Florida, known as the Sunshine State, is currently facing a significant inflation problem. The state’s rising population, particularly due to domestic migration, has led to an increase in housing costs. This trend has been further accelerated by the impact of the COVID-19 pandemic, which allowed people to work remotely and consider relocation. While Florida’s economy is strong, with no income tax, the high demand for real estate from non-Floridians and non-American investors has contributed to the inflation rates.
On the other hand, some metro areas, such as Minneapolis and St. Paul, have made progress in controlling inflation. Factors such as the timing of data collection, multifamily construction, and a drop in transportation costs have contributed to their success. Similarly, Atlanta has seen a steady decline in inflation due to a better balance between supply and demand in the housing market.
In this article, we will delve into the dynamics behind Florida’s inflation problem and explore the progress being made in other major cities.
Florida’s population growth has played a significant role in driving up inflation, particularly through housing costs. The state witnessed the highest population growth among all states from July 2021 to July 2022, primarily due to domestic migration. This influx of residents has increased demand across various sectors, including transportation, services, and housing. As a result, housing costs, which account for almost a third of the Consumer Price Index, have risen significantly.
Furthermore, limited housing stock in cities like Miami and more expensive property insurance have further contributed to the housing cost inflation. Rising interest rates have also played a role in pushing up housing costs in the state. Amanda Phalin, an economist at the University of Florida, highlights the upward pressure on prices in both the rental and purchasing markets as a result of these factors. Additionally, the conversion of homes into Airbnbs and restrictions on renting out homes by homeowner associations have created a shortage of available rental units.
This surge in housing costs has resulted in a growing affordability issue for long-time residents of cities like Miami and Tampa Bay.
The limited housing stock in cities like Miami has exacerbated the inflation problem in Florida. The high demand for housing, fueled by population growth and non-local investors, has outpaced the supply. As a result, the housing market has become highly competitive, driving up prices. Rising interest rates have also contributed to the increasing housing costs, making it more challenging for residents to afford homes.
Amanda Phalin, the economist at the University of Florida, explains that both the rental and purchasing markets are experiencing upward pressure on prices due to limited housing stock and rising interest rates. This combination has made it difficult for residents to find affordable rental units or purchase homes.
The soaring housing costs in Florida have created an affordability issue for residents who have lived in cities like Miami and Tampa Bay for decades or their entire lives. The rising prices have made it challenging for these long-time residents to continue living in their communities. Many have been forced to consider relocating or seek alternative housing options.
The conversion of homes into Airbnbs and restrictions on renting out homes by homeowner associations have further limited the availability of rental units. This has added to the affordability crisis faced by residents, as the supply of affordable rental housing has decreased.
Minneapolis and St. Paul have made progress in controlling inflation, particularly in terms of housing costs. Tyler Schipper, an associate professor of economics at the University of St. Thomas in Minneapolis, explains that shelter costs in the Twin Cities grew faster and peaked earlier compared to the rest of the country. This divergence is partly attributed to the way shelter costs are calculated within the Consumer Price Index (CPI) and the timing of data collection for different regions.
Shelter costs carry significant weight in CPI calculations. However, they are collected infrequently (every six months) and often lag behind other CPI prices. This is because many leases are for 12 months, and rents typically increase when tenants leave. The timing of data collection and the infrequent changes in rents have contributed to the divergence in inflation rates between the Twin Cities and the rest of the country.
The Twin Cities’ progress in controlling inflation can also be attributed to a surge in multifamily construction. The construction of more apartments has increased the supply of rental units, bringing down rents in the process. In fact, multifamily permits accounted for nearly half of the total housing permits issued in the Federal Reserve Bank of Minneapolis’ district last year. Large apartment projects are flourishing throughout the Twin Cities, particularly in southeastern Minnesota.
While Minneapolis and St. Paul currently have the lowest inflation rate among major cities, residents may still feel the impact of inflation in other areas. Despite the overall good numbers, higher food prices relative to other metro areas can make it challenging for residents to perceive improvements in inflation. However, the availability of bulk shopping options like Costco and Sam’s Club can help individuals manage their budgets and make their money last longer.
Atlanta, once America’s inflation hotspot, has made significant progress in controlling inflation. The city experienced a surge in inflation due to population growth driven by Americans fleeing expensive coastal cities. However, Atlanta’s inflation rate has steadily declined over the past year as supply and demand in the housing market have come into better balance. The increase in housing inventory and a decline in the number of sales have contributed to the improvement in Atlanta’s inflation rate.
Kaiji Chen, an economics professor at Emory University in Atlanta, highlights the increase in housing inventory as a significant factor in reducing inflation. The market now has more supply, while the number of sales has been declining. This shift has helped create a better balance between supply and demand, leading to a decrease in inflation.
Apart from improvements in the housing market, a drop in transportation costs has also contributed to Atlanta’s inflation improvement. Lower transportation costs have a direct impact on the overall cost of living, making it more affordable for residents. This reduction in transportation costs has played a role in lowering Atlanta’s inflation rate.
Florida’s inflation problem, driven by population growth and sky-high housing costs, has positioned it as America’s inflation hotspot. The state’s limited housing stock, rising interest rates, and expensive property insurance have further exacerbated the inflation rates. In contrast, Minneapolis and St. Paul have made progress in controlling inflation through factors such as multifamily construction and the timing of data collection. Atlanta has also seen improvements in its inflation rate, thanks to a better balance between supply and demand in the housing market and a reduction in transportation costs.
While Florida continues to grapple with high inflation, other major cities are finding ways to manage and improve their inflation rates. The dynamics behind each city’s progress highlight the importance of factors such as housing supply, timing of data collection, and transportation costs in controlling inflation. As the economic landscape continues to evolve, monitoring and understanding these dynamics will be crucial in addressing inflation challenges and promoting economic stability.
First reported by CNN.
