California Legislators Want to Help First-Time Homebuyers

 A New Fund Could Aid First-Time Homebuyers 

First-time homebuyers are feeling the heat from the current housing market. It’s never been harder for these buyers to compete in a market that doesn’t leave buyers walking away with a “win”.  

This is especially true in California, where the average price for a home is $800,172, and homes are swept off the market in days having received dozens of offers. A down payment for a home that costs $800,000, putting 20% down, is $160,000. Most first-time buyers and low to middle-income buyers frankly don’t have that kind of money and could be priced out with the added cost of mortgage insurance if less than 20% is put down.  

First-time buyers over the past two years have faced strong competition from residents, out-of-state buyers, and Wall Street investors. This results in high home prices and low supply.  

California’s Plan to Help First-Time Buyers Achieve Homeownership 

Lawmakers in the state are working to create a billion-dollar fund into this year’s state budget that would provide first-time homebuyers money for down payments, in exchange for partial ownership stakes in the property. 

The proposal, proposed by state Senate President Toni Atkins, comes as high property prices deepen the divide between homeowners and renters in California. The rate of ownership in the Golden State is just 54.5%, the second-lowest in the country, slightly above New York’s 54.0%.  

Atkins said the California Dream for All program is designed to help low to middle income buyers compete in an accelerated housing market.  

“The California Dream for All program will give more people the chance to break free from the cycle of renting,” Atkins said last month. “This has the ability to change people’s lives.”  

This program will provide loans, not grants, to those who need help with their down payments. It will give first time buyers 17% toward the purchase of a home. When a buyer refinances or sells the home, California would be reimbursed the 17% share of the home value. Those funds would then be re-invested into the fund.  

Program Aims to Build Generational Wealth 

Beyond assisting first-time buyers become homeowners, a tertiary goal of the program is to allow these buyers to begin building generational wealth.   

“Homeownership provides working families with the unparalleled ability to accrue generational wealth and experience financial stability through a fixed mortgage versus rising rents,” said the California Homeownership Coalition. 

If home prices rise, the program will help create equity for those first-time buyers who would otherwise be renting. In the case of home prices falling, first-time buyers might gain some equity and the program would absorb the losses.  

The program will begin by receiving funds through issuing revenue bonds of one-billion dollars a year for 10 years, with estimates of 7,700 borrowers being helped through the program every year.  

What differentiates this program from other down payment assistance programs in the U.S., is the amount of money received in a loan. Most programs only provide 3-5% of the purchase price, whereas the California Dream for All program would provide around 17%.  

These equity sharing arrangements can also be called shared appreciation mortgages. The California Dream for All program plan would be the largest attempted experiment with home loans ever. 

“Until California truly prioritizes affordable homeownership, a generation of Californians will be effectively barred from one of the most reliable forms of wealth generation available — owning a home,” said Assemblymember Tim Grayson. 

Shared Appreciation Mortgage Program Concerns 

While this program sounds like a great solution for affordable housing issues, it doesn’t come without some complications. Like most ideas that look good on paper, this idea may not be good in reality.  

Richard Green, director of the University of Southern California’s Lusk Center for Real Estate, supports the goal of the program but is concerned about how complicated it is.  

“There are lots of things in life where the policy idea is great (but) executing it is hard,” Green said, adding that while the program would only be a fraction of the state’s massive housing market, it could contribute to rising prices if it got bigger. “If this program scales it would almost certainly have at least some impact.” 

Green isn’t the only one voicing potential concerns. Andrew Caplin, a professor at New York University, wrote a book on shared equity programs, and while he is eager to see this program launch, he envisioned programs like this to be organized by private investors instead of the government.  

“In the end, it will all be agreed that we can’t really collect the money — like student loans,” Caplin said regarding politicians feeling pressured to not be stern on collecting repayment.

Time will tell regarding the success of the California Dream for All program, and for first-time homebuyers in California they're optimistic about the programs projected impact. 

The CE Shop readers: What are your thoughts on this share appreciation loan program? Do you think it will be successful or face obstacles? Let us know in the comments below!