As shelter inflation continues to play a dominant role in driving overall inflation, the National Association of Home Builders (NAHB) is sounding the alarm, urging policymakers at various levels of government to take swift action to address the soaring housing inflation rate, which is causing significant economic strain.

The Consumer Price Index (CPI) reading for July stood at 3.2%, but data from the Bureau of Labor Statistics highlights that more than 90% of the CPI's headline increase can be attributed to shelter inflation, specifically rent and owner's equivalent rent, which surged by 7.7% compared to a year ago.

 

NAHB Chairman Alicia Huey, emphasizes that addressing rising housing costs is a shared responsibility, "The Federal Reserve shouldn't have to fight inflation on its own, as the central bank's ability to address rising housing costs is extremely limited because shelter cost increases are driven by a lack of affordable supply and increasing development costs."

With shelter costs significantly impacting inflation dynamics and a shortage of 1.5 million housing units across the nation, Huey stresses that boosting housing supply is a key solution. Building more homes not only addresses demand but also restores equilibrium to the for-sale and rental markets while alleviating the affordability crisis.

Huey underscores that policy changes are pivotal to tackling the challenge. She suggests initiatives such as negotiating a new softwood lumber agreement with Canada, streamlining permit approval processes, investing in skilled labor training, and repealing inefficient regulatory rules to stimulate construction and increase housing inventory.

In addition to supply-side measures, higher interest rates are also impeding housing supply. The increased cost of financing land acquisition and development, coupled with elevated interest rates for construction loans, are exacerbating the housing crisis. Mortgage rate spikes are further impacting supply, as homeowners opt to retain their existing properties to preserve low mortgage interest rates.

https://www.nahb.org/news-and-economics/press-releases/2023/08/boosting-housing-production-can-ease-inflation