The U.S. House Committee on Financial Services Chair Maxine Waters (D-CA) held a hearing on March 8, “The Inflation Equation: Corporate Profiteering, Supply Chain Bottlenecks, and COVID-19,” addressing the causes of and solutions for growing financial pressure brought about by inflation and the critical role rising housing costs play in driving inflation. Witnesses included Demond Drummer (PolicyLink), Rakeen Mabud (Groundwork Collaborative), Sandeep Vaheesan (Open Markets Institute), Mark Zandi (Moody’s Analytics), and Tyler Goodspeed (Hoover Institution).
In her opening statement, Chair Waters emphasized the impact of housing on inflation. “Every American knows, whether they rent or own their home, that housing is also a key driver of inflation,” she said. “For too long, we have not addressed the shortfall in our housing supply, and that lack of supply is driving up costs.” The Chairwoman also noted that the significant affordable housing investments in the “Build Back Better Act” would help address the housing supply shortage, which would in turn help address inflation.
“[The cost of housing] is a critical element to inflation going forward,” said Dr. Mark Zandi, chief economist at Moody’s Analytics. “We’ve got a very severe shortage of housing, particularly for affordable housing, both on the rental side and on the homeownership side. This has resulted in the surging cost of rent – rents account for one third of the consumer price index [CPI], so the largest component of inflation is housing. As long as we don’t address this supply shortage, rents are going to grow quickly, and the cost of living is going to continue to rise quickly.” Dr. Zandi also noted that, by increasing the supply of deeply affordable housing, the housing investments proposed in the “Build Back Better Act” would “quickly start addressing the rising cost of rent.”
“The method of calculating [housing’s impact on inflation], in my view, understates the real, inflationary experience in the economy,” said Representative French Hill (R-AR). “The CPI calculation does understate the inflation in housing ordinary Americans feel,” agreed Tyler Goodspeed, a Kleinheinz fellow at the Hoover Institution. “For the rental component, it only measures continuing leases, whereas it’s in new leases that we’ve seen double-digit increases in rent.”
Representative Ritchie Torres (D-NY) emphasized the necessity of federal investments for addressing the affordable housing shortage. In a question addressed to Dr. Zandi, Representative Torres asked whether it is possible to “come close to solving the housing supply crisis in America without federal investments.” Dr. Zandi responded that, without significant federal investments, the country will not be able to address the affordable housing shortage “any time soon.”
“It’s a very complex issue,” responded Dr. Zandi, “but with the way it’s going, it’s going to take a long time and inflationary pressures will continue to develop.”
Dr. Zandi “strongly recommended” that lawmakers work to address the issue of affordable housing development and noted that investments in the national Housing Trust Fund could go a long way toward addressing the affordable housing shortage and relieving inflationary pressure. NLIHC’s HoUSed campaign has been pushing Congress to include in any reconciliation package $15 billion for the national Housing Trust Fund to build, preserve, and operate deeply affordable housing for households with the lowest incomes.
Watch a recording of the hearing at: https://tinyurl.com/fmnk5r53
Read the committee memorandum at: https://tinyurl.com/2p8d38rr
Learn more about the connection between housing costs and inflation at: https://tinyurl.com/3bpmwvtu