Todd David, executive director of the Housing Action Coalition, a charity that works on housing policy in San Francisco, says all signs point to a resurgence in rental costs in the Bay Area after the crisis caused by the pandemic.

“A year from now, if we don’t add a meaningful offering, there is no indication that we will. . . prices in San Francisco for rents are [going to be] again at an all time high, ”he said. “The trend is on the rise. ”

Housing spending is the sleeping giant that could tip the scales of the increasingly heated debate over US inflation. They are quickly emerging as a central indicator for Federal Reserve officials, within the Biden administration, and among private economists.

So far this year, the housing component of the Consumer Price Index has shown smaller increases compared to the skyrocketing spending on items such as used cars, airline tickets and energy.

But housing costs nonetheless rose slightly, posting an annual increase of 2.6% in June compared to an annual increase of 1.5% in February.

If house prices remain relatively contained, they will likely help control inflation, validating Fed and White House expectations that price pressures will ease.

But if they continue to rise, even at a low but steady pace, thanks to the boom in home values ​​in many cities, it could indicate that high inflation will hold for longer than expected.

Shelter costs represent about one-third of the overall CPI and include rental prices as well as what is known as “owner-equivalent rent”, the estimated cost of an owner-occupied house if it were rented.

“We calculate that the market will not be fully balanced until 2023 or 2024. So I’m not sure that the rent increase is particularly short-lived,” said Ali Wolf, chief economist at Zonda, an advisory group on the market. estate market.

She added: “Assuming the economy continues to improve and we continue to see the employment growth numbers improve, I think there will continue to be some upward pressure. on rents. ”

So far, the rise in rental costs in the economy has not been particularly large and has not even rebounded to pre-pandemic rates which were comfortably above 3%.

But if this continues, or even accelerates, it could pose a significant problem for the Fed as cost increases would be built into the leases, making them difficult to reverse. Higher rents could also affect inflation expectations, which are a crucial factor in shaping monetary policy.

The Fed’s preferred measure of inflation, the personal consumption expenditure index, does not weigh housing costs as much as the CPI, but the central bank may find it increasingly difficult to ignore any increases in spending related to housing.

“People don’t buy a used car every month when many pay rent every month,” wrote Tim Duy, professor at the University of Oregon and chief economist at SGH Macro Advisors, in a note this week.

During a pair of congressional hearings last week, Jay Powell, the chairman of the Fed, was repeatedly questioned by lawmakers about the affordability of housing, a sign that rising costs were on the rise. more politically sensitive, for Democrats and Republicans alike.

“I don’t know what house prices will do in the future. But there’s just a lot of demand, ”Powell said. “Even if mortgage rates rise as they ultimately will, I think we will have strong demand. So the question will be how much supply can be brought to the market? And it’s really out of our control.

Housing experts say supply constraints remain significant as home builders try to catch up with demand after a hiatus at the start of the pandemic. Changing zoning restrictions to allow more housing to be built is an often contentious process that can be time consuming.

Right now, Wolf says the biggest rent increases are happening mostly in Sunbelt states like Arizona and Texas, with large coastal cities like San Francisco seeing much lukewarm jumps.

One of the concerns of some economists is that when the moratoriums on pandemic-era evictions are lifted later this year, landlords could increase rents to make up for lost income, depending on higher property values. and the expectation that tenants are flush with income.

But other economists don’t think housing inflation will become problematic, pointing to the fact that changes are slow and cyclical. “We are just not very worried or convinced that we have seen regime change when it comes to inflation yet,” said Julia Coronado, co-founder of MacroPolicy Perspectives.

Despite this, Janet Yellen, the Secretary of the Treasury, last week expressed some concern about the excessive heat in the housing market, especially as it affects low and middle income families.

“I am concerned about the affordability and the pressures that rising house prices will create for families who are buying a first home or who have less income,” she told CNBC.

At the Fed, the real estate inflation debate is taking place as the central bank prepares to start slowing the rate of its monetary support to the economy, which has resulted in low interest rates and mortgage rates that helped fuel soaring house prices.

Some Fed officials are calling on the central bank to reduce its $ 40 billion monthly mortgage-backed securities purchases more quickly to ease the housing market, but others argue the effect would be small.