Bloomberg says apartment development is the reason behind Twin Cities’ low inflation
Compared to other regions in the U.S., the Twin Cities has a pretty low inflation rate. In May, it became the first metropolitan area to see annual inflation drop below the Federal Reserve’s goal of 2%— at 1.8%. According to Bloomberg’s report on Wednesday, we can thank the boom of apartment construction for that feat.
That argument is similarly in line with a Wall Street Journal report last spring that explored how housing costs largely drive regional inflation. Minneapolis residents spend about 40% of their income on rent, Bloomberg reports, compared to nearly 50% or 60% in places like Chicago or Boston.
Wells Fargo also recently talked about how they see inflation cooling in the months ahead due to a possible decrease in the cost of rent.
“Our baseline forecast suggests year-over-year shelter inflation will continue to slow through late 2024 and may even turn negative by mid-2024,” San Francisco Fed economists Augustus Kmetz, Schuyler Louie and John Mondragon wrote in a report. “This would represent a sharp turnaround in shelter inflation, with important implications for the behavior of overall inflation.”
In Bloomberg’s report, it mentions Minneapolis’ elimination of single-family zoning and $320 million investment in rental assistance and subsidies since 2018, leading to a boom in multi-unit construction.
Minneapolis Mayor Jacob Frey told Bloomberg that instead of gentrification or rents skyrocketing after the increase in new buildings, the “exact opposite happened.”
Since 2017, the cost of rent throughout the US has risen 31%, according to the Pew Charitable Trusts, but in Minneapolis it has only been 1%. Frey has also been an opponent of rent control ordinances so far, which was recently passed in St. Paul in 2021 to cap rent increases at 3%.
“There is no more effective way to rein in inflation than to expand the supply of affordable housing and increase housing affordability,” Moody’s Analytics chief economist Mark Zandi told Bloomberg.
