been shown in countless polls, are the ones feeling the brunt of the pain. The same is true for Black and Hispanic Americans, who are more likely than their white counterparts to rent.

For many renters, especially those in large, urban areas with public transit that happen to be dominated by Democrats, increases in housing costs are likely to be far more expensive and pressing than the price at the pump. Yet there remains little willingness to address this component of inflation head-on.

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