The Federal Reserve has made two swift rate hikes in just four months and vows of more to come. But there’s a way to slow the pace of interest-rate hikes: Build more homes, Lawrence Yun, the chief economist for the National Association of REALTORS®, writes in his new column at Forbes.com.
Building more apartments and single-family homes would help slow down inflation, Yun says.
The nation has typically added 1.5 million new housing units each year to meet demand. After all, about 1 million to 1.2 million new households are formed nationally each year and about 300,000 to 400,000 homes are demolished or newly uninhabitable each year. As such, about 1.5 million new units are required.
However, over the past decade from 2007 to 2016, average housing starts were 900,000 per year.
“That is grossly inadequate,” Yun notes. “That is why there is a housing shortage across the country.”
The inventory supply of homes available for sale is near all-time lows. Rental and vacancy rates have dropped to below 7 percent, the lowest since the mid-1980s, he notes.
“The faster the homebuilding recovery, the slower the housing inflation,” Yun says. “Consequently, the broader consumer price index will also slow and thereby allow more breathing room for the Fed to temper the pace of rate hikes.”