Affordability is suddenly the word on every politician’s lips. The concept, or complaint, played a prominent role in Democrats’ victories in the November elections, especially in New York City which elected Democratic Socialist Zohran Mamdani in large part for his promises to address the affordability problem. High prices are also damaging consumer confidence, especially among lower income groups, with retailers like Target reporting sagging sales in the most recent quarter. President Trump is clearly rattled by the issue, which can’t be portrayed as a “Hoax” or a “Con Job.” The price you see in the grocery store is the price you pay. It’s real and it’s high.
Some commentators are attempting to blame the high prices on President Trump’s tariffs which the president has imposed on a large number of countries and multiple sectors. But a close examination of the evidence shows this is political ax-grinding and a complete misunderstanding of reality.
The affordability crisis is primarily a result of price increases in five major sectors of consumer spending: housing, food, health care, child care, and energy. In none of those sectors are tariffs a significant factor. In fact, there are pretty clear drivers of the price increases in each of those sectors, and they are all primarily domestic causes and issues. The common theme is that the inflation of 2021-2022 raised prices by a cumulative total of some 20 percentage points, but it did more than that. It threw supply and demand out of whack in some key sectors of the economy and we are still struggling to adjust, in other words to bring supply and demand back into balance, hopefully at something approximating the previous price levels.
I call these five categories of goods and services the “Unaffordability Five.” It’s worth looking at them in greater detail because examination of the dynamics of each market shows how hard it will be to return to the halcyon pre-pandemic days.
Table 1 below shows that since 2019, household incomes are up 21.9%. However, the consumer price index (CPI) rose 29% in the period from January 2019 to September 2025, the latest monthly data available at the time of writing. So the median household has lost about 7 percentage points of purchasing power in those 5 2/3 years.
But when we look at the “Unaffordability Five” the situation looks much worse. These are all essential and high-profile purchase categories for most individuals and families.
Shelter, the statisticians’ term for both rent and the cost of servicing the mortgage for homeowners, rose 33.9% over this period, 12 points more than median household incomes. Higher long-term interest rates have raised the cost of mortgages. Rents have been rising for years, as the millennial and Gen Z generations crowd themselves into popular big cities which are mainly on the east and west coasts.
There are not many realistic solutions for the rising cost of housing. Zohran Mamdani was elected mayor of New York City two weeks ago in part because of his promise to “freeze” the rents that New Yorkers pay. The problem with that is that freezing rents when landlords’ costs are rising leads landlords to abandon their properties. According to a recent article by New York landlord Matt Miller, there are today 50,000 vacant apartments in New York. That’s more than the New York vacancy rate. They are kept empty because under a 2019 law, the city controls the rent at which such apartments can be let and for many, the costs of renovation cannot be recouped with the rents allowed. Miller gave as an example a studio apartment he is keeping vacant which could legally be rented for no more than $884 monthly, compared with comparable studio rentals in new buildings commanding rents of $3,000.
The fundamental structural problem is that more people want to live in New York and other popular cities than can be accommodated at reasonable or historic rentals. Efforts to freeze rents today will just make the problem worse tomorrow as demand grows further while supply remains flat or even shrinks.
Food prices have also risen about 12 points faster than median household income in this period. Meat and eggs have been the most important drivers of these price increases. The U.S. cattle herd has been shrinking because ranchers have been unable to make a profit in recent years. A 2022 drought exacerbated the problem. The 2021-22 inflation raised the cost of many inputs ranchers need to buy. On top of all this, U.S. consumer diets are changing in favor of proteins, which has increased demand for meats. The eggs story is well known: avian flu led to an egg shortage and egg prices skyrocketed. In the last several months they have come back to earth, yet at $3.49 a dozen (CPI data from September 2025), they are still 124% above the January 2019 level.
Health insurance and medical care prices have actually risen less than household income, according to the federal government’s CPI data. Here the problem seems to be that specific groups have been or will be hit with high increases in health insurance premiums. Small businesses have seen increases of some 53% in the cost of family health insurance premiums between 2020 and 2025, although they do not typically pass all of that increase onto employees. According to independent health policy analysts KFF, enrollees on the ACA (Obamacare) health care marketplaces could face 2026 cost increases averaging 114% when the loss of tax credits and rising premiums are both factored in. It’s not surprising that the Republicans are ready and eager to discuss ways of moderating their own cuts to ACA subsidies in last spring’s One Big Beautiful Bill.
The cost of day care and preschool has risen ten points faster than inflation. This is due largely to the rising cost of staff and rising demand for these services as more families seek to have both parents at work. Finally, the cost of energy has skyrocketed (up 39% since 2019) with the exponentially growing demand from artificial intelligence data centers, combined with constraints on supply due to the difficulties in interconnecting new sources of electric power to the national grid.
Compared to the Unaffordability Five, tariff-impacted prices are very moderate. Table 1 shows three categories of goods that are tariffed: new vehicles, bicycles, and laundry equipment (washing machines). All three are tariffed, vehicles directly with 25% tariffs, bicycles with the “reciprocal” tariffs on import sources like China, Taiwan, and Cambodia, and washing machines based on the steel they contain. Yet all three show price increases below the 2019-2025 increase in the general CPI and median household income.
Surprised? Don’t be. The reason for these moderate price increases is the structure of these industries: as consumer durables industries with large fixed costs, the major suppliers prefer to boost volume and avoid price increases. So the supply chain, including manufacturers and the importers, are absorbing most of the tariff while holding consumer price increases in check. JP Morgan economists recently estimated that only some 20% of tariffs are being passed onto U.S. consumers, reflecting large companies’ desire to avoid price increases.
The Affordability Crisis Has Nothing To Do With Tariffs
by CPA Chief Economist Emeritus Jeff Ferry
Affordability is suddenly the word on every politician’s lips. The concept, or complaint, played a prominent role in Democrats’ victories in the November elections, especially in New York City which elected Democratic Socialist Zohran Mamdani in large part for his promises to address the affordability problem. High prices are also damaging consumer confidence, especially among lower income groups, with retailers like Target reporting sagging sales in the most recent quarter. President Trump is clearly rattled by the issue, which can’t be portrayed as a “Hoax” or a “Con Job.” The price you see in the grocery store is the price you pay. It’s real and it’s high.
Some commentators are attempting to blame the high prices on President Trump’s tariffs which the president has imposed on a large number of countries and multiple sectors. But a close examination of the evidence shows this is political ax-grinding and a complete misunderstanding of reality.
The affordability crisis is primarily a result of price increases in five major sectors of consumer spending: housing, food, health care, child care, and energy. In none of those sectors are tariffs a significant factor. In fact, there are pretty clear drivers of the price increases in each of those sectors, and they are all primarily domestic causes and issues. The common theme is that the inflation of 2021-2022 raised prices by a cumulative total of some 20 percentage points, but it did more than that. It threw supply and demand out of whack in some key sectors of the economy and we are still struggling to adjust, in other words to bring supply and demand back into balance, hopefully at something approximating the previous price levels.
I call these five categories of goods and services the “Unaffordability Five.” It’s worth looking at them in greater detail because examination of the dynamics of each market shows how hard it will be to return to the halcyon pre-pandemic days.
Table 1 below shows that since 2019, household incomes are up 21.9%. However, the consumer price index (CPI) rose 29% in the period from January 2019 to September 2025, the latest monthly data available at the time of writing. So the median household has lost about 7 percentage points of purchasing power in those 5 2/3 years.
But when we look at the “Unaffordability Five” the situation looks much worse. These are all essential and high-profile purchase categories for most individuals and families.
Shelter, the statisticians’ term for both rent and the cost of servicing the mortgage for homeowners, rose 33.9% over this period, 12 points more than median household incomes. Higher long-term interest rates have raised the cost of mortgages. Rents have been rising for years, as the millennial and Gen Z generations crowd themselves into popular big cities which are mainly on the east and west coasts.
There are not many realistic solutions for the rising cost of housing. Zohran Mamdani was elected mayor of New York City two weeks ago in part because of his promise to “freeze” the rents that New Yorkers pay. The problem with that is that freezing rents when landlords’ costs are rising leads landlords to abandon their properties. According to a recent article by New York landlord Matt Miller, there are today 50,000 vacant apartments in New York. That’s more than the New York vacancy rate. They are kept empty because under a 2019 law, the city controls the rent at which such apartments can be let and for many, the costs of renovation cannot be recouped with the rents allowed. Miller gave as an example a studio apartment he is keeping vacant which could legally be rented for no more than $884 monthly, compared with comparable studio rentals in new buildings commanding rents of $3,000.
The fundamental structural problem is that more people want to live in New York and other popular cities than can be accommodated at reasonable or historic rentals. Efforts to freeze rents today will just make the problem worse tomorrow as demand grows further while supply remains flat or even shrinks.
Food prices have also risen about 12 points faster than median household income in this period. Meat and eggs have been the most important drivers of these price increases. The U.S. cattle herd has been shrinking because ranchers have been unable to make a profit in recent years. A 2022 drought exacerbated the problem. The 2021-22 inflation raised the cost of many inputs ranchers need to buy. On top of all this, U.S. consumer diets are changing in favor of proteins, which has increased demand for meats. The eggs story is well known: avian flu led to an egg shortage and egg prices skyrocketed. In the last several months they have come back to earth, yet at $3.49 a dozen (CPI data from September 2025), they are still 124% above the January 2019 level.
Health insurance and medical care prices have actually risen less than household income, according to the federal government’s CPI data. Here the problem seems to be that specific groups have been or will be hit with high increases in health insurance premiums. Small businesses have seen increases of some 53% in the cost of family health insurance premiums between 2020 and 2025, although they do not typically pass all of that increase onto employees. According to independent health policy analysts KFF, enrollees on the ACA (Obamacare) health care marketplaces could face 2026 cost increases averaging 114% when the loss of tax credits and rising premiums are both factored in. It’s not surprising that the Republicans are ready and eager to discuss ways of moderating their own cuts to ACA subsidies in last spring’s One Big Beautiful Bill.
The cost of day care and preschool has risen ten points faster than inflation. This is due largely to the rising cost of staff and rising demand for these services as more families seek to have both parents at work. Finally, the cost of energy has skyrocketed (up 39% since 2019) with the exponentially growing demand from artificial intelligence data centers, combined with constraints on supply due to the difficulties in interconnecting new sources of electric power to the national grid.
Compared to the Unaffordability Five, tariff-impacted prices are very moderate. Table 1 shows three categories of goods that are tariffed: new vehicles, bicycles, and laundry equipment (washing machines). All three are tariffed, vehicles directly with 25% tariffs, bicycles with the “reciprocal” tariffs on import sources like China, Taiwan, and Cambodia, and washing machines based on the steel they contain. Yet all three show price increases below the 2019-2025 increase in the general CPI and median household income.
Surprised? Don’t be. The reason for these moderate price increases is the structure of these industries: as consumer durables industries with large fixed costs, the major suppliers prefer to boost volume and avoid price increases. So the supply chain, including manufacturers and the importers, are absorbing most of the tariff while holding consumer price increases in check. JP Morgan economists recently estimated that only some 20% of tariffs are being passed onto U.S. consumers, reflecting large companies’ desire to avoid price increases.
Table 1: The “Unaffordability Five” outpace incomes by about 10 percentage points.
The challenge in dealing with unaffordability problems is that short-term palliatives often conflict with long-term solutions. The proposal by former Biden advisor Bharat Ramamurtri and economist Neale Mahoney is a positive step in that it shows Democratic advisors at least recognizing that price controls today will lead to supply shortages in future years. Ramamurtri and Mahoney advocate “temporary” price controls on rents coupled with government support for building more housing.
However, even if one believes that temporary controls can remain temporary, I think investment in housing in popular cities like New York is unlikely to solve the problem. Even if expedited, it will take years to construct new housing and most of the new housing will be far away from the most desirable areas, so rents in desirable areas won’t fall.
The real long-term solution to high prices is not to lower prices, but to raise incomes. The problem of low incomes becomes clear if you look at an interesting recent analysis of the most common jobs in New York City by NYC publication Stacker. Of the 10 most common NYC jobs, only three pay above the Bureau of Labor Statistics average annual wage in 2024 of $75,585. The single most popular NYC job, retail salesperson (219,790 jobs) shows an annual mean wage of $35,490 in NYC, less than half of what the average American worker earns in a year. Other common jobs like restaurant workers, security guards, and fast food workers also show mean wages of around half the U.S. average. The surprise is not that these folks are disgruntled and voted for Mamdani. The surprise is how anyone can survive in New York City on earnings of $40,000 or less.
The fundamental structural problem is that we have been sending too many young people to four-year colleges to get mostly-useless degrees and then into the large, trendy coastal cities where too many of them get low-paid jobs because our industrial base has been contracting, limiting job opportunities and pushing them into low-paid service sector jobs, where they have the time to contemplate the fact that prices keep rising, their incomes are unlikely to keep pace, and they may never be able to afford to buy a house.
A true long-term structural solution would be, for example, to recognize that we have a major structural problem in connecting new sources of electricity to the national power grid. According to PJM Interconnect, in the eastern U.S., it currently takes eight years to connect a new power source to the grid. This holds back the AI revolution and makes consumer power more expensive, with little end in sight. We need to make it a national priority to manufacture more of the power transformers, high-voltage lines, and other commodities that are essential for a larger power grid. This is universally applicable equipment, essential whether the power source is solar, nuclear, fossil fuel or wind. We could ramp up domestic manufacturing in these supplies through a combination of government investment and tariffs. We could use regional policy to site these facilities far away from the overcrowded coastal cities, and use educational policy to ensure that young people understand the job opportunities, which would offer higher pay (and benefits and future prospects) than the most common service sector jobs in large cities.
It’s a positive step that the Trump administration has revoked the tariffs on foodstuffs and agricultural commodities. Tariffs should be concentrated on industries where we can rebuild domestic production, implement the structural change needed in the economy, and provide good, high-paying jobs. Smart, regional policy can increase the impact and will, over time, provide higher living standards for millions of people.
Good things take time. As Warren Buffett says, somebody is enjoying sitting in the shade today because somebody else planted a tree years ago.
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CPA is the leading national, bipartisan organization exclusively representing domestic producers and workers across many industries and sectors of the U.S. economy.
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