Economics & Trade

[DeacInVermont]

Half of recent US inflation due to high corporate profits, report finds

A new report claims “resounding evidence” shows that high corporate profits are a main driver of ongoing inflation, and companies continue to keep prices high even as their inflationary costs drop.

The report, compiled by the progressive Groundwork Collaborative thinktank, found corporate profits accounted for about 53% of inflation during last year’s second and third quarters. Profits drove just 11% of price growth in the 40 years prior to the pandemic, according to the report.

Prices for consumers rose by 3.4% over the past year, but input costs for producers increased by just 1%, according to the authors’ calculations which were based on data from the Bureau of Economic Analysis and National Income and Products Accounts.

Half of recent US inflation due to high corporate profits, report finds

Thinktank report says ‘resounding evidence’ shows companies continue to keep prices high even as their inflationary costs drop

www.theguardian.com

I don't have the time right now to dive into their study, but there are a few things that don't add up for me.

The Fed breaks down inflation components into 3 categories: goods, housing services, and services ex-housing, which compose 40%, 30%, and 30% of US inflation respectively. Goods inflation has been less than 2% YOY since April. What is driving the current CPI number is persistently high shelter costs (running from about 8% at the beginning of the year to about 6% as of November). I don't see where "corporate profits" resulting from low input costs would contribute to high shelter costs, especially as a function of something having changed there since before the pandemic.

Input costs for producers would seem to relate most directly to the Goods component of inflation, or at least that seems to be how the authors are attributing it based on their diapers example. So, if goods inflation is close to zero, they would be arguing for deflation, which maybe they are? I assume they break down their attribution better in the actual study, but the press release aspect to this seems more like narrative creation.

I have more than my share of complaints about the financialization of the economy and economic inequality, I'm just struggling to get to the article's conclusion based on what I'm reading.

 

[JuiceCrewAllStar]

as a significant portion of the rental housing in the country is owned by corporations, there is some element of "point still stands"

I'm curious why you chose April as your start date for the YOY inflation

 

[DeacInVermont]

April is the point at which the YOY maxed out at 2% (actually it was earlier, but I was going for a point prior to their 2nd and 3rd quarter measurement periods).

Also, I am no expert in evaluating what "producer costs" would comprise as it relates to shelter, but the stuff I've read tends to point to an issue of supply. I'm in no position to dispute the contribution of corporate-owned rentals to costs, but I'm sure it's not nothing.

 

[diverdeac]

I’m not a conspiracy theorist around the Fed. I’ve had the honor in my career to engage with a number of the decision makers, and they seem to me to be very conscientious stewards. The issue I have with the Fed is the Ivory Tower mental state. The current Inflation makeup is problematic only In terms of housing. The concept of feeling the need to hammer the economy in order to get wages in line is misguided. i believe much of the wage increases are a catch-up as labor has been getting slammed by Capital for decades. The Fed is not cynical just playing from an old play book.

Im not the brightest of lights but LORD I don’t see how raising interest rates causing a construction contraction is going to be effective in lowering housing costs. In fact just the opposite.

this is the conundrum

 

[Liquid Karma]

With the exception of housing costs, pretty much every lever they have pulled the last couple years is working.

 

[Baconwfu]

I'm not an expert on these things, but I'm somewhat informed
I would argue that the lever has worked on the housing market, at least as I see it insofar as it's stopped/slowed the property increases
The economics of the housing market are such that there isn't enough supply and it's not even close. There aren't enough tradesmen and it's not even close. There probably is enough material, but those costs have bumped up, leveled off and aren't going back down. It costs $250-300 sq/ft to build a simple single family house and that doesn't include the land. Maybe there are some savings on the cookie cutter neighborhoods, but builders aren't getting rich, that's just what it costs. Finally, you have municipalities that can make it incredibly difficult or at least time consuming, to build and develop large scale (even small scale) housing tracts/developments. If you have someone with the money and manpower to develop land into high density housing or even just a sub-development, it takes at least a year, or years to get through the permitting and planning phases, then a 18+ months to build and develop (and that's if the developer isn't some fly-by-night scumbag, who can actually deliver). So, not enough houses, not enough workers, and even if there were, it can't get done fast enough.

As an anecdote, my company is trying to build a new office (in an office complex). The land was purchased almost a year ago and the city of Asheville has had final plans for the office for more than 3 months and have yet to issue permits to begin construction. Mind you they aren't saying there are issues that need to be fixed (that was already hashed out), they just haven't gotten around to it (at least that's the best we can tell). The office is a 5000 sq ft one level office building (wanted to make it 2 levels, but Asheville said it needed a elevator if we did that which was a $350,000 bill and a maintenance headache, so we made it 1 level), so we're not talking about some huge high-rise or anything, just an office building around 20 other office buildings.
Anyway, I know it's an anecdote and it's not "housing" and Asheville is about as bad as it gets as far as municipal permitting but it's illustrative of a point that it takes a lot of time to build anything.

So basically if you have a 1800 square foot 3/3 ranch on a .3 acres selling for $475,000 in a medium-small sized town NC and think that seems ridiculous, I don't disagree, but to build the same house new would probably cost $550,000 or more, so that pricing is a new reality barring a massive/crippling economic downturn, so stopping or stemming uncontrollable housing cost increases is about as good a result as you could expect.

 

[PhDeac]

I keep seeing people talk about housing shortages. To my knowledge, there hasn't been a significant population increase. In fact, we just experienced a million deaths due to COVID, death rates have been increasing for the last decade or so, birth rates started declining decades ago. So where did the housing go? Are we talking about housing that hasn't been replaced? If we had enough housing two decades ago and don't have enough housing now, and it's not attributed to consolidation of wealth and the increasing commodification of housing, what happened to the supply?

 

[dartsndeacs]

I keep seeing people talk about housing shortages. To my knowledge, there hasn't been a significant population increase. In fact, we just experienced a million deaths due to COVID, death rates have been increasing for the last decade or so, birth rates started declining decades ago. So where did the housing go? Are we talking about housing that hasn't been replaced? If we had enough housing two decades ago and don't have enough housing now, and it's not attributed to consolidation of wealth and the increasing commodification of housing, what happened to the supply?

Something about the southern border those republicans keep harping on


Sent from my iPhone using Tapatalk

 

[myDeaconmyhand]

I keep seeing people talk about housing shortages. To my knowledge, there hasn't been a significant population increase. In fact, we just experienced a million deaths due to COVID, death rates have been increasing for the last decade or so, birth rates started declining decades ago. So where did the housing go? Are we talking about housing that hasn't been replaced? If we had enough housing two decades ago and don't have enough housing now, and it's not attributed to consolidation of wealth and the increasing commodification of housing, what happened to the supply?

We have an affordable housing shortage. The average price of homes has gone up much faster than wealth and income. The relative supply of lower cost homes has gone down for multiple reasons.

1. People/Corporations buying homes for long term rental.
2. People/corporations buying homes for short term rental.
3. Age/Deterioration - smaller, less expensive homes are older, and are being destroyed at a higher rate, or due to their economic location, neglected to become uninhabitable at a higher rate. These homes are not being replaced at a sufficient rate because
4. Construction costs vs profit margin - Due to building costs, smaller single family homes are not profitable enough, so there is not sufficient new construction to keep up with demand for them, which inflates the cost of the existing supply, forcing more potential buyers out of the market.

 

[Liquid Karma]

There aren't enough tradesmen and it's not even close.

Lord is this true. For example I need some modest repairs to the foundation of my deck...maybe 2k worth in total. I've struggled to even get contractors to come look at it because the scope of the work isn't enough for their time. They can afford to wait for the larger high margin projects like entire deck replacement.

So basically if you have a 1800 square foot 3/3 ranch on a .3 acres selling for $475,000 in a medium-small sized town NC and think that seems ridiculous, I don't disagree, but to build the same house new would probably cost $550,000 or more

This is justification for some insurance increases, but certainly not 42% as companies have requested in NC.

 

[Liquid Karma]

We have an affordable housing shortage. The average price of homes has gone up much faster than wealth and income. The relative supply of lower cost homes has gone down for multiple reasons.

1. People/Corporations buying homes for long term rental.
2. People/corporations buying homes for short term rental.
3. Age/Deterioration - smaller, less expensive homes are older, and are being destroyed at a higher rate, or due to their economic location, neglected to become uninhabitable at a higher rate. These homes are not being replaced at a sufficient rate because
4. Construction costs vs profit margin - Due to building costs, smaller single family homes are not profitable enough, so there is not sufficient new construction to keep up with demand for them, which inflates the cost of the existing supply, forcing more potential buyers out of the market.

This.

And the above all contribute to drive potential home owners into the multifamily rental market, which spikes rental rates, furthering the affordable housing problem.

The only new development north of Greensboro right now is apartment complexes that will easily be over 2k/mo for a 2 BR unit.

 

[dartsndeacs]

Why live there when you can live in Sugar Creek for under $1,250? People just want more house now. The one I grew up in sold for $130k in 2019. Quarter Acre corner lot in a nice neighborhood. I just wanna live in a place with 10 breweries instead of 1.

 

[Liquid Karma]

Why live there when you can live in Sugar Creek for under $1,250?

I choose life.

 

[WFFaithful]

Republican plan to fix housing: 1. Stupid poors should buy more money. 2. Eliminate building code

 

[Louis Gossett Jr]

I mean it’s not like we have zero population growth, how many units of housing need to be generated per a year just to keep up with normal population growth.

 

[Biff Tannen]

I mean it’s not like we have zero population growth, how many units of housing need to be generated per a year just to keep up with normal population growth.

Depends on where you live.

 

[JuiceCrewAllStar]

I'm not an expert on these things, but I'm somewhat informed
I would argue that the lever has worked on the housing market, at least as I see it insofar as it's stopped/slowed the property increases
The economics of the housing market are such that there isn't enough supply and it's not even close. There aren't enough tradesmen and it's not even close. There probably is enough material, but those costs have bumped up, leveled off and aren't going back down. It costs $250-300 sq/ft to build a simple single family house and that doesn't include the land. Maybe there are some savings on the cookie cutter neighborhoods, but builders aren't getting rich, that's just what it costs. Finally, you have municipalities that can make it incredibly difficult or at least time consuming, to build and develop large scale (even small scale) housing tracts/developments. If you have someone with the money and manpower to develop land into high density housing or even just a sub-development, it takes at least a year, or years to get through the permitting and planning phases, then a 18+ months to build and develop (and that's if the developer isn't some fly-by-night scumbag, who can actually deliver). So, not enough houses, not enough workers, and even if there were, it can't get done fast enough.

As an anecdote, my company is trying to build a new office (in an office complex). The land was purchased almost a year ago and the city of Asheville has had final plans for the office for more than 3 months and have yet to issue permits to begin construction. Mind you they aren't saying there are issues that need to be fixed (that was already hashed out), they just haven't gotten around to it (at least that's the best we can tell). The office is a 5000 sq ft one level office building (wanted to make it 2 levels, but Asheville said it needed a elevator if we did that which was a $350,000 bill and a maintenance headache, so we made it 1 level), so we're not talking about some huge high-rise or anything, just an office building around 20 other office buildings.
Anyway, I know it's an anecdote and it's not "housing" and Asheville is about as bad as it gets as far as municipal permitting but it's illustrative of a point that it takes a lot of time to build anything.

So basically if you have a 1800 square foot 3/3 ranch on a .3 acres selling for $475,000 in a medium-small sized town NC and think that seems ridiculous, I don't disagree, but to build the same house new would probably cost $550,000 or more, so that pricing is a new reality barring a massive/crippling economic downturn, so stopping or stemming uncontrollable housing cost increases is about as good a result as you could expect.

yes to bold but also the huge interest increases are reason number 1 for the lack of new builds

 

[JuiceCrewAllStar]

the market can create two types of housing now:

• Luxury/high-end market-rate housing
• Heavily subsidized capital-a Affordable Housing

that's it -- no starter homes, no large family apartment units, no multigenerational housing, no mid-size homes

 

[2&2 Slider To Leyritz]

I've worked extensively in NC affordable multifamily housing development and construction for the last 10+ years. Our per-unit all-in cost in 2019 was $78,000 per unit. Our all-in cost, with the same 2019 profit margin, for 2023 was $153,000 per unit. Everything has gone up, and isn't coming down. Thanks, Biden. Land, materials, labor, insurance (this is probably the biggest increase on a percentage basis), interest carry, capacity fees, everything.

The result is the economics don't work for new NOAH construction (naturally occurring affordable housing); which is basically building cheap but livable shit designed for low rents. Even the cheap shit is no longer supported by affordable rents. That is what used to replace aging trailer parks and dilapidated single family housing. So that natural flow is gone.

So in order to develop affordable housing, you basically have to use either the 4% or 9% federal tax credit programs. Both are great programs, as they incentivize using private money to fund a public purpose. But, they don't move quickly. We used to be at an 18-month submittal through occupancy timeline. Now, we're at 30-36 months. There are a variety of reasons for this, generally rezoning and permitting are the biggest holdups (there was a year or so where materials scarcity was driving the delay, but that is pretty much over). The LIHTC programs, for better or worse but the result of a Supreme Court decision a few years ago, try to force affordable housing into areas that have not had much of it before. Conceptually that is fine, but often those municipalities do not have a plethora of properly-zoned land that also meets the other LIHTC scoring requirements. In order to get the rezoning, you need supportive local government and non-hostile neighbors. Having both can be tough to find in some places.

The other issue is adequate water/sewer capacity, especially in rural areas and in the mountains with topography issues. A few years ago NC outlawed impact fees, which is where municipalities would pull a number out of their ass to charge any new development to bank to pay for future systemwide water/sewer upgrades. The courts said that the fees had to actually be tied to realistic numbers. Which in theory makes sense, but in reality means that municipalities are always chasing adequate capacity. Whoever was talking about Asheville delays - that is their biggest issue right now depending on the neighborhood - they have significant pressure issues for new fire suppression systems so are in delay delay delay mode.

To me, the easiest way to open the door for more affordable housing is to create a statewide fast-track 30 or 60 day rezoning program for 100% affordable projects, with standardized rejection and approval metrics, and design criteria that mirrors NCHFA's Qualified Allocation Plan design guidelines. But that is much easier said than done, Biff's Myers Park buddies would shit a brick.

 

[Liquid Karma]

the market can create two types of housing now:

• Luxury/high-end market-rate housing
• Heavily subsidized capital-a Affordable Housing

that's it -- no starter homes, no large family apartment units, no multigenerational housing, no mid-size homes

The cost of a midsize home in Greensboro has gone up about 40% in 3 years. I couldn't have afforded my current house in today's market.