Inflation’s many causes
In July, the national consumer price index (CPI) was up 3.2% year-over-year. That’s slightly higher than the 3% rate in June and significantly higher than the Fed’s 2% target.
Lawmakers and economists have suggested several different reasons for this stubborn inflationary wave. Pandemic-era supply-chain issues are yet to be fully resolved while the ongoing war in Ukraine is impacting everything from fuel to food prices.
Some have also pointed to recent increases in the money supply, particularly pandemic stimulus spending, which put thousands of dollars directly into Americans’ bank accounts, creating heightened demand for a limited supply of consumer goods.
But the biggest factor is the cost of housing. In July, rent and mortgages accounted for 90% of the 3% inflation surge, according to the latest BLS data.
Minneapolis managed to tame inflation by focusing on that key element.
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Get StartedHousing prices and trends
Minneapolis focused on reducing the price of shelter even before the pandemic erupted. In 2018, the city outlawed zoning rules that permitted only single-family homes. This allowed for much more housing density.
Meanwhile, the city also invested heavily in helping people pay rent. Since 2018, renters have collectively received $320 million in rental assistance and subsidies from the city’s government.
The result was a much better outcome for all citizens. Rents have grown just 1% in Minneapolis since 2017, whereas rent prices are up 31% in the rest of the country during that period.
Growing trend
Other cities are taking notice of this strategy.
Among others, Arlington, Virginia; Gainesville, Florida; Charlotte, North Carolina; and Washington, D.C. have also reformed their zoning rules to allow for more multifamily units. And the state level, Oregon, California, Washington, Montana and Maine have implemented similar policies in recent years.
But the impact of new zoning policies could take several years to have a noticeable effect, as was the case in Minneapolis.
Meanwhile, renters and homebuyers are faced with higher rents and unfavorable home prices, while homeowners and prospective buyers still have to deal with high mortgage rates.
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