Although the national inflation rate has decreased recently, millions of Americans still find it to be too high.
Not so in Minneapolis, the first significant American metropolis to successfully control inflation. The Minneapolis-St. Paul-Bloomington region’s official inflation rate for May was 1.8%, which was lower than the rate for any other large metro area and just below the Federal Reserve’s 2% inflation objective.
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According to information made public this month by the Bureau of Labour Statistics (BLS), the region’s inflation rate fell even lower in July, at 1%.
Democrat and two-term mayor of Minneapolis Jacob Frey claims that rent increases were expected as a result of his administration’s housing policies, which were largely responsible for the overall decline in costs.
He told Bloomberg that “the exact opposite” had taken place.
Here’s a closer look at Minneapolis’ strategy for controlling inflation and some lessons that other cities can take away.
The annual increase in the consumer price index (CPI) for July was 3.2%. That is much higher than the Fed’s 2% target and just marginally higher than the 3% rate in June.
There are numerous explanations put out by lawmakers and academics for this persistent inflationary wave. While the current conflict in Ukraine has an effect on everything from fuel prices to food prices, supply-chain problems from the pandemic era have not yet been totally rectified.
Some people have also mentioned recent increases in the money supply, specifically the epidemic stimulus spending that directly deposited thousands of dollars into Americans’ bank accounts and increased demand for a finite supply of consumer items.
The expense of housing, however, is the main consideration. According to the most recent BLS data, 90% of the 3% increase in inflation in July was caused by rent and mortgage payments.
Minneapolis controlled inflation by concentrating on that essential factor.
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Minneapolis worked to lower housing costs even before the pandemic started. The city banned zoning regulations that exclusively allowed single-family houses in 2018. Due to this, there could be a lot more houses.
The city also made significant investments to support residents’ rent payments. Since 2018, the city’s administration has provided $320 million in subsidies and rental assistance to tenants.
The outcome was significantly better for all citizens. While rent rates nationwide have increased by 31% during 2017, they have only increased by 1% in Minneapolis.
In order to permit additional multifamily units, cities including Arlington, Virginia; Gainesville, Florida; Charlotte, North Carolina; and Washington, D.C. have among others changed their zoning regulations. At the state level, comparable regulations have recently been put in place in Oregon, California, Washington, Montana, and Maine.
However, as was the case in Minneapolis, it can take several years for the effects of new zoning regulations to become apparent.