Economist says boosting housing stock is key to lowering inflation

Lowering construction costs to boost U.S. housing inventories will be key to reducing inflation, a top national economist told attendees of the Wisconsin Economic Forecast Luncheon. 

Robert Dietz is the chief economist and senior vice president for economics and housing policy for the National Association of Home Builders. He was the keynote speaker for yesterday’s event in Madison, hosted by WisPolitics + State Affairs, WisBusiness and the Wisconsin Bankers Association. 

“If we want to get back down to 2% inflation, there’s one simple way to do it — more attainable housing,” Dietz said. “For sale, for rent, single-family, multi-family, and improving the existing housing stock.” 

He noted inflation was trending down toward the Federal Reserve’s target of 2% before the conflict in Iran occurred, leading to spiking energy costs and driving inflation back up to 3.3%. 

Even before this latest destabilizing global event, the shelter component of inflation — covering housing, rent and homeownership — has made up more than half of the total increase in consumer inflation for the last three years. He argued that’s a result of the cost of construction being too high relative to household incomes. 

“My message to policymakers in DC and statehouses everywhere is reduce the cost of construction, increase the amount of available inventory in the housing market, and you’ll be able to land that plane faster,” Dietz said. 

National GDP growth underperformed in 2025, reaching 2.1% rather than the 3% rate the country should have seen last year, Dietz noted. In Wisconsin, that number was 1.5%, falling in the stable but “not great” range for economic growth. 

Looking ahead, he said the NAHB has downgraded its GDP forecast, predicting 1.9% growth rate for 2026. He warned that’s “getting awfully close to stall speed,” pointing to high oil prices as a significant factor. 

While oil prices stand around $100 per barrel, an increase to $120 per barrel for a sustained period would lead to zero GDP growth, according to Dietz. A further increase to $150 per barrel would “guarantee” a recession, he said, but added that’s nowhere near happening and isn’t expected. 

“We started the year saying recession risk was around 30%,” he said. “In any given year, recession risk is about 15-20% so that was somewhat elevated. But we’ve now raised that to 40%, and you can find plenty of economists who think that recession risk measure is now 50% or higher.” 

Scott Hodek, an economist with the state Department of Workforce Development, noted in a follow-up panel that high energy prices of any kind are a drag on economic growth. 

“It doesn’t matter what business you’re in, energy is one of your inputs,” he said yesterday. “And so higher energy prices means your input price has gone up. What do you generally do when that happens? Probably pass that along to consumers, if you can.” 

That results in lower discretionary spending, he noted, adding “it ripples throughout the economy” and presents a real problem for further growth. 

Tim Schneider, president and CEO of Bank Five Nine in Oconomowoc, agreed that poses a problem in Wisconsin, noting manufacturers that aren’t able to pass on costs through a fuel surcharge are facing a “squeeze” on profitability. 

He predicted sluggish growth for the rest of the year, and also pointed to possible regulatory changes on the horizon — though that depends heavily on how coming elections play out. 

“We’ve got midterms coming up, and it feels like we’re going to flip the other direction a little bit again, and maybe some of the regulatory reforms that at least from the banking space that we’ve seen from the current administration, overtime might flip back the other direction,” he said, adding “that just creates a lot of uncertainty in people’s minds.” 

Dietz also underlined the impact of government regulations, pointing to requirements in the construction industry that he says are holding back new housing construction. 

He said up to a quarter of the cost of a typical new single-family home’s purchase price stems from regulatory costs, from taxes and fees to permitting hoops to jump through and delays. Altogether, that amounts to about $94,000 per new home, according to figures he provided. 

“When you ask why we’re not building enough entry-level homes, it’s right there,” he said. “It’s the death by 1,000 cuts. It’s too hard to build anything, anywhere in the country.” 

He threw out some potential solutions policymakers could explore, such as enabling the construction of more townhouses and building more dense housing to open up “that first rung” of homeownership to more people. 

“When you look at the fastest growing homeownership rates, it’s for people who are older than age 65. They’ve got the wealth,” he said. “That is a housing policy failure. It says that we don’t have enough entry-level homes.”