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**NOVEMBER 23, 2022**
Kuttner on TAP
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**** How Fed Policies Burn Housing
Higher interest rates raise housing costs to consumers in multiple
ways-the opposite of the Fed's anti-inflation goals.
The Fed's repeated rate hikes have not managed to kill the recovery,
but they have still done serious damage. One sector of the economy they
have clobbered, which has not gotten enough attention, is housing.
Housing costs, both rental and homeownership, have been rising for
reasons that have almost nothing to do with the supposedly excessive
demand that the Fed intends to depress. On the rental side, due to
long-term policy failures, there is just not enough affordable housing.
That gives landlords more power to raise rents. Higher interest rates
only make this syndrome worse by making it more expensive to build more
apartments.
In the owner-occupied sector, higher rates make it more costly both to
buy and to build houses. Mortgage rates have risen from under 4 percent
to over 7 percent.
Housing starts
<[link removed]>
at an annualized rate are down from their April peak of 1.805 million to
1.425 million in October. In the homebuilding industry, that equals a
severe recession. Reduced supply bids up prices. The history of Fed rate
hikes shows that the homebuilding sector tends to stay depressed long
after the Fed takes its foot off the brake.
The homeownership rate among people under 30
<[link removed]> has
declined to 35.8 percent. That's fully one-fourth lower than it was in
2009.
When would-be homeowners can't qualify for financing, they are thrown
back on the rental market, which adds to price pressures. Rents are up
23 percent since October 2019, before the pandemic.
Paul Krugman observes
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that the overall rate of rent increases has been slowing. This shift
predates the Fed's rate hikes. It evidently has more to do with
tenants reaching the limits of what they can pay than with the Fed's
effort to engineer a recession.
Krugman writes that "the rent surge is starting to look like another
bottleneck story, in which large price increases were driven by a sudden
shift in the mix of things people were buying, rather than a large
excess of demand." And he cites figures by Jason Furman, usually an
inflation hawk, showing that the rate of increase in rent levels began
slowing well before the Fed's bout of rate hikes. Rents still rose at
an annual rate of 4.7 percent in October.
Overall, the impact of the Fed's interest rate hikes on housing
inflation is exactly the opposite of the Fed's intent.
There is a classic essay by Charles Lamb titled "A Dissertation Upon
Roast Pig <[link removed]>." Lamb imagines
that meat used to be consumed raw. One day, a farmer's house burns
down, killing his nine pigs. The farmer notices how good the burnt pig
tastes. For a while, other farms mysteriously burn. Then people realize
that you don't have to burn down the house to roast the pig.
Maybe the Fed will eventually realize that you don't need to burn down
the house to reduce sectoral sources of inflation, in housing and
elsewhere.
~ ROBERT KUTTNER
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Congressmembers Tried to Stop the SEC's Inquiry Into FTX
<[link removed]>
The 'Blockchain Eight' wrote a bipartisan letter in March attempting
to chill the SEC's information requests to crypto firms. FTX was one
of those firms. BY DAVID DAYEN
Will Congress Shut Down Rail Worker Collective Bargaining?
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Thanks to the Railway Labor Act, a Congressional resolution could force
workers back to the railroads under the terms of a contract many of them
just rejected. BY JAROD FACUNDO
The Contradictions of Effective Altruism
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The meltdown of FTX and its fraudster boss, Sam Bankman-Fried, reveals
the potential for reckless risk-taking at the heart of an influential
philanthropic movement. BY ARIEL RON
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