Housing and Local Inflation: Making the Connection
Updated: Mar 4, 2019
Dylan Hallahan | NextGen Marin
Every day the citizens of Marin County feel the impact of local inflation. You walk in to Starbucks and a coffee is $4, you go get gas and its 50 cents per gallon more than the rest of the US. This price disparity is the result of local inflation and and can be measured by the local CPI, or the Consumer Price Index.
The above graph represents the respective price increases of all items in the Bay Area (in blue) compared to the US average increase (in red). Over the last 36 years, the national CPI has increased by 152% (4.2% YoY) while in the same time period CPI in the San Francisco Bay Area has increased by 189% (5.25% YoY). CPI is an index that measures the relative price of goods and services compared to previous years; however, using the above data and the divergence of the CPI we can also see how much more expensive a certain area is compared to the US average. Making this comparison, we can see a 13.6% price difference between the SF Bay Area and other urban areas.
These price increases are at the heart of the housing crisis and the main reason why EVERYONE should take note, not just renters and prospective home buyers. Even if you own your home and are retired, you still need to purchase goods and services every day and those goods are provided to you by local business and corporations both of which need to hire employees to make the operation work. The less employees available the more employers have to pay to retain their employees. And these higher wages are passed on to the consumers in the form of higher prices.
As of December 2018, the unemployment rate in Marin County is one of the lowest in the country at 2.2%, almost half of the national average. While this may seem great for Marin residents, when you pair this information with the fact that median income has continuously risen, it actually shows is that low income workers are increasingly leaving the County. This indicates a serious lack of available workers and a real problem for anyone looking to hire or consume goods in the area. This is why your local grocery store probably has a “for hire” sign out front. This labor market squeeze presents a serious challenge to anyone looking to start or operate a business in Marin.
Many stores in Mill Valley (unemployment at 1.2%) report a complete inability to find workers despite raising wages dramatically. With no apparent relief to the labor market shortage in sight, we expect local inflation to continue to rise dramatically in the short term as housing costs increase. We also expect that local business will raise wages dramatically to attract commuting employees, increasing costs for every resident of Marin.
We see housing costs as the primary driver of local inflation. Increased rents and house prices drive up the cost of living in Marin. The Marin housing supply cannot keep up with the need for workers. If nothing is done and unemployment stays absurdly low, prices in Marin will continue to rise faster than the national average and cost of living will continue to increase for the citizens of Marin County.