California to lend 20% down payments with 0% interest for homebuyers

https://www.kpbs.org/news/2023/04/05/new-loan-program-expected-to-put-homeownership-within-reach-for-thousands-of-californians

by nostromo • 3 years ago

38 68 3 years ago

kpbs.org

yuppie_scum• 3 years ago

“When you sell the property or refinance the loan, they take up to 20% of the appreciation. The homeowner gets to keep 80%," he said.

That could be a lot of money someday if you stay in the house long enough.

arcticbull3• 3 years ago

It's also setting up terrible incentives for the state to continue to see houses appreciate instead of making them more affordable. This makes wholesale housing reform even less likely than it already is, the state government is just getting its beak wet.

Instead of you know, building more houses so that houses can be affordable instead of a good investment.

Wanting housing to be both affordable and a good investment is a fantastic example of 'no take only throw' economics.

hgsgm3• 3 years ago

Lol it's not a loan, the state is literally buying equity in the property, same as a VC does.

CA is now a REIT.

nomel• 3 years ago

Is it safe to suspect that home prices, in CA, are going to sit 20% higher than they would, otherwise?

SketchySeaBeast• 3 years ago

20% + whatever 5% over 30 years (37%?) works out to be.

hgsgm3• 3 years ago

Perhaps higher because some people already could afford part of a down payment, but yeah.

Can't pass rent control, but can pass giveaways to landlords.

arcticbull3• 3 years ago

Can't pass rent control, but can pass giveaways to landlords.

Rent controls do nothing to make houses more affordable at the limit, since prices reset to market any time someone leaves. They just make the market less efficient. Only adding more houses makes houses cheaper.

Tons of the world's least affordable markets are already rent controled. Rent controled apartments in SF aren't cheaper. Neither are ones in Ontario. I can't really find any evidence they work at all.

[edit] Here's a study I found on the effects of rent control in SF.

Leveraging new data tracking individuals’ migration, we find rent control limits renters’ mobility by 20 percent and lowers displacement from San Francisco. Landlords treated by rent control reduce rental housing supplies by 15 percent by selling to owner-occupants and redeveloping buildings. Thus, while rent control prevents displacement of incumbent renters in the short run, the lost rental housing supply likely drove up market rents in the long run, ultimately undermining the goals of the law. [1]

[1] https://pubs.aeaweb.org/doi/pdfplus/10.1257/aer.20181289

arcticbull3• 3 years ago

Not exactly, because it only helps them make their down payment. The magnitude of their loan continues to be primarily defined by their income, which this program does not change. But yes, it will make houses more expensive. Not 20%, but some quantity by increasing the pool of competitors for the same fixed supply.

yamtaddle2• 3 years ago

Nah, the program had a fixed budget and it's already used up. So, some amount higher, maybe, but not 20%.

dragonwriter• 3 years ago

Is it safe to suspect that home prices, in CA, are going to sit 20% higher than they would, otherwise?

No, because its not available to all buyers, its income-limited, and funding limited.

ng12• 3 years ago

Sounds like throwing gasoline into the fire. Housing prices are high because of supply and demand... so CA wants to use taxpayer money to increase demand?

tasubotadas• 3 years ago

Absolute madness

elcritch• 3 years ago

The best way to “defend” NIMBY-ism while feeling good you’re helping the poor and downtrodden.

foogazi2• 3 years ago

OPM to “help” subsidize one class to buy from the other one

theironhammer• 3 years ago

And subsidize property speculators.

The problem needs to be solved on the supply side not demand side.

zbyte64• 3 years ago

It only applies to first time homebuyers. That's not fuel for property speculators.

darth_avocado• 3 years ago

This is exactly what it is. If you can’t afford the down payment, how can you afford the mortgage?

yamtaddle2• 3 years ago

Seriously. I'm a much bigger fan of government intervention in markets than, I think, most on this site, but this program just seems insane. "House prices are too high—let's raise demand rather than address supply!" LOLWUT?

"I thought the program was genius," said Scott Evans, executive vice president of Cross Country Mortgage, describing what he thought when he first heard about the new loan program.

Mortgage dude likes having more clients. Shocking.

“When you sell the property or refinance the loan, they take up to 20% of the appreciation. The homeowner gets to keep 80%," he said.

Wow. This gets even weirder. At least I guess this means they'll likely make money on the whole thing, but I'm not sure I love a state government being an outright investor in private homes.

iso1631• 3 years ago

This is nothing new if you look outside the US.

Help To Buy Equity Loan did this with new houses (the buyer technically had to provide 5%, but that was often given by the developer) 10 years ago, it's only just finished. The government part was 40% in London due to the insane prices there.

https://en.wikipedia.org/wiki/Help_to_Buy

The idea behind it is quite reasonable. People couldn't afford to save up for a deposit because all their money went in rent, which was higher than the cost of an equivalent mortgage + home maintenance.

Certainly helped me break out of the earn->rent cycle.

preston4tw• 3 years ago

CA will make money if home prices increase from current highs due to supply constraints and if owners sell triggering the capture IIRC. CA now has a +$300m financial stake in that outcome. $300m is probably peanuts compared to the upside of addressing the CA housing crisis and enabling more CA GDP growth but it's also not nothing.

HDThoreaun• 3 years ago

https://i.redd.it/4xb09cuixxqa1.jpg just subsidize demand!

joe_the_user• 3 years ago

This after half the mortgages in the country are supported by the Federal Government.

A fair portion of this is that things are so out-of-whack that no one has any plan but to keep the bubble going.

TMWNN• 3 years ago

Since increasing homeownership is a good thing, subsidizing homeownership is a good thing, amirite?

Reminds me of Heinlein's Friday, in which the heroine visits a future California. The government, having found that those with college degrees earn more money, promptly issues every citizen a bachelor's degree to correct this inequitable situation.

deepakhj• 3 years ago

The program already ran out of money. $300m for 2300 buyers. https://www.latimes.com/california/story/2023-04-08/californ...

mech9879872• 3 years ago

Averages out to roughly $130,000 per buyer. Assuming those are all at 20%, then average home purchase price is about $652,000.

taf2• 3 years ago

Interesting according to zillow: "The average California home value is $718,687, up 0.7% over the past year and goes to pending in around 31 days."

hgsgm3• 3 years ago

Presumably, like PPP, all the giveaways went to friends of friends of people in government while the common people got frozen out.

mbgerring• 3 years ago

lol, really? I got $16k in PPP loans without breaking a sweat. I spent all of ten minutes filling out forms. What are you talking about?

jollyllama• 3 years ago

The last big money grab (PPP "loans") was easy pickings for fraudsters. I'm guessing this will happen here too.

trgn• 3 years ago

300m could build around 500-700 apartments, housing 1500-2000 people-ish. Ballpark numbers.

Municipalities need to be active participants in increasing supply. Not dumping free money and increasing demand.

Also, no need to picture soul crushing tower blocks. e.g. HUD's projects of the last few decades are always pretty respectable.

toomanyrichies• 3 years ago

Doesn't seem to be stopping people from trying lol. A week after this article posted, and requests to the CA housing agency's website [1] are still timing out both in my browser and via `ping`.

But yeah, as others have said, this is throwing fuel on a fire. The problem to solve for is a lack of affordable supply, not a lack of money on the demand side. But throwing money at voters is never a bad move politically, so it's understandable how we ended up where we are.

1. https://www.calhfa.ca.gov/

mech9879872• 3 years ago

California is really creative at finding ways to spend money.

paulcole• 3 years ago

I tend to think that's the point of having a government.

Edit: While I appreciate the downvotes, can someone tell me why my thinking is wrong?

Johnie• 3 years ago

May 2022 "With California budget surplus projected at $97 billion, Newsom proposes driver rebates, more reproductive health funding" https://www.capradio.org/articles/2022/05/13/newsom-californ...

Jan 2023 "After 2 years of massive surplus, California is facing a $24B budget deficit" - https://www.capradio.org/articles/2022/11/16/after-2-years-o...

BrianHenryIE• 3 years ago

The more recent news is that they have run out of money.

'Unprecedented' demand: $300 million set aside for home loan assistance program gone in 11 days

https://www.msn.com/en-us/money/realestate/unprecedented-dem...

tantalor• 3 years ago

Who could have predicted the demand for free money.

It's a mystery for the ages.

dllthomas• 3 years ago

It's not really free money; you give up 20% of the upside when you sell or refi. That said... yeah.

mastax• 3 years ago

The day after this article was published, the program ran out of money after helping "more than 2300" homebuyers.

https://www.calhfa.ca.gov/homeownership/bulletins/2023/2023-...

yieldcrv2• 3 years ago

Btw funds were depleted from this almost immediately, and nobody that signed up for this was processed.

People that were already closing on a home and in that agencies system were first in queue to flip over to this programme

Everyone else will have no time to identify a place, sign up etc

jspaetzel2• 3 years ago

What a steal for the folks who managed to time this, likely didn't help anyone who actually would have meaningfully benefitted from this.

yieldcrv2• 3 years ago

Yep, it should be revisited by the legislature to refine it

burlesona• 3 years ago

Unfortunately, the way financialization works, we should expect this to lead to a bump in home prices that roughly perfectly offsets the increased buying power created by this financial instrument. The only long-term solution to affordable housing is abundant supply.

walkhour• 3 years ago

Someone said a few posts ago housing can't be affordable and a good investment.

This is just madness, house prices are guaranteed to go up and affordability is likely to increase zero.

joecot• 3 years ago

Pumping government money into private markets always works this way.

A good example of this is the TV digital converter boxes, when we switched the airwaves from analog to digital. Those boxes were only 10 or 15 bucks or so. But then the government gave everyone vouchers for 40 bucks for a converter box. So, guess what? All the converter boxes were 40 bucks, or more. Because they could be. It was free money. The money would've been far better used by the government just giving the converter boxes directly.

veec_cas_tant• 3 years ago

Found this part really interesting:

Evans said the new loan program has a shared equity program. “When you sell the property or refinance the loan, they take up to 20% of the appreciation. The homeowner gets to keep 80%," he said.

jspaetzel2• 3 years ago

A handout to sellers in a buyers market

ApolloFortyNine• 3 years ago

This seems suspect no? I agree the amount you need to out down is too much right now (floating 100k plus for a down payment), but making it essentially require 0 down sounds like you seriously run the risk of 08 part two, where it will be very easy to lend to people who actually can't afford it, or aren't financially responsible enough to handle it.

Lending half of a down payment or some other percentage would sound much safer.

jmerz• 3 years ago

Shot, meet chaser: https://www.kpbs.org/news/local/2023/04/10/california-first-...

I appreciate this as an anti-inequality measure, but it feels like in California low/med income buyers are being outpriced by a lot more than 20% of a down payment.

"We can fit 18 million groups into 14 million units of housing, as long as we pay 20% of the cost" feels like a really last ditch housing policy.

nrmitchi• 3 years ago

This is throwing fuel on the fire, not only by increasing demand in an already supply-constrained environment, but by the government of california committing $300M to fairly-directly invest in residential real estate.

It's also not entirely clear what happens to the state's "20% cut of appreciation" if the home value drops. I suspect the state isn't going to take a haircut off their initial loan amount.

teaearlgraycold• 3 years ago

The headline I wanted to see: California to spend $300 million building new housing by retrofitting commercial real estate

int0x2e• 3 years ago

Isn't this a prefect recipe for a super-bubble? When you help people with the down payment this much, wouldn't basically everyone try to apply to enjoy appreciating property values, driving demand and prices ever higher, and even worse - with relatively little commitment to follow through if the economy gets choppy? With the down payment, at least you have some skin in the game, but with this program, for the first 5-10 years you would probably see your mortgage mostly as a rent alternative...

pcurve2• 3 years ago

More patchwork solutions a la healthcare style that adds more complexity for ordinary people.

When people couldn't afford to actually use health insurance due to high deductibles, what did the gov't do? Come up with HSA and HRA programs.

This is yet another giveaway to landlords and ways to prop up housing market that is one a decline.

akeck• 3 years ago

Heh. So, we did a similar two loan structure back in 2004. It got us into the house, but paying both loans at once was stressful for several years until the family income finally caught up enough to provide a comfortable margin of safety.

rich_sasha• 3 years ago

I wonder what would happen if instead the state spent the 300m on building houses and selling them, say, 10% below market price or sth.

Well I guess you can build a fair few houses for that money. In this programme it was funding 20% of the house rather than 100%, but the 100% also includes the markups of the various business doing the building.

Meanwhile, not only do you end up with more houses, diluting the price down, but also neighbouring sellers / developers need to compete with the state cheapo houses, bringing prices further still.

Of course the other thing that happens is that because housing is a localized Ponzi scheme, local residents are aghast (understandably to me) because after years of saving to buy a house, the state devalues their property.

Though maybe if you spread out the housing... Now I'm just thinking aloud.

NotYourLawyer• 3 years ago

Lending money indiscriminately so people can buy houses they can’t afford? 2008 is calling, it wants its terrible idea back.

matt3210• 3 years ago

This is a wealth transfer from the tax payers to the landed gentry

web3-is-a-scam• 3 years ago

Ah yes, because clearly the way to fix a housing crisis from outsized demand and insufficient supply is to give even more people access to cheap debt. This is so unbelievably stupid, I can't help but wonder if this is actually on purpose to make the problem worse.

This type of thing makes me think of a corollary to Hanlon's Razor: given enough time to try to solve a problem, sufficiently stupid people are indistinguishable from evil.

coliveira• 3 years ago

This madness in the US is feeding property speculation. The responsible thing to do is to use this money to build more housing, so prices will fall or at least remain at the same level.

pcurve2• 3 years ago

So if home appreciates from 500k to 600k and I sell the house, the gov't gets to keep $20k (+ the $100k they loaned)

What happens if it goes down from 500 to 400k?

paxys• 3 years ago

“When you sell the property or refinance the loan, they take up to 20% of the appreciation. The homeowner gets to keep 80%," he said.

So instead of fixing housing speculation, this is just a roundabout way for the state to get in on it.

muzz• 3 years ago

This is eventually a subsidy to the sellers (while the program is in effect)

sakopov• 3 years ago

State lawmakers had set aside $500 million for the program as part of the 2022-23 budget. But a looming fiscal shortfall led Gov. Gavin Newsom to propose a 40% cut, so when CalHFA launched the program late last month, it was allocated only $300 million and expected to assist about 2,300 home buyers.

What a circus.

PaulDavisThe1st• 3 years ago

I hope that CA does not follow the UK down the path of absolutely fucking insane policies to try to hide the utterly insane state of their housing market(s).

The UK has policies like this (utilized by my niece to buy an apartment in London): buy 60$, rent 40% ... since you're only buying 60%, the downpayment requirements drop, so more people qualify. But wait, won't they have to pay rent as well as the mortgage? Why yes, they will indeed. But doesn't that mean that their monthly payments are still essentially unsound, as they would have been if they had bought 100% ? It certainly does, which is why this plan requires government backing to exist in the first place.

dogma1138• 3 years ago

Help to buy ruined the housing market in the UK and especially London. This is so fucking stupid…

friend_and_foe• 3 years ago

Unless you increase supply it's not going to do anything.

California to lend 20% down payments with 0% interest for homebuyers

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