Only One American City Has Fought Inflation and Won – 2 Simple Ways It Keeps Costs Low

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While many regions around the country struggle with increased costs from inflation, some cities have managed to creep under the current national inflation rate of 3.7%. One city has lowered regional inflation below the Federal Reserve’s 2% target. 

As of May 2023, the Minneapolis area has managed to bring its inflation rate down to 1.8% — the lowest inflation rate across the country. So how did they do it? They eliminated zoning roadblocks preventing housing construction and invested heavily in rental assistance and subsidies. 

Tackling the Largest Expense-Housing

Across all key categories in the consumer price index (the standard measure of inflation), shelter costs are the largest, making up 34.7% of the expenses people handle. This year, shelter prices grew by just over 7% compared to last year. 

Whether you’re paying rent or a mortgage, the well-documented housing affordability crisis makes it difficult for many to locate and keep housing. By targeting the biggest expense in most people’s budgets, Minneapolis battled back inflation and provided a path to affordable housing for people within the twin cities. 

Although making housing affordable is a worthwhile cause, the process faced criticism and backlash from residents. In an interview with Bloomberg, Jacob Frey, the Mayor of Minneapolis, shared, “I can’t tell you how many people were like, ‘Oh, look at all this supply, look at all these just brand new buildings,’ and kind of scoffing at it like this was going to lead to gentrification or rents skyrocketing-The exact opposite has happened.” 

Zoning Reform and Rental Assistance

The successes Minneapolis is seeing are from long-term plans that came to fruition. Since 2018, the city has invested $320 million in rental assistance programs to address affordability issues. The housing crisis is also due to a lack of supply, so the city passed a comprehensive zoning reform in 2019. The new rule eliminated single-family zoning across the city and permitted the construction of multi-family housing. Through housing initiatives like the Itasca Project, the Minneapolis region is aiming for the construction of 18,000 new housing units annually until 2030. 

As new housing opportunities spring up and affordability is addressed, all will plan. According to Pew Charitable Trusts, Minneapolis, rent growth has only increased by 1% between 2017 and 2023. In the same period, the United States overall witnessed rent growth of 31 percent. 

Flexible Zoning Aids Affordable Housing

The Pew report also found other cities implementing flexible zoning had steadier prices than the national average. In areas where more housing was built, rent prices grew slower due to a rise in supply supported by a consistent demand for affordable housing.

(Source: The Pew Charitable Trusts Report — More Flexible Zoning Helps Contain Rising Rents)

A lack of housing supply places added pressure on housing prices. However, when regional regulations support additions to the housing supply, the prices stay lower for longer. In Minneapolis, a direct result of the slower rent growth is a lower portion of income dedicated to housing payments. 

According to the latest research from The Federal Reserve Bank of Minneapolis, residents spent a slightly smaller portion of their income on rent and housing compared to peer metro areas. The median rents in Minneapolis comprise almost 40% of the median household income. In comparison, the rents in other areas like Boston and Chicago make up 60.7% and 51.7% of the median income, respectively.

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