Washington CNN —
The inflationary landscape in these two seaside megacities is very different, with the pace of home construction being a determining factor for both regions.
The Tampa-St. Petersburg-Clearwater, Florida, area recently recorded the lowest inflation rate among 23 U.S. metropolitan areas, at 1.8% for the 12 months ending in May, according to Consumer Price Index data. That’s a surprising reversal from last year’s record high. Meanwhile, the Honolulu metropolitan area in Hawaii recorded the nation’s highest annual inflation rate of 5.2% in May. Nationwide, inflation is running at 3% annually, according to the latest CPI.
Economic development and home construction has boomed in the fast-growing Tampa Bay region, which has helped drive down home prices over the past year and contributed to a much lower overall inflation rate. Economists say the booming home construction is also a big contributor to Houston, Minneapolis and Denver having some of the lowest inflation rates in the nation.
Hawaii, a paradise island more than 4,500 miles off the coast of central Florida, continues to suffer from a chronic housing shortage. The situation worsened after last year’s devastating Lahaina wildfire. Experts say the state’s housing supply has not kept up with demand for decades, leading to a serious crisis of skyrocketing home prices. The housing market crunch has even affected New York, which once boasted the lowest inflation rate in the country. Inflation in America’s most populous city now exceeds 4%.
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“Inflation is higher in some markets and not others. This is driven by new home supply and the impact this has on prices year-on-year,” said Barbara Denham, senior cities and regions economist at Oxford Economics.
The Department of Labor’s Consumer Price Index (CPI) is a closely watched inflation measure, and housing costs account for about one-third of the total. The CPI’s housing cost index measures how much renters pay and how much homeowners would pay to rent out their homes (owner-equivalent rent). Inflation has fallen significantly from a 40-year high two years ago, but housing costs remain high.
This has been a major obstacle to the Federal Reserve’s historic fight against inflation, but things have been improving recently. After stagnating earlier this year, price pressures continued to ease in the second quarter, bringing the Fed closer to lowering interest rates, which are now at their highest in 23 years. Wall Street overwhelmingly expects the Fed to make its first rate cut in September.
The Tampa Bay region has seen its economy boom in recent years as new residents flowed in. During the COVID-19 pandemic, retiring baby boomers and remote workers fled expensive coastal cities for warmer climates with relatively lower costs of living. Florida was the nation’s fastest-growing state from 2021 to 2022, according to Census data.
“Tampa is a fast-growing area, and there’s a lot of available land in surrounding areas like Hillsborough County and Pasco County, so there’s a lot of construction going on,” said Brian Adcock, president of the Tampa Bay Chamber of Commerce. “There’s a lot more residential neighborhoods now, and that’s a big difference from Miami.”
But that growth has come with growing pains. Home prices in many parts of Florida, including Tampa, have soared in recent years as new residents rushed to buy homes. The Tampa metropolitan area’s annual inflation rate soared to a record 11.3% in 2022, and the region recorded the highest inflation rate the following year. But unlike Miami, which is still struggling with inflation rates above the national average, developers in Tampa are stepping on the gas.
Tampa’s median rent fell 6% year over year in June, “the largest on record,” according to a recent report from Redfin. The drop was driven by a surge in apartment construction, the report said. Willie Nunn, president and CEO of Homes by West Bay, told CNN that homebuilding has remained steady, with demand outstripping supply, but that it’s picking up much more steam now than it did before the pandemic.
Adcock said downtown Tampa has undergone “incredible transformation” thanks to an increase in new housing construction, as well as a broader wave of economic development across the region.
“We’re fortunate in this area to have great developers, people who are investing in our community, rather than just individuals coming in and building a high-rise and leaving,” Tampa Mayor Jane Kastl said in a media interview earlier this month.
But it’s not all smooth sailing: Florida residents are still having to deal with rising home insurance costs as the state deals with more destructive hurricanes and insurance company exodus.
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, Hawaii is seeing an influx of new residents looking to live in a tropical paradise, but the economic reality is anything but. Hawaii has a notoriously high cost of living, which is only making things worse. The Honolulu-centered Hawaii metropolitan area’s housing index grew at an annual rate of 10.7% in May, more than double the national average of 5.2% in June.
Hawaii’s high cost of living is due to its isolated location in the Pacific Ocean (about 2,500 miles from the West Coast), which means the cost of shipping goods and materials to the state adds to the price. The state’s housing market is also in dire straits due to an inadequate supply of homes. Economists and home builders told CNN that the housing shortage is the result of a confluence of factors, including the state’s small size, inefficient zoning laws and fierce opposition to development.
“The housing crisis, the high home prices, is well-recognized across the state,” said Carl Bonham, an economics professor at the University of Hawaii. “The situation is exacerbated by the fact that not enough housing is being built, and some homes are being bought by non-residents and held as second homes.”
Mengxin Lin/The Washington Post/Getty Images
Burned trees and remains of buildings damaged by last year’s wildfires are seen in Lahaina, Hawaii, on May 3, 2024.
Hawaii Building Contractors CEO Roseann Freitas said the state’s housing crisis has led to a confluence of obstacles that have led to more multigenerational homes being lived in together.
“Housing prices here are really insanely high for all sorts of reasons, from a regulatory standpoint, to shipping materials to the middle of the Pacific Ocean, to labor shortages,” Freitas said. “Plus, there’s been a class action lawsuit against the developers going on for years.”
She said that when one housing development comes to fruition, even though those homes have little to no damage, lawsuits “involve every homeowner in that development, regardless of whether they’ve had damage or not,” adding that “every single lawsuit that comes along just drives up home prices.”Like Florida, Hawaii is struggling with rising insurance premiums, Freitas said.
Freitas added that last year’s Lahaina wildfires “had a huge impact on the rental market” in an area that was already short about 10,000 housing units.
Earlier this year, Hawaii Governor Josh Green extended the state’s housing emergency declaration, “waiving some state and county fees that would add millions of dollars to costs, while requiring developers to build hundreds of additional affordable housing units to qualify for the exemptions.”
