The views expressed in this article represent the opinions of the author and do not necessarily reflect the opinions of the Chattanooga Area Chamber of Commerce, its staff, or its board of directors.
On September 16, the Federal Reserve raised its benchmark interest rate by a quarter point, to a range of 3.75 to 4 percent. The vote was unanimous, and it was the Fed’s first increase since 2023. “Inflation remains elevated,” the committee explained in its statement.
Chattanooga families will feel that decision in their mortgage payments, and some will look for someone local to blame. The likeliest suspects are the newcomers like me. UTC’s Center for Regional Economic Research found that the metro grew at more than twice the national rate between 2020 and 2025, adding more than 31,000 residents. It is natural to connect the moving trucks to the price tags. That connection is mostly mistaken, and getting it wrong pushes a growing city toward the policies that would hurt it most.
Start with the plain case for growth. Much of what makes a city pleasant costs about the same to run whether 500,000 people share it or 600,000 do. The water treatment plant, the fiber network, a hospital’s cardiac unit, the airport’s direct flights, and the symphony all carry large fixed costs. Each additional household spreads those costs thinner and makes it likelier that the service exists here at all.
Growth also makes the job market work better. A larger market has more employers bidding for workers and more workers for employers to choose from, which means better matches and better pay. A nurse can change hospitals without changing cities, and a spouse who follows a new job here has a real chance of finding one too. Chattanooga’s fast-growing years have also been years of fast-rising incomes. Dr. Howard Wall, who directs the UTC center, calculated that the inflation-adjusted income of the median household in the metro rose 13.5 percent between 2019 and 2024. For the nation as a whole, it rose 3.9 percent.
The objection most people raise is housing, and it deserves an answer with real numbers. From 2015 through 2019, home prices rose about 5.6 percent a year in the Chattanooga metro and about 5.2 percent a year in both the Memphis metro and the nation, according to the Federal Housing Finance Agency. Then, between the end of 2019 and the fall of 2022, Chattanooga prices jumped 52 percent. That looks like a story about newcomers until you check Memphis. The Memphis metro’s population barely moved over those years, and the city itself lost nearly 17,000 residents between 2020 and 2023. Memphis home prices still rose 42 percent. National prices rose 40 percent. About four-fifths of Chattanooga’s run-up, in other words, also happened in a place that did not grow.
What the two places shared was the national economy. From April 2020 through February 2022, the Fed held its benchmark rate between 0.05 and 0.10 percent. Mortgage rates hit a record low of 2.65 percent in January 2021. Then inflation arrived, reaching 7.0 percent in December 2021 and 9.1 percent by June 2022. Subtract inflation from those interest rates and the real cost of borrowing turns negative. In December 2021, the Fed’s rate sat 7 points below inflation, and the average 30-year mortgage, at 3.10 percent, sat nearly 4 points below it. For 22 consecutive months, from April 2021 through January 2023, the typical mortgage rate was lower than the inflation rate. Inflation was eroding what homeowners owed faster than interest was adding to it, and borrowed money went looking for houses everywhere. This force was not localized in Chattanooga.
Then the Fed reversed course. It raised its benchmark rate from 0.20 percent in March 2022 to 5.33 percent by August 2023, and mortgage rates peaked at 7.79 percent that October. In late September, they stood at 7.03 percent. On a $300,000 loan, the monthly payment for principal and interest was $1,209 at the 2021 low. Today it is $2,002. Put another way, the payment that carried a $300,000 mortgage in 2021 now carries about $181,000.
Wall’s research on Chattanooga reaches the same conclusion. Measured against the median household’s income, the median list price here rose only 2.5 percent between 2019 and 2024. The mortgage payment on that listing rose from 23.8 percent of the median household’s income to 34.3 percent. “The main problem is not higher list prices,” he wrote. Getting back to pre-pandemic affordability, in his words, “requires the inflation dragon to be slayed.” A young family buying its first house is facing a problem made by monetary policy, and September’s increase will not make it easier.
Local growth did add something. Chattanooga’s prices outran Memphis’s by about nine points, and that gap reflects real demand from real newcomers, most of whom came from other states. Wall’s work also shows where the gap came from. Between 2014 and 2024, the number of households in the metro grew more than 15 percent while the number of housing units grew about 10 percent. The city’s vacancy rate fell from about 15 percent to just above eight. That local piece has a local answer, which Claudia Kramer laid out here in August: Prices fall when supply grows, and the city has permitted more than 9,400 new units since 2021. Blaming the neighbors for the national part leads a city toward the one policy that would worsen the local part, which is building less.
Growth, then, is worth wanting, and the question is how a city gets it. The ordinary way a mid-sized city chases growth is to assemble an offer of tax abatements, credits, a discounted site, and a specially negotiated utility rate. The approach is popular because a mayor can announce it and point to a number of promised jobs. The evidence that it works is thin. Opportunity Zones, which Jiafeng Chen, Edward Glaeser, and David Wessel call America’s largest new place-based policy in decades, aimed a large federal tax subsidy at designated neighborhoods. Comparing those neighborhoods with similar ones left out of the program, the authors could rule out effects on housing prices larger than half a percentage point. Buyers simply did not believe the subsidy would change anything.
The package disappoints because it aims at the wrong target. Glaeser, Sari Pekkala Kerr, and William Kerr, studying why some cities grow and others stall, found that cities with many small, new firms grow faster than cities dominated by a few large ones. A recruited employer is one decision by one company. A thousand small firms are a thousand decisions by people who are not on anyone’s target list, and most of them have not started their businesses yet. No economic development office can find them in advance. The most a city can do is stay out of their way and provide clear and consistent guardrails that guide business decisions.
Cities are very good at getting in the way. Chang-Tai Hsieh and Enrico Moretti estimate that local constraints on building in America’s most productive cities lowered national economic growth by 36 percent between 1964 and 2009. Very little of that came from anyone deciding to block growth. Most of it came from procedure: rezonings that take eighteen months, hearings that can be reopened, and standards nobody can state in advance. A firm can price a substation or a water line. It has no way to price the risk that approval will come late or be revisited after the land is bought. In a 1977 paper that later helped earn them the Nobel Prize, Finn Kydland and Edward Prescott explained why that risk matters so much. When a government keeps the freedom to change course at every moment, everyone else plans around the possibility, and the flexibility becomes a cost charged to anyone deciding whether to commit.
Chattanooga has sometimes done the opposite, and it has paid off. EPB built a fiber network available to every household and business in its territory on published terms, without deciding in advance which industries deserved it. Nobody at EPB in 2010 was planning for quantum computing. Fifteen years later, access to that network helped bring Vanderbilt University to open a quantum research institute here in partnership with EPB. It also brought IonQ to put $15 million toward a quantum computer EPB is buying. General-purpose infrastructure does that, and a negotiated deal with a single company never can.
I grew up in Tennessee, and in 2000 my family moved from Memphis across the state line to Southaven, Mississippi, largely because of the schools. Nobody negotiated with us. We looked at what a place was, on terms anyone could observe, and we chose it. Most consequential decisions about where to build a life or a business get made that way. My family moved to the Chattanooga area for similar reasons.
A city that wants to grow has a smaller job than it thinks and a harder one. It cannot set interest rates, and it should stop blaming its newcomers for what the Fed does. What it can do is build things everyone can use, publish what it expects, answer quickly, and leave the answer alone. There is no ribbon to cut for any of that.
Growth was never something Chattanooga could purchase or fully plan. It is something the city can decline to prevent.
