Evaluating Moody's Housing Act Forecast: Why a Market-Driven Approach Might Be More Effective

Moody’s review of the American Housing and Economic Mobility Act of 2024 presents an optimistic outlook, suggesting that the $500 billion expenditure could significantly alleviate the housing crisis. According to their projections, affordable rents could decrease by 10% over the next decade, affordable housing production could increase by 273,000 units annually, and the crisis could be largely resolved by the mid-2030s. However, the analysis from the AEI Housing Center raises several concerns about the reliability of these projections.

The AEI Housing Center's critique points out that Moody’s approach heavily relies on subsidies for affordable housing construction, a method with a long history of falling short. From the 1930s to 2008, numerous housing programs were introduced with similar promises, yet housing affordability issues persist. The analysis highlights California’s ongoing struggles, despite significant subsidies, as evidence of how these approaches often fail to deliver lasting solutions. Additionally, the critique notes that subsidized housing programs like the Low-Income Housing Tax Credit (LIHTC) have faced challenges related to cost, complexity, and inefficiencies, preventing them from achieving their intended goals.

Another significant flaw identified by the AEI Housing Center in Moody’s projections is related to economic reasoning. The American Housing and Economic Mobility Act of 2024 might replace market-rate housing with subsidized units rather than expanding the overall supply. This substitution, along with the Act’s focus on funding the Housing Trust Fund, is unlikely to produce a meaningful increase in housing availability. The AEI analysis questions the estimated cost per affordable unit provided by Moody’s, suggesting it is underestimated and raising doubts about the Act’s ability to deliver the promised outcomes.

The AEI Housing Center also challenges Moody’s diagnosis of the root causes of limited housing supply. While Moody’s suggests that low profit margins deter builders from investing in affordable housing, the AEI analysis argues that restrictive zoning and land use regulations are more to blame. The report emphasizes that addressing these regulatory barriers could enable the market to naturally provide a broader range of housing options, including more affordable ones, without the need for costly government interventions.

Instead of relying on subsidized housing programs, the AEI Housing Center proposes a market-driven approach. This would involve deregulating land use and zoning, opening federal lands for development, and reducing regulatory costs. According to their analysis, these measures could help increase the housing supply and make homes more affordable, offering a more effective solution to the housing crisis than a federal mandate.