During the first quarter of 2020, the eruption of the COVID-19 pandemic created a serious threat to the economic well-being of the United States. As lockdowns shut businesses to patrons, a significant economic downturn became inevitable. To mitigate this threat, the American government substantially increased the money supply. While this action kept the economy afloat and even increased national Gross Domestic Product (GDP), it also manifested history’s economic killer: inflation.

The inflation rate currently sits at a forty-year high of 8.54%, with dramatic price increases for nearly every product in the United States, such as electricity (11.1%), fruits and vegetables (7%), and furniture (15.8%). While this is concerning for all consumers, those with ownership in the housing market are jubilated. Owning property is a great way to combat the financial strain generated by inflation, since housing prices have historically risen with inflation: in strong economies, the real estate market often surpasses it by 2-3%. As such, demand for housing has skyrocketed, resulting in shortage. To make matters worse, because construction rates during the past two decades have lagged behind construction rates in the prior thirty years by around 5.5-6.8 million units, there now is a substantial decrease in available housing. These three factors (increased demand, lack of new construction, and inflation) have caused prices to soar. According to Zillow, the market price for housing will increase by 14% by October 2022, creating a stark division among those with and without property.

With rising housing prices, property owners are seeing immense increases in their net worth. Investments in the housing market have become bountiful, to the point where well-off homeowners are often able to purchase second and third homes. From a property owner’s perspective, the growing inflation rate is a blessing, but for those who did not already own property prior to the pandemic, there is a completely different narrative. 

The U.S. is currently in a housing affordability crisis, and rent is at an all-time high. The average median rent increased by 16.4% between January and October 2021, compared to the 3.2% increase over the same time period between 2017 and 2019. Consequently, Americans are having an increasingly difficult time securing housing. In the second quarter of 2020, over one million more people decided to continue to pay rent rather than purchase a home, despite rent being at an all-time high. As such, Americans who do not own property are continuing to live a less and less affordable lifestyle. According to Dr. Dean Baker, macroeconomist and co-founder of the Center for Economic and Policy Research, “if you are a homeowner, what you’re seeing is that your house price has risen, so you might feel good about that. If you’re a renter, you’re probably pissed.” While this affordability crisis continues to affect those of all ages, it has particularly impacted Generation Z. 

Owning a home signifies financial stability and a leap in independence. It is a reflection of achievement and hard work. To many, it elicits the transition from youth and inexperience to maturity and dependability. Unfortunately, this has become increasingly unattainable for members of Generation Z. Most people of this age range (currently graduating college and getting their first jobs) have been relegated to rentals or their parents’ homes. Right now, this issue seems benign. But if the housing affordability crisis continues, it could have dire economic consequences. If young people continue to be subjugated to steep rents or living with their parents, they will be less inclined to start families because of the financial burden of having children. A low fertility rate can be a very dangerous trend. In Japan, which has the oldest population in the world and a fertility rate of 1.43 children per household, GDP growth over the next thirty years is expected to drop by 1% annually. Their low fertility rate has caused a labor shortage, severely dampening the country’s economic prospects. Japan’s core industries — motor vehicles and electronics — have not retained the manpower required to operate at their previous maximum capacity. We might soon be in a similar situation; if Generation Z has fewer children, the United States would also be at an increased risk of falling into a long-term recession. 

This scenario could become disastrous, but luckily, high inflation is a solvable problem. The primary economic policy that should be implemented is decreasing the money supply. The growth rate of American dollars in circulation has increased by 27% between 2020 and 2021, the largest rise in American history. Even during the Great Recession, the money supply only increased by 10%. Contractionary monetary policy would reduce the amount of large investments, such as home purchases, slowing down the economy. With less demand for housing, prices could to fall to sustainable levels, helping with the affordability crisis. 

Our soaring inflation rate has has juiced the housing market, and while property owners are reaping the benefits, everyone else is suffering. It is imperative for America to take action to reduce the inflation rate before it generates consequences that could impair our economy for years to come.