Inflation is very different between these two seaside metropolises. The pace of housing construction has been a determining factor for both regions.
The Tampa-St. Petersburg-Clearwater area in Florida recently recorded the lowest inflation rate among the nation’s 23 metro areas: 1.8% in the 12 months that ended in May, according to consumer price index data. That’s a dramatic reversal from last year, when it was one of the highest. The Honolulu metro area in Hawaii, meanwhile, recorded the nation’s highest annual inflation rate in May, at 5.2%. Nationally, inflation is running at 3% annually, according to the latest CPI.
Economic development and residential construction are booming in the fast-growing Tampa Bay area. As a result, housing costs have fallen over the past year, pushing overall inflation much lower. An increase in home construction has also contributed significantly to Houston, Minneapolis and Denver having the lowest inflation rates in the country, economists say.
More than 4,500 miles off the central Florida coast, the Hawaiian island paradise continues to suffer from a chronic housing shortage, which was made worse by last year’s catastrophic Lahaina wildfires. Housing supply in the Aloha State has failed to meet demand for decades, leading to a deep-rooted housing affordability crisis, experts say. The tough housing market conditions are also hurting New York City, which at one point had the lowest inflation rate in the country. Today, inflation in the most populous city in the United States is above 4%.
“Some markets have high inflation and others don’t, because of the supply of new housing and how that affects prices year on year,” said Barbara Denham, senior cities and regions economist at Oxford Economics.
Housing costs account for about a third of the Labor Department’s CPI, a closely watched gauge of inflation. The CPI’s housing index measures rents paid by renters and the amount a homeowner would pay to rent their own home, called the owner’s equivalent rent. Inflation is down substantially from 40-year highs two years ago, but housing costs have remained stubbornly high.
That has proven to be a major hurdle in the Fed’s historic fight against inflation, but things have improved recently. After stalling early in the year, price pressures continued to moderate in the second quarter, pushing the Fed closer to cutting interest rates, now at their highest level in 23 years. Wall Street is betting heavily that the Fed will make its first rate cut in September.
Robust Economic Development in Tampa
The Tampa Bay area is experiencing a booming economy, fueled by an influx of new residents in recent years. During the COVID-19 pandemic, retiring baby boomers and remote workers fled expensive coastal cities for places with warmer climates and relatively lower costs of living. Florida was the fastest-growing state in the country between 2021 and 2022, according to census data.
“Tampa is a growing area and there’s a lot of construction happening because we have a lot of available land in surrounding areas like Hillsborough and Pasco counties,” said Brian Adcock, president of the Tampa Bay Chamber of Commerce. “There are a lot more neighborhoods now and that’s the key difference from Miami.”
But with that growth comes growing pains: Real estate costs in many parts of Florida, including Tampa, have skyrocketed in recent years as new residents snap up homes. Annual inflation in the Tampa metro area hit a record 11.3% in 2022, and the region continued to have one of the highest inflation rates the following year. But unlike Miami, which is still struggling with inflation above the national rate, developers have been stepping up in Tampa.
Tampa’s median rent price fell 6% in June from a year earlier, “the largest decline on record,” according to a recent report from Redfin. The decline was attributed to a surge in apartment construction, the report said. Willy Nunn, president and CEO of Homes By Westbay, told CNN that home construction is steady and demand is still outpacing supply, but there is now serious momentum compared to pre-pandemic times.
In addition to the construction of new homes, Adcock said downtown Tampa has seen “an incredible transformation” due to the wave of economic development across the region.
“We’re fortunate to have incredible developers in our area, not just individuals who come and build high-rise buildings and then leave. We have people who are invested in our community,” Tampa Mayor Jane Castor said in a media interview earlier this month.
But it’s not all rosy. Florida residents are still facing rising home insurance costs as the state deals with increasingly devastating hurricanes and an exodus of insurers.
Hawaii’s affordability crisis deepens
Some Americans looking for a new place to live are drawn to Hawaii for the same reasons they are to Florida: beautiful beaches and warm weather. Like Florida, the state has also seen an influx of new residents seeking a tropical paradise, but the economic reality is far from the same: The state is known for being an expensive place to live, and it’s getting worse. The housing index for urban Hawaii, anchored by Honolulu, hit an annual rate of 10.7% in May, more than double the national rate of 5.2% in June.
Hawaii’s high cost of living is partly due to its remote location in the Pacific Ocean (nearly 2,500 miles off the west coast), which makes transporting goods and materials to the state an added cost that is factored into prices. The state’s housing market is also extremely tight because there simply isn’t enough housing available. The housing shortage is due to a confluence of factors including the state’s small size in terms of land area, ineffective zoning laws and intense opposition to development, economists and home builders tell CNN.
“It’s well known across the state that we have an affordability and housing crisis,” said Carl Bonham, an economics professor at the University of Hawaii. “We’re simply not building enough homes, and some of them are being bought by nonresidents who are keeping them as second homes, which makes the situation worse.”
Roseann Freitas, executive director of the Building Industry Association of Hawaii, said the state’s housing crisis has led to many multigenerational co-housing situations, all due to a combination of obstacles.
“From a regulatory perspective, from shipping materials across the Pacific Ocean to labor shortages, the cost of housing here has gotten really crazy for all of those reasons,” Freitas said. “Not to mention the class action lawsuits against developers that have been going on for years.”
She said that every time a residential development is built and even though there is some damage to those homes, lawsuits “attract everybody who owns a home in that development, whether they have damage or not,” adding that “every time you have lawsuits, all it does is increase the cost of a home.” Like Florida, Hawaii is also grappling with higher insurance costs, Freitas said.
Freitas added that last year’s Lahaina wildfire “had a huge impact on the rental market” in the area, which was already short about 10,000 homes.
Earlier this year, Hawaii Gov. Josh Green extended the state’s emergency housing proclamation, which “waives a number of state and county fees that add millions of dollars in costs, while requiring developers to build hundreds of additional affordable housing units to qualify for exemptions under the (extended proclamation).”
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