Grand Canyon Times

About a year after the Inflation Reduction Act was signed into law, Americans continue to feel the inflation pinch, as overall annual inflation rose to 3.2 percent in July. But the inflation rate for lower-income Arizonans is up much more, driven by rising housing costs, and some economists blame Biden Administration spending for this rise in inflation.

"Rising housing unaffordability is a growing problem," Wayne Winegarden, Senior Fellow and Director of the Center for Medical Economics and Innovation at the Pacific Research Institute, told the Grand Canyon Times in an interview. "Lower- and middle-income families are caught between a huge surge in interest rates coupled with housing prices that are remaining elevated due to supply shortages."

"Typically, rising interest rates cause house prices to decline, which helps offset some (if not all) of the affordability issues rising interest rates create," he said. "Growing unaffordability undermines the financial viability of lower-income and middle-income families and prices too many of these families out of the housing market altogether."

The cost of shelter is the largest expenditure of the average American household, which is why shelter inflation is particularly hard for lower-income families, according to Bankrate.com.

High shelter costs are driven in large part by the cost of rent. Since July 2022, the shelter index has accounted for over two-thirds of the total increase in all items, less food and energy, according to the Consumer Price Index Summary.

Arizona had the 15th highest average monthly rent in the country (including D.C.; excluding Alaska, Maine, Vermont, and West Virginia, for which data were incomplete) as of May 31, according to GOBankingRates data.

Inflation is regressive, hurting lower-income people harder. An April 2023 Gallup poll looked at how inflation affects Americans in different income brackets. For Americans earning less than $40,000 per year, 75 percent said inflation was a hardship. Sixty-five percent of middle-income Americans, those earning up to $100,000 per year, called inflation a hardship. For those earning more than $100,000, 45 percent called inflation a hardship.

Shelter inflation can devastate a family's budget, the Bankrate analysis said. In 2021, the average U.S. household spent $66,928, which works out to about 76.5% of pre-tax income. Of the $66,928, $22,624, or nearly 34 percent, was spent on housing.

A January 2023 Moody's Analytics report found that "the national average rent-to-income (RTI) reached 30% for the first time in our 20+ years of tracking history. Rising mortgage rates caused many households to be priced out of home buying and would-be buyers to remain renters. Apartment demand surged as a result and drove rates sky-high. As the disparity between rent growth and income growth widens, Americans' wallets feel financial distress as wage growth trails rent growth."

Moody's Analytics also found that the average rent burden in Arizona had increased by 4.1% in the past three years, "attributed to significantly higher (>~20%) rent growth than respective median household income growth during the three-year period." Thus, already at a substantial financial disadvantage, lower-income Arizona households face the greatest strain as a result of inflation.

Shelter inflation hits single mothers the hardest. Notably, per the Bureau of Labor Statistics, housing expenditures make up the biggest percentage of annual expenditures for single parents, and single-parent households on average have a lower annual income than two-parent households. Data from Parenting Mode also showed that single mothers, on average, bring in significantly less income than single fathers, who are statistically more likely to live with their parents.

Renowned economist and American Action Forum President Dr. Douglas Holtz-Eakin testified before the House Oversight Committee in March 2023 that rampant spending by the Biden administration and Democrats fueled the inflationary crisis. Asked about the $1.9 trillion American Rescue Plan, Dr. Holtz-Eakin explained that when the ARP was enacted in March 2021, the economy was already growing at 6.5 percent: "So we are in a completely different situation, we are growing quite rapidly, and we’re getting close to full employment, we’re getting close to potential GDP and there’s no reason to have a nearly two trillion-dollar stimulus. It’s way too big for whatever problem you might have imagined remained.”

Even President Biden recently acknowledged that the "Inflation Reduction Act" is a misnomer. "I wish I hadn’t called it that because it has less to do with reducing inflation than it has to do with providing alternatives that generate economic growth,” Biden said on August 10 at a fundraiser in Utah. Biden added that he still believes that the law is “literally reducing the cost of people being able to meet their basic needs.”

According to GovTrack, Arizona Democratic Sens. Mark Kelly and Kyrsten Sinema both voted in favor of the American Rescue Plan Act and the Inflation Reduction Act. Senator Sinema changed her party affiliation from Democrat to Independent in September 2022.

Rent inflation is a tremendous obstacle for lower-income Arizonans. Some lower-income Arizonans are spending more than half their income on rent alone. According to a May 2023 special report by Moody's Analytics, the rent burden for lower-income residents of the Phoenix and Tucson metro areas is overwhelmingly well above 30 percent, reaching as high as 54.8 percent in one submarket.