Everyone's talking about inflation, but almost no one is talking about the force that could quietly deflate it for the next decade or more.
It's housing.
Home prices are up just 1% year-over-year. Asking rents (the ones you see posted on sites like Redfin) have been essentially flat since 2022. The shelter index is still elevated at 3%, but it has come way down from its 8% peak in 2022, and I expect it to keep falling.
Here's why this matters long-term, not just right now:
We are finally building the right kind of housing in the right places. Multi-family construction is now 4x what it was in the 2010s. Single-family construction, by contrast, is actually 20% below where it was in the 2000s. We're building less of the inefficient, sprawling housing and more of the dense, efficient kind.
I argue that this is the direct result of zoning reform spreading across the country. Minneapolis led the way in 2018, followed by Florida, Montana, California, Arizona, parts of Texas, and more. Local leaders have finally realized: the way to make housing affordable is to allow more of it to get built.
The economist Ed Glaeser estimated that inefficient land use is holding back the U.S. economy by 9%. But we're starting to fix that. When more people can live close to the jobs, schools, and businesses they need, they're more productive: less time in cars, more time contributing to the local economy.
Thirty three percent of renters now live in multi-family buildings. That's a record high going back to 2011.
Even California, hamstrung by Prop 13, is moving in the right direction. Change there will be slow: tax policy keeps longtime homeowners in place, but as that housing stock turns over, dense redevelopment will follow. For a sprawling city like Los Angeles, the long-term implications are enormous.
None of this means we're out of the woods right now. The war in Iran is pushing energy prices up, and short-term inflation shocks matter because they shape expectations. The Fed can't ignore what's happening today, even if the long-run trajectory looks more promising.
But the housing story is one I don't think gets enough attention. New video breaking this all down, featuring analysis of Redfin data, is linked below. Would love to hear your thoughts. And please subscribe, like and share.